Morgan Stanley Sanctioned for Failure to Supervise Sales of Unit Investment Trusts

Morgan Stanley has been fined by the Financial Regulatory Authority (FINRA) for failing to supervise the sale of short-term trades of unit investment trusts.

Morgan Stanley will have to pay $13 million, including $3.25 million in fines and $9.78 million in restitution to more than 3,000 clients affected by the unsupervised UIT sales conducted by Morgan Stanley brokers.

A unit investment trust or “UIT” is a portfolio of securities offered in units by an investment company. The portfolio is meant to terminate on a specific maturity date and incurs various fees that can total approximately 3.95 percent for a typical 2-year UIT. However, sometimes unscrupulous brokers recommend clients sell their UITs before they mature, incurring increased sales charges and earning the broker a fat commission.

UITs are touted as an alternative to a mutual fund, but closer examination shows that UITs may be a poor choice for most investors. In addition to the extra costs investors incur if they roll UITs over early, UITs are “unmanaged investments,” which means that investors cannot make decisions or change their strategy in response to changes in market conditions.

From January 2012 until June 2015, FINRA alleged that Morgan Stanley brokers made short-term UIT rollovers before their maturity dates, costing their clients millions in unnecessary fees. According to FINRA, Morgan Stanley failed to train its brokers on specific UITs and Morgan Stanley supervisors were not appropriately trained on review of these sales.

In response to the allegations, Morgan Stanley did not admit liability, but agreed to the fines and restitution. The firm has also agreed to an internal investigation as well as an outside consultant to identify clients affected by the improper UIT sales and to develop a plan to provide restitution to those clients.

“Due to the long-term nature of UITs, their structure, and upfront costs, short-term trading of UITs may be improper and raises suitability concerns,” said a FINRA representative in a statement. “Firms must adequately supervise representatives’ sales of UITs –including providing sufficient training –and have in place a system to detect potentially unsuitable short-term UIT rollovers.”

Meyer Wilson attorneys recently represented a couple who lost their retirement savings by investing in unsuitable UITs recommended by their broker. The broker received $200,000 in commissions on the sales that never should have happened, but the couple was able to recover investment losses with the help of the Meyer Wilson legal team.

If you think you have been inappropriately sold UITs by your broker, call Meyer Wilson’s attorneys to evaluate your situation and see if you have a legal claim.

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