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by Howard Haykin

A UIT is a SEC-registered investment company that … offers investors shares or "units" in a fixed portfolio of securities via a one-time public offering. A UIT terminates on a specified maturity date, often after 15 or 24 months, at which point the underlying securities are sold and the resulting proceeds are paid to the investors. A UIT's portfolio is not actively managed between the trust's inception and its maturity date. A customer who purchased, say, a 24-month UIT and held it until maturity might pay a sales charge of about 3.95%. However, a customer who sold that UIT before maturity and used the sale proceeds to purchase a new UIT, would incur about 3% in additional sales charges.

WHAT WENT WRONG.    Over a 4-1/2 year period, the Oppenheimer broker recommended that his customers roll over UITs more than 100 days prior to maturity on approximately 1,000 occasions. Indeed, although his customers' UITs typically had a 24-month maturity period, the broker recommended that they sell their UITs after holding them for, on average, only 393 days (around 13 months), and use the proceeds to purchase a new UIT. FINRA deemed these recommendations unsuitable, in part because Oppenheimer's customers incurred unnecessary sales charges - which the firm reimbursed to the customers. The broker, meanwhile, lost his job and was hit with a 3-month suspension and a $5,000 fine.

INVESTOR TAKE AWAY.    This case further illustrates why investors should adopt a “buy and hold” investment strategy and, where practicable, hold securities until maturity date.

[For further details, click on … FINRA Case #2018060228201.]