Eccleston Law Offices

Apr

2014

FINRA Suspends Wells Fargo Advisor for Downloading Confidential Customer Information from Prior Employer

From the Desk of Jim Eccleston at Eccleston Law Offices:

FINRA enforcement has sanctioned a Wells Fargo Advisor with a 90-day suspension for taking more information than is allowed when he left a credit union affiliated with Raymond James Financial Services to join Wells Fargo Advisors (then Wachovia Securities) in late November 2008.

Prior to resigning from the credit union, where Steven Tomlinson had worked as manager of the investment services group as well as a Raymond James branch manager, Tomlinson allegedly used a personal flash drive to download confidential customer information, including account balances, social security numbers, dates of birth, and quarterly account statements. Of the 2,000 customers whose information he downloaded, only about 200 were his clients.

According to FINRA, Tomlinson provided the flash drive to a Wells Fargo administrative assistant so she could create mailing labels for announcements that he had joined Wells Fargo. While she worked with the flash drive, Tomlinson did not supervise the administrative assistant, and never informed her that the drive contained confidential information, was unencrypted and was not password protected.

This disciplinary decision underscores the need for reps to hire competent financial services employment attorneys to effectuate a move from one firm to another firm.

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.

Apr

2014

The 15 Best Paying Cities for Financial Advisers

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to a report from InvestmentNews, the country’s 15 best cities for compensation for lead advisors are listed below.

15. San Antonio, Texas

Total Compensation: $131,186

Base Salary: $107,690

Incentive Pay: $17, 622

Population: $1,327,407

14. Indianapolis, Indiana

Total Compensation: $133,464

Base Salary: $109,560

Incentive Pay: $17,928

Population: 820,445

13. Phoenix, Arizona

Total Compensation: $134,268

Base Salary: $110,220

Incentive Pay: $18,036

Population: 1,445,632

12. Jacksonville, Florida

Total Compensation: $136,144

Base Salary: $111,760

Incentive Pay: $18,288

Population: 821,784

11. Columbus, Ohio

Total Compensation: $136,814

Base Salary: $112,310

Incentive Pay: $18,378

Population: 787,033

10. Austin, Texas

Total Compensation: $138,422

Base Salary: $113,630

Incentive Pay: $18,594

Population: 790,390

9. Dallas, Texas

Total Compensation: $144,050

Base Salary: $118,250

Incentive Pay: $19,350

Population: 1,197,816

8. Philadelphia, Pennsylvania

Total Compensation: $144,318

Base Salary: $118,470

Incentive Pay: $19,386

Population: 1,526,006

7. Houston, Texas

Total Compensation: $145,256

Base Salary: $119,240

Incentive Pay: $19,512

Population: 2,100,263

6. Chicago, Illinois

Total Compensation: $147,266

Base Salary: $120,890

Incentive Pay: $19,782

Population: 2,695,598

5. San Diego, California

Total Compensation: $149,410

Base Salary: $122,650

Incentive Pay: $20,070

Population: 1,307,402

4. Los Angeles, California

Total Compensation: $156,110

Base Salary: $128,150

Incentive Pay: $20,970

Population: 3,792,621

3. New York, New York

Total Compensation: $167,366

Base Salary: $137,390

Incentive Pay: $22,482

Population: 8,175,133

2. San Francisco, California

Total Compensation: $168,840

Base Salary: $138,600

Incentive Pay: $22,680

Population: 805,235

1. San Jose, California

Total Compensation: $171,922

Base Salary: $141,130

Incentive Pay: $23,094

Population: 945,942

Apr

2014

UBS Plans Its Own Independent Channel

From the Desk of Jim Eccleston at Eccleston Law Offices:

As registered investment advisers have become a more serious competitor, UBS Wealth Management Americas is considering its own independent channel.

UBS is considering an independent firm, similar to Wells Fargo Advisors Financial Network, where around 1,500 advisers function as the independent arm of the wirehouse.

According to a client survey UBS performed, clients are attracted to an RIA for objective advice. UBS also seeks to integrate its banking and insurance products, where UBS believes that it has a competitive advantage.

Mar

2014

Wirehouses Update Succession Plans for Retiring Advisers

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to InvestmentNews, wirehouse firms, where 30% of advisers are planning to leave the business in the next decade, have been updating their succession programs for aging advisers with new names, higher payouts and lower barriers to entry, as the competition for the assets of retiring advisers heats up in the brokerage industry.

The basic processes for retiring at a wirehouse are similar across the firms. They all aim to provide retiring advisers who meet certain criteria a share of the total revenue from their book for up to five years after they retire. Moreover, the wirehouses have been refining that original plan, and adding more flexibility and options in recent years as new channels come into the marketplace.

Payouts at the wirehouses have been steadily increasing and this year reach as much as 250% of an advisor’s book of business, depending on length of service, size of the book and other firm metrics.

Advisors at the higher end of the range are generally serving on a team, are 55 or older, have been with the firm for a good part of their career and have a number of fee-based accounts and younger clients.

For example, Morgan Stanley is updating its Former Financial Adviser Program this year to provide additional payouts to both lower producing and top-tier advisers. Bank of America Merrill Lynch‘s original Client Transition Program paid out between 70% and 80% of trailing-12 production over four years, but it was updated for 2013 to pay up to 160% of trailing-12 with a minimum of 100%.

The payout is matched with where the adviser falls on the production grid. Even though the payouts are still somewhat lower than the independent space, where the income is often taxed as a capital gain rather than as ordinary income, the wirehouses benefit from the structure and sense of stability the programs provide.

TEAMING UP

As wirehouses encourage their advisors to team up, they also are doing more to bolster the partnership between the retiring advisor and his or her successor.

Morgan Stanley requires its advisors to have been on a team for at least one year, and will offer enhanced payouts to lower-producing advisors who join a team.

Merrill Lynch’s program is not open to any advisors who have not been on a team for three years.

UBS Wealth Management Americas’ Transitioning Financial Adviser Program provides for a five-year payout, but two of those years are spent in the office in a consulting role, helping clients get to know their new advisors.

Wells Fargo Advisors’ program will pay up to 160% of trailing-12 revenue and will provide a loan to the inheriting adviser for up to 200% of the departing advisor’s book value.

LOWER THRESHOLD

Firms are also lowering the thresholds for entry into their succession plans to make it easier for recently recruited advisors to take advantage of the program.For example Morgan Stanley’s plan has one of the lowest length of service requirements at three years..

Advisors already at the wirehouses are generally receiving large offers, but should still be careful to consider how much they are being offered and compare that with offers at other firms or other channels.

Mar

2014

FINRA Will Renew Push for Shift in Investment Adviser Oversight

From the Desk of Jim Eccleston at Eccleston Law Offices:

FINRA plans to renew its lobbying efforts for legislation that would shift oversight of financial advisers away from the SEC and into the hands of a self-regulating body, Investment News reports.

In 2012, FINRA first attempted to push such legislation. Its efforts were resisted by advisors and the measure died. FINRA backed down when the new Congress convened last year and the champion of the SRO bill, Rep. Spencer Bachus, R-Ala., relinquished his seat as chairman of the House Financial Services Committee.

FINRA is motivated to expand its regulatory authority because the brokerage industry is shrinking.

Over the past two years, FINRA has maintained that it isn’t mounting a lobbying campaign to become the adviser SRO and isn’t engaged in talks with the House or Senate. But FINRA has repeatedly stated that adviser oversight should be increased.

Both FINRA and the Investment Adviser Association (“IAA”) agree that there is a regulatory gap regarding investment advisers. The SEC currently examines only about 8 percent of the nearly 11,000 registered investment advisors in the country on an annual basis.

The SEC’s failure to examine more investment advisers largely is due to a lack of resources. In adopting the current budget, Congress denied the SEC’s request to hire an additional 250 investment adviser examiners.

The restrictive budget leaves the door open for FINRA and its allies to argue that inadequate adviser oversight should be addressed by contracting out this critical function to a private organization like FINRA.

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.

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.

Mar

2014

FINRA Eyes Reverse Churning In Hybrid Advisory Accounts, According to Industry Panelist

From the Desk of Jim Eccleston at Eccleston Law Offices:

The Financial Industry Regulatory Authority is looking very closely at advisory accounts in dually registered investment advisor/broker-dealer firms, Morgan Stanley Compliance and Regulatory Group Head Debra Roth said Wednesday.

“If you are not trading, are you really advising the client?” Roth asked rhetorically at a dual registrant seminar for the Practising Law Institute. Others in the industry have raised this issue as well, noting some clients who are charged fees for investment management but aren’t getting much financial advice would pay less if they were charged commissions instead.

Roth warned the attendees that Financial Industry Regulatory Authority and the Securities and Exchange Commission have significantly improved their ability to collect and analyze electronic records from advisory firms and brokers. And, she observed “We have found them to be impatient,” the Morgan Stanley compliance executive said.

RCS Capital Chief Compliance Officer Joseph Neary remarked that having separate compliance manuals for investment advisors and broker-dealers can go a long way to persuading the regulators that the two business operations are distinct. He noted in the last three or four years, FINRA has become much more attuned to the advisory side of financial firms that also offer brokerage services.

Specially, it was noted that advertising and marketing have become an area of pain for dual registrants, particularly for workers wearing multiple hats, SEI Investments Distribution General Counsel John Munch said. There are fundamental differences in advertising and marketing rules for IAs and BDs.