The Securities and Exchange Commission (SEC) has accused Merrill Lynch, Pierce, Fenner & Smith Incorporated of taking more than $4 million in hidden foreign exchange costs from their advisory customers for transactions in or out of their accounts.
Merrill Lynch has agreed to pay a total of more than $9.5 million to resolve charges that it provided clients with certain investment advisory services from May 2016 to July 2020. This includes disgorgement, interest, and a civil penalty, as well as funds for clients who were harmed.
In its client agreements and promotional materials, Merrill Lynch declared that it applied a markup or markdown fee on foreign currency exchanges, but did not reveal a supplementary charge which was known as a production credit.
This production credit was equal to or more than the disclosed markup or markdown in more than 80 percent of the transactions. Merrill Lynch gave a portion of these production credits to its financial advisors and labeled this fee as a commission in internal documents.
The SEC’s order also found that Merrill Lynch failed to have in place and execute policies that were reasonably designed to make sure that its disclosures regarding the fees charged on foreign currency exchanges were not misleading.
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