Welcome to Financial Advisor IQ

Morgan Stanley Ordered to Pay $13M Over UIT Sales

By Alex Padalka September 26, 2017

Finra has fined Morgan Stanley $3.25 million for alleged supervisory failures related to the the sales of unit investment trusts, according to a press release from the industry’s self-regulator. The wirehouse was also ordered to pay back around $9.78 million in restitution to its clients, according to the press release.

From January 2012 through June 2105, hundreds of Morgan Stanley’s reps allegedly advised thousands of clients to sell their positions in unit investment trusts up to 100 days prior to their maturity and then roll over the funds into new unit investment trusts, Finra says. More than 3,000 clients were affected as a result, according to the press release.

The product, which offers stakes in a portfolio of securities that has a specific maturity date, comes with various costs, including a deferred sales fee and creation and development charges, which add up to around 3.95% for a typical 24-month unit investment trust, the regulator says. The practice of reps repeatedly recommending unit investment trust sales prior to their maturation raises questions about their suitability, Finra insists.

The regulator alleges Morgan Stanley failed to supervise trades in the product and train reps on its sales. Finra also says Morgan Stanley didn’t give sufficient guidance to supervisors about detecting potentially unsuitable short-term trading. The wirehouse also allegedly failed to properly implement a detection system for rollovers in unit investment trusts and had no supervisory review of the rollover orders prior to their execution, according to Finra. Morgan Stanley neither admitted or denied fault in its settlement with the regulator.


Finra says the wirehouse cooperated with its investigation, which included interviews with its employees and the hiring of outside counsel for a statistical review of rollovers in unit investment trusts. The wirehouse also identified the affected clients and created a plan to reimburse them, according to Finra.

The Morgan Stanley case was apparently the impetus for Finra to conduct targeted exams, launched last September, of rollovers of unit investment trusts, the regulator says. In addition, Finra has put short-term trading in long-term products on its 2017 exam priorities list, according to the press release.