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Practice Management > Compensation and Fees

NASD Warns Against Putting All Clients In Fee-Based Programs

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NU Online News Service, Nov. 4, 2003, 5:11 p.m. EST – The National Association of Securities Dealers, New York, has put out a notice warning member securities firms against assuming that fee-based accounts are appropriate for all customers.

A firm should consider many factors before placing a customer in a fee-based program, the NASD says.

Traditionally, most securities customers paid commissions rather than fees. Today, many customers pay their advisors fixed fees, or fees based on a percentage of assets under management.

“Customers may have reasons, unrelated to the cost structure of fee-based accounts, for deciding to handle their investment services on that basis, but all material components of the fee-based accounts, including the fee schedule, services provided and the fact that the program may cost more or less than paying for the services separately must be disclosed to the customer,” the NASD says in an announcement discussing the notice.

Firms that administer fee accounts should try to get information about each customer’s financial status, investment objectives, trading history and portfolio holdings, the NASD adds.

Once a firm has enough information about the customer, it then can consider whether a fee-based account is appropriate “in light of the services provided, the projected cost to the customer, alternative fees structures that are available, and the customer’s fee structure preferences,” the NASD says.

Securities firms should monitor fee-based accounts regularly to make sure that the fee-based accounts are still appropriate for the account holders, the NASD says.

The NASD has posted a copy of the notice at


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