Raymond James to pay $15M to settle fee inflation lawsuits

Following a four-year legal battle and two appeals, Raymond James has agreed to pay $15 million to settle two consolidated lawsuits that accused the firm of overcharging its clients in certain accounts.

The firm has also agreed to “remove language that formed the basis of the alleged misrepresentations” from these accounts, according to court documents, which were filed in a U.S. District Court in Florida.

Raymond James client Jyll Brink filed the original lawsuit against the firm in 2015, asserting breach of contract and negligence on Raymond James’s part for allegedly inflating processing fees by up to 10 times in the firm’s passport accounts — self-directed accounts where individuals can select from a variety of investments, including stocks, bonds, real estate investment trusts and eligible mutual funds, among others.

The case was dismissed the following year, only to have the court reverse and remand it after a successful appeal. A judge granted the lawsuit class action status at the end of 2018, a ruling Raymond James was appealing prior to the announcement of a settlement Tuesday, according to court documents.

As part of the settlement, Brink’s class action was consolidated with a case filed in early 2016 against Raymond James by Caleb Wistar and Ernest Mayeaux, who alleged similar charges.

“These matters collectively resulted in years of hard-fought litigation, two in-person mediation sessions, extensive pre-trial motion practice, extensive written discovery, production and review of hundreds of thousands of documents, multiple depositions, and two appeals,” the court documents state.

If the court approves the settlement in a hearing set for late October, the St. Petersburg-based regional broker-dealer will repay clients who were allegedly overcharged.

"While Raymond James denies the allegations, for the sake of expediency, we chose to resolve these matters and were able to reach a settlement for both cases. We will continue to focus our energy on providing advisors and their clients with industry-leading service in pursuit of their goals,” a Raymond James spokeswoman told Financial Planning.

Clients may choose to exclude themselves from the settlement, thus retaining their rights to sue Raymond James individually. If they do not exclude themselves, they will receive a check for their “pro rata portion of the settlement fund,” according to the motion to settle.

But by the time these clients get repaid, their cumulative settlement may have dwindled to $8.9 million, even before taxes and class administration expenses. Plaintiffs’ attorneys have asked the court to approve 40% of the $15 million settlement fund — or $6 million — as payment for their services, according to the motion to settle, which was granted preliminary approval.

A spokeswoman for law firm Day Pitney declined to comment.

These fees are on the “high end of what we often see as a class action attorney fee,” says Paul Foley, an attorney at Akerman in Winston-Salem, North Carolina, who is not affiliated with the case. He notes that attorneys typically take around one-third of settlement funds, although “it’s certainly not unheard of.”

Brink is seeking payment of $75,000; Wistar and Mayeaux are asking for $25,000 each “for reimbursement of their time commitment” as well as risk of costs had the lawsuits been unsuccessful, the motion for settlement states.

If these payments are approved by the court, the remainder of the fund will go to clients granted class status, including current and former U.S.-based Raymond James customers who were charged or deducted per-transaction processing or miscellaneous fees on certain transactions between 2010 and 2019, depending on which lawsuit they were associated with. Financial advisors and clients whose financial advisor paid at least part of the processing fee on any of their trades are excluded from the class, according to the court documents.

The distribution will be determined based on a formula related to number of funds and cost of trades for each class member, according to notices the court approved for distribution to the class members.

Members of the class can opt out of the settlement by Sept. 13, 2019. They may also object to the settlement.

Going forward, Raymond James will amend the Passport Agreement for all existing and future customers to make clear that the revenue generated from processing and miscellaneous fees is not limited for use to offset the costs for executing and clearing trades.

The mediation between the parties took place on April 4 and 5.