The US Financial Industry Regulatory Authority has fined Morgan Stanley Smith Barney US$3¼ million (€2¾ million) and required the firm to pay approximately $9¾ million (€8⅓ million) in restitution to more than 3,000 affected customers for failing to supervise its representatives’ short-term trades of unit investment trusts.

A UIT is an investment company that offers units in a portfolio of securities that terminates on a specific maturity date, often after 15 or 24 months. UITs impose a variety of charges, including a deferred sales charge and a creation and development fee, that can total approximately 3.95% for a typical 24-month UIT. A registered representative who repeatedly recommends that a customer ought to sell his UIT position before the maturity date and then 'rolls over' those funds into a new UIT causes the customer to incur higher sale charges over time. FINRA believes that this often constitutions unsuitable advice.

Between January 2012 and June 2015, hundreds of Morgan Stanley reps executed short-term UIT rollovers in thousands of customer accounts. According to FINRA, Morgan Stanley failed to supervise representatives’ sales of UITs adequately. It did not give them enough 'guidance' about how to review UIT transactions to detect unsuitable short-term trading; it failed to set up a good enough system to detect short-term UIT rollovers; it failed to provide for a supervisory review of rollovers before they were executed on its order entry system; and it did not train registered representatives on the subject of UITs.

Due to the long-term nature of UITs, their structure, and upfront costs, the short-term trading of UITs is often open to abuse and might be 'unsuitable' for clients. Once the regulator complained, Morgan Stanley embarked on a firm-wide investigation, interviewing more than 65 of its people and hiring an external consultant to conduct a statistical analysis of UIT rollovers at the firm. It identified customers who had been affected and drew up a plan to provide 'remediation' (regulator-speak for recompense) to those customers. It did not, however, admit any wrongdoing.

As a result of this case, FINRA went on a UIT rollover detection campaign in September 2016. The subject is now one of its top priorities.