Finra orders Wells Fargo, BofA to pay fines, restitution for faulty floating-rate loan sales

By Toni Weeks

San Luis Obispo, Calif., June 4 - The Financial Industry Regulatory Authority announced it has imposed fines totaling $2.15 million on Wells Fargo Advisors, LLC and BofA Merrill Lynch for conducting unsuitable sales of floating-rate bank loan funds.

Wells Fargo Advisors, as successor for Wells Fargo Investments, LLC, was fined $1.25 million and ordered to reimburse about $2 million in losses to 239 customers. BofA Merrill Lynch, as successor for Banc of America Investment Services, Inc., was fined $900,000 and directed to reimburse about $1.1 million in losses to 214 customers.

According to a press release, Finra found that brokers of both firms recommended concentrated purchases of floating-rate bank-loan funds to customers whose risk tolerance, investment objectives and financial conditions were "inconsistent with the risks and features of floating-rate loan funds."

The customers were seeking to preserve principal or had conservative risk tolerances, and Finra found that the firms did not have reasonable grounds to believe that the purchases were suitable for the customers. Finra also said that the firms not only failed to train their sales forces regarding the unique risks and characteristics of the funds but also failed to reasonably supervise the sales of the loan funds.

Because floating-rate bank loan funds are mutual funds that invest in senior secured senior loans made to entities with credit quality rated below investment grade, the funds are subject to significant credit risks and can be illiquid.

"As investors continue to look for yield in a low-interest-rate environment, these actions shold serve as a reminder that brokers and their firms need to ensure that investment recommendations are consistent with customers' investment objectives and risk tolerances," Finra's vice president and chief of enforcement Brad Bennett said in the release.

Wells Fargo and BofA neither admitted nor denied the charges but consented to the entry of Finra's findings, the release noted.

Washington, D.C.-based Finra is the largest independent regulator for all securities firms doing business in the United States. Wells Fargo and Bank of America are financial services firms based in San Francisco and Charlotte, N.C., respectively.

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