Raymond James Audits Itself

Regulators have recommended “enforcement action†against Raymond James for failing to give clients breakpoint discounts

In the wake of last week’s news that regulators have recommended “enforcement action” against Raymond James Financial for failure to offer clients breakpoints, the Florida-based brokerage has called for an all-hands-on-deck audit of its mutual fund trading.

According to a source inside RJF’s home office, “countless” traders have been pulled off its mutual fund trading desk to assist in a “complete” audit of RJF’s mutual fund trades from the last two years. The number of trades is said to exceed 160,000 and the audit is due in May.

“It’s gonna strain our resources, sure,” says a Raymond James employee familiar with the investigation. “We’re taking people off the desks, from compliance, from everywhere—anybody that can spare anything.”

Friday’s disclosure of regulatory investigations included a statement of possible penalties facing the firm, including customer reimbursements, censure and “substantial penalties.”

Raymond James chairman and CEO Thomas James admitted that Raymond James failed to deliver proper breakpoint discounts to some customers, as the regulators charge. He attributed the lapse to the company’s overly confident reliance on “clients and our financial advisors, as well as the mutual fund companies” to deliver the discounts on Raymond James’ behalf.

“That was clearly insufficient, and we are embarrassed by this incident,” James said.

Breakpoints are sales-charge discounts that mutual fund companies provide for investors who invest larger amounts of money in a selected fund. Fund companies are not obliged to provide breakpoints, but if they do, brokers are required to inform clients of the discounts and to pass them on.

When the National Association of Securities Dealers called for its broker/dealer members to do an initial audit in March, Raymond James looked at 3,200 different trades, randomly selected from both Raymond James and Associates and Raymond James Financial Services. Three hundred were found to have denied investors their breakpoint discounts, and the mistakes were quickly rectified with refunds. That audit took five months. Raymond James will have almost exactly the same amount of time to finish this current audit of 100,000-plus trades.

The Raymond James source says one trading desk that is losing half its traders to the audit within the next week and a half. Others will feel similar pain—but it’s viewed as a necessary task.

“We’re gonna have to settle into this act, because it’s gonna be like this for quite a while,” the source says.

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