Compliance Breaches Result in $ 15 Million Penalty for Raymond James | Item


According to SEC Order, at various times, from at least January 2013 to May 2018, Raymond James engaged in several violations. Specifically, Raymond James & Associates (RJA) and Raymond James Financial Services Advisors (RJFSA) – collectively “RJ advisers” – failed to complete the promised adequacy reviews for some advisory accounts; has not adopted reasonably designed policies and procedures to prevent violations regarding the adequacy of fee-based advisory accounts; and overvalued certain assets, resulting in the billing of excess advisory fees.

The SEC order also states that RJA and Raymond James Financial Services (RJFS) – collectively “RJ brokers” – did not have a reasonable basis to recommend certain open-ended investment trust (UIT) transactions to clients of brokerage and have not disclosed the conflict of interest associated with earning greater compensation for recommending certain securities without offering brokerage clients applicable discounts on sales charges. “These failures concerned products sold and services provided to retail investors,” said the SEC order.

The SEC order concludes that RJ’s advisers failed to “timely and adequately” conduct the promised ongoing reviews of advisory accounts that had no securities trading activity for at least a year, as required by its own policies and procedures. “RJ advisor policies and procedures required financial advisors and the compliance department to monitor inactive accounts. More specifically, financial advisers were to “constantly monitor their accounts receivable”, discuss with clients “the reasons for [account] inactivity, ”and“ documenting all conversations and meetings with clients ”to demonstrate“ ongoing management of accounts, ”the SEC order says.

“After 12 months of inactivity, RJ advisers policies and procedures required compliance staff to contact the financial advisor‘s branch to confirm in writing that advisory services were being provided to the client,” the order says. If an account was to remain inactive for another year, policies and procedures “required compliance staff to look for additional documentation proving the provision of advisory services.”

Between January 2013 and September 2017, RJ advisers failed to properly review 7,708 inactive accounts, which paid RJ advisers about $ 4.9 million in advisory fees, according to the SEC order.

Another breach of compliance mentioned in the SEC order is that RJ advisers “failed to adopt and implement reasonably designed policies and procedures regarding the oversight and review of inactive board accounts in accordance with their standards. statements to their clients. Among other things, the RJ advisers did not have escalation procedures in place if the compliance group did not receive an adequate or timely response to their request from the branch.

“Until 2015, policies and procedures also did not have a deadline for the RJ Advisor Compliance Department to complete reviews or reach a resolution regarding the status of the account. The deadlines were then incorporated into policies and procedures, but the reviews were not implemented in a timely manner. In addition, the RJ advisers did not have reasonably designed policies and procedures in place to determine whether inactive accounts were appropriate for conversion to a brokerage arrangement. “

ITU-related allegations

According to the SEC order, Raymond James has engaged in other violations that have affected both brokerage clients and ITU owner advisers. In particular, RJ brokers did not have a reasonable basis to recommend certain brokerage clients to sell certain UIT positions before their expiration date.

Early sales and buy recommendations resulted in customers incurring (and Raymond James entities receiving) higher sales commissions than would have been charged if customers had kept ITUs to maturity, then bought new ITUs. Specifically, these recommendations generated approximately $ 5.5 million in excess sales charges and affected 2,044 brokerage accounts, according to the SEC order.

Additionally, Raymond James “failed to disclose his conflict of interest in recommending UITs without applying nearly $ 660,000 in sales charge rebates applicable to brokerage clients in 5,468 eligible accounts, for which RJ brokers have received higher compensation, “says the SEC order. “In addition, RJ advisors used incorrect ITU valuations to calculate the management fees for some consulting clients, resulting in an excess of approximately $ 51,000 in consulting fees.”

The ordinance accuses RJA and RJFSA of violating Sections 206 (2) and 206 (4) of the 1940 Investment Advisers Act and Rule 206 (4) -7. He also accuses RJA and RJFS of violating sections 17 (a) (2) and (3) of the Securities Act of 1933.

To settle the charges, Raymond James’ three entities agreed to be censored and return approximately $ 12 million representing inappropriate client advisory fees and mutual fund commissions, as well as pre-judgment interest; pay a civil fine of $ 3 million; and make distributions to aggrieved investors.

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Shanta Harris

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