An Investment Industry Regulatory Organization of Canada (IIROC) panel in Vancouver has fined Toronto-based Raymond James Ltd. $125,000 for compliance failings relating to the overcharging of more than 6,000 clients, IIROC announced Monday.
According to the settlement agreement, Raymond James admitted it failed to have a system of internal controls reasonably designed to achieve compliance with IIROC’s requirements from 2010 to 2016.
As a result of the dealer’s failure, some clients in fee-based accounts, commonly known as Viridian accounts, were charged a higher fee than they should have been.
According to the settlement, Raymond James in 2017 reported to IIROC that more than 6,000 clients were charged a total of $2.35 million in excess fess for certain ETFs and structured products that charged trailer fees.
Although the dealer had controls in place to exclude trailer-paying mutual funds from its fee calculations, it overlooked the ETFs and structured products that paid trailers. The dealer discovered the overcharging after launching an internal review in response to reports of other investment dealers discovering similar incidents of overcharging in their fee-based accounts.
“The respondent’s book of record did not contain any product identifiers that enabled products such as these to be filtered in a way to determine which paid trailer fees,” the IIROC panel says in the settlement. “When it received large sum trailer fee payments for multiple securities from management companies, the respondent did not have a comprehensive procedure in place to check each security to determine if it was held in Viridian accounts, or coded in a way that would exclude them from the account fee calculation.”
The overcharging was inadvertent, the settlement notes. “There is no suggestion that [the firm] deliberately overcharged any client,” it says.
Since discovering the issue, Raymond James has sought to repay both existing and former clients who were affected. To date, it has repaid almost $2.3 million, according to the settlement, and has promised to donate any excess fees that cannot be repaid (because former clients can’t be located) to a charity (without claiming a tax credit for the donation), so that it will not benefit from the overcharging.
The firm has since developed controls to prevent similar overcharging.
“Each trailer paying security is now flagged and a control is in place to systematically prevent the client from being charged a management fee when the security is held in a fee-based account,” the settlement says.
In November, an IIROC panel in Toronto imposed sanctions against Raymond James for similar compliance failings.