Merrill Lynch Ordered to Pay Nearly $1.5 Million in Restitution by FINRA

Merrill Lynch has agreed to pay $1.5 million in restitution and accepted a censure from FINRA for supervisory failures that resulted in clients incurring unnecessary fees.

July 08, 2024

Merrill Lynch, Pierce, Fenner & Smith Inc., a global investment banking and brokerage subsidiary of Bank of America Corporation, has agreed to a settlement with the Financial Industry Regulatory Authority (FINRA), requiring it to pay $1.5 million in restitution.

FINRA reported that from January 2018 to June 2022, Merrill Lynch failed to maintain a supervisory system and written procedures to ensure its registered representatives' recommendations were suitable for clients' best interests. These supervisory lapses led to customers in over 2,000 accounts paying nearly $1.5 million in unnecessary fees.

The problem stemmed from Merrill Lynch’s offer of a 12-month waiver of advisory fees on certain new-issue products when purchased in an advisory account. However, some representatives advised clients to buy these products in a brokerage account first and then transfer them to an advisory account, resulting in avoidable fees.

FINRA highlighted that Merrill Lynch did not adequately monitor, detect, or prevent such potentially unsuitable recommendations, violating FINRA Rule 3110, which mandates firms to supervise their associated persons' activities to ensure compliance with securities laws and regulations, and Reg BI’s Compliance Obligation, which requires broker-dealers to maintain and enforce written policies and procedures.

Merrill Lynch has agreed to pay $1,486,380 in restitution plus interest and accepted a censure. FINRA acknowledged the firm’s exceptional cooperation in the investigation, noting that Merrill Lynch conducted its own internal review, improved its supervisory system, identified customers eligible for restitution, agreed to pay restitution, and provided substantial assistance to FINRA.

Merrill Lynch, based in New York City, offers retail brokerage and wealth management services. It has been an indirect, wholly-owned subsidiary of Bank of America Corporation since January 2009. The firm employs over 28,000 registered representatives across more than 4,000 branch offices, serving millions of customers.