The U.S. Securities and Exchange Commission (SEC) on Thursday settled charges against St. Petersburg, Fla.-based Raymond James & Associates and Milwaukee-based Robert W. Baird & Co., alleging that the two firms failed to establish policies to determine the commissions that clients were being charged when certain subadvisors traded with broker-dealers outside their wrap fee programs.
“Without this information, the firms’ financial advisors were unable to provide the magnitude of these costs to clients and did not consider these commissions when determining whether the subadvisors or the wrap fee programs were suitable for clients,” the SEC said in a news release.
The firms settled the allegations without admitting or denying the charges. Raymond James agreed to pay a US$600,000 penalty, and Baird agreed to pay a US$250,000 penalty.
“Costs are a critical factor when firms determine whether a particular investment product or strategy is suitable for a client. Baird and Raymond James lacked policies and procedures to consider an entire category of cost information and didn’t fully evaluate whether these wrap fee programs were a good fit for their clients,” added Andrew Ceresney, director of the SEC’s enforcement division.
The operation of brokerage firms’ wrap programs is one of the SEC’s compliance priorities, and it is particularly concerned with assessing firms’ disclosure, how they manage conflicts of interest, and best execution, among other things.