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FINRA Fines Merrill Lynch

FINRA has fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts. FINRA further ordered $24.4 million in restitution for affected customers on top of the $64.8 million that Merrill Lynch has already repaid to disadvantaged investors.

FINRA Fines Merrill Lynch

FINRA has fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts. FINRA further ordered $24.4 million in restitution for affected customers on top of the $64.8 million that Merrill Lynch has already repaid to disadvantaged investors.

There are many classes of shares relating to mutual funds, and each have different sales charges and fees. Usually, Class A shares offer lower fees than Class B or C shares but charges customers an initial sales charge. A number of mutual funds waive this charge for retirement accounts. Some waive it for charities.

The majority of mutual funds offered by Merrill Lynch had such waivers to retirement plan accounts and disclosed them in their prospectuses. Yet, since January 2006, Merrill Lynch at various times did not waive these charges for affected customers when it offered Class A shares. Subsequently, about 41,000 small business retirement plans and 6,800 charities and 403(b) retirement plan accounts available to ministers and employees of public schools paid sales charges on their Class A shares or bought other share classes that needlessly subjected them to higher ongoing fees and expenses. In 2006, Merrill Lynch learned that its small business retirement plan customers were overpaying but nonetheless kept selling them more expensive shares and did not report the issue to FINRA for over five years.

Merrill Lynch's own supervisory procedures supplied little guidance on mutual fund sales charge waivers, and even after it learned that it was not providing sales charge waivers to eligible accounts, the firm relied on its financial advisors about lower-cost alternatives.

Merrill Lynch consented to the entry of FINRA's findings while nether admitting nor denying the charges.