Two Firms Pay for Compliance Failures in Wrap Fee Programs

The Securities and Exchange Commission announced on September 8th that two investment advisory firms are settling charges related to compliance failures within their wrap fee programs.

SEC investigations found that St. Petersburg, Fla.-based Raymond James & Associates and Milwaukee-based Robert W. Baird & Co. allegedly failed to establish policies and procedures necessary to determine the amount of commissions their clients were being charged when sub-advisers “traded away” with a broker-dealer outside the wrap fee programs.

Without this information, the firms’ financial advisors were reportedly unable to provide the magnitude of these costs to clients and did not consider these commissions when determining whether the sub-advisers or the wrap fee programs were suitable for clients, leaving certain clients unaware they were paying additional costs beyond the single wrap fee they paid for bundled investment services.

Raymond James agreed to pay a $600,000 penalty to settle the charges and Baird agreed to pay a $250,000 penalty.

Without admitting or denying the charges, Baird and Raymond James consented to SEC’s orders finding that they violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.

The SEC’s National Exam Program has included wrap fee programs among its annual examination priorities, particularly assessing whether advisers are fulfilling fiduciary and contractual obligations to clients and properly managing such aspects as disclosures, conflicts of interest, best execution, and trading away from the sponsor broker-dealer.

The foregoing information is being provided by The White Law Group.  The White Law Group is a national securities fraud, securities arbitration and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

For more information on The White Law Group, visit http://whitesecuritieslaw.com.