May 30, 2018

Merrill Lynch settles with Maine over its unnecessary fees for NextGen investors

Who to contact for further info

Maine Securities Administrator Judith Shaw urged anyone who has questions about investing to contact the Office of Securities, which is an agency within Maine's Department of Professional and Financial Regulation. Information about advisers, salespersons and investing is available at, by calling 1-877-624-8551 or writing to the Maine Office of Securities, 121 Statehouse Station, Augusta, Maine 04333-0121.

Maine has reached a settlement with Merrill Lynch, Pierce, Fenner & Smith Inc. following an investigation that determined the investment firm steered some Mainers' NextGen college savings into a higher-fee plan that was better suited for shorter-term investors.

Maine Securities Administrator Judith Shaw announced Friday that under terms of the order Merrill Lynch will pay restitution of nearly $19 million to approximately 50,000 accounts across the United States. The settlement includes approximately $124,000 in restitution to Maine residents.

In lieu of a civil penalty, Merrill Lynch also agreed to pay $500,000 to the Maine Securities Investor Education and Training Fund administered by the Office of Securities.

Merrill Lynch issued a statement saying it had "self-identified" the problem of its agents steering NextGen investors into inappropriate accounts. "We have worked closely with the state to provide refunds to affected clients," the company stated.

What the investigation found

The investigation conducted by the Office of Securities focused on the appropriateness of sales of Class C units within the NextGen Client Select Series for accounts with younger beneficiaries which can result in higher fees over a longer holding period.

According to the consent order, Merrill Lynch failed to appropriately supervise its agents to ensure the beneficiaries' age, investment time horizon and the relative expense of Class A and Class C units were considered when its agents recommended NextGen investments. As a result, some NextGen investors ended up paying higher fees than if their savings had been placed in the appropriate account.

The order does not involve NextGen grants issued by the Harold Alfond College Challenge program, according to the Office of Securities news release.

"NextGen provides an opportunity for parents and grandparents across the country to save for a child's educational expenses," Shaw stated. "For years, Merrill Lynch did not have the supervisory systems in place to ensure that these savings were being placed into the most appropriate and cost effective accounts. Money set aside for educational expenses should be used to pay for education, not unnecessary fees."

The office's investigation was conducted by Senior Investigator Jacqueline Drouin. Shaw also credited the Financial Industry Regulatory Authority, a self-regulatory organization that regulates brokerage firms doing business with the public in the United States, with assisting in the investigation.


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