On Thursday, the NASD slapped a small independent broker/dealer with a $50,000 fine and sanctions for overcharging more than 1,500 customers who decided to follow their brokers to another firm. McLaughlin, Piven and Vogel Securities, a New York brokerage house, was ordered to pay restitution to customers who were charged excessive fees for routing their accounts through the Automated Customer Account Transfer System (ACATS). The firm must also hire an outside consultant to review its policies and procedures and determine the amount of money it must reimburse customers.
Brokerage firms don’t like it when their reps up and leave. In fact, they often do everything in their power to make life difficult for the departing broker. But the ACATS system was actually designed to reduce the costs of transferring accounts. All firms charge customers for ACATS routing, but NASD rules require that fees for services be “reasonable and not unfairly discriminatory between customers.” The NASD has also advised registered firms, through notices to members, that ACATS fees should be related to the actual costs of the account transfers.
After sampling more than 1,600 registered firms, the NASD found that ACATS fees typically run no higher than $50, with the firm retaining $25 or less of that fee. MPV, however, repeatedly charged four and five times that amount.
James “Jeb” Bashaw, a financial advisor and OSJ at an LPL Financial Services branch in Houston, says MPV is probably not the only broker/dealer who has overcharged for ACATS transfers. “It gives them a chance to get a dig in on the departing broker,” he says. “It’s also an opportunity for the firm to lord over the customers and convince them to stay.” Bashaw says he thinks excessive ACATS fees will become more of an issue as more reps leave the wirehouses to go the independent route. He also says that most advisors don’t know what their firms charge for ACATS transfers until well after they leave.
According to the injunction, MPV violated NASD rules when – between April 2002 and mid-April 2006 – it charged customers $295 per account transferred. For its share, MPV kept between $235 and $260 for each account. Between mid-April and September 2006, the firm charged customers $195 per account and retained, after clearing charges, $135 per account. The NASD ruled that these fees were “excessive, unreasonable and largely unrelated to MPV’s actual costs of processing account transfers through ACATS.
“This was an utterly improper assessment of an ACATS fee and was excessive, given that MPV was charged as little as $35 by its clearing firm to process these account transfers,” said James Shorris, the NASD’s head of enforcement, in a prepared statement.
The firm declined to comment on the settlement saying it is “awaiting the outcome of a review by an independent consultant.”
MPV imposed the high fees, in part, to defray the cost of investigating departing brokers to determine whether they lied to clients to persuade customers to move their accounts, the NASD says in a release. As part of the settlement, the firm neither admitted nor denied any wrongdoing.