Merrill Lynch Fined For Abusive, Second Class Service

The NASD fined Merrill Lynch $5 million and imposed other sanctions for its behavior towards customers at its call centers, known as "Financial Advisory Centers."

The NASD found that Merrill Lynch's Investment Service Advisors (ISAs) at these call centers "engaged in a pattern of mutual fund switch recommendations that were accompanied by misrepresentations and omissions of facts to customers." Those misrepresentations and omissions included failing to disclose "the name of the fund being recommended and relevant information such as the fund's investment objectives, portfolio makeup, historical income and yield information, expense ratios and sales charges." Likewise, these mutual fund switch recommendations can be unsuitable for customers given that they may incur higher annual expenses, tax consequences, a sales charge upon selling the original fund, and a new set of sales charges upon buying the replacement fund. Indeed, the NASD found that "customers were also told that recommended switches would be at 'no cost' or words to that effect, without advising them that their new mutual fund shares would require them to pay higher annual fees, and could subject them to CDSCs [contingent deferred sales charges] if sold within a certain period." Finally, the NASD determined that, at its FACs, Merrill Lynch failed to have an adequate supervisory system in place, permitted individuals lacking the proper securities licenses and qualifications to supervise the ISAs, and conducted impermissible sales contests encouraging ISAs to sell Merrill Lynch's own, proprietary mutual funds.

Source: NASD News Release, March 15, 2006