Raymond James Audits Itself
In the wake of last week’s news that regulators have
recommended “enforcement action” against Raymond James
Financial for failure to offer clients breakpoints, the Florida-based
brokerage has called for an all-hands-on-deck audit of its mutual fund
trading.
According to a source inside RJF’s home office,
“countless” traders have been pulled off its mutual fund
trading desk to assist in a “complete” audit of RJF’s
mutual fund trades from the last two years. The number of trades is
said to exceed 160,000 and the audit is due in May.
“It’s gonna strain our resources, sure,” says a
Raymond James employee familiar with the investigation.
“We’re taking people off the desks, from compliance, from
everywhere—anybody that can spare anything.”
Friday’s disclosure of regulatory investigations included a
statement of possible penalties facing the firm, including customer
reimbursements, censure and “substantial penalties.”
Raymond James chairman and CEO Thomas James admitted that Raymond James
failed to deliver proper breakpoint discounts to some customers, as the
regulators charge. He attributed the lapse to the company’s
overly confident reliance on “clients and our financial advisors,
as well as the mutual fund companies” to deliver the discounts on
Raymond James’ behalf.
“That was clearly insufficient, and we are embarrassed by this
incident,” James said.
Breakpoints are sales-charge discounts that mutual fund companies
provide for investors who invest larger amounts of money in a selected
fund. Fund companies are not obliged to provide breakpoints, but if
they do, brokers are required to inform clients of the discounts and to
pass them on.
When the National Association of Securities Dealers called for its
broker/dealer members to do an initial audit in March, Raymond James
looked at 3,200 different trades, randomly selected from both Raymond
James and Associates and Raymond James Financial Services. Three
hundred were found to have denied investors their breakpoint discounts,
and the mistakes were quickly rectified with refunds. That audit took
five months. Raymond James will have almost exactly the same amount of
time to finish this current audit of 100,000-plus trades.
The Raymond James source says one trading desk that is losing half its
traders to the audit within the next week and a half. Others will feel
similar pain—but it’s viewed as a necessary task.
“We’re gonna have to settle into this act, because
it’s gonna be like this for quite a while,” the source
says.
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