It's not that uncommon a practice for customers to find various fees and charges on their monthly statement or daily confirmations. On the other hand, as a recent regulatory settlement shows, what you call an additional charge may make all the difference in the world.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, K.C. Ward Financial submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of K.C. Ward Financial, Respondent (AWC 2012034691101, August 14, 2013).
Since 2007, KC Ward Financial has been a FINRA member firm, presently employing about 20 individuals. The AWC asserts that the firm had no prior relevant disciplinary history.
Getting A Handle
The AWC alleges that from January 1, 2011, through April 30, 2012, KC Ward charged its customers a $49 per securities transaction handling fee in addition to commissions. The handling fee was disclosed on customer trade confirmations but the AWC characterized the charge as:
not reasonably related to any direct handling-related services performed by the Firm, or handling-related expenses incurred by the Firm in processing the transaction, but rather was effectively an additional commission.
NASD Conduct Rule 2430: Charges for Services Performed
Charges, if any, for services performed, including miscellaneous services such as collection of moneys due for principal, dividends, or interest; exchange or transfer of securities; appraisals, safe-keeping or custody of securities, and other services, shall be reasonable and not unfairly discriminatory between customers.
The nuance of this matter is that FINRA did not deem the $49 charge as a bona fide "handling fee," but, saw it as akin to an additional, undisclosed commission masquerading as a fee. In furtherance of that line of thought, the AWC alleged that KC Ward had understated the total charged commissions in violation of NASD Conduct Rule 2430, FINRA Rule 2010, and Exchange Act Rule 10b-10.
In accordance with the terms of the AWC, FINRA imposed upon KC Ward a $15,000 fine and a Censure.
Bill Singer's Comment
Compliments to FINRA on this AWC. Short, sweet, and concise. A compelling explanation and a balanced sanction.
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