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FINRA Calls Out Merrill Lynch

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When reviewing retirement plans for our clients or for retirement plan sponsor clients, we often see the presence of mutual funds with front-end loads (Class A shares). However, we have always made the assumption that the load is waived for retirement plan accounts, but after reviewing this press release from the Financial Industry Regulatory Authority (FINRA), we are no longer sure of that assumption.

It seems that Merrill Lynch systematically charged front-end loads to about 41,000 small business retirement plan accounts, and approximately 6,800 charities and 403(b) retirement accounts available to ministers and employees of public schools. All of these entities either paid sales charges when purchasing Class A shares or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Although Merrill learned in 2006 that its small business retirement plan customers were overpaying, it continued to sell them more costly shares and failed to report the issue to FINRA for more than five years. The essential problem appears to have been Merrill’s reliance on its financial advisors to waive the charges, which of course is like relying on the fox to guard the henhouse.

For its failure to supervise, FINRA fined Merrill $8 million on top of $89 million in compensatory payments to affected clients. To us, this simply reinforces the importance of retirement plans and charitable foundations securing the services of a true fiduciary that is obligated to act in the client’s best interests at all times. If you are affiliated with a retirement plan or a foundation that you believe is paying unnecessary or unjustifiable fees, please do not hesitate to contact us at 888-643-3133 to discuss the benefits of having a true fiduciary on your side of the table.