Raymond James will pay around $12.5 million to settle charges with multiple states after an investigation uncovered the firm charged “unreasonable commissions” on more than 270,000 transactions and trades for retail customers during the past five years.
The firm agreed to pay at least $8.2 million in refunds to clients, as well as $4.2 million in penalties and costs to the states that brought the charges for failing to make sure the commission fees on equity transactions were reasonable for investors, according to the California Department of Financial Protection and Innovation.
In the Golden State alone, Raymond James will pay restitution totaling more than $460,000, as well as 6% interest, for customers with unreasonable commissions between July 1, 2018, and July 17, 2023. The settlement underscored state securities regulators’ efforts to safeguard investors, according to DFPI Commissioner Clothilde Hewlett.
“Large broker/dealers must comply with protections for investors no matter how big or small those investors’ transactions are,” she said.
In addition to California, state securities regulators in Alabama, Illinois, Massachusetts, Montana and Washington participated in the investigation into the commissions, according to the North American Securities Administrators Association.
According to Massachusetts Commonwealth Secretary William Galvin (whose office helped lead the investigation), Raymond James overcharged customers by applying a $75 minimum commission charge, regardless of the transaction.
While Raymond James had an “alternative small transaction commission schedule” for equity sell transactions with a principal amount below $300, the firm’s order entry system would sometimes default to the $75 minimum. In some cases, the commission would be as much as 90% of the transaction amount.
According to Galvin’s office, this wasn’t the first time Raymond James was fined for overcharging; in 2011, the firm was forced to pay more than $2 million to settle charges Galvin said were “identical” to those in the settlement announced today. Additionally, NASAA Enforcement Section Co-Chair Brett Olin noted in an interview with WealthManagement.com that the broker/dealer Baird agreed to pay more than $400,000 to settle similar charges last year.
Olin, who is also Montana’s deputy securities commissioner, stressed that Raymond James’ faults were operational in nature, rather than a sales practice issue, and advised other firms to review how their back-room systems were handling small commission trading, and to make sure trading exemption reports were properly reviewed.
“It should definitely be a wake-up call for firms to look at this stuff,” he said.
In addition to the restitution and penalties, Raymond James agreed to update its policies and procedures to make sure future overcharging instances could be caught. Specifically, the firm agreed to put in compliance systems to prevent unreasonable commissions, operational changes so commissions cannot exceed 5% of a transaction’s principal amount and systems ensuring all equity transactions are reviewed for excessive commissions, regardless of size.
Raymond James agreed to the settlement without admitting or denying the findings, and the DFPI stressed that there was no evidence of “fraudulent conduct” on the part of the firm.
Raymond James Spokesman Steve Hollister said the firm was “pleased” to resolve the matter on commissions in a “specific population of small principal amount equity trades” that had been generated through the firm’s automated commission process.
“All impacted clients will be reimbursed the excess commission amounts plus interest and we are implementing the necessary adjustments to our equity commission schedule,” he said. “Our commitment to putting clients' interests first remains our top priority.”
Raymond James agreed to a review by California’s DFPI on how the firm implemented the mandated changes in a year; the results will be distributed to the states involved in the investigation, according to the DFPI.
