Chase Investment Services Corporation agreed to settle FINRA charges that it recommended unsuitable unit investment trusts ("UITs") and floating rate loan funds to customers.  The settlement will cost the broker-dealer $3.6 million in fines and restitution (for investment losses). FINRA's Alleged Findings. Chase brokers allegedly recommended the purchase of UITs and floating rate loan funds to unsophisticated customers with little or no investment experience and conservative risk tolerances.  The brokers lacked reasonable grounds for establishing that these products were suitable for the customers.  And, as is par for the course, Chase was charged with having implemented policies and procedures that failed to adequately supervise the sales of these investment products.

"With the growing number of complex products in the market today, it is incumbent upon firms to properly train and provide guidance to their brokers about the products that they sell and supervise the sales practices of their brokers. Chase allowed its brokers to sell risky UITs and floating-rate loan funds without providing them with the training, guidance and supervision necessary to determine whether these products were suitable for their customers, which resulted in losses for Chase's customers." -- Brad Bennett, FINRA EVP and Chief of Enforcement.

[C-I Note: Funny thing about UITs.  To FINRA, they're risky investments that require serious training, guidance and supervision.  Back in "my days with Thomson McKinnon as an Internal Audit supervisor - blast from the past - UITs were viewed as plain vanilla and about as conservative as you can get.  A possible downside may have been that the UIT was purchased for the long haul and there wasn't much of a secondary market.]

Well, FINRA said the Chase brokers lacked sufficient training and guidance for risk and suitability of UITs and floating-rate loan funds.  Two of the UITs approved for sale held a large percentage of assets in closed-end funds that were significantly invested in high-yield or junk bonds - those holdings made them unsuitable for customers who had little or no investment experience and a conservative risk tolerance. All told, Chase brokers were charged with 260 unsuitable buy recommendations, and customers who purchased the UITs took investment losses of some $1.4 million.  The floating-rate loan funds that Chase brokers sold were similarly subject to significant credit risks and certain of the funds also may have been illiquid.  Such concentrated positions in these funds were not suitable for Chase customers who had conservative risk tolerances and/or sought to preserve principal. Chase brokers nevertheless recommended the purchase of these floating-rate loan funds, and they suffered investment losses of nearly $500,000. WaMu Investments. FINRA's findings included transactions effected by WaMu, which merged with Chase in July 2009.  Its brokers also made unsuitable recommendations to customers to purchase floating-rate loan funds, and WaMu also failed to adequately prepared its brokers with training and guidance, and supervision. For further details, go to:    [FINRA News Release, 11/15/11]  and   [FINRA AWC #2008015078603].