Wells Fargo and Banc of America/Merrill Lynch Ordered to Pay Customers More Than $3 Million

In June, FINRA announced that it ordered Wells Fargo Advisors, LLC and Banc of America/Merrill Lynch to reimburse customers more than $3 million and fined the two brokerage firms more than $2 million for selling unsuitable securities to hundreds of investors. FINRA found that the brokerage firms sold risky floating-rate bank loan funds to hundreds of investors were seeking to preserve principal or who had conservative investment objectives.

Floating-rate bank loan funds generally invest in loans whose credit quality is rated below investment-grade, reflecting the risky nature of the loans. The funds are subject to significant credit risks and can also be illiquid. FINRA also found that the brokerage firms failed to train their brokers regarding the unique risks and characteristics of the funds, and failed to reasonably supervise the sales of floating-rate bank loan funds.

Investors seeking greater rates of return in this low-interest environment need to be cautious about investments that promise greater rates of return. The risk-reward paradigm applies to investments. That is, investments that provide greater the potential financial reward generally involve greater risk of loss. Investors should be wary of any representations that a high-return investment has only low risk.

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