A Cetera Financial Group network brokerage firm will pay $1.1M in fines and restitution related to its sale of unit investment trusts. The broker-dealer is Investors Capital Corp.
According to the Financial Industry Regulatory Authority, in 74 clients’ accounts, certain advisers recommended steepener notes, as well as short-term trading of UITs that were not suitable for these investors. Investors Capital is also accused of not applying discounts when applicable to certain UIT purchases.
The regulator claims that two representatives at Investors Capital recommended these unsuitable short-term UIT transactions between 6/2010 and 9/2015.
A UIT will usually include a 2.5-3.5% up front at purchase sales charge. However, contends FINRA, during the period at issue the firm did not put into place a supervisory system that was adequate enough to make sure that representatives were making recommendations of UITs and steepener notes that were suitable for clients.
FINRA has imposed a fine of $250K, and the broker-dealer also will pay $842K in restitution, $224,500 of which it has already purportedly paid.
Unit Investment Trusts
A UIT is a mix between a fixed portfolio containing income-producing securities that are purchased and held until they mature and a fund that is actively managed. UITs usually issue units, which are redeemable securities. These are typically long-term investments. The U.S. Securities and Exchange Commission defines a UIT as an investment company. Closed-end funds and mutual are the other two basic investment company types.
These are complex, structured financial products. They allow investors to bet on the yield curve’s shape.
Cetera Subsidiary Agrees to $1.1M Penalty, Financial Advisor, October 12, 2016