Jim Eccleston

Protocol for Broker Recruiting

The principal goal of the following protocol is to further the clients’ interests of privacy and freedom of choice in connection with the movement of their Registered Representatives (“RRs”) between firms. If departing RRs and then new firm follow this protocol, neither the departing RR nor the firm that he or she joins would have any monetary or other liability to the firm that the RR left by reason of the RR taking the information identified below or the solicitation of the clients serviced by the RR at his or her prior firm, provided, however, that this protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for “raiding”.

The signatories to this protocol agree to implement and adhere to it in good faith. When RRs move from one firm to another and both firms are signatories to this protocol, they make take only the following account information: client name, address, phone number, email address, and account title of the clients that they serviced while at the firm (“the Client Information”) and are prohibited from taking any other documents or information. Resignations will be in writing delivered to local branch management and shall include a copy of the Client Information that the RR is taking with him or her. The RR list delivered to the branch also shall include the account numbers for the clients serviced by the RR. The local branch management will send the information to the firm’s back office. In the event that the firm does not agree with the RR’s list of clients, the RR will nonetheless be deemed in compliance with this protocol so long as the RR exercised good faith in assembling the list and substantially complied with the requirement that only Client Information related to clients he or she serviced while at the firm be taken with him or her.

To ensure compliance with GLB and SEC Regulation SP, the new firm will limit the use of the Client Information to solicitation by the RR of his or her former clients and will not permit the use of the Client Information by any other RR or for any other purpose. If a former clients indicates to the new firm that he/she would like the prior firm to provide account number(s) and or/account information to the new firm, the former client will be asked to sign a standardized form authorizing the release of the account number(s) and/or account information to the new firm before any such account number(s) or account information are provided. The prior firm will forward to the new firm the client’s account number(s) and/or most recent account statement(s) or information concerning the account’s current positions within one business day, if possible, but, in any event, within two business days, of its receipt of the signed authorization.

This information will be transmitted electronically or by fax, and the request will be processed by the central back office rather than the branch where the RR was employed. A client who wants to transfer her/her account need only sign an ACAT form. RRs that comply with this protocol would be free to solicit customers that they serviced while at their former firms, but only after they have joined their new firms. A firm would continue to be free to enforce whatever contractual, statutory or common law restrictions exist on the solicitation of customers to move their accounts by a departing RR before he or she has left the firm. www.ffec.com | Member FINRA, SIPC The RR’s former firm is required to preserve the documents associated with each account as required by SEC regulations or firm record retention requirements. It shall not be a violation of this protocol for an RR, prior to his or her resignation, to provide another firm with information related to the RR’s business, other than account statements, so long as that information does not reveal client identity. Accounts subject to a services agreement for stock benefits managements services between the firm and the company sponsoring the stock benefit plan that the account holder participates in (such as with stock option programs) would still be subject to (a) the provisions of that agreement as well as to (b) the provisions of any account servicing agreement between the RR and the firm. Also, accounts subject to a participation agreement in connection with prospecting IRA rollover business would still be subject to the provisions of that agreement.

If an RR is a member of a team or partnership, and where the entire team/partnership does not move together to another firm, the terms of the team/partnership agreement will govern for which clients the departing team member or partners may take Client Information and which clients the departing team member or partners can solicit. In no event, however, shall a team/partnership agreement be construed or enforced to preclude an RR from taking the Client Information for those clients whom he or she introduced to the team or partnership or from soliciting such clients. In the absence of a team or partnership written agreement on this point, the following terms shall govern where the entire team is not moving. (1) If the departing team member or partner has been a member of the team or partnership in a producing capacity for four years or more, the departing team member or partner may take the Client Information for all clients serviced by the team or partnership and may solicit those clients to move their accounts to the new firm without fear of litigation from the RR’s former firm with respect to such information and solicitations, (2) If the departing team member or partner has been a member of the team or partnership in a producing capacity for less than four years, the departing team member or partner will be free from litigation from the RR’s former firm with respect to client solicitations and the Client Information only for those clients that he or she introduced to the team or partnership.

If accounts serviced by the departing RR were transferred to the departing RR pursuant to a retirement program that pays a retiring RR trailing commissions on the account in return for certain assistance provided by the retiring RR prior to his or her retirement in transitioning the accounts to the departing RR, the departing RR’s ability to take Client Information related to those accounts and the departing RR’s right to solicit those accounts shall be governed by the terms of the contract between the retiring RR, the departing RR, and the firm with which both were affiliated. A signatory to this protocol may withdraw from the protocol at any time and shall endeavor to provide 10 days’ prior written notice of its withdrawal to all other signatories hereto. A signatory who has withdrawn from the protocol shall cease to be bound by the protocol and the protocol shall be of no further force or effect with respect to the signatory. The protocol will remain in full force and effect with respect to those signatories who have not withdrawn.

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Pair Leaves UBS Financial Services to Join Raymond James

From the Desk of Jim Eccleston at Eccleston Law LLC:

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On October 25, 2016, advisors Harold MacFarland and Tadd Hicks left UBS to join Raymond James in St. Louis, Missouri. The team has $220 million in assets under management.

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.

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Ameriprise Profits Rise But with Fewer Financial Advisors

From the Desk of Jim Eccleston at Eccleston Law Offices:

In 2014, Ameriprise Financial’s wealth management reported $792 million in profits, up 33% year-over-year. Total client assets in the last quarter in 2014 for the firm’s wealth management division rose to $444 billion, a 9% increase year over year. Total revenues for wealth management grew 11% year-over-year, rising to $1.2 billion from $1.1 billion.
However, the firm’s financial advisor headcount was down. The number of employee advisors fell to 2,083 from 2,205 for the year-ago period. The ranks of independent advisors grew year-over year, rising to 7,589 from 7,511.
Retention rates were slightly down. For employee advisors, the figure fell to 91.2% for the fourth quarter in 2014 from 92% for the same period a year ago. For independent advisors, the rate dropped 94.5% from 94.7%.
There was some consolidation in the independent advisor channel, as some advisors prepared for retirement by selling or transitioning their practices to other advisors.
Productivity remained strong across both channels, but especially among new hires.
In a press release, the firm said recruiting remained strong as Ameriprise picked up 73 experienced advisors across both channels during the quarter. Productivity grew 13% year-over-year, rising to $496,000 in operating net revenue per advisor.

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 65 years in delivering the highest quality legal services.

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edward jones 2

From the Desk of Jim Eccleston at Eccleston Law Offices:

According to the J.D. Power U.S. Financial Advisor Satisfaction Study, Edward Jones, Raymond James & Associates, and RBC Wealth Management ranked the highest three among advisory firms for advisor satisfaction.

The study considered seven factors for determining advisor satisfaction: professional support; client-facing support; compensation; firm leadership; operational support; problem resolution; and technology support. Among those factors, firm leadership and compensation are the most important drivers in determining advisor satisfaction. Advisors value that their leaders communicate effectively on the strategic vision of the firm and create a culture of accountability. Advisors also are sensitive to a competitive pay package as well as consistent and transparent compensation plans. 

However, according to the survey, a third of advisors said that they lack a complete understanding of their compensation plan, and less than half of advisors indicated that the cultural value of the firm and client focus were the primary reasons for them to stay at their current firm.

Moreover, the study also revealed that the brokerage industry shows low adoption of new technology. Less than 30% of surveyed advisors use smartphones or tablets to leverage their businesses.

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.

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Merrill Lynch Advisors Rumored to Leave the Firm in Large Numbers

merill lynch

From the Desk of Jim Eccleston at Eccleston Law Offices:

Merrill Lynch still is struggling with the issue of retaining advisors. In 2007, Merrill Lynch had a total of 16,740 financial advisors. However, today it has a total of 13,276. That equates to a loss of nearly 30% since 2007.

Merrill Lynch advisors prefer to transition to two specific platforms: wire-house rivals and the growing RIA/hybrid models.  UBS, HighTower, Steward Partners, Wells Fargo and Raymond James have benefited the most from the Merrill issues.

The expiration of retention bonuses has undoubtedly freed many Merrill Lynch advisors. That said the new firms will present forgivable loans and employment agreements that should be reviewed by competent legal counsel, so that the advisors aren’t “jumping from the frying pan into the fire.”

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.

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Broker Employment Transition Ends in Jury Verdict Finding Fraud: Lessons Learned

litigation update

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:

  • At the suggestion of First Wilshire, customer accounts were being moved from Wedbush to a discount broker and that Sage had been formed to handle their investments.  
  • The charge to customers for their accounts was changing from a 1% management fee paid to First Wilshire (plus Wedbush’s brokerage commissions) to a 2% “wrap fee” paid to Sage.
  • First Wilshire had indicated that the wrap fee historically had been less expensive than the previous arrangement.  
  • If customers wanted to avoid any disruption in First Wilshire’s management of their assets, they had to sign and return the new advisory and custodial account documents as soon as possible.

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:

  • First Wilshire had not required a transfer from Wedbush.
  • First Wilshire had not refused to continue managing the customers’ assets at Wedbush.
  • First Wilshire had not authorized Grant’s statements.

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.

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UBS Advisers Stage Revolt to Save Branch Manager

From the Desk of Jim Eccleston at Eccleston Law Offices:

UBS brokers in San Francisco recently staged a kind of mutiny with some prepared to resign in order to prevent their popular branch manager, Michael Williams, from being replaced.

The firm considered replacing Williams due to poor branch performance. Of the firm’s eight geographic regions, that region was ranked among the lowest in terms of recruiting.

Moves are common in the brokerage industry, where managers are frequently reassigned, relocated or sometimes fired as firms keep a close watch on performance. Advisers may be reluctant to see their manager go, but it is rare for the firm to backtrack on its decision.

About 20 of the 75 advisers objected. Many included top producers, who began placing calls to executives at the firm, including the head of the adviser group, the head of wealth management, and the firm’s chief executive. They told the executives the move was a mistake. Support for Mr. Williams mounted, and by the weekend, the firm reversed its decision.

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.

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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

 

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.

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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.

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.

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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.

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.

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