FINRA today released news that it fined AXA Advisors $1.2 Million for what it terms "fee-based account violations," and ordered the firm to return $1.4 million in fees it collected to customers. See the release here. What really bothers BDLawBlog.com about this matter, and similar ones before it, is that FINRA appears to take the position that a firm MUST sell its products to customers at the lowest possible price, regardless of services provided, and regardless of what clients desire.
According to the release, there were several problems at AXA. First, they marketed their fee-based accounts for investors with at least $50K and who would be planning on trading some, as opposed to pure buy-and-hold investors. But, AXA allegedly ignored its $50K minimum and let smaller investors into the program. Moreover, they allegedly provided "inaccurate information to brokers and customers about how fees would be assessed in these accounts." These seem like valid findings. But, FINRA also cites to supervisory deficiencies that seem to relate the firm ensuring that only customers for which a fee-based account was "appropriate" were allowed to maintain such an account. This presumes, of course, that FINRA is the arbiter of who is "appropriate" for a fee-based account. Apparently, "appropriate" means effecting transactions to clients at the lowest price, regardless of the contracts for services (that includes services beyond the transactions) that clients voluntarily enter with their brokerage firm.
For professional services, most folks don't choose service providers based on the lowest possible cost. I don't choose a surgeon who advertises the lowest price or provides me with a 110% price difference guarantee. I don't use an accountant who has a blow-out sale on tax preparation and planning services. Rather, I hire other service providers based on their knowledge, skills and abilities, and that of their organization. Likewise, many investors choose their investment rep. in the same fashion. With these types of disciplinary actions, it appears to me that FINRA apparently does not recognize that an investment rep. provides valuable services to clients beyond the transaction, and apparently uses lowest possible cost as the single factor in determining "suitability." Following the regulators' logic - to an extreme - full-service shops should simply refer all clients and prospects to discount brokerages, because the investors can pay a smaller commission there.
I'm in favor of protecting investors. Certainly. But investor protection is not about overriding the free market and mandating the way in which services are provided and fees charged. It just ain't right, and that's my $0.02.
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