FINRA Sanctions Carter, Terry & Company Over Reg BI Failures in UIT Sales

Early redemptions of Unit Investment Trusts can significantly increase investor costs, particularly when proceeds are rolled into new products that carry additional sales charges. A recent Financial Industry Regulatory Authority (FINRA) enforcement action against Carter, Terry & Company, Inc. (CRD #16365) focuses on whether the firm’s supervisory systems were equipped to identify and address those risks.
According to FINRA, the firm lacked written procedures and supervisory controls reasonably designed to evaluate the costs and best-interest implications of early UIT redemptions. FINRA’s findings resulted in sanctions, restitution and required remedial measures.

Supervisory and Reg BI Failures in UIT Recommendations

FINRA alleges that Carter, Terry & Company failed to establish and enforce supervisory systems and written procedures reasonably designed to comply with Regulation Best Interest in connection with Unit Investment Trust (UIT) recommendations. According to FINRA, the deficiencies were most apparent in the firm’s handling of early UIT redemptions and rollovers, which can cause investors to incur duplicative sales charges and unnecessary costs.

FINRA states that from June 30, 2020, through April 2023, the firm did not maintain UIT-specific written supervisory procedures explaining how representatives should evaluate or document whether early redemptions were in a customer’s best interest. Although the firm added UIT-related language to its procedures in April 2023, FINRA alleges those policies still failed to require supervisors to consider costs or apply meaningful criteria when reviewing early redemptions.

FINRA also alleges that the firm’s surveillance and review systems were not reasonably designed to detect problematic UIT activity. According to the AWC:

• Automated reports identified UIT purchases following UIT sales, but did not flag early redemptions
• Supervisors were not instructed to manually identify early redemptions
• Reviews routinely approved recommendations without meaningful scrutiny

As a result, FINRA alleges that customers incurred $176,590.57 in costs and fees they would not have paid had the UITs been held to maturity. FINRA found that this conduct violated Exchange Act Rule 15l-1 (Regulation Best Interest) and FINRA Rules 3110 and 2010.

To resolve the matter, FINRA imposed a censure, a $75,000 fine and ordered $176,590.57 in restitution to affected customers. FINRA also required Carter Terry to certify that its supervisory systems and written procedures have been remediated, with supporting documentation subject to regulatory review.

What This Means for Investors

Unit Investment Trusts typically involve upfront sales charges, which makes the timing of redemptions especially important. When UITs are sold before maturity and the proceeds are rolled into new products, investors can end up paying multiple layers of fees that directly reduce returns.

FINRA’s allegations in this case highlight how supervisory gaps can affect investor outcomes. Without clear procedures for reviewing early redemptions or considering cost impacts, firms may approve recommendations that increase expenses without providing corresponding benefits to customers.

For investors, this matter emphasizes the importance of understanding not only what investment is being recommended, but also how often products are being replaced and what costs are associated with those transactions. Patterns of early redemptions or repeated rollovers may warrant closer review, particularly when they result in higher fees over time.

Discuss Your Situation With Sonn Law Group

Investors who incurred higher-than-expected costs from early UIT redemptions or repeated rollovers may want to review how those transactions were evaluated and approved. Understanding the fees charged and the alternatives considered can help clarify whether those recommendations aligned with long-term investment objectives.

Sonn Law Group represents investors nationwide in FINRA disputes involving broker misconduct and supervisory failures. We work on a contingency-fee basis, so there is no fee unless we recover compensation on your behalf.

For a confidential review, call 833-912-3000 or complete our online consultation form.