Sandlapper Securities Expelled From FINRA

FINRA Censures and Fines Baird for Commission Overcharging on Stock Trades

Robert W. Baird & Co., a Milwaukee, Wisconsin-based regional brokerage firm, has been asked by the Financial Industry Regulatory Authority (FINRA) to pay more than $416K for, as it seems, levying customers excessive commissions on several thousand equity transactions.

FINRA sanctions accepted by Baird, without admittance or denial, are:

  • a censure
  • a fine of $150,000
  • restitution amounting to $266,481 plus applicable interest

Table of Contents

FINRA fines

Baird relied on a published tariff schedule according to which the minimum commission it would charge on any transaction was $100. This was apart from a handling fee, as indicated in the FiNRA letter. On 7,277 equity transactions handled for 4,623 customers, it was deemed as an “unfair commission.” The period of these transactions stretched from June 2019 through December 2020.

FINRA quoted the example of a customer buying two shares of Apple Inc. for a cost of $772, having to pay $100 as commission which amounted to a usurious 13% of the principal value. The smaller the trade value, the higher the commission in percentage terms, even going as high as 93%. FINRA found the average overcharge to be $37 per transaction.

One of the areas that FINRA found fault with was the supervisory system of Baird that failed to take relevant variables into account while determining the fairness of commission charged in the cases where the minimum commission of $100 was levied. Specifically, the omissions included the type and availability of the security being transacted and the commission as a percentage of the principal value of the trade.

On the other hand, trades in which the customer was charged over 5% of the principal value as commission were ‘generally flagged.’

The result of charging the minimum $100 commission was the violation of Rule 3110 of FINRA, which governs the supervision of brokers, and Rule 2121, which limits a firm’s ability to ‘mark up’ the cost of the securities. Of course, Rule 2010, which is a catch-all rule and requires ‘high standards of commercial honor,’ was violated too.

The originating point of this investigation was the 2020 cycle examination of Baird carried out by FINRA, as clarified in the letter.

There was no response to requests for comments from Employee-owned Baird, which manages $255 billion in client wealth with the help of around 1,300 advisors in its wealth management business.

 

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