by Kristen French on Thursday, May 10th, 2012 at 5:23 pm
 How do you know if your math is fuzzy or if it all adds up? Will any old math do? That is a question being posed by adviser groups, which released a report the Boston Consulting Group today. It’s part of a kind of game of “he said, she said” being played out over differences in cost estimates between the investment adviser and broker/dealer factions of the wealth management industry. And that game is part of the larger fight over who will oversee investment advisers—FINRA, which now regulates broker/dealers, some other SRO like the recently minted SROIIA, multiple SROs, or the Securities Exchange Commission (SEC), which currently oversees investment advisers but does not have the resources to do the job with the frequency desired.
In a Dodd-Frank-mandated report released early last year, the Securities and Exchange Commission recommended three ways to increase investment-adviser examinations: allow the SEC to charge user fees for exams, establish a number of SROs to regulate advisers, or give a single SRO authority over dually registered investment advisers. Each alternative would require congressional authorization.
Last December, a number of investment adviser industry groups as well as TD Ameritrade hired the Boston Consulting Group (BCG) to estimate how costs would differ if the job were given to the SEC versus FINRA. In its 21-page report, BCG concluded it would be much cheaper to provide the SEC with sufficient funding to do the job. These industry groups include NAPFA, a trade group for fee-only advisors, the FPA, a trade group for financial planners, the Investment Adviser Association, which represents investment advisers and the CFP Board, an organization that provides Certified Financial Planner credentialing.
Then in late April, FINRA released its own one-and-a-half page cost estimate, which suggested it would be much cheaper for it, FINRA, to take on the oversight role than BCG had suggested—cheaper than allowing the SEC to do it. FINRA released its estimates on the same day that House Financial Services Committee Chairman Spencer Bachus proposed a bill that would give oversight of investment advisers to an SRO (with the most viable SRO being FINRA.)
Their numbers are vastly different. FINRA calculated setup costs for itself at $12 to $15 million and ongoing annual costs at $150 to $155 million a year. BCG had estimated setup costs for FINRA of $200 to $255 million and ongoing costs of $460 to $510 million. Today, the same groups that hired BCG in the first place issued a release that challenges FINRA’s math–or lack thereof. Read the rest of this entry »
Related Topics: Compliance, Dodd-Frank, FINRA, Financial Regulatory Reform, SEC, SRO, lawsuits |
by Kristen French on Thursday, May 10th, 2012 at 1:24 pm
 The heated battle between Bank of America/Merrill Lynch and former brokers Tamara Smolchek and Meri Ramazio over unpaid deferred compensation continues to rage. The Financial Industry Regulatory Authority arbitration panel found in favor of the brokers on Apr. 3, awarding them around $10 million; that same day Merrill filed a federal lawsuit in the Southern district of Florida to overturn that decision.
More recently, Merrill has filed additional evidence in its case, according to attorney Patrick J. Burns, while Smolchek and Ramazio have filed opposition to this move, saying it impedes justice by “further delaying the confirmation of the award.”
According to Burns, of The Law Offices of Patrick J. Burns, Jr., in Beverly Hills, Calif.: “In their opposition, the brokers quote Girard v. Aztec RV Resort, Inc., (S.D. Fla. Sept. 16, 2011):’“Supplements are to be used only for newly discovered evidence or information, or for new legal authority. In this regard, a party may file a supplement when, through no fault of the filing party, certain relevant materials were not in the party’s possession at the time that the party filed its motion, response, or reply.’ They then go on to point out that Merrill Lynch had three months to discover evidence for their suit, but ‘chose to file within one hour.’”
Bank of America responded that it has not technically submitted new evidence in the case, only filings related to “discovery” (which is essentially information that may or may not then be considered “evidence” in a case) and scheduling.
The outcome of this case matters because there are approximately 1,000 financial advisors who could seek unpaid deferred compensation from Merrill Lynch. Read the rest of this entry »
Related Topics: Bank of America, FINRA, Fraud, Merrill Lynch, lawsuits, wirehouse, wirehouse recruiting |
by Kristen French on Thursday, May 3rd, 2012 at 1:31 pm
 From the start, Occupy Wall Street critics have accused the movement of failing to focus on a specific set of demands and failing to engage in the usual political channels. But as the movement faded from view over the winter, working up to its May Day return to the streets, at least one offshoot bloomed that is doing both with a kind of needle-like focus and a whole lot of wonkery. Another is skipping the demands and the political process all together and trying to create what it seeks: an alternative bank.
“Occupy the SEC” the first group calls itself, and it believes the key to real change lies in the regulatory architecture of Wall Street. The second is called Occupy Bank. Both groups are populated by former and current financial services employees: derivatives traders, risk analysts, compliance officers, hedge fund quants, former regulators and community bank executives, as Suzy Khim writes in a story on The Washington Post’s Wonkblog from the end of last week. Those in the Occupy the SEC group hail from Morgan Stanley, Deutsche Bank, Bear Stearns, D.E. Shaw, Merrill Lynch and J.P. Morgan Chase.
“They’re more likely to use a flowchart than protest signs to fight big banks. But they identify with the movement’s animating belief that America’s financial heavyweights wield too much power, and that its political leaders are too eager to do their bidding.”
Occupy the SEC wants to work up enough momentum to challenge well-established and deep-pocketed lobbying efforts in Washington. So far it’s making some progress. Members have spent countless hours poring over Dodd-Frank legislation, with particular attention to the Volcker rule, and a few months ago the group submitted its first official letter on Volcker to the SEC, which clocked in at 325 pages. Members will soon go to Washington to present their thoughts and findings to Washington regulators: the FDIC, Federal Reserve, Office of the Comptroller of the Currency and the SEC. They have already met with Congressional staff, including some Republicans, and in April they will meet with Paul Volcker, Federal Reserve chair. Occupy Bank is trying to design a bank that offers ethically sound products but is also commercially viable. The group is studying credit unions community banks and co-ops for ideas, and has talked to existing banks about setting up under their umbrella to help get their bank up and running.
Related Topics: Dodd-Frank, Occupy Wall Street, Regulatory Issues, SEC |
by Kristen French on Wednesday, May 2nd, 2012 at 5:31 pm
 The Hangover II The auction rate securities hangover has not gone away, yet. A federal appeals court on Wednesday ruled that Morgan Keegan fraudulently mislead investors when it sold them auction rate securities, overturning a ruling from last June in which an Atlanta judge found that Morgan Keegan advisors had adequately disclosed the risks.
The 11th U.S. Circuit Court of Appeals in Montgomery, Alabama, said that, in fact, the alleged misrepresentations made by Morgan Keegan brokers about ARS were material and sent the case back to the district court.
Morgan Keegan was acquired by Raymond James Financial in April from Regional Financial for $1.2 billion. The SEC first filed a lawsuit against Morgan Keegan for misleading investors about the liquidity risks of auction rate securities back in July 2009.
We wrote about the auction rate securities mess way back when the market froze up in February 2008.
Related Topics: Fraud, Regulatory Issues, SEC |
by Kristen French on Wednesday, April 25th, 2012 at 4:38 pm
 The long-awaited and much-debated SRO (self-regulatory organization) bill finally hit the floor Wednesday. Financial Services Committee Chairman Spencer Bachus (R., Ala.) and Rep. Carolyn McCarthy (D., N.Y.) introduced the Investment Adviser Oversight Act of 2012, which would allow one or more SROs to oversee investment advisers. The legislation provoked heated reactions from state securities regulators and investment adviser groups.
Today, the Securities and Exchange Commission oversees all investment advisers with more than $25 million in assets but only has the resources to examine them once every nine to 11 years. The states oversee the rest. But come July, the states will take on an additional 3,200 investment advisers with between $25 and $100 million.
No individual organization was named as the best possible candidate for the SRO job, but FINRA, the self-regulatory organization that currently oversees broker/dealers, has lobbied hard for it. (FINRA examines its broker/dealer members approximately once every two to four years.) It is also currently the only group that would meet the conditions set forth in the bill.
The bill provides for states to continue overseeing small investment advisers with fewer than $100 million in assets, as set out in Dodd-Frank legislation, as long as they successfully conduct periodic on site examinations of the firms in their purview. But it requires state-regulated RIAs to become members of the new SRO regardless. Bachus introduced draft legislation last fall that would have taken away examination responsibility entirely from the states, which resulted in some uproar from state securities regulators. Read the rest of this entry »
Related Topics: Compliance, Dodd-Frank, FINRA, Financial Regulatory Reform, Regulatory Issues, SEC, SRO |
by Kristen French on Wednesday, April 18th, 2012 at 2:07 pm
 Sallie Krawcheck Sallie Krawcheck, aka “Mrs. Clean,” is kicking off the next chapter of her long career in the wealth management industry with a position on the star-studded advisory board of Gold Bullion International, an investment platform for precious metals assets.
Krawcheck, who most recently headed up Bank of America’s wealth management group, joins a couple of other heavyweights on the board: former U.S. Securities and Exchange Commission Chairman Arthur Levitt and Gen. Wesley K. Clark, as well as John Hathaway, senior management director and member of the investment committee at Tocqueville Asset Management, and Dan Tapiero, who managed a global macro portfolio at SAC Capital.
GBI wants Krawcheck to help it expand in the wealth management business where she has long been a fixture. She is popular in the financial advisor community, despite (or perhaps because of) being booted from many of her jobs on Wall Street. She was ousted from Bank of America last September—or rather she was offered a demotion and decided not to take it—a move that led to an outcry of support in the industry. Some speculated at the time that she took too many pains to defend the financial advisors she oversaw from Bank of America’s efforts to push cross-selling. Just a year and a half earlier, rumors swirled that Krawcheck was about to be canned for, again, defending advisors. But when she was hired in August of 2009 some saw her as potential successor to then CEO of Bank of America Ken Lewis. Read the rest of this entry »
Related Topics: Bank of America, General, Merrill Lynch, wealth management, wirehouse |
by Kristen French on Tuesday, April 17th, 2012 at 12:43 pm
 According to reports on Reuters and Fox Business News, Bank of America is planning to sell its non-U.S. wealth management businesses to raise capital. The bank is reportedly hoping to snag $3 billion for the units, which manages $90 billion in assets for the wealthy.
Bank of America was not immediately available for comment.
Such a move would stand in great contrast to UBS, which is making big investments in its non-US wealth management divisions.
Related Topics: Bank of America, Merrill Lynch, wealth management |
by Kristen French on Thursday, April 12th, 2012 at 8:27 pm
 Four long-time Merrill Lynch wealth management executives launched a hybrid broker/dealer RIA firm called Snowden on Thursday. Though it is still in startup mode, the executives have big ambitions: They eventually want to build an international brand, first by serving international clients in the U.S. and then setting up offices around the world.
All four of them have a long history in the business, and combined, decades of experience living and working in wealth management overseas. Strategic investors in Snowden include Lyle Lamothe, head of U.S. Wealth Advisory for Merrill Lynch until just a year ago, and Greg Franks, former head division director for the firm. Co-founders Rob Mooney, who is managing partner and CEO of the firm, and John Morris, managing partner, both spent 20 years working in wealth management at Merrill Lynch. Mooney was general counsel and head of business risk management for Global Wealth Management and Morris served as Chairman of the Latin America region for the International Private Client Group, among other things.
Snowden is just one of a handful of hybrid firms launched by industry heavyweights since the 2008 financial crisis. Many other firms have aimed to capitalize on a continuing trend of financial advisors leaving wirehouses to join hybrids, RIA aggregators and independent broker/dealers. Two weeks ago, it was Advizent, backed by Charles Goldman, former head of advisor services at Fidelity and Charles Schwab. Then there’s Dynasty Financial Partners, brought to you by former Smith Barney executives Shirl Penney and Todd Thompson. And who could forget HighTower, backed by former Charles Schwab CEO David Pottruck and former Morgan Stanley CEO Philip Purcell. Read the rest of this entry »
Related Topics: Bank of America, Merrill Lynch, wealth management, wirehouse, wirehouse recruiting |
by Kristen French on Wednesday, April 4th, 2012 at 5:10 pm
 In a scathingly-worded decision, a Financial Industry Regulatory Authority arbitration panel ruled Tuesday that Merrill must pay $10 million to two brokers, Meri Ramazio and Tamara Smolchek. The panel said Merrill fraudulently prevented the brokers from collecting deferred compensation when they left after Bank of America’s takeover in 2008 (more on the scathing language later). A similar ruling came down in late 2010, when two brokers who had departed after BofA took ownership received $1.167 million for deferred compensation benefits that had been denied to them.
Merrill Lynch, beset by lawsuits from every direction, may be on the hook for millions in deferred compensation sought by brokers who left in the wake of BofA’s acquisition of the firm if the Tuesday panel decision sets any kind of precedent.
But Merrill Lynch spokesman Bill Halldin says Tuesday’s ruling is wrong, that it is an outlier and that the amount awarded bears no relation to the damages at issue. Merrill quickly filed a petition to vacate the ruling.
According to certain clauses in employment contracts throughout the industry, deferred compensation is supposed to vest if the brokers leave for “Good Reason.” After the Bank of America takeover, Merrill set up a “Good Reason Committee” to determine the merits of individual cases.
In the Tuesday decision, the panel rebuked Merrill sharply, saying that “directly and indirectly” through its senior management, it “intentionally, willfully and deliberately engaged in a systematic and systemic fraudulent scheme to deprive Claimants of their rights and benefits under its Deferred Compensation Programs,” in order to avoid liability after the change in control of the firm in 2008. Merrill “made fraudulent misrepresentations and withheld important information” from the brokers and “used other retaliatory and coercive tactics” against them, the panel wrote.
The decision even went so far as to name individual executives in senior management who used such tactics as part of the Good Reason Committee, including former Vice Chairman and President of Merrill Bob McCann. Read the rest of this entry »
Related Topics: Bank of America, Merrill Lynch, arbitration, wirehouse, wirehouse recruiting |
by Kristen French on Wednesday, April 4th, 2012 at 2:21 pm
Critics of a fiduciary standard for stockbrokers beware: A study released in early March suggests that application of a fiduciary standard to the broker/dealer model wouldn’t have the terrible consequences for lower-income clients that critics have said it would–higher costs and reduced choice. The authors compared stockbrokers who work in four states that already impose a strict fiduciary standard on them to stockbrokers who work in states that do not.
If you are reading this, you probably know that today financial advice provided by investment advisers is subject to the fiduciary standard, which requires them to put client interests first. Financial advice provided by stockbrokers and broker/dealers generally falls under the suitability standard, which requires them to recommend suitable products to clients, but permits them to select ones that will compensate them more richly even if a better, cheaper product is available.
Those who argue against extending the fiduciary standard to broker/dealers have said it would jack up the cost of doing business by increasing liability, making financial advice prohibitively expensive for everyone but the wealthy. They have also said it would make it untenable to sell certain kinds of products—mostly commission-based securities.
In a report titled “The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice,” Michael Finke of Texas Tech University and Thomas Langdon of Roger Williams University took a hard look at broker/dealers and stockbrokers operating in four states that already impose an “unambiguous” fiduciary standard on them—California, Missouri, South Dakota and South Carolina—and compared them to those who operate in states that don’t have such requirements—Arizona, Arkansas, Colorado, Hawaii, Massachusetts, Minnesota, Mississippi, Montana, New York, North Carolina, North Dakota, Oregon, Washington and Wisconsin. (I confess, I was not aware that there were four states that already applied the fiduciary standard to stockbrokers and broker/dealers.)
Read the rest of this entry »
Related Topics: Compliance, Financial Regulatory Reform, Regulatory Issues, The Fiduciary Standard, The rich, wealth management |
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