FINRA today ordered Barclays Capital to fork over more than $10 million to compensate customers for mutual fund-related suitability violations. It was also censured and fined $3.75 million.
FINRA found that from January 2010 through June 2015 the firm did not do enough to prevent unsuitable mutual fund switching and that it fell down on its obligation to ensure than that any recommendations to switch funds were in the client's best interest. The financial gain or investment objective of mutual fund switches should not be undermined by the transaction fees associated with such switches, the regulator said.
FINRA chided Barclays for failing to act on thousands of automated alerts for potentially unsuitable fund switches, excluding transactions from review for suitability and neglecting to ensure that disclosure letters were sent to customers regarding the transactions costs.
As a result, more than 6,100 unsuitable mutual fund switches occurred during the five-year period, causing customers to be ripped off by roughly $8.6 million, FINRA said.
The firm also failed to provide applicable breakpoint discounts to certain customers. Barclay's supervisory system failed to ensure that purchases were properly aggregated so that customers could benefit from the discounts, according to FINRA.
"The proper supervision of mutual fund switching and breakpoint discounts is essential to the protection of retail mutual fund investors, and this case highlights FINRA's commitment to ensuring that firms meet these obligations," Brad Bennett, FINRA's executive vice president and chief of enforcement, said in a statement.
FINRA also scolded Barclays for failing to provide adequate guidance to supervisors to ensure that mutual fund transactions for its retail brokerage customers were suitable based upon customer investment objectives, risk tolerance and account holdings. During a six-month look back review, 39% of mutual fund transactions were found to be unsuitable with 343 customers experiencing financial harm totaling more than $800,000, according to the regulator.
Barclays neither admitted nor denied the charges, but consented to the entry of FINRA's findings. Marc Havelton, a spokesperson for Barclays Capital, declined to comment.
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