According to FINRA, Wells Fargo Advisors Financial Network, LLC and Wells Fargo Clearing Services, LLC were censured, fined $650,000 collectively, and ordered to pay $2,458,762.33 in restitution to customers for failing to supervise early rollovers of Unit Investment Trusts (UITs).

The firms were found in violation of FINRA Rule 2111, the suitability rule, as it pertains to early UIT rollovers. UITs are investment products typically designed to be held until maturity, often 15 or 24 months. The firms had an automated report that flagged mutual fund or UIT sales followed within 25 days by purchases of the same products. However, this report did not account for the length of time a UIT was held before it was sold. As a result, the firms had no automated system to identify when UITs were rolled over significantly in advance of their maturity dates.

The firms' written supervisory procedures recognized that UITs should generally be held to maturity, but their supervisory systems failed to detect that representatives repeatedly recommended potentially unsuitable early series-to-series rollovers. These early rollovers caused customers to pay unnecessary sales charges that they would not have incurred had they held the UITs until maturity. Representatives engaging in this practice generated commissions for themselves while causing financial harm to customers.

Unit Investment Trusts have sales charges based on their long-term nature, including deferred sales charges and creation and development fees. When a representative recommends selling a UIT before maturity and "rolling over" the funds into a new UIT, the customer incurs greater sales charges than if they had held the original UIT to maturity. Investors should be skeptical of recommendations to frequently trade UITs or other products with significant sales charges. This case demonstrates the importance of questioning why a financial advisor is recommending the sale of an investment before its intended holding period expires.