The Financial Industry Regulatory Authority (FINRA) announced today that it has fined five broker-dealers for understating the amount of total commissions charged to customers in trade confirmations and on fee schedules by mischaracterizing a portion of the commission charges as fees for handling services. With respect to each of these firms, the handling fees were designed to serve as a source of additional transaction based remuneration for the firm and thus were far in excess of the cost of the handling-related services the firms provided.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "Trade confirmations and fee schedules must clearly reflect commission charges, and firms cannot disguise commissions by improperly describing them as charges for ancillary services. FINRA will continue to look closely at any firms that engage in these practices."
The cases resulted from a targeted review of improper fees charged by broker-dealers in which FINRA found that the firms were routinely charging customers for handling fees that far exceeded the actual cost of the direct handling-related services the firms incurred in processing securities transactions. In some cases, firms charged a handling fee of almost $100 per transaction and earned a substantial percentage of their revenue from these fees.
FINRA sanctioned the following firms:
- Pointe Capital, Inc. (nka JHS Capital Advisors, Inc.), of Boca Raton, Florida, was fined $300,000. The firm charged customers a handling fee as high as $95 per trade in addition to a commission. (Additional violations included inadequate supervisory procedures.)
- John Thomas Financial, of New York, NY, was fined $275,000. The firm charged its customers a handling fee as high as $75 per trade in addition to a commission. (Additional violations included effecting material changes in its business operations without prior approval from FINRA, and deficiencies in complaint reporting, supervisory controls and certifications, branch office supervision and recordkeeping.)
- First Midwest Securities, Inc., of Bloomington, IL, was fined $150,000. The firm charged customers a handling fee as high as $99 per trade in addition to a commission. (Additional violations included unfair and unreasonable markups/markdowns and inadequate written supervisory procedures.)
- A&F Financial Securities, Inc., of Syosset, NY, was fined $125,000. The firm charged its customers a handling fee of $65 per trade in addition to a commission. (Additional violations included inadequate supervisory system and procedures, and failure to comply with continuing education requirement.)
- Salomon Whitney LLC, of Babylon Village, NY, was fined $60,000. The firm charged its customers a handling fee as high as $69 per trade in addition to a commission.
In settling FINRA's actions, the firms agreed to implement corrective action to remedy the handling fee-related violations. The firms agreed to fully and accurately disclose the specific service performed and the related fee on confirmations and any other communications with a customer where fees are discussed. In addition, they will identify all transaction-based remuneration as commissions or mark-ups (mark-downs) rather than as postage, handling or any other miscellaneous fee. The firms also agreed to revise their written supervisory procedures and to provide training to the firms' registered representatives and associated persons related to transaction-based remuneration, reasonable fees, their appropriate disclosure to customers and retention of related records.
In concluding these settlements, the firms neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2010, members of the public used this service to conduct 17.2 million reviews of broker or firm records. Investors can access BrokerCheck atwww.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our website at www.finra.org.
