Raymond James could be on the hook for $40 million in additional penalties

Raymond James Financial Inc. this week disclosed another round of potential legal and regulatory penalties totaling an aggregate loss of as much as $40 million, according to the firm’s annual report, which was released on Wednesday. 

Unlike most of its competitors, Raymond James Financial, with more than 8,000 financial advisors across multiple business lines, ends its fiscal year in September rather than December. That’s why the firm publishes its annual report at the start of the year rather than in March like firms such as LPL Financial Holdings Inc. and Morgan Stanley.

The company was keeping mum about potential reasons for the updated estimate of $40 million in aggregate losses. 

"The $40 million is not pegged to any specific, anticipated judgment or expense," a Raymond James spokesperson wrote in an email to InvestmentNews.  "The $40 million is rather a subjective estimate of all reasonably possible exposure that we disclosed in our 10-k on Nov. 26, 2024, and was also included in the annual report." 

"We update that number quarterly, as required, and it is trackable quarter to quarter," wrote the Raymond James spokesperson, adding that this disclosure was not related to off-channel communications at the firm. Financial advisors and executives using unapproved devices to communicate or unmonitored text messages has been a hot-button issue for the retail securities industry.  

Last year saw multiple large brokerage firms hit with 10s of millions of dollars of penalties by the Securities and Exchange Commission due to registered people like financial advisors and firm executives using unsupervised technology such as text messages to communicate.

Raymond James & Associates Inc., where financial advisors work as employees of the firm, agreed to settle the matter with the SEC and pay $50 million. "The off-platform $50 million last summer had already been reserved previously," the Raymond James spokesperson wrote. 

Raymond James’ annual report does not cite reasons for the potential $40 million “aggregate loss.”

“With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss as of Sept. 30, 2024, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $40 million in excess of the aggregate accruals for such matters,” according to the annual report.  

“It sounds like Raymond James expects $40 million in penalties more than what the firm accrued for,” said one senior industry executive, who spoke confidentially to InvestmentNews about the matter. “The next step for any firm would be to make sure it has adequate reserves in the contingency fund.”

Another senior industry executive, who also spoke privately to InvestmentNews, said large firms were not preparing at the start of this year for a round of penalties like those from the SEC regarding off-channel communications.

“In fact, what the big firms are collectively nervous about is the new administration of incoming President Trump messing around with the independent contractor status of financial advisors,” the executive said.

Financial advisors work as independent contractors in large part because of the tax advantages of owning their own businesses, along with the independence of not working for a large firm. Preserving the independent contractor business status for advisors has long been a priority for the industry and its chief lobbyist, the Financial Services Institute. 

Editor's note: This story has been updated to reflect comments from Raymond James.