FINRA fines Robert W Baird for fee-based account and breakpoint violations

Published: 24-Feb-2009

The Financial Industry Regulatory Authority, the regulator for all securities firms doing business in the US, has fined Robert W Baird & Company $500,000 for supervisory violations relating to its fee-based brokerage business.

The Financial Industry Regulatory Authority (FINRA) also ordered Baird to return $434,510 in fees, plus interest, to 154 customers. Those customers either paid fees in fee-based accounts without generating activity or paid fees higher than those indicated on the Baird fee schedule.

Baird terminated its fee-based brokerage account program called 360/One accounts in September 2007. FINRA found that Baird's failure to adequately review its 360/One accounts during a period in which the 360/One program grew from approximately 7,000 accounts to over 11,000 accounts allowed numerous 360/One customers to remain in the program despite conducting no trades for at least eight consecutive quarters. These accounts paid over $269,000 in fees during the inactive quarters (that is, excluding the first four consecutive quarters with no trades).

Baird also failed to have a supervisory system in place to automatically credit certain 360/One customers with breakpoint discounts that were specified in new account agreements. As a result, 53 customers paid fees higher than those indicated on the Baird fee schedule, resulting in total overpayments of approximately $165,000.

In addition, from May 1999 through January 2005, Baird failed to adequately disclose to its fee-based customers that assets held on margin - for which the customer might already be paying interest - and short sales were included as eligible assets for purposes of fee calculation, said FINRA.

In settling this matter, the firm neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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