Attention Advisory Clients: Are You Being Overbilled?

Law IACby Qudsia Shafiq, Spring 2017 Student Intern

In late January 2017, the Securities and Exchange Commission (SEC)  reported Citigroup Global Markets, Inc. agreed to an $18.3 million settlement for allegedly overbilling at least 60,000 investment advisory clients and misplacing another 83,000 client contracts.

How does a company overcharge over 60,000 customers?

For one, Citigroup allegedly never verified that charges in their computer systems matched each customer’s negotiated rates. This resulted in Citigroup allegedly charging clients higher billing rates than those they had agreed upon (per their contract, billing histories and other documents). Moreover, Citigroup also allegedly improperly collected fees from customers who had suspended their accounts.

In addition to the overbilling of 60,000 clients, more alarming are the alleged 83,000 missing advisory contracts for accounts opened over a 22-year period (1990-2012). Without these contracts, Citigroup was unable to double-check whether the Citigroup computers’ fee rates matched clients’ contractual fee rates. These misplaced contracts are alleged to have brought in nearly $3.2 million in excess fees.

Luckily, the SEC successfully intervened and Citigroup consented to SEC’s cease-and-desist order. What resulted?

  • SEC censured the firm,
  • SEC ordered the firm to pay $3.2 million in disgorgement of the excess fees along with $800,000 in interest,
  • SEC ordered Citigroup to pay a $14.3 million penalty.

While many of these clients were lucky enough to have been reimbursed their overcharges with interest – everyone may not be so lucky. Citigroup’s failure to take the necessary precautions to confirm accuracy of fee charges and billing rates in addition to Citigroup’s failure to preserve key account documents impacted at least 140,000 clients’ investments accounts.

What can you do to prevent yourself from being a victim?

  • Be informed! Always ask for about any fees you may incur (transaction fees, account maintenance fees, trading charges, management or advisory fees), and more importantly, how they are calculated (are they structured, tiered, based on percentage?).
  • Have a list! Either create or ask for a list of these fees and how they are calculated.
  • Know where to look! Ask you investment adviser how these fees will be reflected in your account statements. Make sure to let the advisor know if you want to receive a paper or electronic copy of your statement – confirm the e-mail or postal address.
  • Always double-check! Schedule a time after every cycle to compare the fees listed on your account statements match up with the fees you’re contracted to pay (this is where that list of fees becomes handy).
  • Confused? Ask! If you’re ever unsure, pick up the phone and speak with your investment adviser.
  • Always retain a copy of your documents, for both open and closed investment accounts, in a safe and secure location.

While we know companies may not deliberately charge excess fees, we also know mistakes happen. If there’s one takeaway from this story, it’s that you should do your part to protect your investments. Being a vigilant investor can lead to significant gains.