According to FINRA, John Wigmore Reilly III was assessed a deferred fine of $5,000, suspended from association with any FINRA member in all capacities for three months, and ordered to pay $31,675.14 plus interest in deferred restitution to customers on July 9, 2024.

Reilly willfully violated the Care Obligation of Regulation Best Interest by recommending and effecting short-term switches of Class A mutual funds, which are generally intended to be held long-term, in two senior customers' accounts, without having a reasonable basis to believe that his recommendations were suitable or in his customers' best interest. As a result of this conduct, the customers paid $40,972.50 in excessive sales fees. The amount of restitution being paid to customers is equal to the total sales fees paid by customers less the amount of restitution paid to customers by Reilly's member firm.

Class A mutual fund shares typically carry front-end sales charges (loads) that are designed to be amortized over a long holding period. When these shares are sold shortly after purchase and replaced with other Class A shares, customers pay additional front-end loads that would not have been necessary had the initial investment been held or had a different share class been used for short-term holdings.

Regulation Best Interest requires broker-dealers to act in the best interest of retail customers when making recommendations, including considering the costs and risks of the recommendation and whether there are any conflicts of interest. Short-term switching of Class A mutual funds generates additional commissions for the representative but harms customers by subjecting them to excessive fees that erode their investment returns.

The three-month suspension, in effect from July 15, 2024, through October 14, 2024, reflects the seriousness of violating Reg BI, particularly when it results in harm to senior customers. Investors should understand their investment time horizon and ensure that the share class and investment strategy recommended by their financial professional aligns with their goals and minimizes unnecessary costs.