Over the past two decades several different structured products within the wealth management industry have tempted advisors to prove themselves gluttonous. High margin fees are the drug that can be difficult for certain advisors to resist. Now, Finra continues to claw back, at times, nearly a decade to right what they perceive as wrongs.
“Ron Ray Willoughby, a 25-year industry veteran, agreed to a $5,000 fine and three-month suspension to settle the regulator’s allegation that he recommended 900 short-term UIT rollovers between July 2012 and December 2014, according to a letter of settlement published by Finra.”
“A hypothetical investor who purchases a 24-month UIT and holds it to maturity would pay a sales charge of about 3.95%. Rolling over to a new UIT after six months would cost an additional 2.95%.”
“If the customer repeatedly rolled over the existing UIT into a new UIT every six months, he or she would have paid total sales charges of approximately 12.8% over a two-year period,” the letter of acceptance, waiver and consent said.”
Take a second and realize what Van Kampen and other UIT distributors, built into the fee structure noted above. Advisors were actually rewarded for bouncing around inside the ‘fund family’ before maturity.
Nearly everyone reading this knows that bouncing around inside any mutual fund family doesn’t incur fees. For some reason UIT firms built-in monetary incentives for advisors to churn client accounts.
Years ago this type of behavior may have been frowned upon but wasn’t formally punished via regulators. Especially at ‘downmarket’ firms that will go unnamed.
**We do find it interesting that Morgan Stanley acquired Van Kampen and it’s UIT unit for its high levels of profitability, accompanied by this questionable behavior, yet they escape the wrath of Finra. Hmmm.
The upshot of the story is this, Ron Ray Willoughby remains an advisor and registered with a $22b RIA based in Austin, TX, NFP Advisor Services. Or as some would conclude ‘broker witness protection’.
