The Financial Industry Regulatory Authority has suspended a broker, fined him $5,000 and ordered him to pay restitution for unsuitable mutual fund switches that resulted in two older clients paying excessive sales fees, which violated Regulation Best Interest.
Between July 2018 and September 2021, John Wigmore Reilly "recommended and effected 25 short-term switches of Class A mutual funds, which are generally intended to be held long-term, in two senior customers' accounts, without having a reasonable basis to believe that his recommendations were suitable, or in his customers' best interest," according to FINRA's order.
The two customers — both over 65, retired and with moderate risk tolerances — paid $40,973 in excessive sales fees.
Reilly was suspended for three months and also ordered to pay $31,675 in restitution plus interest.
With the actions, Reilly violated Reg BI's care obligation from June 30, 2020 — the day the rule became effective — through September 2021. He violated FINRA Rule 2111 on suitability for the period July 2018 through June 29, 2020 as well as FINRA Rule 2010 on standards of business conduct.
Class A mutual fund shares typically include substantial upfront sales charges, known as front-end loads.
"They are generally suitable, or in the customer's best interest, only as long-term investments and not for short-term trading because an investor usually must hold the Class A share for a long period of time to recoup the front-end load," FINRA states.
