Raymond James Ltd. will pay $125,000 in fines after admitting to overcharging more than 6,000 clients in fee-based accounts.
In a settlement agreement this week, Raymond James – an independent investment-fund dealer – agreed to pay a $125,000 fine and $5,000 in costs to the Investment Industry Regulatory Organization of Canada (IIROC) after the firm failed to have proper internal compliance controls in place. As a result of its failure, some clients in fee-based accounts – known internally as “viridian accounts” – were charged a higher than normal fee.
Raymond James discovered the fee errors and self-reported to regulators after The Globe and Mail reported that several other investments dealers found themselves under scrutiny for having inadequate compliance systems, resulting in clients being overcharged, Raymond James spokesman Peter Kahnert said.
Last year, Royal Bank of Canada was hit with compliance problems resulting in overcharging clients. In 2016, a number of subsidiaries of Bank of Montreal, Canadian Imperial Bank of Commerce and Scotia Capital Inc. were hit with similar compliance issues that resulted in no-contest settlements. In all four cases, the majority of clients were fee-based investors. RBC paid more than $22-million in compensation to investors, BMO paid almost $50-million, CIBC paid out $73-million and Scotia Capital paid approximately $20-million to investors.
In the case of Raymond James, in July, 2017, the firm reported to the IIROC that between January, 2010, and December, 2016, it had mistakenly and incorrectly calculated more than $2.35-million in annual trailer fees charged to some of its clients.
Trailer fees are a portion of a fund’s management expense ratio (MER) and are commissions paid out to investment advisers for the length of time an investor holds a fund. Depending on the type of investment fund, these fees can range from 0.5 per cent up to 1.5 per cent.
Clients in fee-based accounts typically pay a quarterly or monthly fee that is calculated based on the value of assets held in an account, rather than paying a fee for each individual transaction.
During a self-review, Raymond James found that certain exchange-traded funds and structured products that were held in fee-based accounts – and had embedded trailer fees – were not excluded from the annual fee calculation for clients, and therefore clients were incorrectly charged, according to the settlement agreement.
IIROC stated in the agreement that “there is no suggestion that [Raymond James] deliberately overcharged any client,” and since its findings, the firm has repaid a majority of the money to current and former clients, and will “continue with reasonable efforts to locate any former client who was overcharged more than $25 ... during the 6-year period.”
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