Raymond James Discharges Brokers Nationwide Amid UIT Probe
Raymond James Financial has fired at least seven brokers across the U.S., including a high-profile advisor in South Carolina, for improper sales of unit investment trusts that are under regulatory scrutiny, according to several sources inside and outside the company.
The terminations, which took place over the past two weeks in the Florida-based firm’s flagship employee channel, likely portend an impending enforcement action from regulators over the firm’s supervision of UIT sales, the sources said.
Spokespeople for Raymond James did not return requests for comment.
Among those felled are Lynn Faust and her son Michael, sources said. Based in Greer, South Carolina, Faust is a marquee name at the firm, which has promoted her rise from grade-school teacher to a top broker. She also was the first woman branch manager within Raymond James’ employee-office channel.
Faust was the second-highest producer year-to-date in the firm’s populous Southern division, according to an internal publication published this spring, and is perennially named in top broker polls conducted by Barron’s, Forbes and industry trade publications. Her team was managing $265 million in assets as of September 30, 2017, according to Forbes, which ranked her 51st among the top 200 women advisors in the U.S.
Faust, who has spent 30 years of her 37-year brokerage career at Raymond James, did not return a request for comment sent through LinkedIn. Neither she nor her son—whose brokerage career began at RayJay in December 1999—could be reached at publicly listed phone numbers, but people answering their phones in the Greer branch said they had left the firm. She has two disclosures of customer complaints dating back to before 1990 when she worked at PaineWebber, according to her BrokerCheck record. They were settled for just over $10,000 in total, and Faust wrote that she did not contribute to the settlements.
The sources who disclosed the numerous dismissals declined to name other brokers engulfed in the UIT investigation, but said that some were based in Michigan, Florida and Georgia.
The Financial Industry Regulatory Authority announced “sweep” exams into sales and supervision of UIT rollovers two years ago to see if the securities were being churned or otherwise redeemed prematurely to generate excess sales and commissions. Until about two years ago, Raymond James’ compliance system was geared to send red flags on exchanges made within around six months of a sale but not beyond, said a person familiar with the system.
UITs carry commissions that generally range between 1.95% and 3.95%, according to Finra, which began its sweep by asking broker-dealers for a list of their top 25 brokers by UIT sales.
Morgan Stanley last year agreed to pay a fine of $3.25 million and to restore almost $10 million to customers over allegations that “hundreds” of brokers repeatedly recommended exchanges of the products before their two-year maturity date.
Broker-dealers increasingly discipline or even fire brokers before or as they negotiate enforcement settlements to illustrate their sincerity about correcting problems, lawyers said.
“You see all the time where a firm proactively takes steps to address the problems, enhance procedures, make customers whole and discipline people,” said Richard D. Marshall, a New York-based partner at Katten Muchin Rosenman, who has been a branch chief at the Securities and Exchange Commission’s enforcement division. “Firms get credit for that.”
Finra as a matter of policy does not confirm or deny investigations of specific firms, a spokeswoman for the self-regulator said. A spokeswoman at the SEC, which oversees Finra, declined to comment.
Executives at Raymond James said last week that the company has added to its legal and regulatory reserves at a higher-than-normal pace in the last two quarters, which could signal expectations of more sanctions. The company’s “other” expenses, which reflect the legal costs, rose to $91 million in the July-September quarter from $74 million in the previous three months, and from $70 million one year ago.
“We thought that the preceding quarter’s legal and regulatory reserves were elevated,” Chief Financial Officer Jeffrey Julien said on a call with analysts to discuss fiscal fourth-quarter earnings. “Well, we managed to surpass that.”