Raymond James Fined Over Mutual Fund Monitoring

Two Raymond James Financial Inc. subsidiaries have agreed to pay the Financial Industry Regulatory Authority more than $1.8 million for allegations of failing to supervise reporting of customer complaints and failing to monitor millions of mutual fund purchases that led to higher fees.

According to a letter of acceptance and consent signed by the investment advisory and broker/dealer on August 29, Raymond James & Associates Inc. and Raymond James Financial Services Inc. will pay a series of fines in part for failing to “reasonably supervise at least 4.7 million mutual fund purchases” from January 2012 through at least December 2017.

Those purchases, according to the letter, were made with mutual fund companies on customers’ behalf and were not added into the firm’s “automated surveillance systems.” As a result of the process breakdown, the firm failed to review about 630 direct C-share, B-share and A-share mutual fund purchases, along with mutual fund switches and swaps, that were “potentially unsuitable and inconsistent with Raymond James’ written supervisory procedures,” according to the letter. In total, that led to about $111,724 in excessive sales charges and commissions in connection with the transactions, according to FINRA.

The actions were in violation of FINRA’s Rule 3110; a predecessor, NASD Rule 3010; and FINRA Rule 2010.

Mutual funds remain important investments for defined contribution retirement plans, making up about 65% of DC assets, according to the latest data from the Investment Company Institute; the ICI has also reported a drop in fees for the investments over time.

In addition to the mutual fund-related charges, FINRA alleged that since at least January 2018, the Raymond James subsidiaries did not “reasonably supervise” timely reporting of customer complaints, including not ensuring that “firm personnel manually enter into the firms’ electronic system certain data required to make quarterly FINRA Rule 4530 filings. The firms also had not established reasonable controls to ensure that associated persons timely notify appropriate firm personnel of customer complaints.”

That fell afoul of Article V, Sections 2 and 3 of FINRA’s bylaws and of FINRA Rules 3110, 1122, 4530 and 2010.

Reporting of such information, according to FINRA, is “critical” for it to complete its regulatory oversight, which it does in partnership with the Securities and Exchange Commission, including investigating member firms and associated people. It also uses the information to alert the public through the BrokerCheck system.

Raymond James & Associates has agreed to pay a fine of $525,000 and restitution of $26,000 plus interest; Raymond James Financial Services has agreed to pay a fine of $1.3 million and restitution of more than $85,000.

The Raymond James groups did not admit to the charges via the letter and did not respond to request for comment. It was noted by FINRA, however, that they have sought to address the “deficiencies,” as of January 2023.

FINRA reserved the right to follow up with checks on the processes after the signing of the consent form.