The Financial Industry Regulatory Authority has ordered Merrill Lynch to pay more than $32 million over sales fees it charged on certain mutual funds.
Finra announced on Monday that the bank would pay an $8 million fine, as well as $24.4 million in restitution. Those figures come on top of the $64.8 million the firm has already repaid investors who were harmed.
According to the group, Merrill Lynch was supposed to waive upfront sales charges for certain types of mutual fund investments, including those held by certain charities. Instead, Finra found that advisers at Merrill Lynch, one of the country’s largest broker-dealers, had overcharged about 41,000 small businesses and 6,800 charities since at least January 2006.
The case highlights the difficulty in policing financial advisory firms. Finra says that Merrill Lynch discovered the overpayments in 2006, but failed to report the violations for more than five years. The self-reporting contributed to the organization’s decision to investigate.
Merrill Lynch, which was acquired by Bank of America in 2008, neither admitted nor denied any wrongdoing as part of the agreement. In an email, a spokesman for Bank of America, Bill Halldin, said that the bank had determined that some clients had been overcharged after the merger of the two firms.
“The discrepancies were principally in certain types of retirement accounts, not individual brokerage accounts or I.R.A.s,” he said.
Finra does not assert that the bank overcharged its customers deliberately. Instead, the group said that the firm did not properly educate its staff about which discounts were available to customers, and did not have enforcement in place to ensure that the rules were being followed – a common theme among Finra’s enforcement actions.
“Historically, it’s been a significant issue,” Brad Bennett, Finra’s executive vice president and chief of enforcement, said in an interview on Monday. “You have to have a reasonable system of supervision and compliance in place.”
Last month, Finra fined Morgan Stanley $5 million over the improper sale of shares in a number of high-profile public offerings, including Facebook and Twitter. In that case, the problems were also pegged to a lack of oversight after Morgan Stanley completed its purchase of Smith Barney from Citigroup in 2012.
Finra brought nearly 40 enforcement actions against firms that overcharged clients from 2004 to 2009, what Mr. Bennett called the height of such cases.
“I wouldn’t say it’s an emerging issue, I’d say it’s one of the final chapters,” Mr. Bennett said.