Broker Violated Reg BI With Mutual Fund Switches: FINRA

FINRA Suspends Rep for Violating Reg BI With L Bond Sales

Mutual fund switching occurs when a customer sells mutual fund shares and reinvests the proceeds in another mutual fund, often incurring additional charges and commissions.

Between July 2018 and June 29, 2020, Reilly recommended and effected 22 unsuitable short-term switches in Class A mutual fund shares in the seniors’ accounts, with an average holding period of 229 days, the order states.

All 22 short-term switches were part of a pattern of mutual fund switching between different mutual fund families, according to the order.

Reilly “failed to consider the customers’ investment objectives and time horizons when recommending the transactions, and further failed to consider that the customers could have reduced their transaction costs by switching within the same fund family,” the order states.

Between June 30, 2020, and September 2021, Reilly recommended and effected three short-term switches in Class A mutual fund shares that were not in the best interest of one of these customers. The average holding period of these transactions was 273 days.

The three short-term switches were also part of a pattern of mutual fund switching between different mutual fund families.

“In recommending these three switches, Reilly failed to exercise reasonable diligence, care, and skill to consider the customer’s investment objectives and time horizon, the costs associated with the recommendations, and reasonably available alternatives, including mutual funds in the same fund family as the customers’ existing holdings, or different mutual fund share classes, that may have achieved the customers’ objectives at a lower cost,” FINRA said in the order.

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