The NASD announced Wednesday it has censured and fined Raymond James & Associates Inc. and Raymond James Financial Services Inc. US$750,000 for violations relating to the firms’ fee-based brokerage business.

The firms will also pay restitution totaling US$138,000.

The regulator found that, from April 2001 through December 2004, the firms failed to establish and maintain a supervisory system, including written procedures, reasonably designed to review and monitor their fee-based brokerage business. In addition, the firms also violated NASD rules by recommending and opening fee-based brokerage accounts for customers without first determining whether these accounts were appropriate and by allowing those accounts to remain open. In settling these matters, the firms neither admitted nor denied the charges, but consented to the entry of the NASD’s findings.

It reports that the firms began offering their customers fee-based brokerage accounts in early 2001. Their fee-based account business grew rapidly, increasing from some 8,600 accounts and $1.8 billion in assets at the end of 2001 to more than 27,000 accounts and close to $5.5 billion in assets by the end of August 2004. But the NASD found that the Raymond James firms did not implement any supervisory system geared toward their fee-based accounts. Instead, they continued to rely on their existing supervisory system, which was directed towards its commission-based business.

The NASD alleges that they never conducted an initial or periodic supervisory review of their customers’ fee-based brokerage accounts to determine whether those accounts were appropriate for the particular customers. In addition, it says that the firms never monitored their fee-based accounts for inactivity and improperly allowed certain fee-based accounts to remain open.

Raymond James also was found to have used advertising and sales literature that emphasized the benefits of fee-based accounts without adequately discussing the fees and restrictions associated with those accounts. NASD further found that some of the advertising and sales literature pieces were inaccurate and misleading.

The firms have notified NASD that they are in the process of terminating their fee-based brokerage programs and will completely discontinue their fee-based brokerage business by July 1. As part of the sanctions imposed by NASD – in the event that either of the Raymond James firms involved in today’s action continues with any fee-based brokerage business after July 1 – the firm must retain an independent consultant to make recommendations regarding establishing, maintaining and enforcing a supervisory system and written procedures relating to its fee-based brokerage business that are designed to achieve compliance with applicable securities laws and NASD Rules.

“Fee-based accounts can be appropriate for many investors,” said NASD vice chairman Mary Schapiro. “But they are not automatically appropriate for everyone. Firms should not recommend these accounts without first making a determination, by looking at traditional suitability factors as well as the customer’s trading history, that the account is appropriate in light of the services provided, the projected cost to the customer, alternative fee structures available and the customer’s preference. They also should periodically review these accounts after they are opened to see that they remain appropriate.”