The North American Securities Administrators Association (NASAA) has announced that state securities regulators had fined Edward Jones, LPL Financial, RBC, Stifel and TD Ameritrade up to $9,345,000, plus costs and restitution, for charging unreasonable commissioners to retail customers for low-value trades.

A working group comprising state securities regulators from Alabama, Iowa, Massachusetts, Missouri, Montana, Texas, and Washington revealed that the brokerage firms charged approximately $19m to process 1.12 million small-dollar equity transactions and trades, which breached state laws prohibiting unreasonable commissions.

According to consent orders, Edward Jones constituted more than half of the unfair commissions, at $11.3m.

Secretary of the Commonwealth of Massachusetts William Gavin, who spearheaded the working group, said the firms charged as much as $95 in minimum commissions for small dollar transactions.

Unreasonableness is defined at the state level by reference to multiple standards including FINRA Rule 2121, which states that commissions of around 5% of the value of the underlying transaction could be considered unfair or unreasonable, depending on the circumstances.  

According to NASAA, many of the commissions charged by the settling brokerage firms were “well in excess” of that red line.

Settlement and restitution

The settlement will have the named companies provide affected customers with restitution plus 6% interest on the amount they were overcharged, plus fines and costs. They will also pay up to $9,345,000 in fines to settling states, plus investigative costs to the working group. The firms further agreed to update their policies to prevent charging excessive fees.

At present, a handful of other states are seeking to join the settlement, including Alaska, Arkansas, California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Mississippi, New Mexico, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, West Virginia, and Wisconsin.

“This settlement will result in restitution to investors and shows once again that state securities regulators will take decisive action to protect investors,” said Leslie Van Buskirk, NASAA President and Wisconsin Securities Administrator.

Secretary Gavin said: “We have secured similar settlements for overcharged customers with other firms in the past, and we will continue to keep our eyes on any other firms that attempt to charge small-dollar investors these unreasonable fees.”