NASD announced Wednesday that it has censured and fined Raymond James & Associates Inc. and Raymond James Financial Services Inc. $750,000 for violations in the companies' fee-based brokerage business. The two also agreed to pay restitution totaling $138,000.
NASD found that, from April 2001 through December 2004, the Raymond James companies failed to establish and maintain a supervisory system, including written procedures, reasonably designed to review and monitor their fee-based brokerage business. In addition, they violated NASD rules by recommending and opening fee-based brokerage accounts for customers without first determining whether these accounts were appropriate and by allowing the accounts to remain open, the industry self-regulatory body said.
In settling these matters, the companies neither admitted nor denied the charges but consented to the entry of NASD's findings.
In a fee-based account, a customer is charged an annual fee that is either fixed or a percentage of the assets in the account, rather than a commission for each transaction.
"Fee-based accounts can be appropriate for many investors," NASD Vice Chairman Mary L. Schapiro said in a press release. "But they are not automatically appropriate for everyone."
The Raymond James companies began offering their customers fee-based brokerage accounts in early 2001. The business grew rapidly, from 8,600 accounts and $1.8 billion of assets at the end of 2001 to more than 27,000 accounts and nearly $5.5 billion of assets by the end of August 2004.
Between early 2001 and Dec. 31, 2003, the companies recommended and opened fee-based accounts for about 2,913 existing customers who had had commission-based accounts for more than one year without executing a trade. Based on the customers' trading history, Raymond James should have known these were "buy and hold" customers and that fee-based accounts may not have been appropriate for them, NASD said.
Of the 2,913, 190 never executed a trade in their fee-based accounts, yet they paid Raymond James fees totaling about $138,000. These customers will get restitution under the settlement.
