The Financial Industry Regulatory Authority has ordered Robert W. Baird & Co. Inc. to pay a $100,000 fine, as successor-in-interest to retail brokerage Hefren-Tillotson Inc., for violating Regulation Best Interest and other FINRA rules.
Baird acquired Hefren-Tillotson’s brokerage business on Oct. 22, 2022.
According to FINRA's order, from June 30, 2020, through Sept. 29, 2022, Hefren-Tillotson’s representatives recommended that 432 customers open “Portfolio Review” accounts, which charged customers commissions plus an extra fee in exchange for certain services, such as financial planning, that these customers were already receiving in connection with other accounts.
"These customers paid $557,830.64 in unnecessary fees as a result of these recommendations," the order states. Baird agreed to pay $557,830.64 in restitution.
During the same period, Hefren-Tillotson failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Reg BI's Care Obligation with respect to account-type recommendations. As a result, Baird, as successor-in-interest to HefrenTillotson, violated Reg BI and FINRA Rules 3110 and 2010.
According to FINRA, Hefren-Tillotson offered its retail customers multiple account types, including brokerage and investment advisory accounts.
One of the types of accounts offered by the firm was a traditional brokerage account that enrolled customers in an advisory service known as the Portfolio Review Program.
"In addition to paying commissions for securities transactions in the traditional brokerage account, this program charged customers a fee pursuant to an advisory agreement, assessed as a percentage of the assets under management, in exchange for certain account-related services, including, among other services, account aggregation, market reports and updates, financial planning, and tax reporting services," the order explains.
The Portfolio Review Program services, which were also automatically provided to Hefren-Tillotson customers with investment advisory accounts, were non-discretionary, and the firm provided no ongoing monitoring services in connection with them, according to FINRA.
During the time period, Hefren-Tillotson’s reps recommended, in their brokerage capacity, "that 432 retail brokerage customers open approximately 600 Portfolio Review Program accounts, even though those customers were already receiving Portfolio Review Program services through their existing or simultaneously opened Portfolio Review or investment advisory accounts," the order states.
These customers did not receive any additional services by opening these Portfolio Review accounts.
Baird voluntarily discontinued charging Portfolio Review fees and recommending Portfolio Review accounts after its acquisition of Hefren-Tillotson’s brokerage business. The firm accepted FINRA's findings without admitting or denying them.
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