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Raymond James Seeks Fee Clawbacks on Mutual Fund Sales

Raymond James sent notices to some of their advisors on Monday requiring them to give back fees they collected from selling a certain class of mutual fund in retirement accounts and charitable trusts.

According to sources familiar with the matter, as well as advisors who were sent the notification, the firm said the fees should have been waived for clients, but in many cases weren't.

"In the course of operational reviews, Raymond James determined that in certain qualified plan and charitable trust accounts, some clients did not receive all fee waivers for which they were eligible based on investment company-specific offerings as detailed in their prospectuses," a spokesperson for the firm said in a statement Wednesday.

Some mutual funds waive their upfront sales charges for Class A shares sold to charities or within retirement accounts. Class A shares generally have lower management fees than Class B or C shares, but charge a front-end sales load.

The mutual funds offered on the Raymond James platform disclosed these waivers on their prospectuses. But according to the firm’s notice, many advisors failed to waive the fee, or they purchased Class C shares within these client accounts.

According to the notice sent to advisors, many of whom are top producers, Raymond James is requiring they give back those charges for mutual fund sales going back five years.

The advisors say the rules changed.

“The issue is not necessarily having to give a rebate, which is unconscionable, it’s that the firm is making it look like you did something wrong to your client. How do you defend that? Because that’s exactly the message that’s being sent,” said one advisor.

“If this share class was legal and appropriate at one point in time, don’t come back at a later date and say, ‘gosh we changed our mind,’” he added. “As an independent, we pay the firm a significant amount of money to make sure they become the watchdog.”

"Raymond James studied accounts from the past five years and is now working with financial advisors to ensure fees are rebated in a fair and reasonable manner to affected clients along with interest," according to the firm spokesperson, adding that less than 1 percent of client accounts are impacted and the median rebate is expected to be approximately $200. But one advisor affected owed an estimated $35,000.

Late last month, the firm sent a memo about the issue to all of its branch managers and financial advisors. In the Jan. 27 email, Raymond James said it would be updating its mutual fund share class policies.

“Therefore, effective January 28, 2015, additional language will strengthen Raymond James' mutual fund B and C share policies regarding the use of appropriate sales charge waivers for eligible clients, including qualified plans and charitable trusts.  The revised policy language states:  “When making mutual fund purchases in qualified retirement plan accounts and charitable trusts you should determine whether a load waived A-share or retirement share is available to the client.  Generally, when a load waived A-share or retirement share is available to the client, it should be purchased.” 

The changes came because of recent scrutiny from FINRA on fund fees and a recent enforcement action against Merrill Lynch. In June, FINRA fined Merrill Lynch $8 million and required the firm to repay $89 million to investors for failing to waive mutual fund sales charges on Class A shares for charities and retirement accounts.

Raymond James notes that the firm has not been cited or fined. Representatives for the regulator did not immediately respond to requests for comment.   

The news comes after Raymond James announced an unexpected $10.5 million adjustment related to mutual fund commissions during its first quarter, fiscal 2015 earnings release and the subsequent earnings call last month. A spokesperson for the firm confirmed that these actions were related to the adjustment referenced in the release and call. 

Within the firm’s private client group, securities commissions and fees were up 7 percent from year ago, but were down 3 percent, or about $19 million, sequentially, which the firm attributed to a one-time mutual fund commission adjustment. About $10.5 million of the $19 million went to that adjustment, which covers the last five years. Chief Financial Officer Jeff Julien would not give the details of the adjustment, except that it’s related to share classes used in retirement accounts.

"While we recognize this issue has impacted others in the industry, the firm has always been committed to doing the right thing for clients and is therefore taking this proactive step," the spokesperson said. "Internal controls have been augmented and refined with the goal of ensuring appropriate allowances going forward."



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