Raymond James Units Fined

While the SEC recently ruled that the brokers could continue offering these accounts, it also ordered better disclosure and launched a 90-day study of the issue. The FPA on April 28 said it was suing the SEC over the decision. Barracca said that because the SEC’s latest ruling leaves room for interpretation of what constitutes advice in a brokerage account, the firm decided not to try to outguess regulators and instead would end the Passport program. “NASD did not ask us to terminate” the program,” he said, adding that “we made a business decision” to do so, based on “the regulatory costs of compliance.”

The Raymond James case centered on whether its fee-based brokerage accounts were the proper alternative to traditional commission-based accounts for clients who did little trading. NASD charged that both of the firm’s units had violated the regulator’s rules by recommending that customers open the fee-based brokerage accounts without determining whether they were appropriate. Regulators cited three cases in which customers were switched to new accounts relationships that generated between $2,500 and $6,000 in fees although few trades were made. NASD maintained that among customers with Passport accounts, about 13% made no trades at all in 2001, 14.2% did not trade the following year, and 16.6% had no activity in 2003.

“Fee-based accounts can be appropriate for some investors,” said NASD Vice-chairman Mary Schapiro, “but they are not automatically appropriate for everyone.” According to NASD, the two Raymond James arms failed to review or monitor accounts to see if they were appropriate for the clients. NASD also alleged that the firms used inaccurate and misleading advertising and failed to properly disclose the accounts’ fees and restrictions.