Finra Fines SunTrust for Unsuitable ETF Sales Practices
SunTrust Investment Services agreed to pay $634,000 to settle charges that it failed to properly supervise brokers who recommended that customers hold for long periods “nontraditional” exchange traded funds that can quickly lose value in volatile markets, the Financial Industry Regulatory Authority said this week.
The bank-owned broker-dealer, whose Atlanta-based parent merged last year with BB&T Corp. to become Truist Bank, failed to identify unsuitable recommendations by 17 brokers that caused 95 accounts to lose almost $585,000, Finra said.
Nontraditional ETFs are “typically not suitable for retail investors who plan to hold them for more than one trading session” because of the effects of compounding of daily returns during the holding period, Finra has warned its member firms in regulatory notices. Thirty of the affected customers held their positions for an average of 1,136 days and 57 others accumulated losses on positions held for 90 days, the consent letter said.
SunTrust, which has more than 1,400 registered reps, has reimbursed the losses and also agreed to accept a censure and a $50,000 fine, the settlement letter said. It accepted the sanctions without admitting or denying Finra’s findings.
A spokesman for the bank, which accepted the sanctions without admitting or denying the findings, declined to comment.
SunTrust in September 2016 prohibited brokers from soliciting buy or sell transactions in the products, but failed to address more than 300 existing positions, some of which had significant unrealized losses, according to the settlement order.
Finra said it modified its sanction because SunTrust voluntarily paid restitution to its hardest-hit customers voluntarily before the regulator opened an investigation and because of the 2016 decision to stop selling nontraditional ETFs.
Finra and the Securities and Exchange Commission have issued numerous regulatory notices about firms’ heightened obligations in monitoring the suitability of leveraged and inverse exchange-traded funds for retail customers, and has imposed heavy sanctions for failing to properly supervise the sales.
Wells Fargo Advisors in February agreed to a $35 million settlement with the SEC over non-traditional ETF sales between 2012 and 2019 in more than 60,000 accounts. Morgan Stanley was fined $8 million by the regulator in 2017 for similar product sales violations, and Oppenheimer & Co. agreed to Finra sanctions of $2.9 million for allowing sales of high-risk ETFs to investors with conservative risk profiles.