From the Desk of Jim Eccleston at Eccleston Law LLC:
Advisors Rajeev Dhillon and Joseph Lesko left J.P. Morgan Securities to Join Wells Fargo Advisors in Fort Lauderdale, Florida. The team has $253 million in assets under management.
From the Desk of Jim Eccleston at Eccleston Law LLC:
On September 26, 2016, advisor Brad Weinman left Morgan Stanley to join Bank of America in West Palm Beach, Florida. Mr. Weinman has $240 million in assets under management.
On September 30, 2016, advisers Darren Lehrman, Brian Marzulli, and Lucille Costa left Stifel Nicolaus &; Company to join RBC Wealth Management in Parsippany, New Jersey. This team of advisers has $300,000,000 in assets under management and $1,500,000 in production.
From the Desk of Jim Eccleston at Eccleston Law LLC:
For three years FINRA has attempted to pass a rule that would make brokers’ employment transitions more transparent for clients. Last Wednesday FINRA passed the rule. The rule is designed to encourage investors to access important information relating to their accounts in a broker’s transfer to another firm.
The new rule requires that transferring brokers send an educational communication to investors if they are trying to persuade them to move to the new firm. FINRA will author document, and it will outline possible considerations for the clients such as whether the financial incentives at the new firm create a conflict of interest, whether any portion of the client’s assets cannot follow them to the new firm, and any potential fees or costs the client might face.
As the SEC views the rule, it will encourage customers to make inquiries to brokers which can help to increase communication between the two regarding potential implications of transferring assets. Moreover, the SEC feels that the increase of communication between the two will serve to benefit the customers when deciding whether or not to transfer.
An initial proposal required transitioning brokers to disclose details about their new compensation packages, but, after facing industry resistance, was modified to the current “educational communication” model. FINRA is confident that the new proposal is satisfactory to both investors and advisers. The fundamental concern being that the investors remain educated and the advisers receive consideration for the privacy of recruiting compensation that is often involved with transfer.
Industry professionals support the new rule, especially citing the balance it holds between both investors and advisers. Danny Sarch, president of Leitner Sarch Consultants, says, “It’s a sophisticated transaction and most clients don’t want to learn to that extent about it.” In his experience clients are less concerned with discovering the recruitment compensation package and more concerned with personal fees and restrictions.
A minor concern associated with the new rule may be that it accelerates the transfer of advisers who may be on the fence and hoping to get the jump on any new standards imposed by regulators. But Mindy Diamond, president and chief executive of Diamond Consultants, says that “for most quality advisers who have a deep relationship with clients, it will be a non-event.” She doesn’t expect that this should be a significant effect in the industry, at least for quality advisers. Mr. Sarch says that he typically advises brokers to reveal their recruiting package to clients in the first place. Through his experience in broker recruiting, previous firms will show the new compensation package to clients in an effort to deter clients from transferring anyway.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.
From the Desk of Jim Eccleston at Eccleston Law LLC:
Ahead of the announced Barclays’ merges with Stifel, two big producers, Jim Ertmann and Ben Foster have left from Barclays to join Merril Lynch.
The team reportedly generated $5.8 million in production during a seven year stint at Barclays. They now are part of Merrill’s Private Banking and Investment Group in Chicago.
Even though Stifel has offered lucrative incentives for those Barclays advisors who remain, Barclays’s wealth unit has lost over $6 billion in client assets and about 50 advisors, since news of the merger was announced.
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
From the Desk of Jim Eccleston at Eccleston Law LLC:
In its latest round of restructuring, Morgan Stanley has altered the number of management roles at their branch, complex and regional levels. The top positions affected are Associate Complex Managers (ACMs) and Complex Business Development Managers (CBDMs).
Morgan Stanley wants to expand the role of Associate Complex Managers and their latest changes appear to be doing just that. By early June, Morgan Stanley is looking to increase the number of ACMs by 30, leading to each of the wirehouse’s 82 complexes having an ACM.
In contrast to the increase of ACMs, there will be a reduction in the number of Complex Business Development Managers. After the restructuring, there will only be 56 CBDMs–a 14- person decrease from the previous number of 70. Many CBDMs will need to cover offices in more than one complex to account for this change.
In total, Morgan Stanley’s restructuring will result in a net increase of 16 management positions. This increase, however, will not be spread evenly. Some complexes will end up with a headcount higher than it is today, while others will see a decrease. The complexes which see an increase will be those that Morgan Stanley arbitrarily deems “fertile for growth.”
The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.
The North American Securities Administrators Association (NASAA) has developed a model rule outlining policies that investment advisers should have in place to respond to natural disasters or the death or incapacitation of an executive.
The NASAA rule requires every adviser to adopt written procedures for business continuity and succession planning, and shows how firms will protect books and records, establish an alternative means of communicating with clients, relocate the office, reassign key personnel and generally minimize disruption to the business.
The rule allows flexibility in the plans. They can vary based on the adviser’s size, services and locations. The model rule must be adopted by individual states before going into effect.
From the Desk of Jim Eccleston at Eccleston Law Offices:
What should have been an unremarkable employment transition, from brokerage firm stockbroker to owner of a new investment advisory firm, ended in disaster for Benjamin Lee Grant and his firm, Sage Advisory Group, LLC (“Sage”). A Boston jury recently agreed with the Securities and Exchange Commission (SEC) that the defendants committed fraud in connection with the employment transition. Let’s explore what went wrong.
Benjamin Grant had been a successful broker. Prior to October, 2005, he was a registered representative at Wedbush Morgan Securities (“Wedbush”), with 300 customer accounts and more than $100 million under management. Virtually all of the customers’ assets in turn were managed by First Wilshire Securities Management, Inc. (“First Wilshire”), an investment firm based in California. Grant resigned from Wedbush Morgan Securities in September, 2005 to go into business for himself as Sage.
So far, so good. Brokers do change jobs, and some go into business for themselves by starting their own investment advisory firms. Furthermore, those who leave their firms typically seek to transfer their customer accounts to their next firm.
Not so, the SEC alleged. Starting on or about October 4, 2005, the SEC alleged that Benjamin Grant engaged in a fraudulent scheme to induce his former brokerage customers to transfer their assets to Sage, his new advisory firm. The allegation appears to be based solely upon a letter that Grant sent his customers on October 4, 2005, and upon subsequent communications related to that letter. The material representations of Grant’s letter, according to the SEC, are:
Additionally, the complaint alleged that in subsequent conversations with customers, Grant told them that First Wilshire no longer was willing to manage their assets at Wedbush and that they had to transfer to the discount broker and sign up with Sage.
What did the SEC fault? The SEC alleged (and a jury verdict confirmed) that those written and oral statements were materially false and misleading. Why? A few reasons:
Moreover, the SEC alleged that Grant’s wrap fee statements were without factual basis. In particular, Grant failed to disclose that, while the switch from Wedbush to the discount broker would result in significant savings, those savings would flow to Grant and Sage rather than to the advisory clients! Grant failed to disclose that, as a result, Grant and Sage’s compensation would be substantially increased. Indeed, once Grant’s customers transferred their accounts from Wedbush to Sage, Grant more than doubled his own compensation!
In short order – after a mere 2 hour jury deliberation – the jury found fraud. Both defendants were found to have violated Sections 204A and 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rules 204A-1 and 206(4)-7 thereunder.
Notably, in 2011, the SEC filed a separate civil injunctive action against Grant’s father, Jack Grant. That civil action alleged that Jack Grant, a lawyer and former stockbroker, had violated a SEC bar from association with investment advisers by associating with his son Benjamin Grant’s investment advisory firm, Sage, and by acting as an investment adviser himself. The Complaint further alleged that Jack Grant, Benjamin Grant and Sage fraudulently failed to disclose Jack Grant’s checkered disciplinary history, including that he had been barred, to Sage’s advisory clients. Jack Grant consented to settle the charges.
This case undoubtedly involved an employment transition that went very badly and which was based upon extreme facts. However, brokers and financial advisers of all stripes need to be careful in planning their employment transitions, with the assistance of competent legal counsel, and in not over-selling the reasons why their customers should follow them to their next 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.
According to OnWallStreet’s annual ranking of the top regional and wirehouse broker-dealers, wirehouses and regional broker-dealers continue to grow but face challenges.
Last year, Morgan Stanley topped the industry leaders list with increased commission revenues of 6.4%, and fee revenues of 6.2%.
UBS is in the process of transforming itself into a more comprehensive wealth management firm. It is providing advisors with support and training. And to further boost revenues, UBS is aiming to grow its lending business and mortgage offerings. At the end of 2013, UBS already had expanded mortgage lending to $6.7 billion.
Bank of America Merrill Lynch, which topped the wealth management firms’ list by revenue, is aiming to boost advisor productivity through large-scale technology upgrades. The firm recently launched an iPad app, “Merrill Lynch Clear”, which uses interactive graphics and research to help users identify their retirement priorities. Moreover, the firm also is upgrading and combining its platform into a single advisor workstation, Merrill Lynch One, which is expected to be a vital tool for Merrill advisors.
Regional leaders like Royal Bank of Canada (RBC) rapidly have expanded its force in the U.S. market through a number of acquisitions starting in 2000. The firm reported a roughly 15% profit growth in the second-quarter earnings this year. And according to RBC’s CEO, the firm is moving to the next stage to grow its wealth management and capital market business in the U.S. through organic growth and acquisition.
From the Desk of Jim Eccleston at Eccleston Law Offices:
Wirehouses are shifting away from a commission-based brokerage model to a fee-based business model. Over the past decade, the number of fee-only and fee based advisers has increased to 84% at the wirehouses, compared with about 57% for the rest of the brokerage industry.
The challenge is to find an appropriate price for advice which is competitive with what others in the industry are charging. Some advisors charge between 0.75% and 1% of assets under management as an annual fee rather than drawing commissions. In order to offset the decline in commission, advisers undertaking the move must be prepared to generate revenue from different sources or to make the shift incrementally.
The fee-based account gives advisers a more stable source of revenue that, over time, allows them to market and to focus on existing clients.