LPLA, SF & Others to Face Penalty for Overcharging Retail Investors

Five brokerage firms, LPL Financial LPLA, RBC Capital Markets, a subsidiary of Royal Bank of Canada RY, TD Ameritrade, a subsidiary of Charles Schwab SCHW, Stifel Financial SF, and Edward Jones, have collectively agreed to pay more than $19 million as part of a multistate settlement. These firms were accused of levying excessive commissions on retail investors, particularly on small-dollar transactions.

These brokerage firms will pay up to $9.87 million in fines and costs, besides settlement charges to affected clients.

Details of the Lawsuit

In a statement released Monday, the North American Securities Administrators Association (NASAA) said regulators found that the firms violated state securities laws by applying minimum commission charges—often exceeding 5% of the transaction value—on low-value transactions. This goes against FINRA Rule 2121 standards. These minimum fees, ranging from $25 to $95 per trade, had a disproportionate impact on low-dollar trades.

In a separate announcement, William Galvin, Secretary of the Commonwealth of Massachusetts, whose office introduced the enforcement action for the state, highlighted broader regulatory concerns. “This custom that some brokerage firms have of nickel-and-diming customers in order to line their pockets with commissions is something that I and other securities regulators have been watching closely,” Galvin said on Monday.

The investigation revealed that over five years, the firms imposed roughly $19 million in commissions across 1.12 million trades.

Segregation of Penalty Imposition on Each Firm

Edward Jones accounted for more than $11 million in commission charges on more than 780,000 trades. The firm agreed to pay a $100,000 fine and $25,000 in investigative expenses to the state of Massachusetts.

LPL Financial imposed $2.49 million in excessive commissions on over 127,000 trades nationwide and will pay $25,000 in fines to the state. The subsidiary of Royal Bank of Canada, RBC Capital Markets, imposed a minimum commission of $95 on some trades, charging nearly $3.4 million, and will pay a $25,000 fine.

Regulators discovered that Stifel charged a $40 minimum commission, resulting in $885,480.13 in charges across roughly 45,000 transactions. The firm is set to pay Massachusetts $30,000, including fines and costs.

TD Ameritrade, which was acquired by Schwab after the alleged violations occurred between June 2018 and June 2023, was fined $15,000 and agreed to pay $35,000 in investigative costs. The firm was found to have charged more than $913,000 in excessive commissions. The firm’s minimum broker-assisted trade commission was as high as $44.99 before 2019.

Corrective Measures Suggested by Regulators

Besides penalties, these firms are also required to revise internal policies and supervisory procedures to ensure the prevention of such practices. In most cases, they will be required to certify that commissions on equity trades will not exceed 5% of the trade’s principal amount without a documented exception.

Leslie Van Buskirk, president of NASAA, said, “State securities laws prohibit firms from charging unreasonable commissions. This settlement will result in restitution to investors and shows once again that state securities regulators will take decisive action to protect investors.”

Amanda Senn, enforcement section chair of NASAA and director of the Alabama Securities Commission, stated, “This settlement is an important reminder to firms to be vigilant with regard to charging practices and to ensure they are dealing fairly with customers.”

More than 20 additional states have indicated their interest in joining the settlement, which could significantly increase the fines and amplify regulatory pressure on these firms.

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