NEW YORK, Sept 7 (Reuters) - The Financial Industry
Regulatory Authority has fined five small broker-dealers for
understating commissions, but more than compensating for that
by overcharging handling fees.
The fees far exceeded the actual cost of their services,
the Wall Street watchdog said on Wednesday.
The handling fees were "designed to serve as a source of
additional transaction based remuneration," according to a
statement. Brokerages, in some cases, charged a handling fee of
almost $100 per transaction and earned "a substantial
percentage" of their revenue from the practice, Finra said.
The five brokerages, which agreed to fines ranging from
$60,000 to $300,000, are Pointe Capital, Inc. in Boca Raton,
Florida.; John Thomas Financial in New York; First Midwest
Securities, Inc., in Bloomington, Illinois.; A&F Financial
Securities, Inc., in Syosset, New York.; and Salomon Whitney
LLC, in Babylon Village, New York.
None of the firms admitted nor denied the allegations, but
agreed to Finra's inclusion of certain findings in the
settlement orders.
The firms also agreed to adopt new procedures, such as
identifying commissions properly in customer's account
statements.
"Firms cannot disguise commissions by improperly describing
them as charges for ancillary services," Brad Bennett, Finra's
enforcement chief, said in a statement.
Charging so-called "handling fees" is a longstanding
practice among smaller brokerages, lawyers said. The action,
however, reflects a tendency by Finra to pursue smaller
brokerages more aggressively than larger ones, said Jonathan
Uretsky, a New York-based securities lawyer at Phillipson and
Uretsky whose clients include small brokerages.
A lot of small firms may have that practice, but in small
amounts, he said.
"The question is really, how problematic is the practice?
There's a tipping point after which Finra needs to move in," he
said.
A Finra spokeswoman declined to immediately comment.
Representatives from four brokerages didn't return calls
requesting comment. A lawyer for John Thomas Financial said the
firm is pleased to have resolved its differences with Finra.
(Reporting by Suzanne Barlyn)
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