The legal troubles afflicting Merrill Lynch's brokerage unit yesterday is a textbook case of the headaches tied to tracking fees, waivers and share classes.

Finra fined Merrill $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts. The regulator also ordered Merrill Lynch to pay $24.4 million in restitution to affected customers, in addition to $64.8 million the firm has already repaid to "disadvantaged investors." All together, Merrill ended up paying $97.2 million.

To be sure, the fines attracted the attention of numerous news outlets, including MarketWatch; Reuters; Wall Street Journal; NYT's DealBook; Barron's and even the New York Post.

At the heart of the issue, Merrill allegedly did not waive the upfront sales charges offered by various mutual fund sponsors, and also disclosed on their prospectuses, to retirement accounts and charities. FINRA alleges that Merrill instead relied on financial advisors to carry out these waivers, but didn't adequately train them on such details.

This is important for fundsters for a number of reasons.

In order to get on advisor screens, fund firms are transitioning to share classes with lower fee structures. Firms need to be confident that B-D's can keep track of all of these share class changes to adequately implement them.

These FINRA fines show that transitioning these share classes is harder than it seems. When failures occur, what impact will it have on customers? Do fund firms need to be picky with platforms and push them to prove that they can handle such details adequately?

If nothing else, it's yet an other nail lost in the shoe of the horse. Will it cost you customer trust? 

Edited by: Tommy Fernandez


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