Regulators going postal over alleged price gouging

Finra chief raises issue of B-Ds' marking up postage charges to clients

Jun 19, 2011 @ 12:01 am

By Bruce Kelly

Some broker-dealers are padding their commissions by marking up the postage and handling fees that they charge clients, in some cases socking them for up to $75 per transaction, according to industry executives and regulators.

Richard G. Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority Inc., raised the issue of postal price gouging last month in a speech to industry executives. His warning came after the state of Connecticut in April issued a preliminary cease-and-desist order against a broker-dealer because the firm allegedly was tacking on fees beyond the cost of handling and postage.

Postage and handling fees charged by broker-dealers can range from $3 or $4 to as high as $75 per transaction, brokerage executives said. Desperate for profits since the market collapse, some firms have been inflating postage and handling fees since late 2008, they said.

In some cases, different branch offices of the same firm charge clients widely different postage and handling fees.

Finra may issue enforcement actions to address the abuse, Mr. Ketchum said.

“We are taking a close look at excess charges for routine services, which some firms appear to be treating as an additional de facto commission,” he said during the speech. “You can expect to see some enforcement activity in this area with respect to particularly egregious examples.”


Joseph Borg, director of the Alabama Securities Commission, said that he recently investigated one broker-dealer that was charging “outrageous” postage and handling fees.

He declined to give specifics about the investigation but added that smaller broker-dealers are the most common abusers of the fees.

The Connecticut Banking Department's preliminary cease-and-desist order against Newbridge Securities, a midsize broker-dealer based in Fort Lauderdale, Fla., highlights the alleged practice.

According to the firm's profile on Finra's BrokerCheck system, “Newbridge Securities Corp. charged its customers a transactional "handling fee' that was unrelated to actual transaction costs, and that the firm failed to inform customers that the fee included a profit to the firm, that certain customers paid lower fees and that the fee wasn't based on the actual cost of handling a particular transaction.”

Connecticut regulators want Newbridge, which has 225 representatives, to reimburse affected clients for the difference between the so-called handling fee that the customer paid and the actual amount of the firm's ticket, clearing and postage costs.

Newbridge declined to comment about the cease-and-desist order.

Finra declined to comment about specific firms that it is looking at that may have overcharged customers.

“It's an investment protection issue, and we're looking at particularly egregious examples,” said Finra spokeswoman Michelle Ong.

One industry executive said that the firms that are charging excessive fees aren't sharing them with their registered reps.

For example, if a rep charges a commission of $100 for a transaction, he or she pockets about $70 of that, said Chris Frankel, chief executive of Legent Clearing LLC. If the broker-dealer adds $25 in postage and handling fees, the rep still keeps only $70, with the rest going to the broker-dealer, he said.

“The firm charges $25 for postage and handling, and it's not shared with the broker,” Mr. Frankel said.

E-mail Bruce Kelly at


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