The North American Securities Administrators Association (NASAA) announced a settlement with several broker-dealer firms accused of charging unreasonable commissions to retail customers on small dollar transactions.
NASAA said that its investigation found that over a five-year period, Edward Jones, LPL Financial, RBC, Stifel and TD Ameritrade charged approximately $19 million to process 1.12 million small dollar equity transactions and trades.
The investigation was conducted by a multijurisdictional working group of state securities regulators in Alabama, Iowa, Massachusetts, Missouri, Montana, Texas, and Washington. Leading the probe was the office of Massachusetts Commonwealth Secretary William Galvin, who noted that similar settlements had been reached with other firms who overcharged customers.
“This custom that some brokerage firms have of nickel-and-diming customers in order to line their pockets with commissions is something that I and other securities regulators have been watching closely,” Galvin said.
It was determined that the five firms did not ensure small-dollar transactions were executed at “a fair and reasonable price,” overcharging customers by applying minimum commission charges as high as $95. State securities laws prohibit firms from charging unreasonable commissions to clients. In this case, numerous equity transactions executed by the firms included a commission well in excess of five percent of the principal value of the transaction at issue, NASAA said.
As part of the settlement, the firms have agreed to provide affected customers with restitution, plus interest in the amount of six percent from the date of the customer’s transaction through the date of execution of the Term Sheet and Offer of Settlement. The firms will also pay total fines not to exceed $9.345 million to settling states, plus reimbursement of investigative costs to the states in the working group. Each firm must also take measures to ensure that its policies and procedures include safeguards to prevent charging excessive fees.
“This settlement will result in restitution to investors and shows once again that state securities regulators will take decisive action to protect investors,” said Leslie Van Buskirk, NASAA President and Wisconsin Securities Administrator.
“When people decide to invest their hard-earned money, they should get the maximum value of their investing dollars. We want to thank the members of the multijurisdictional working group for their diligence and hard work,” said NASAA’s Broker-Dealer Section Chair Jim Nix and Vice Chair Amber Crouch.
A Schwab spokesperson said in a statement that the issue related to a small subset of trades that made up than 1% of TD Ameritrade’s total order volume. “We’re pleased to bring this issue to a close and remain committed to upholding the highest standards of fairness, transparency, and client care,” the spokesperson said.
An RBC spokesperson said the firm was “pleased” to resolve the matter and would reimburse all impacted clients, saying that before the investigation, “RBC had self-reported this issue to FINRA and took immediate steps to revise policies, procedures and systems.” Representatives from the other firms did not return requests for comment by WealthManagement.
The attorneys at Lewitas Hyman were formerly senior attorneys in the SEC’s Division of Enforcement. We have represented clients in regulatory matters while working at Morgan Stanley and in private practice at some of the world’s largest law firms. Therefore, we understand the complexities that come with being the subject of a regulatory inquiry, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a free consultation.
