More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Financial Industry Regulatory Authority (FINRA) announced Thursday that it had ordered Raymond James & Associates, Inc. (RJA) and Raymond James Financial Services, Inc. (RJFS) to pay restitution of $1.69 million to more than 15,500 investors who were charged unfair and unreasonable commissions on securities transactions. FINRA also fined RJA $225,000 and RJFS $200,000.
FINRA found that from Jan. 1, 2006, to Oct. 31, 2010, RJA and RJFS used automated commission schedules for equity transactions that charged more than 15,500 customers nearly $1.69 million in excessive commissions on over 27,000 transactions involving, in most instances, low-priced securities.
RJA and RJFS neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
According to FINRA, the firms’ supervisory systems were “inadequate because the firms established inflated schedules and rates without proper consideration of the factors necessary to determine the fairness of the commissions, including the type of security and the size of the transaction.”
Steve Hollister, public relations manager for Raymond James, told AdvisorOne in an email message that Raymond James was “pleased to have resolved this matter with FINRA.” The commissions that would be refunded under the agreement with FINRA, he said, "involved primarily low-priced securities that were determined by an automated commission schedule, which we revised on July 1, 2011, upon notification of FINRA’s findings. The affected trades represent less than 0.1% of the total equity trades executed by Raymond James during the period reviewed by FINRA. The average impact per affected account over the five-year time period is approximately $110.”
Brad Bennett, FINRA Executive VP and Chief of Enforcement, said in a statement the same day that, “Raymond James failed to adequately monitor its supervisory systems and as a result, both Raymond James & Associates and Raymond James Financial Services overcharged thousands of customers on their securities transactions.” Broker-dealers, he said, “must ensure that their automated systems set commission charges that are fair to investors.”
FINRA said it required the firms to revise their automated commission schedules to conform to the requirements of the Fair Prices and Commissions Rule. In addition to requiring RJA and RJFS to repay approximately $1.69 million in overcharges, FINRA said each firm is required to calculate and repay additional overcharges from Nov. 1, 2010, through the date that each firm revised its schedule.