The Securities and Exchange Commission on Tuesday instituted a settled order against three Raymond James entities for improperly charging advisory fees on inactive retail client accounts and charging excess commissions for brokerage customer investments in certain unit investment trusts, or UITs.
The SEC order finds that Raymond James & Associates and Raymond James Financial Services Advisors failed to consistently perform promised ongoing reviews of advisory accounts that had no trading activity for at least one year.
According to the order, because the Raymond James units failed to conduct the reviews properly, they failed to determine whether the client’s fee-based advisory account was suitable.
The units named in the complaint are Raymond James & Associates (RJA), Raymond James Financial Services (RJFS), and Raymond James Financial Services Advisors (RJFSA).
As set out in their Form ADV, RJA and RJFSA — the advisory firms — “failed to conduct promised suitability reviews for certain advisory accounts, did not adopt policies and procedures reasonably designed to prevent violations concerning the suitability of fee-based advisory accounts, and overvalued certain assets that resulted in charging excess advisory fees,” the complaint states.
RJA and RJFS failed to have a reasonable basis for recommending certain unit investment trust transactions to brokerage customers, the complaint states, “and failed to disclose the conflict of interest associated with earning greater compensation when recommending certain securities without providing applicable sales-load discounts to brokerage customers.”
According to the order, the recommendations for early sales and purchases resulted in customers incurring (and the Raymond James entities receiving) greater sales commissions than would have been charged had the customers held the UITs to maturity and then purchased new UITs.
The order further finds that Raymond James also failed to apply available sales discounts for brokerage customers that rolled over their proceeds after selling a maturing UIT to purchase another one.
“Investment advisers and broker-dealers have on-going obligations to their clients and customers,” said C. Dabney O’Riordan, co-chief of the SEC Enforcement Division’s Asset Management Unit, in announcing the action. “Raymond James’ failures cost their advisory clients and brokerage customers millions that will be repaid as part of this settlement.”
To settle the charges, the three Raymond James entities agreed to be censured and to disgorge approximately $12 million representing inappropriate client advisory fees and unit investment trust commissions, together with prejudgment interest, and to pay a $3 million civil penalty.
The three entities agreed to make distributions to harmed investors.
“We are pleased to have these matters concluded and have revised our policies and procedures to address the supervisory enhancements required by the SEC at Raymond James and a number of competitor firms,” the firm said in a statement. “The firm has completed remediation with the appropriate clients and looks forward to continuing to provide best-in-industry service in support of their goals.”