It's no secret that more brokerage firms are switching from traditional transaction-based customer billing programs and toward fixed annual fee-based structures.

As more brokerage firms adopt fee-based pricing platforms, it's also no surprise that the NASD is taking a closer look at whether or not such programs have the customer's best interest at heart.

Raymond James discovered that the hard way. On April 27, 2005, the National Association of Securities Dealers whacked the St. Petersburg, Fla.-based brokerage company with a $750,000 fine for failure to apply customer needs standards to its fee-based brokerage program. Raymond James also agreed to the NASD's demand that it cough up $138,000 in restitution to customers who participated in its fee-based programs, even though records show the customers weren't active traders or otherwise "viable" candidates for such programs, says a source at the NASD.

"While we recognize that fee-based programs are growing in size in the brokerage industry, we feel that they are not always suitable for everyone – customers who don't trade that often, for example," offers James Shorris, senior vice president and deputy head of enforcement at the NASD. "We've been studying fee-based programs for a long time now and believe that brokerage firms ought to be asking their customers a lot of questions first: What's their trading history? What's their investment objective? There has to be some sort of suitability structure in place, and Raymond James really didn't have one."

For its part, Raymond James isn't doing much talking. In a statement dated April 27, the company said "We continue to believe that fee-based accounts represent a sound way of providing service to clients. We have decided that these accounts are best structured as advisory accounts, since this structure allows us to provide the widest range of services and advice to clients without any question under current regulatory guidance."

Raymond James also says it will halt its three-year-old fee-based brokerage practice, which had increased from about 8,600 accounts and $1.8 billion in assets at the end of 2001 to about 27,000 accounts and nearly $5.5 billion in assets by the end of August 2004.

The brokerage firm is not alone under the NASD spotlight. Another source at the organization says that "several more investigations are underway" targeting brokerage companies who have deployed questionable fee-based brokerage pricing programs.