The NASD has censured and fined Raymond James & Associates Inc. and Raymond James Financial Services Inc. $750,000 for violations relating to the firms' fee-based brokerage business.
As part of the settlement, the firms will also pay restitution to 190 customers totaling $138,000. The firms neither admitted nor denied the charges.
The regulator, formerly known as the National Association of Securities Dealers, said the firms recommended and opened fee-based brokerage accounts for customers without first determining whether the accounts were appropriate, never monitored the accounts for inactivity and improperly allowed some fee-based accounts to stay open, violating NASD rules.
Between early 2001 and 2003, the NASD said Raymond James' registered representatives recommended and opened fee-based accounts for nearly 3,000 "buy and hold" customers who had commission-based accounts for more than one year without executing a trade in the account. The regulator said 190 of those customers never executed a trade in their fee-based accounts, but paid Raymond James total fees of approximately $138,000.
It also said that the firms didn't have a supervisory system in place to review and monitor their fee-based brokerage business, but instead relied on their existing supervisory system, which was directed towards its commission-based business.
The firms' fee-based account business grew from some 8,600 accounts and $1.8 billion in assets at the end of 2001, to more than 27,000 accounts and close to $5.5 billion in assets by August 2004.
In addition the NASD said some of the advertising and sales literature related to the fee-based accounts "were inaccurate and misleading."
In a statement, St. Petersburg, Fla. - based Raymond James said it was "satisfied" to have resolved the matter.
The company noted that while it believes that fee-based accounts "represent a sound way of providing service to clients," after three years, the fee-based brokerage alternative represented just 2 percent of its clients.
"We have decided that these accounts are best re-characterized as fee-based advisory since this structure allows us to provide advice to clients without any question regarding the nature of the advice," Raymond James said. "Accordingly, we are recommending that all clients with existing fee-based brokerage accounts consider transferring to fee-based advisory accounts or commission-based accounts as appropriate, and we will only be providing advisory accounts in the future for clients who prefer a fee-based pricing alternative."
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