From January 2013 through December 2017, SagePoint Financial Inc. failed to create or maintain a supervisory system or enforce WSPs to supervise the suitability recommendations to customers regarding early rollovers of Unit Investment Trusts (UITs), according to findings by the Financial Industry Regulatory Authority (“FINRA”).
Generally, a Unit Investment Trust (UIT) is a non-actively managed and fixed portfolio of securities offered in shares to investors in a one-time public offering that terminates on a maturity date. The securities are then sold, and the proceeds go to the investors. Despite their benefits to investors, UITs impose several sales charges, as well as other characteristics that might be unsuitable to some investors, such as their varying costs, structures, and long-term nature.
The FINRA findings stated that:
- SagePoint’s WSPs did not discuss early rollovers or series-to-series early rollovers provide guidance to its supervisors on how to monitor for potentially unsuitable patterns of early rollovers.
- SagePoint did not use automated reports or other tools to supervise for potentially unsuitable patterns of early UIT rollovers.
- SagePoint’s review of UIT transactions was not focused on suitability concerns related to early UIT rollovers.
According to the findings, SagePoint received over $17.2 million from sales charges from UIT transactions which amounted up to $895 million. This total amount included over $203.7 million from transactions in which UITs were sold more than 100 days before their maturity dates. Approximately $65.8 million of the proceeds were for transactions in which customers sold UITs more than 100 days prior to their maturity dates and used some or all of the proceeds to purchase a subsequent series of the same UIT.
FINRA found that Sagepoint did not identify that its employees recommended unsuitable early rollovers that cost its customers $1,315,373.01 in sales charges that they would not have incurred had they held the UITs until their maturity dates and had been advised properly by SagePoint’s representatives.
This misconduct was found in violation FINRA Rules 3110 and 2010, and also NASD Rule 3010. As a result, SagePoint Financial Inc. was censured, fined $300,000, and ordered to pay $1,315,373.01, plus interest to customers as restitution.