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Massachusetts Fines $2.5M for Supervision Violations to Merrill Lynch

William Galvin, Secretary of the Commonwealth of Massachusetts has fined Merrill Lynch $2.5 million for supervisory violations in association with a training presentation in 2013.

The fine order states that the presentation specifically “did not include language regarding client suitability or the fiduciary requirements of Merrill Lynch financial advisers.”

Secretary Galvin, , said “During the presentation, Merrill financial advisers were being trained in how to double their production by, among other things, transferring existing customer assets from commission-based brokerage accounts to fiduciary fee-based alternatives.”

William Halldin, Merrill Lynch spokesman said, “We are reiterating to our employees the need to have internal presentations properly approved before their use, Importantly, as the state notes, this was not a matter involving any conduct that disadvantaged our clients.”

Miguel Mattei Zapata Hit with $500K Clawback, $6M in Client Complaints

A former UBS and Wells Fargo advisor, Zapata has been ordered by FINRA to reimburse $500,000 to his ex-employer Wells Fargo for failure to pay back a promissory note, and will be answering to seven client complaints that allege more than $6 million in damages for misconduct at his most recent employer, UBS. According to Zapata’s FINRA BrokerCheck record, the complaints, he is now facing during his time at UBS, include allegations of overconcentration and misrepresentation of closed-end funds. He was terminated from UBS in November 2014. These complaints mirror the wider problems that UBS and its advisors are facing for their sales of municipal bonds and closed-end funds in Puerto Rico since 2013. Over the past year the number of complaints in Puerto Rico have soared, leading FINRA to boost the size of the arbitrator pool. There are currently about 700 eligible arbitrators on FINRA’s roster, a figure the regulator is trying to increase further.

FINRA Unveiled a Redesigned Website

FINRA just unveiled a redesigned website today for arbitration and mediation. It is much more user friendly, checkout the new webpage here: http://www.finra.org/arbitration-and-mediation

 

Concern for Investing in “Target Funds”

It’s essential for investors to make a knowledgeable decision about investing their 401(k) money in a target-date fund or in other options. Retirement-plan investors frequently aren’t sure how to distribute the money they’re putting away. So the growth of target-date funds, which automatically shift investors’ money from stocks to fixed income gradually over the years, has been widely seen as a success for the country’s retirement readiness. Experts worry that some investors who don’t fully understand these funds might take on more risk than they want. Target-date approach surprised many investors with a decline in their funds during the 2008 financial crisis.

“That experience should have served as a wake-up call for investors and the relentless growth in target-date funds is troubling because studies have shown that investors and industry professionals alike do not fully appreciate the risk these funds present,” Luis A. Aguilar, SEC member. Investors should be aware that target-date funds can have confusing names and large fees.

To evaluate a target-date fund, check the prospectus to determine the glide path, the changes in allocations over time, to make sure the fund is taking an amount of risk over the years that the investor is comfortable with. Typically, 401(k) plans offer a series of target-date funds from the same fund company, so investors who can’t find one with low fees and their preferred risk profile might prefer to do things the traditional way, to invest in the stock and bond funds their plan offers and commit to doing the rebalancing in the years ahead themselves.

Merrill Lynch abruptly parts ways with top financial adviser

http://www.ibj.com/articles/52207-merrill-lynch-abruptly-parts-ways-with-top-financial-adviser?utm_source=eight-at-8&utm_medium=newsletter&utm_campaign=2015-03-11

Merrill Lynch Advisor Tom Buck Terminated

Our firm will be looking into investor complaints against Tom Buck and the Buck Group as a result of his termination from Merrill Lynch.

Schwab Causing Controversy with New Investment Service for the Frugal

Charles Schwab is set to introduce Schwab Intelligent Portfolios a FREE investment service for consumers wanting low-cost personalized advice but with minimal money to invest. Schwab will potentially trounce the competition given its established brand name and size.

Schwab is following the lead of a few smaller firms in regards to automated investing. Wealthfront, which has collected $2 billion in customer assets over its three-year existence, largely from people under 35, and Betterment, which has collected $1.55 billion since it opened in 2010. These smaller companies provide service to people with thousands, not millions, to invest and little to spend on investment advice. A unique service that is in high demand.

Naureen Hassan, an executive vice president of Schwab, says that “Schwab wanted to create a product that would appeal to the masses and get more people into well-diversified portfolios,” she said. Although the program does not officially become available to customers until later this month, its federal regulatory filing and website contain many of its details.

The major source of criticism in the service lies within the allocation of cash recommendations and with how the portfolios are constructed. The cash allotment will often be larger than many financial advisers recommend. For more information about Schwab’s new service click here https://intelligent.schwab.com/

BILL COULD END MANDATORY ARBITRATION IN BROKERAGE CONTRACTS

Legislation introduced to the House last week could stop brokers and advisers from requiring investors to take claims to arbitration rather than court. Nearly all brokerage and a large amount of advisory agreements include provisions limiting investors into arbitration.

Written by Rep. Keith Ellison, D-Minn., the bill bans pre-dispute mandatory arbitration clauses in contracts between advisers and clients. The legislation also prohibits any restrictions on investors filing class action suits.

“Working Americans shouldn’t have to sign away their rights in order to work with a financial adviser or broker-dealer to build a secure retirement,” Mr. Ellison, a member of the House Financial Services Committee, said in a statement. “An investor’s right to recover monetary damages through legal action is critical. Working Americans will be more eager to invest their hard-earned dollars when we give them more rights in the financial marketplace.”

In 2013, Mr. Ellison submitted a similar bill. It failed to get a hearing in the House Financial Services Committee, which is controlled by Republicans. It died at the end of the congressional session last December and had to be reintroduced to the new Congress.

Republicans’ strengthened House majority and their Senate majority pose an even bigger challenge for Mr. Ellison’s legislation this time, but state regulators are not discouraged.

“State securities regulators believe that investor confidence in fair and equitable recourse is critical to the health of our securities markets and long-term investments by retail investors,” the North American Securities Administrators Association said in the legislative agenda it released Feb. 23.

UBS V10 Currency Structured Notes Under Investigation by U.S. Justice Department

The U.S. Justice Department is looking into the UBS V10 Enhanced FX Carry Strategy, a product sold to investors such as hedge funds and pension funds. Focusing on whether banks misrepresented how currency transactions were priced, authorities’ broaden their examination into manipulation in the foreign-exchange market.

The V10 product “allows an investor to potentially profit in moves in 10 of the most liquid major currencies by taking advantage of opportunities based on interest rate differentials,” according to a 2009 UBS publication.

Through interviews with UBS employees in 2013, the V10 product first arose in the Justice Department with investigators probing commissions on the product and whether the bank respected its fiduciary duties to clients. In recent weeks, the questions were raised once again as the agency pursued to secure proffer agreements.

For more information visit: http://www.bloomberg.com/news/articles/2015-02-08/ubs-currency-product-sales-targeted-by-u-s-justice-department

SEC Charges Oppenheimer and Orders Payment of $20 Million for Securities Law Violations

Oppenheimer & Co. has been charged by the SEC for violating federal securities laws while wrongly selling penny stocks in unregistered offerings on behalf of clients. Oppenheimer admitted their wrongdoing and will pay $10 million to settle the SEC’s charges, as well as another $10 million to settle a parallel action by the Treasury Department’s Financial Crimes Enforcement Network.

The SEC found Oppenheimer engaged in two courses of misconduct.  The first involved aiding and abetting illegal activity by a customer and ignoring red flags that business was being conducted without and valid exemption from the broker-dealer registration requirements of the federal securities laws. Oppenheimer failed to recognize the resulting liabilities and expenses in violation of the books-and-records requirements, and improperly recorded transactions for customers in Oppenheimer’s records. Oppenheimer also failed to file Suspicious Activity Reports as mandatory under the Bank Secrecy Act to report potential misconduct and its clients, and the firm failed to properly report, withhold, and remit more than $3 million in backup withholding taxes from sales profits. .

The second course of misconduct involved Oppenheimer again engaging on behalf of another client in unregistered sales of billions of shares of penny stocks. The firm’s liability stems from its failure to react to red flags and conduct a searching inquiry into whether the sales were exempt from registration requirements of the federal securities laws, and its failure reasonably to supervise with a view toward detecting and preventing violations of the registration provisions. The SEC’s investigation, which is continuing, discovered that the sales generated approximately $12 million in profits of which Oppenheimer was paid $588,400 in commissions.

The SEC’s order is requiring Oppenheimer to stop and abstain from committing or causing any violations and any future violations of Section 15(a) and 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3 and 17a-8, and of Section 5 of the Securities Act of 1933.  In addition to the financial remedies, Oppenheimer agreed to be censured and undertake such corrective measures as retaining an independent consultant to review its policies and procedures over a five-year period.


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