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FINRA Press Release: Unit Investment Trusts

Merrill Lynch to Pay More Than $2.5 Million Related to UIT Sales Charge Discount Failures

The Financial Industry Regulatory Authority (FINRA) issued a press release today announcing that

it has fined Merrill Lynch $500,000 for failing to provide sales charge discounts to customers on eligible purchases of Unit Investment Trusts (UITs). FINRA also found that Merrill Lynch failed to have an adequate supervisory system in place to ensure customers received appropriate UIT discounts. The firm also agreed to provide remediation of more than $2 million to affected customers.

The settlement is detailed in the FINRA AWC No. 2008015701301.

A Unit Investment Trust (UIT) is a type of investment company that holds a fixed amount of securities for a fixed amount of time. They are offered once during the initial offering. Since they are fixed at the outset, their portfolios are not traded actively. There are equity trusts and bond trusts. They have a termination date set at the initial offering. Upon termination, the equity trust is liquidated and distributed to trust holders at a net asset value. The bond trust, on the hand, will make periodic payments upon maturity when the funds are redeemed and redistributed to trust holders. Therefore, like mutual funds, UITs are bought back at NAV; but unlike mutual funds, UITs' portfolios are fixed and hardly rebalanced throughout its term.

We remind investors to carefully understand a UIT before investing in it, and ask questions pertaining to the UIT's portfolio, risks and risk management, investment objective and strategies, as well as any carefully weighing in the fees and expenses. UIT is just like any investment company and requires careful analysis before investing. Documents such as prospectus or statements of additional information are key sources to use for analysis.