According to FINRA, Merrill Lynch, Pierce, Fenner & Smith Incorporated was censured and ordered to pay $1,468,380 plus interest in restitution to customers on July 1, 2024, for failing to comply with Regulation Best Interest.

The firm failed to establish and maintain a supervisory system and written procedures reasonably designed to ensure that its registered representatives had a reasonable basis to believe their recommendations were in each customer's best interest. Specifically, the firm offered customers a 12-month waiver of otherwise-applicable advisory fees on certain new-issue products, but only if the products were purchased initially in an advisory account.

However, in certain instances, firm representatives recommended that customers purchase such products in a brokerage account and then promptly recommended the transfer of those same products to an advisory account. These unnecessary brokerage recommendations caused customers to incur advisory fees that would have been avoided if the assets were purchased initially in advisory accounts. As a result of the firm's supervisory failures, customers paid almost $1.5 million in avoidable fees.

This case highlights the importance of Regulation Best Interest, which requires broker-dealers to act in the best interest of retail customers when making recommendations. Investors should understand that firms must not only make suitable recommendations but must also consider conflicts of interest and ensure that the recommendations serve the customer's best interest rather than generating unnecessary fees. The firm has since enhanced its supervisory system and written supervisory procedures to address these issues.