The NASD announced Wednesday it has fined Merrill Lynch, Pierce, Fenner & Smith $5 million for supervisory failures, impermissible sales contests, unsuitable mutual fund switches and other violations between 2001 and 2004 at two of its call centers, in Hopewell, N.J., and Jacksonville, Fla. The firm has also been prohibited from staging any other sales contests for three years and is required to hire a consultant to oversee its compliance programs.
In conjunction, the NASD has issued an investor alert to make people aware of sales-oriented, rather than customer service-oriented, call centers.
"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 and Acting Head of Enforcement James Shorris.
Many of Merrill's customer service agents misrepresented information about mutual funds, or simply omitted facts, the NASD said, and a number of their supervisors were not properly licensed or registered. Then, in 2002, through three sales contests, Merrill also encouraged these agents to sell its proprietary mutual funds by offering prizes of rock concert tickets, sporting events and dinners. Further, many of these representatives were not authorized to recommend any investment choice to customers other than mutual funds.
Beginning in 2001, according to the NASD, Merrill began routing account sizes of $100,000 or less to these two call centers, so that representatives in other branch offices could concentrate on customers with greater assets. At their peak, the two offices served 1.3 million accounts with assets of nearly $20 billion.
In settling with the NASD, Merrill neither admitted nor denied the charges.