U.S. securities regulators have fined two firms, Wells Fargo and Banc of America, and ordered them to pay more than US$3 million in restitution for unsuitable mutual fund sales.

The Financial Industry Regulatory Authority (FINRA) announced that it has ordered Wells Fargo Advisors LLC to pay a fine of US$1.25 million and to reimburse approximately US$2 million in losses to 239 customers.

FINRA also ordered Merrill Lynch, Pierce, Fenner & Smith Inc., as successor for Banc of America Investment Services, Inc., to pay a fine of US$900,000 and to reimburse approximately US$1.1 million in losses to 214 customers.

In both cases, FINRA found that brokers with the firms made unsuitable recommendations for clients to purchase floating-rate bank loan funds, which are mutual funds that generally invest in a portfolio of secured senior loans made to entities whose credit quality is rated below investment-grade. The funds are subject to significant credit risks and can also be illiquid, it notes.

The firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings of their suitability failures.

FINRA reports that the customers were seeking to preserve principal, or had conservative risk tolerances, but that the brokers made recommendations to purchase floating-rate loan funds without having reasonable grounds to believe that the purchases were suitable.

FINRA also found that the firms failed to train their sales forces regarding the unique risks and characteristics of the funds, and failed to reasonably supervise the sales of floating-rate bank loan funds.

“As investors continue to look for yield in a low-interest-rate environment, these actions should serve as a reminder that brokers and their firms need to ensure that investment recommendations are consistent with customers’ investment objectives and risk tolerances,” said Brad Bennett, FINRA’s vice president and chief of enforcement.

“Wells Fargo and Banc of America allowed their brokers to sell floating-rate bank loan funds to investors for whom the positions were unsuitable, resulting in significant losses to many customers.”