Merrill Lynch is paying the price for a compliance failure that allowed over 1,600 customer complaints to slip through the cracks, undetected and unreported for years.
The financial giant has agreed to a $225,000 fine along with a censure from the Financial Industry Regulatory Authority, known as FINRA. The settlement was finalized Wednesday, according to a report from Advisor Hub.
What Went Wrong
The problem traces back to a five-year stretch between 2018 and 2023. During that time, Merrill invited customers to complete surveys after calling its service centers. Those surveys included a free-form comment box where clients could write whatever was on their mind.
The volume was enormous. In 2023 alone, more than 220,000 customers filled out those surveys. Merrill caught and reported around 2,400 complaints that year, but more than 1,600 others never made it to regulators.
The reason? A flawed internal system. Merrill’s complaint review process relied on a set of keywords and search criteria to flag issues. The problem was that those criteria had originally been built for consumer banking products, not broker-dealer customers. As a result, the system was never properly equipped to catch all the complaints it was supposed to.
What Customers Were Complaining About
Most of the missed complaints were routine in nature. But a portion of them were more serious. Some customers reported being unable to access their own funds. Others said they could not retrieve account information or documents. There were also complaints tied to technical failures in Merrill’s online systems, as well as security-related incidents.
These are not trivial concerns. For any customer dealing with blocked account access or a security scare, having that complaint go unacknowledged is a real problem.
FINRA’s Verdict
FINRA concluded that Merrill failed to put in place a supervisory system that actually worked for what it was supposed to do. Regulators determined the firm did not meet its obligations when it came to properly tracking and reporting customer complaints.
Merrill agreed to the settlement without admitting or denying the findings. A company spokesperson declined to comment, per Advisor Hub.
Merrill Did Come Clean
To its credit, Merrill did not wait for regulators to come knocking. The firm self-reported the issue, reviewed survey responses from 2023 and worked to resolve the complaints it had missed. It also went back and reported those overlooked complaints to FINRA.
By January 2024, Merrill had shut down the free-form comment section of its post-call surveys entirely while it sorted through the fallout.
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FINRA acknowledged these steps and factored them into its final decision on the penalty.
A Reminder for the Industry
Merrill Lynch’s brokerage operations cover a wide range of clients, from high-net-worth individuals through its Merrill Lynch Wealth Management and Bank of America Private Bank divisions to everyday investors using its Merrill Edge self-directed platform.
The case serves as a straightforward reminder that compliance systems need to be built for the actual customers they serve, not repurposed from another department and hoped for the best.