BD to Pay Nearly $1 Million for Failing to Review Fee-Based Accounts
A BD agreed to pay nearly $1 Million in fines and restitution for allowing customers in fee-based brokerage accounts to pay more than they would have paid in a traditional brokerage accounts. FINRA explained that firms must ensure that fee-based brokerage accounts are appropriate for an investor and remain appropriate based on the account’s projected cost. FINRA alleged that many of the accounts remained in the fee-based accounts even though the accounts engaged in no trading over a period of 2 years. FINRA also charged the BD with failing to give customers applicable breakpoint discounts and failing to inform customers that they would pay fees on assets held on margin and short sales.
OUR TAKE: FINRA continues to expand the suitability requirement to an ongoing obligation to review customer account holdings. In this way, FINRA essentially creates a fiduciary obligation for BDs that is similar to the fiduciary obligation applicable to registered investment advisers.