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Raymond James Could Pay $13 Million To Settle Complaints

Dec 24, 2003 | AP

Raymond James Financial Inc. said it could cost more than $13 million to settle complaints that it overcharged customers who made large purchases of mutual funds.

In an annual report filed Tuesday, the company said it anticipates paying a penalty of up to $6.5 million as part of an enforcement action by the Securities and Exchange Commission and the National Association of Securities Dealers.

Reimbursing customers is expected to cost an additional $6.9 million, although Raymond James said it expects to recover up to half of that from financial advisers who benefited from the excess commissions. That would produce a total pretax impact on Raymond James' earnings of up to $9.8 million.

The concern over charging practices at Raymond James and more than 170 other companies in the industry centers on whether customers who had already purchased substantial shares in mutual funds got the discounts they earned on fees connected to subsequent purchases, explained Jonathan Burton, mutual funds editor of the San Francisco-based online financial site, CBS MarketWatch.com.

The industry calls the practice "breakpoint" discounts on front-end load fees that often range about 5.34 percent of a purchase price. At some firms, customers are entitled to discounts on these fees when they buy a certain amount, or even when customers and their relatives combined have purchased a set amount, Burton said.

"This is real money in people's pockets," Burton said. "If you make a $10,000 investment, that's a few dollars that you can put somewhere else, or, more important, an additional few dollars that would have been earning money in your fund."

The fines, Burton said, are meant to "keep everybody on their toes. It sends a message out."

Raymond James CEO Thomas James said in a November statement that the company had relied on clients, advisers, and other mutual fund companies it represents to track pricing schedules, adding: "That was clearly insufficient and we are embarrassed by this incident."

Numerous brokerage firms are facing similar charges. Wachovia Corp., American Express and Legg Mason Inc. have announced that they face possible enforcement action over the issue.


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