The NASD has fined the former Quick & Reilly, now a member of the Banc of America Investment Services family, $570,000 for directed-brokerage violations. In addition, the brokerage industry's self-regulator imposed a $275,000 fine on Piper Jaffray & Co. for similar abuses. The Piper Jaffray fine was adjusted to reflect the firm's voluntary disclosure of its wrongdoing, which was uncovered during a self-evaluation.
According to NASD officials, both firms operated "preferred partner" or "shelf space" programs, a practice where brokers will offer favorable treatment to the funds of certain mutual fund companies in return for commissions and other payments. That treatment, the NASD detailed in a statement, included higher visibility on the firms' internal Web sites, increased access to the firms' sales forces, participation in "top producer" or training meetings, and promotion of funds on a broader basis than was available for other funds.
The conduct violates the NASD's "anti-reciprocal rule," which prohibits favoring one fund over another on the basis of brokerage commissions. "The purpose of the rule is to help eliminate conflicts of interest in the sale of mutual funds," said Mary L. Shapiro, vice chairman, NASD. "These sorts of arrangements encourage the inappropriate use of mutual fund commission dollars and have the potential to improperly influence a firm's judgment when making recommendations to their clients."
Piper Jaffray operated its preferred partner program from 1998 to 2003, NASD said. It included 12 to 15 fund complexes of the100 fund complexes the firm offered, regulators noted. Similarly, Quick & Reilly's program included 16 to 20 fund complexes, although it sold funds offered by about 300 fund complexes.
Neither firm admitted or denied the charges.
Earlier this month, the NASD charged American Funds Distributors with violating its Anti-Reciprocal Rule. Brokers Edward D. Jones & Co. and Morgan Stanley have also been found in violation of the rule.