Raymond James to Pay $15 Mln to Settle UIT, Fee Account Abuses
(Updated with details of excess fees and commissions the firm allegedly charged.)
Raymond James Financial will pay $15 million in customer restitutions and fines for failing to monitor the suitability of fee-based accounts and supervising the way advisors across its employee, independent and registered investment advisory channels sold unit investment trusts, the Securities and Exchange Commission said on Tuesday.
The business units also caused customers to overpay for UITs by applying the wrong pricing to certain positions, costing $51,000 in excess advisory fees, according to an enforcement order accepted by Raymond James.
Advisors in the company’s independent and employee-broker businesses also recommended that brokerage customers sell UITs before maturity and buy new UITs without adequately determining whether the commission-generating transactions were suitable. The trades generated $5.5 million in excess sales charges on more than 2,000 accounts, the order said.
Raymond James also failed to apply sales discounts that were available for rollover transactions, costing customers almost $660,000, it said.
The overall abuses occurred from at least January 2013 through May 2018, the SEC said in the cease-and-desist settlement order.
Raymond James has fired several brokers for UIT sales abuses, AdvisorHub reported last October.
Spokespeople at the St. Petersburg, Fla.-based company, which has almost 8,000 advisors, did not respond to requests for comment on the SEC settlement, which also included acceptance of a censure. As is typical in such settlements, the company did not admit or deny the regulator’s findings.
The order requires Raymond James 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 sanctions took into consideration remedial efforts Raymond James undertook after the SEC investigation began, the order said. The firm self-reported short-hold transactions and advisory fee misconduct, and voluntarily retained compliance consultants, it said.
“Investment advisers and broker-dealers have on-going obligations to their clients and customers,” C. Dabney O’Riordan, co-chief of the enforcement for the SEC’s asset management unit said in a prepared statement. “Raymond James’ failures cost their advisory clients and brokerage customers millions.”
Raymond James executives acknowledged last year that the firm had high legal and regulatory expenses, highlighted by its $150-million settlement of a fraud case committed by a customer with the alleged help of a branch manager. Earlier this year, the firm raised its estimate of unreserved fiscal 2019 legal costs by 46% over previous estimates.
The SEC order follows a wave of sanctions that the Financial Industry Regulatory Authority has imposed on broker-dealers and individual brokers over UIT sales abuses in recent years. It fined Morgan Stanley $3.25 million two years ago for failing to supervise hundreds of brokers from 2010 through mid-2014 and ordered it to repay almost $10 million to customers. It also has suspended several brokers for unsuitable UIT trading recommendations.