The Financial Industry Regulatory Authority (FINRA) announced a fine against Merrill Lynch, Pierce, Fenner & Smith, Inc. for $8 million for charging excessive mutual fund sales charges for retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to damaged customers on top of $64 million Merrill Lynch has already compensated damaged investors. According to the FINRA decision, mutual funds offer several classes of shares, each with different sales charges and fees and many mutual funds waive their initial charges for retirement accounts. However, Merrill Lynch failed to pass these savings on to the investors.
Merrill Lynch’s retail platform frequently offered such discounts to retirement plan accounts and disclosed those waivers in their prospectuses. However, Merrill Lynch failed to frequently pass these savings on to the investors including retirement accounts. Accordingly, about 41,000 small business retirement plan accounts, and approximately 6,800 charities and 403(b) retirement accounts available to ministers and employees of public schools, either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Incredibly, in 2006, Merrill Lynch learned its small business retirement plan customers were overpaying, but continued to sell them more costly shares and failed to report the issue to FINRA for more than five years.
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