Milwaukee-based Robert W. Baird & Co. Inc. has been fined $250,000 by the SEC for allegedly failing to comply with regulations related to client fees.
According to the SEC, Baird should have set up guidelines to track how much its clients were being charged in commissions when sub-advisors “traded away” with a broker-dealer outside its wrap fee program. Its financial advisors should have used those figures to make their decisions on the suitability of sub-advisors or wrap fee programs for their clients.
Without this information, financial advisory clients could not have known how much they were being charged in fees beyond the single wrap fee they paid for the bundled investment services, the SEC said in a press release.
St. Petersburg, Florida-based Raymond James & Associates was also penalized for this violation, and has agreed to pay $600,000. The payments were to settle the charges, and neither firm admitted or denied the charges.
“Costs are a critical factor when firms determine whether a particular investment product or strategy is suitable for a client. Baird and Raymond James lacked policies and procedures to consider an entire category of cost information and didn’t fully evaluate whether these wrap fee programs were a good fit for their clients,” said Andrew Ceresney, director of the SEC’s Division of Enforcement.
The settlement comes as scrutiny has increased surrounding the disclosure of commissions to financial advisory clients. The U.S. Department of Labor in April released its final rule on the fiduciary standard, which would require advisors to put clients’ interest before their own in endorsing investments for individual retirement accounts. It is scheduled to take effect on Jan. 1, 2018 and has caused controversy in the industry.
In conjunction with the announcement, the SEC released an updated Investor Bulletin explaining how fees and expenses affect consumers’ investment portfolios over time.