More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Financial Industry Regulatory Authority (FINRA) plans to increase a number of broker-dealer fees this year and next in an effort to recoup a “significant loss” in revenue the BD regulator suffered in fiscal year 2011, Richard Ketchum, FINRA’s chairman and CEO, told BDs on April 23.
A week before Ketchum's announcement, FINRA Board of Governors passed a number of rule proposals to increase several user-based fees, branch office and membership application fees, and the Trading Activity Fee.
Said Ketchum (left) in a letter to broker-dealers: “The broader economic downturn continues to affect trading volumes and industry revenues, which in turn has led to a decrease in FINRA’s revenues and resulted in a significant loss for fiscal year 2011.”
In light of this, Ketchum continued, “we have taken a hard look at spending across FINRA to be sure we are operating as effectively and efficiently as possible. This review has resulted in significant spending reductions of $36 million that were implemented as part of our 2012 budget. Cumulative savings from this effort will reach nearly $60 million by the end of 2013.”
Despite this effort, he said, “the cost of meeting our regulatory mandate is still expected to outpace our revenues.” With input from the Small Firm Advisory Board, Board of Governors and a new Board pricing working group, FINRA is proposing adjustments to a number of user-based fees, “all of which have remained static for more than five years—with many of them not being adjusted in the last 10 years,” Ketchum said. The proposed user fee adjustments “offer the fairest approach to modernizing FINRA’s revenue structure.”
Changes are also being proposed to branch office and membership application fees. “These adjustments reflect the expansion of these programs and are necessary to keep pace with the cost of conducting branch exams and application reviews,” he said.
In addition, FINRA is proposing to increase the Trading Activity Fee, “which we will adjust every six months (up or down), based on trading volumes,” Ketchum told BDs.
A FINRA spokesperson told AdvisorOne that the pricing proposals, which must be approved by the Securities and Exchange Commission, will affect BDs of all sizes.
FINRA's 2012 Pricing Proposals Are as Follows:
For regular filings, increase the minimum fee from $100 to $125 per filing and maintain the fee of $10 per page over 10 pages. For expedited filings, increase the minimum fee from $500 to $600 per filing and increase the fee from $25 to $50 per page over 10 pages.
Corporate Financing Fees
Maintain the current fee of $500 plus a percentage of the proposed maximum aggregate offering price, increasing that percentage from 0.01 to 0.015 percent and raising the not-to-exceed cap from $75K to $225K.
New Membership Application Fees
Revise and implement a fee structure that is tiered based on the size of the firm with a premium for self-clearing firms recognizing the added layer of complexity. Such an approach would be consistent with the fee structure of other SROs to more closely reflect the level of effort required by FINRA staff to process. Proposed fees range from $7,500 to $55,000 depending on the size of the firm applying for membership.
Change in Membership Application Fee
Implement a tiered fee structure to recover incurred costs of regulatory staff. Create separate fees for distinct activities such as mergers, change in ownership, transfer of assets and material change in business to align fee with complexity of application review.
Trading Activity Fee
Adjust the Trading Activity Fee (TAF) rate structure from $0.000095 per share for each sale of a covered equity security (with a cap of $4.75 per trade) to $0.000119 (with a cap of $5.95 per trade). The proposed rate adjustment is designed to ensure proper funding of FINRA's regulatory program given the continued decline in share volume and is based on a 2011 rule filing that outlined the future process for establishing the TAF rate.
FINRA's 2013 Pricing Proposals Are as Follows:
Branch Office Assessment Fees
Restructure to establish a regressive tiered rate structure that recovers regulatory costs while continuing to maintain the one-branch-office-per-firm waiver.
Registration and Disclosure Fees
- Annual System Processing – increase from $30 to $45.
- Initial/Transfer/Non-Member Processing – increase from $85 to $100.
- Fingerprint Fee – increase from $13 to $30, and implement a 50 percent discount for electronic filings.
- Mass Transfers – eliminate current exceptions to the application of the mass transfer fee by implementing a charge for all types of mass transfers, including consolidation, merger or acquisition.
- Disclosure Review – increase from $95 to $110.
- Disclosure Review on Broker-Dealers – establish the disclosure review on BDs at the same rate as it is on individuals.
- Late Disclosure – increase from $95 to $100 for the first day late, and increase from $10 to $25 per subsequent day up to 60 days.