Jim Eccleston

Mar

2014

5 Big Tech Trends in the Financial Advisory Industry

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to InvestmentNews, the five best and brightest tech trend in financial services industry are the wizardry of “big data” algorithms, wearable tech for go-anywhere advisers, video-game-inspired business applications, deep content analysis by supercomputers such as IBM’s Watson, and software that has an uncanny ability to read facial expressions and emotions.

BIG DATA

Tech teams in the financial services industry are studying how to use big-data analytics and statistical probability to better know their customers, including advisers and their clients.

Big data is so big that even the smartest of technophiles have a hard time managing it. This is because it encompasses a huge flow of information about customers, products and services that companies have been gathering for years.

Much of this information, whether collected from traditional or digital databases, has moved into the cloud and continues to grow exponentially.

SMART OFFICE

Technology will be less visible as computers disappear into user-friendly hardware.

Fidelity has designed an “office of the future” prototype on its Smithfield, R.I., campus that shows registered investment advisers how they will use all that new technology to better engage with their clients. Improved video conferencing and better gadget management also will catch on in the smart office. Moreover, Fidelity was the first major brokerage firm to make a public foray into wearable technology six months ago when the Fidelity Labs research and development unit was granted early access to Google Glass and created a Glassware app that lets wearers focus their vision on a logo of a publicly traded company to generate a real-time market quote, according to analysts at online and mobile research firm Corporate Insight.

‘GAMIFICATION’

Advisers take their work seriously, so the idea of bringing game dynamics into their practices to encourage desired client behavior can make them nervous. But consumer websites and online communities have been using game mechanics to motivate participation and loyalty for years. For example, Money Mind’s web app is played as a question-and-answer game by couples to determine whether each partner is most driven by fear, happiness or a need to commit. Advisory firm United Capital Private Wealth Counseling has used its Money Mind Analyzer to work with 45,000 clients and prospects since 2010.

More participants in the financial services industry are starting to venture into the new frontier of “gamification.”

SUPERCOMPUTING

IBM is actively seeking to use Watson, IBM’s supercomputer which could sort and analyze vast amounts of data faster than its human competitors, for industrial applications, as the supercomputer is moving into the realm of financial planning.

On a “Watson in finance” web page on its website, IBM states that Watson is being designed as “the ultimate financial services assistant,” capable of performing deep content analysis and evidence-based reasoning to help advisers make informed decisions about investments, trading patterns and risk management.

MIND READING

Advisers will be able to do some conjuring of their own with voice, mood and facial analytics.

For example, Pershing is using voice analysis, a technology that is catching on at call centers. Customer calls to Pershing are analyzed for empathy expressed by company representatives, silent time on calls and behavioral cues when customers use phrases such as “I’m so frustrated” and “I can’t believe this takes so long.”

Beyond voice, cloud-based emotion capture technology now under development uses computer vision to recognize viewers’ emotional responses to products and services.

Already, products such as Affectiva Inc.’s Affdex, Emotient.com, Face.com, Noldus Information Technology’s FaceReader and Sightcorp, have arrived on the market to provide companies with consumer analytics based on age, gender, eye tracking, facial expressions, mood and attention level. For example, Sightcorp’s webcam eye-tracking software lets companies detect where product users’ attention is focused in a controlled lab setting.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Mar

2014

Sarbanes-Oxley Whistleblower Protections can Include Private Company Employees

From the Desk of Jim Eccleston at Eccleston Law Offices:

On March 4th, the U.S. Supreme Court ruled that the whistleblower protection provisions of the Sarbanes-Oxley Act protect the employees of a public company’s private contractors. The plaintiffs were employees of the investment advisor to a mutual fund. They claim they were wrongly fired after reporting a putative fraud concerning the mutual funds. Defendants sought dismissal, contending that the Act’s whistleblower protections did not cover plaintiffs because plaintiffs were employed by the advisor, a private company, and not the SEC-registered mutual funds. The Supreme Court disagreed. It held that when read as a whole, the Sarbanes-Oxley Act includes the employees of a public company’s contractor.

Mar

2014

Wells Fargo Loses $1 Million Promissory Note Quarrel

From the Desk of Jim Eccleston at Eccleston Law Offices:

A FINRA arbitration panel has denied Wells Fargo’sclaim on a promissory note, and instead has been ordered Wells Fargo to pay the adviser, Michael Hawkes, $925,000 in compensatory damages and attorneys’ fees.

The rep claimed that he was forced to resign based on false allegations that he had forged a client signature, and that the firm had retaliated against him by placing defamatory remarks on his CRD.

Mar

2014

2014 Outlook Prompts Advisor Movement

From the Desk of Jim Eccleston at Eccleston Law Offices:

The Elzweig Report reveals the following helpful information for advisors who are considering a transition.

Recruiting Outlook for 2014

According to industry recruiter Mark Elzweig, recruiting among financial advisors is off to a fast start in 2014. But he also states that uncertainties in 2014 test advisors’ confidence to move. On balance, stellar productions and optimistic clients still will be the factors encouraging advisors to move forward.

Trend of Advisor’s Movement

According to Cerulli Associate reports, more than one third of financial advisors are planning to leave the business in the next 10 years. However, firms can’t replace advisors as fast as they leave. On the one hand, trainees take a long time to bring up to speed, on the other hand, experienced advisors always have large recruiting package guarantees.

Retention Packages Aging

Retention packages offered by wirehouses increase and contracts last longer. As these obligations continue to age, so does the financial penalty for jumping to a new broker-dealer. For wirehouse advisors, taking a recruiting deal from a competitor makes more financial sense with each passing year.

‘Smaller’ Producers More Valued at Regional and Independent Broker-Dealers

Advisors grossing less than $500,000 are leaving wirehouses and moving to regionals and independents, which value their production, – and offer deals, higher payouts and greater access to home office staff. In the independent channel, advisors with smallerbooks increasingly are joining more well-capitalized broker-dealers with broader and deeper resources.

Fee-Only is Winning Over Traditional Advisors.

As advisors do more fee-based business, many are shedding broker-dealers entirely and are starting their own RIAs or joining existing ones. Independent RIAs enjoy a 100% payout and pay lower ticket charges, though operational costs often can be underestimated.

Succession Planning

Many advisors in their 50s and older are moving as part of their succession planning. They are joining new firms that pay them signing bonuses and then preparing to hand off their books to younger advisors at the conclusion of their deals. This way they can capture two bonuses: one for joining the firm and one for the gross done from their book after they retire.

Feb

2014

FINRA Moves Forward with SEC Approvals Related to BrokerCheck, Arbitration and Expungement

From the Desk of Jim Eccleston at Eccleston Law Offices:

FINRA’s board authorized FINRA to seek comment on a revised proposal to amend Rule 2210 (communications with the public) to require firms to include a readily apparent reference and link to BrokerCheck on any member firm’s website that is available to retail investors.

The board also authorized FINRA to file with the SEC proposed amendments to the customer and industry codes of arbitration procedure to refine and reorganize the definitions of “nonpublic” and “public” arbitrator.

In addition, the board authorized FINRA to file with the SEC proposed Rule 2081, which would prohibit conditioning an arbitration settlement on the expungement of the customer dispute information.

Finally, the board authorized FINRA to file with the SEC proposed amendments to Rule Series 9800 (temporary cease and desist orders), Rule Series 9550 (expedited proceedings) and related rules in the Code of Procedure.

Feb

2014

A Succession Crisis Faced by the Advisory Industry

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to a report from Cerulli Associate Inc., there are more than $2.3 trillion in assets managed by advisors 60 and older, but less than 25% of those advisors have a succession plan. Moreover, more than one-third of U.S. financial advisers are planning to leave the business within a decade while the demand for professional advisors is increasing. The report warns that advisors need to develop a succession plan before they retire, even though the task of recruiting and training new talents is complex and time consuming.

Notably, the execution of a succession plan can take a year or longer, particularly for advisers with unique specializations, diverse business lines or out-of-the-way locations.

Feb

2014

FINRA May Curb Brokers’ Ability to Cleanse CRD Records

From the Desk of Jim Eccleston at Eccleston Law Offices:

FINRA intends to modify the expungement processby proposing to eliminate brokers’ ability to demand CRD expungement as a condition in a settlementagreement with an investor.

In recent guidance to arbitrators, Finra underscored the “extraordinary nature of expungement relief” and urged them to consider carefully whether clearing a broker’s record could deny important information to investors reviewing a rep’s background.

We will update readers as this effect unfolds.

Nov

2013

Jim Eccleston: Panel Orders First Command to Pay $1.1M to Former Advisors

From the Desk of Jim Eccleston at Eccleston Law Offices:

A FINRA arbitration panel has ordered First Command Financial Planning (“First Command”) to pay $1.1 million in deferred compensation to a group of eight advisors and staff who left the firm back in May 2012. According to the arbitration award, First Command “switched back to a commissions sales model, hurting their business.” In addition, the panel reprimanded First Command for filing U5 termination forms saying the reps were let go for wrongdoing, and ordered their disciplinary records to be expunged to indicate they left voluntarily. The dispute occurred in 2012, when a branch manager left First Command with his team to form an independent hybrid firm clearing through LPL Financial (“LPL”).

Oct

2013

Jim Eccleston: Non-Solicitation Agreements: What Can You Say Without Crossing the Line?

From the Desk of Jim Eccleston at Eccleston Law:

John Lindsey, a former Edward Jones broker, found himself in hot water after accusations that he violated his non-solicitation agreement. In March 2012, Mr. Lindsey left Edward Jones to go independent, taking with him about half his clients. In response, Edward Jones promptly filed a request for an injunction and temporary restraining order. Edward Jones claimed Mr. Lindsey had violated his one-year non-solicitation agreement by misappropriating client information and wrongly soliciting clients. Specifically, Edward Jones’ non-solicitation agreement prohibits an advisor from soliciting clients of the firm for one year after the advisor’s departure.

In May 2012, the Ventura County Superior Court in Ventura, California granted the injunction, upholding Edward Jones’ non-solicitation agreement. However, Judge Tari Cody’s also found that nothing in that agreement prohibited Mr. Lindsey from servicing Edward Jones clients who reached out to him directly. Subsequent to the ruling, Edward Jones asked a FINRA arbitration panel to make the injunction permanent and requested $5 million in compensatory damages. Both of those requests were denied.

The arbitrators’ decision reaffirmed previous guidance given by FINRA’s predecessor, the National Association of Securities Dealers, which had issued a notice stating “that obtaining temporary restraining orders to prevent customers from following a registered representative to a different firm may be similar to the unfair practice of delaying transfers” of clients to a new advisor.

FINRA’s position has been that firms cannot do anything to stop clients from going to a broker of their choice. The court’s ruling reflects a similar position, stating that “[n]othing herein [the non-solicitation agreement] shall prohibit [Mr. Lindsey] or anyone else from: (a) continuing to provide services to [Mr. Lindsey’s] clients who have already moved business away from Edward Jones; (b) providing services to persons who have indicated that they wish to transfer their accounts from Edward Jones to permit [Mr. Lindsey] to continue as their financial advisor.”

The attorneys of Eccleston Law represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Oct

2013

Jim Eccleston: FINRA’s Proposed Procedure for Reps Not Named in Arbitration to Obtain Expungement of U-4 and U-5 Filings

From the Desk of Jim Eccleston at Eccleston Law:

FINRA has proposed new rules that would permit unnamed financial advisers who are the “subject of” allegations of sales practice violations made in investment-related customer-initiated arbitration claims, but who are not named as parties to the arbitration, to seek expungement relief by initiated In reexpungement proceedings at the conclusion of the underlying customer-initiated arbitration case. Specifically, the following are the new proposed FINRA rules: Rule 12100(z) (“Unnamed Person”); Rule 12806 (“Expungement of Customer Dispute Information by Persons Named as Parties); Rule 13100(cc) (“Unnamed Person”); Rule 13806 (“Expungement of Customer Dispute Information by Persons Named as Parties); and Rule 13807 (“Expungement of Customer Dispute Information by an Unnamed Person”).

The current Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes do not provide unnamed persons with express procedures to seek expungement of those types of allegations. The SEC is expected to set an approval date of early 2014.

There are several benefits for brokers. First, the new rules would allow unnamed brokers to use this explicit procedure instead of having to intervene in the arbitration filed by the investor or initiate a new arbitration case in which the broker requests expungement relief and names the investor or firm as the respondent. Another benefit is that the expungement proceedings would commence only after the underlying customer arbitration is concluded. Another benefit is the possibility that the arbitrator reviewing the In reexpungement proceedings will already be familiar with the case. Under the proposed rules, the public chairperson of the underlying arbitration would handle the In reexpungement proceedings.

While our adviser clients currently do have avenues for expungement, FINRA’s new rule proposals greatly would expedite and simplify the entire process.