Merrill Lynch Fined by the FINRA - Analyst Blog

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Merrill Lynch, Pierce, Fenner & Smith, Inc., a subsidiary of Bank of America Corporation ( BAC ) was recently fined by the Financial Industry Regulatory Authority (:FINRA) for overcharging clients holding certain charities and retirement accounts in the bank. Apart from paying an $8 million fine, BofA has to return investors the amount unduly charged by it.

BofA has already reimbursed $64.8 million to the affected customers. So, the restitution amount presently stands at $24.4 million for the company.

The latest fine pertains to the troubled Merrill Lynch unit bought by BofA during the financial crisis. Allegedly, the acquired unit did not offer mutual fund fee waivers for certain customers.

The FINRA further clarified that most mutual funds waive their sales charge for clients holding retirement or charity accounts. Merrill Lynch also offered similar fee waivers, as mentioned in their prospectus.

However, the company had failed to train its advisors properly regarding the fee waivers and alternative lower cost investment strategies. This misled the investors and they were made to pay additional charges as a result of the fallacy.

This impacted nearly 41,000 small business retirement plan accounts and approximately 6,800 charities and 403(b) retirement accounts. Further, the company, in spite of being aware of the wrong doing by 2006 had informed the FINRA only in 2011.

Though Merrill Lynch neither accepted nor rejected the charges, it has agreed to co-operate with the regulatory authority. Moreover, this is not the first time that BofA is fined for overcharging the customers.

Earlier in Jun 2012, the FINRA penalized Merrill Lynch $2.8 million for supervisory negligence which led to overcharging of nearly 95,000 customers in unnecessary fees and failure to provide certain required trade notices. Other Wall Street biggies penalized by the FINRA for various rule violations include The Goldman Sachs Group, Inc. ( GS ), Barclays PLC ( BCS ), Morgan Stanley ( MS ), Wells Fargo & Company and Citigroup Inc.

The regulatory scenario following the financial crisis in the U.S has tightened, with litigation issues heavily weighing against BofA's performance in the preceding few quarters. Nevertheless, the stringent regulations prioritize investors' security, thereby considerably reducing the chances of financial fallout going forward.

BofA currently carries a Zacks Rank #4 (Sell).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: MS , BCS , GS , BAC

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