Fee Working Group releases Standardized Broker Dealer Fee Schedule

September 27, 2015 the Fee Working Group released the results of their collaborative efforts to standardize miscellaneous broker-dealer fee schedules for retail customers.

The Fee Working Group is a voluntary effort by NASAA, FINRA, FSI, and SIFMA, brought together in 2014 to establish a standardized and transparent disclosure agreement in template form to address miscellaneous broker-dealer service fees.  The group was tasked to address three core concepts:

  • Develop a model fee disclosure form
  • Develop guidelines on accessibility, transparency, and terminology
  • Make recommendations on notification standards

What sparked the need for easy-to-read fee disclosure statements from broker-dealers?

In April 2014 NASAA (North American Securities Administrators Association) released results of a fee survey conducted on 34 broker-dealer registered firms that showed disparity in the way fees were disclosed from broker to broker. In some cases serious inconsistencies were noted, while in others the disclosures were simply poorly explained. NASAA found some brokers were burying fees in lengthy documents and hidden or small print, while others were charging unreasonable fees, and still others made the disclosures confusing and difficult for comparison with other firms. For this reason, a stakeholder group of broker dealer firms and industry organizations like FINRA, SIFMA, and FSI joined to develop a model fee schedule structure that would be easy for investors to read, understand, and compare against other firms.

 

Transparency guidelines for fee disclosure schedules broker dealers offer to retail investors:

In part, the goal of the Fee Working Group is to establish guidelines for broker-dealers to use in presenting fee information. The following guidelines were established based on their ability to provide transparency and disclose information.

Key Concept: Make the Broker Dealer service fee guide accessible to the public on the website

Example Web-page with fee disclosures

  • Schedules should be publicly available on the broker-dealer website, without a login requirement. Broker Dealer websites should have a clearly identifiable link for investors to access the schedule.
  • Broker-Dealer websites should be able to link to the fee schedule from a on-site search bar by typing “fee” or “fees” into the internal search bar.
  • Fee schedules should be findable through simple internet search Online search for Broker Dealer fee schedules
  • Fee schedules should be printable from the website and available in printed form to customers who ask.

What to include in the broker dealer fee schedule

The Fee Working Group determined the types of fees associated with servicing an account and laid out a template including those items. The guide is intended as a voluntary “best practice” solution and may be need to be adapted to accommodate boutique firms and unique situations. The core concept of the fee disclosure schedule is to have a basis to disclose miscellaneous account and service fees.

  • The Schedule should include all services provided by the firm for which there is a fee charged, including account maintenance charges.
  • The Schedule can, and should, be customized with the brokerage logo, colors, and branding.
  • The Schedule should be structured so that it is easy to read and easy to compare to other firm fee schedules.

Download our Template: Easy-to-read Broker Dealer Fee Schedule 

How much notification should a broker dealer give when changing the fees schedule?

The recommended rule for fee schedule changes is that firms should provide retail customers with no less than 30 days written notification prior to increasing any service charge or fee. Electronic and (or) mail carrier service are suitable methods to notify customers of fee changes.

What not to include in the Miscellaneous Services Fee Schedule:

Certain fees are proprietary or not suitable to be included in the fee schedule disclosure for retail customers. Fees such as; commissions, markups, commission equivalents, or advisory fees belong in other related documents where required.

Outline of the Broker Dealer Fee Schedule & Template

The Header Section: The header section is used to identify the firm, the document, and a preamble explaining the scope of the document. Included is the broker-dealer firm contact information and logo, the form title “Schedule of Miscellaneous Fees”, a brief statement explaining the fee schedule and fee policy.

Standard Sections of the Fee Schedule: There are 3 standard sections of the fee schedule; Account Maintenance, Cash Management Services, Investment Specific.  Brokerages have discretion to add additional sections as they see fit.

Standardized Heading for each section: a standardized heading is established at the beginning of each section to ensure fees are organized in a specific order. The section heading is:  Account or Service | Fee Amount | Frequency (monthly, daily, per transaction)

See the example broker-dealer fee schedule

Points to consider:

Some of the practices discovered and addressed by NASAA’s survey and the working group may become subject to legal violations. Broker Dealers are well advised to review their fee practices to avoid confusion by investors and ensure it passes muster under examination.  The Working Group considered Wirehouse firms, Independent Broker Dealers, Clearing Firms, and Introducing Firms among others in its efforts.

How well do you think the Fee Working Group did in designing the model fee schedule for broker dealer firms? Does it accurately convey transparency and disclosure of miscellaneous servicing fees to retail investors?

 


 

Fee Working Group history: 

The Fee Working Group is a voluntary effort by NASAA, FINRA, FSI, and SIFMA, and was brought together in 2014 to establish a standardized and transparent disclosure agreement template for miscellaneous broker-dealer fees.  As an example to the broker industry some larger firms have adopted the suggested fee disclosure schedule above. So far these model broker firms are; LPL Financial LLC, Morgan Stanley Smith Barney LLC, Prospera Financial Services, and Signature Investors Inc.   Using the model fee schedule produced by The Working Group is voluntary and highly encouraged as a sound business practice.

 

FINRA Broker-Dealer Compliance Consulting

Need guidance with fee disclosures? Our compliance consultants advise on what to include in the fee disclosure document and other issues such as; when to disclose broker fees, best practice for disclosing fees, length of fee disclosure document.  

RND Resources, Inc provides broker-dealer compliance, audit, and consulting services. Whether you’re a start-up broker-dealer looking for advice on Internal Controls, need a part-time FINOP, adding branch offices, or in need of a PCAOB auditor we have the resources to help.  RND is capable of handling all regulatory challenges in a coordinated program. We integrate business planning, compliance, operations, trading, and registration to bring you full service brokerage compliance.

 

Request a quote for compliance and audit services.   Download our company brochure. 

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