Print

Email story

Comment

Email editor

Firm is fined for short shrift

Merrill Lynch must pay $5-million for pushing small investors off to call centers with inexperienced brokers.

By HELEN HUNTLEY
Published March 16, 2006

If your brokerage firm shuttles your account off to a faraway call center for service, watch out.

That's the message the National Association of Securities Dealers delivered Wednesday when it issued an "investor alert" and fined Merrill Lynch $5-million for problems in its Jacksonville and Hopewell, N.J., "financial advisory centers."

The centers work with more than 1-million investors whose accounts are worth less than $100,000, an amount deemed too small to merit the personal attention of a branch-office broker.

The NASD said Merrill began transferring the accounts of small investors to call centers about five years ago, informing them of the change with a letter promising round-the-clock advice from a team of professionals.

What they failed to mention, the NASD said, is that the call centers were stocked with relatively inexperienced brokers who were allowed only to recommend mutual funds unless an investor asked for other investments. They were supervised by sales managers who weren't properly registered or qualified for the job.

The NASD said the call centers didn't have enough information about the customers and often made unsuitable recommendations, switching investors into new mutual funds with additional charges and expenses.

In some cases the incentive for switching came from illegal contests favoring sale of Merrill Lynch's proprietary funds. The NASD said Merrill Lynch had three of the contests in 2002, awarding prizes such as dinners and concert tickets. As part of the NASD's sanctions, Merrill Lynch is not allowed to hold any mutual fund sales contests at its call centers for the next three years.

Investors pay the same sales commissions at the centers that they would have been charged at a full-service branch office.

"Regardless of the size of their brokerage account, all investors are entitled to services from registered representatives acting in their clients' best interests who are reasonably supervised by properly registered professionals," said NASD senior vice president James Shorris.

Merrill Lynch described the problems as "growing pains" related to a significant expansion of the offices.

"We are confident we've worked them out, and made significant changes to our operations and management," the New York company said in a statement. It said 90 percent of the centers' customers are "highly satisfied." The company consented to the NASD's findings without admitting or denying them.

The NASD is requiring Merrill Lynch to randomly monitor customer calls and to hire a consultant to recommend changes in the centers' operations.

(Another of Merrill Lynch's Jacksonville operations, a pension consulting unit, is being investigated by the Securities and Exchange Commission, which is looking into conflicts of interest such as payments from money managers to brokers who recommend the managers to their pension fund clients.)

In the investor alert, the NASD said investors whose accounts are transferred to call centers should be wary of the investments recommended, particularly those that involve switching from one mutual fund to another. The association said investors should write down the full names of call center representatives with whom they speak regarding investments.

More information is available at www.nasd.com under "investor alerts."

Helen Huntley can be reached at hhuntley@sptimes.com or 727 893-8230.

[Last modified March 16, 2006, 02:00:27]