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Investments - Unsuitable

Patterns of Unsuitable UIT Trading at Raymond James

April 17, 2020

by Howard Haykin



What’s an investor to think when, within 3 months, the Securities and Exchange Commission (“SEC”) and the Financial Regulatory Authority (FINRA) both come down hard on the sales practices of a large retail broker-dealer - Raymond James Financial Services ("RJFS") – involving Unit Investment Trusts (“UITs”)?
Try … Outrage, Fear, Distrust.



A UIT is an investment company that … offers investors shares or "units" in a fixed portfolio of securities (often bonds, sometimes stocks) for a specific period of time. A UIT terminates on a specified maturity date, often after 24 months. Upon termination at maturity, the investment company sells the securities in the UIT portfolio and pays the resulting proceeds to the investors. UITs are not actively managed after the type and amount of each security is chosen prior to inception.


UITs are typically designed to be bought and held by investors … until they reach termination, though investors can sell their holdings at any time.



RAYMOND JAMES FINANCIAL SERVICES / SEC.    In September 2019, the SEC sanctioned Raymond James Financial Services along with affiliate Raymond James & Associates (together, “Raymond James”) for enabling brokers (firm-wide) to repeatedly sell UIT positions in customer accounts well before their maturity date – often referred to as “Short Holds” – and then repeatedly purchase newly-issued UITs. These unsuitable transactions (from at least January 2013 through May 2018) significantly and unnecessarily increased customer costs (sales charges and processing fees).

[To settle the SEC charges, Raymond James agreed to reimburse compensate customers for charges related to the early sale of UITs.]



RJFS BROKER / FINRA.    In December 2019, FINRA suspended a former Raymond James Financial Services broker who had engaged in a pattern of unsuitable short-term trading in UITs in customer accounts from 2010 through most of 2014. All told, the broker recommended that 287 customer accounts sell their UITs well short of their maturity dates and roll over their investments into new UITs. Most of the UITs in question had maturity dates of at least 24 months and carried net sales charges of up to 3.95%.

[Despite the costs associated with purchasing units in new UITs, the broker repeatedly recommended that most of his customers sell and roll over their positions in UITs after less than one year. And, surprisingly, supervisors at Raymond James Financial Services took little or no action to prevent these unsuitable transactions.]



INVESTOR TAKE-AWAYS.    Investors can’t always rely on regulators to bail them out of bad or unsuitable investments. Nor can they always rely on their financial institutions - no matter how large or how fine a reputation. There’s no substitute for investors to know the securities they're buying and to understand how they fit with their 'investment objectives' and 'risk tolerances'. If these terms, along with the securities discussed in this case study, seem foreign, perhaps its time to seek out a trustworthy Financial Watchdog.



[For further details on Raymond James Finc’l Svcs, click on … SEC Admin. Case #3-19464.]

[For further details on the RJFS broker, click on … FINRA Case #2014042621701.]