Merrill Lynch agrees to pay nearly $1.5 million to settle allegations that its representatives executed transactions resulting in unnecessary fees for over 1,300 customers.
According to a letter detailing the settlement from the brokerage industry self-regulator FINRA, the supervisory lapses occurred from January 2018 through June 2022. This disciplinary action underscores the risks firms face when offering clients access to securities through both brokerage and advisory accounts.
Merrill, a unit of Bank of America, allegedly promised clients a 12-month waiver on fees for certain products if transactions were executed through an advisory account.
However, "in certain instances, firm registered representatives recommended that customers purchase such products in a brokerage account and then promptly recommended transferring those same products to an advisory account," FINRA states in its settlement letter.
"These brokerage recommendations caused customers to incur unnecessary expenses, specifically in the form of advisory fees that could have been avoided if the assets were purchased initially in advisory accounts," the letter continues. "Such recommendations led customers to pay fees they could have avoided while receiving the same benefits."
A spokeswoman for Merrill Lynch declined to comment.
FINRA credited Merrill for its "extraordinary cooperation," noting that the firm had updated its compliance procedures and conducted an internal review to identify clients who were assessed avoidable fees and developed a plan for repaying them.
The alleged misconduct spanned a period marked by significant changes in brokerage regulation. This led Merrill to violate various rules, according to FINRA.
In June 2020, Regulation Best Interest (Reg BI) took effect, replacing the previous rule that required brokers to make suitable recommendations for their clients. Merrill violated FINRA's Rule 2111, the suitability standard, for transactions with avoidable fees before June 30, and failed to comply with Reg BI for transactions executed after that date. The suitability rule remains in place but no longer applies to advice covered under Reg BI.
FINRA also cited Merrill for violating Rule 3110, which outlines firms' supervision requirements, and Rule 2010, which covers professional conduct.
