The Frankowski Firm is investigating potential claims against Morgan Stanley Smith Barney LLC, based on a $3.25 million fine and $9.78 million in customer restitution ordered by the Financial Industry Regulatory Authority (“FINRA”) against the firm for its supervisory failures related to short-term trades of unit investment trusts (UITs).
A UIT is a company that sells units in a portfolio of securities with a termination of a specific maturity date; often between one and two years. UITs come with a number of fees and expenses, including deferred sales charges and a creation and development fee. Brokers who recommend a strategy of continual rolling over of investments from one UIT to another before their maturity date can incur increased fees and sales charges over time, which can be a lucrative strategy for the broker but wholly unsuitable for an investor.
FINRA found that from January 2012 through June 2015, hundreds of Morgan Stanley brokers executed short term UIT rollovers in thousands of customer accounts. FINRA also found that Morgan Stanley failed to supervise its representatives’ sales of UITs, failed to offer guidance to supervisors on how to review UIT transactions, failed to implement an adequate system to detect short term UIT rollovers and failed to provide for supervisory review of UIT rollovers prior to execution within the firm’s order entry system.
Morgan Stanley neither admitted nor denied the charges leveled by FINRA but consented to the entry of FINRA’s findings and must pay approximately $13 million total as a result of the FINRA investigation. FINRA further announced that due to this case it was launching a targeted exam in September 2016 with a focus on UIT rollovers and would highlight in 2017 its evaluation of firms’ ability to monitor for short-term trading of longer-term products.
If you or someone you know lost money in a Morgan Stanley account as the result of unsuitable or misrepresented investments, please call the Frankowski Firm at 888.741.7503 or fill out this contact form.