FINRA Announces Fines for Firms Charging Excessive Fees

The Financial Industry Regulatory Authority (FINRA) announced in a news release that five firms have been fined for charging excessive “handling fees.” The firms apparently classified part of the commission charges as “handling fees”, providing additional transaction generated revenue that was deemed excessive by FINRA. During the FINRA investigation, it discovered that the firms involved would routinely charge postage and handling fees of anywhere from a few dollars to $100 on each transaction, producing considerable revenue for the firm. The fees were also deemed to be over and above what the actual routine processing cost would be for the firms. This trend surfaced after the financial market collapsed in 2008 and firms were struggling to make a profit.

The firms that were targeted and fined nearly $1 million by FINRA are as follows:

  1. Pointe Capital, Incorporated out of Boca Raton, Florida. The handling fee charged to customers was up to $95 for each transaction, plus the commission. The firm was also cited for having inadequate supervisory procedures. Pointe Capital was fined $300,000. Pointe capital is now known as JHS Capital Advisors Incorporated, after being bought out by a group headed by John Sykes. Sykes was the former chairman of the now defunct Gunn Allen Financial, which was decimated by its involvement with private placement offerings by Provident Royalties and Medical Capital Holdings.
  2. John Thomas Financial out of New York, New York. The handling fee charged to its customers was up to $75 for each transaction, plus the commission. The firm was cited for a litany of other deficiencies, including inadequate complaint reporting, inadequate supervisory controls and certifications, inadequate supervisory controls and recordkeeping and making changes in its business operations without first seeking approval from FINRA. John Thomas was fined $275,000.
  3. First Midwest Securities Incorporated out of Bloomington, Illinois. The handling fee was up to $99 for each transaction, plus the commission. FINRA also cited the firm for inadequate written supervisory procedures and unfair and unreasonable markups and markdowns. First Midwest was fined $150,000.
  4. A&F Financial Securities Incorporated out of Syosset, New York. The handling charges were up to $65 per transaction in addition to the commission. FINRA cited the firm for having inadequate supervisory procedures and failing to comply with required continuing education. A&F was fined $125,000.
  5. Salomon Whitney LLC out of Babylon Village, New York. The handling fees charged to its customers was as high as $69 for each transaction, plus the commission. Salomon was fined $60,000.

Each of the firms agreed with FINRA to initiate changes regarding the handling fee charges to customers’ accounts, among other corrective measures concerning supervisory issues, recordkeeping, continuing education and mark ups and mark downs.

The FINRA Executive Vice president and Chief of Enforcement, Brad Bennett, said, “Trade confirmations and fee schedules must clearly reflect commission charges, and firms cannot disguise commissions by improperly describing them as charges for ancillary services. FINRA will continue to look closely at any firms that engage in these practices.”

FINRA Chief Richard Ketchum said, “We are taking a close look at excess charges for routine services which some firms appear to be treating as an additional de facto commission.”

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