SEC fines two advice firms over client fee disclosure

Added 9th September 2016

The US Securities and Exchange Commission has settled charges against two investment advice firms after some clients were unaware that they were being charged more than the single fee they were paying for investment services.

SEC fines two advice firms over client fee disclosure

The SEC found that Florida-based Raymond James & Associates and Wisconsin-based Robert W. Baird & Co failed to determine how much commission their clients were being charged when sub-advisers traded on their behalf outside the companies' wrap fee programmes.

The process

Raymond James and Baird enter into agreements with third-party managers who act as sub-advisers.

The sub-advisers focus on trading and portfolio management, with Raymond James and Baird monitoring their performance.

For this, clients are charged a wrap fee with the benefit that they do not pay commission on trades executed by Raymond James and Baird.

However, if the sub-advisers trade with a firm other than Raymond James and Baird, the client would be liable to pay commission.

The SEC found that, although Raymond James and Baird disclosed that sub-advisers may trade with other firms, they failed to collect any information about the commission costs.  

Without this information, the firms’ advisers were unable to fully calculate client costs and did not take these commissions into consideration when determining whether the sub-advisers or the wrap fee programmes were suitable for clients.

Client suitability

“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 programmes were a good fit for their clients,” said Andrew Ceresney, director of the SEC’s division of enforcement.

Raymond James agreed to pay a $600,000 (£449,944, €532,746) penalty to settle the charges and Baird agreed to pay $250,000.

Neither firm admitted or denied the SEC’s charges.

Wrap fee programmes

A wrap fee programme is a comprehensive charge paid to investment advisers or managers for providing a bundle of services, including investment advice, research, and brokerage services.

The wrap fee is generally a percentage of the asset value and is intended to allow the adviser to charge a single, straightforward fee. 

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 


Why you should care about the German elections

Why you should care about the German elections...

You may be forgiven for not staying up late this Sunday to watch the final results of Germany’s parliamentary elections come in. While chancellor Merkel is sure to win, the scale of her victory is likely...




Canada Life International Limited
Canada Life International...

Canada Life International Canada Life House,...



IA International Portfolio Bond Forum Glasgow 2017
IA International Portfolio Bond Forum Glasgow 2017

Thursday 16 November
The Grand Central Hotel, Glasgow

IA Future Advisory Forum Dubai 2017
IA Future Advisory Forum Dubai 2017

Wednesday 22 November
The Shangri-la Hotel, Dubai

IA Best Practice Adviser Awards Middle East 2017
IA Best Practice Adviser Awards Middle East 2017

Wednesday 22 November
The Shangri-La Hotel, Dubai

Sponsored Content

Investment Strategy