Archive for March, 2012

Off to Jail for Selling an Annuity

Friday, March 30th, 2012

According to the Wall Street Journal, Glenn Neasham, an independent insurance agent in California, was ordered to spend 90 days in jail on a felony-theft conviction for selling a complex annuity to an 83-year-old woman who prosecutors alleged had shown signs of dementia.  Neasham was convicted of felony theft in CA for selling the annuity to the elderly woman.  Mr. Neasham, 52 years old, maintains the woman appeared fine and wasn’t confused at the time of the 2008 transaction and that he acted appropriately.  The case underlines authorities’ continuing discomfort with “indexed” annuities, savings products that pay interest tied to the performance of stock- and bond-market indexes.

“The case will definitely have a chilling effect,” said Larry Rybka, chief executive of ValMark Securities Inc., which includes an insurance brokerage. Mr. Rybka fired off a memo last month on the case to his firm’s internal compliance and marketing teams, reinforcing instructions to make sure brokers warn prospective buyers of the withdrawal penalties and other features. The firm for years has discouraged agents from selling certain indexed annuities. Now Mr. Rybka wants them to sell even fewer.


FBI vows to catch insider traders on Facebook and Skype

Thursday, March 29th, 2012

According to PC Advisor, the FBI has stated it is watching social media sites to catch insider trading.  The article specifically cites Facebook, Twitter, and Skype.  The FBI said it will be increasing Operating Perfect Hedge investigations.  These investigations look to catch hedge funds and associates involved in illegal trading.

The article further reports that the FBI previously announced its plans to develop an application to track public posts on social media in order to help it uncover fraud.  The application would search keywords and alert FBI agents if the searches detect “evidence of breaking events, incidents, and emerging threats.”

Amping up recruiting efforts, giant LPL firm grew its revenue by 300% in 2011

Thursday, March 29th, 2012

According to RIA Biz, Independent Financial Partners signed on 140 new advisers and increased revenue by 300%.  Independent Financial Partners ranks among the top 5% of LPL offices.  It now has over 400 advisers in its network and its expected that their AUM will be more than $10 billion in its next Form ADV filing (the most recent filing has the assets at $5 billion).

Independent Financial Partners has its own RIA within the LPL model.  The article cites the firm’s growth from advisors leaving wirehouses (and even some leaving LPL)  but wanting to conduct commission-based business without the hassle of being fully independent.

Indie B-D to hit some RIAs with up to $20K in new fees

Thursday, March 29th, 2012

Accordingly to an InvestmentNews article, Lincoln Investment Planning Inc. (“Lincoln”), a fast-growing independent broker-dealer, is hitting those of its representatives and financial advisers who run their own RIAs with a new annual supervision and compliance fee of up to $20,000.   The supervisory fee will range from $5,000 to $20,000 and is based on the number of advisers at each practice, the assets managed and Lincoln’s opinion of the RIA’s risk.

Other broker-dealers have increased fees on reps and advisers recently to meet rising technology and compliance costs.  The amounts, however, fall far short of Lincoln’s new fee for running an individual RIA.  For example, LPL Financial LLC said in the fall that it would increase its affiliation fee for offices of up to four brokers, with each broker paying an extra $50 a month or $600 a year. The fee hike was part of a $1,050 increase in charges that most of LPL’s 13,000 reps were to see this year.

In the letter sent out last week, Lincoln cited as a reason for the fee hike expectations by the SEC and FINRA that the broker-dealer would oversee all RIA-related business.  “During our audits in 2011, both FINRA and the SEC provided us with extensive guidance along with the expectation that we are to manage all advisory business in which advisors of Lincoln Investment are engaged, regardless of the structure of that advisory business,” according to the letter.

“To help us cover a part of the cost of this required oversight and the maintenance of the required records on Lincoln’s books and records, it is necessary that we implement an Annual Independent Investment Adviser Supervisory Fee of $20,000 per year (the cost of an independent audit alone can run more than $10,000),” according to the letter. “Another alternative for you may be to affiliate with Lincoln’s RIA, or you may decide to terminate with your relationship with the independent RIA.”

SEC’s Gallagher: Supervisor Definition Remains ‘Disturbingly Murky’

Thursday, March 29th, 2012

AdvisorOne is reporting that SEC Commissioner Daniel Gallagher made recent remarks at the SEC Speaks conference (held by the Practising Law Institute) that the issue of what makes a legal or compliance officer a supervisor remains “disturbingly murky.”  He indicated that he would like to see the regulators develop better guidance on this issue.

According to Commissioner Gallagher, “legal and compliance personnel work outside the direct chain of supervision for business activities, and few, if any, would think of themselves as ‘supervising’ day-to-day activity.” He said a key issue is at what point they can reasonably be considered supervisors.  Commissioner Gallagher cited to SEC precedent in enforcement actions, but acknowledged the criticism that comes from rulemaking through enforcement cases.

Securities America shifts back on offense as it wins a $350 million advisory firm from Investment Centers of America

Tuesday, March 13th, 2012

RIA Biz is reporting that Securities America is onboarding Great Plains Financial Group, a team which left Investment Centers of America.  The team currently has approximately $350 million in assets and offers both commission and fee based products.

RIA Biz remarks that this transition is noteworthy because it is one of the first teams to announce joining Securities America since the firm had an issue with an alleged Ponzi scheme and was bought out by Ladenburg Thalmann.

Great Plains Financial Group reportedly made the transition because it felt that Investment Centers of America was too restrictive on its plans to bring over wirehouse teams.  Great Plains Financial Group now plans to recruit new advisers from wirehouses seeking to go independent.

Fed up wirehouse advisors more eager to leave than ever, study says

Tuesday, March 13th, 2012

RIA Biz is reporting that a study released by Schwab indicates that three out of four advisers would respond favorably to the prospect of joining an RIA if they were approached by a recruiter.  Kosi Research conducted the survey, which included 201 advisors with at least $10 million in assets (half had $100 million or more), were providing advice to clients for at least two years, were not with an RIA and had no affiliation with Schwab.

According to survey:

  • 67% of wirehouse advisors worry about job security and report that added responsibilities make it hard to meet clients’ needs;
  • 51% said they find the idea of becoming an RIA appealing;
  •  76% expect a continued increase in the number of advisers becoming RIAs; and
  • 65% who were under the age of 40 found the idea of becoming an RIA appealing, compared with 43% who were 40 or older.


SEC, Industry Experts Issue Stern Warnings to CCOs

Tuesday, March 13th, 2012

In an article today posted on the AdvisorOne website, Chief Compliance Officers received a number of stern warnings at the recent Investment Adviser Association’s annual compliance conference in Arlington, Va.

Robert Plaze, deputy director of the Securities and Exchange Commission’s Division of Investment Management spoke about the changes and improvements being made by the SEC.  He indicated that the SEC has established a new division, the Asset Management Unit that is a part of the SEC’s Division of Enforcement.  In Mr. Plaze’s words, “this unit is dedicated to suing you (the CCO)”.  The unit is staffed by people who, in Mr. Plaze’s  words, “understand the asset management business”.  The unit will be  and collaborating with not only the investment management division but also with the agency’s Office of Compliance Inspections and Examinations.  Mr. Plaze indicated that the unit has allowed the SEC to be more effective in it’s oversight of registered investment advisers as well as providing them with the ability to perform more effective examinations.  This new unit has been tasked with ensuring that every investment advisory firm has adopted accurate, adequate written compliance policies and procedures.

Other industry experts speaking at the conference spoke about the need for investment advisor CCO’s to be “qualified” and be treated as if the individual is a principal in the firm, even if this person does not retain any firm ownership.  They recommended that CCO’s be involved in every facet of the firm’s day to day activities and that their should be good communications between the CCO and the firm’s management in regards to the on-going compliance management program.

DOL Service Provider Fee Disclosures

Tuesday, March 13th, 2012

On February 2, 2012, the DOL released its final rule on service provider fee disclosures.  These disclosures are required pursuant to Section 408(b)(2) of ERISA, which generally sets forth a statutory exemption to the prohibited transaction rules for reasonable and necessary service provider arrangements. The final rule requires covered service providers to disclose information about their compensation and potential conflicts of interest. The deadline to comply is July 1, 2012.

The final rule requires “covered service providers” to (1) provide “responsible plan fiduciaries” with information they need to assess the reasonableness of total compensation, both direct and indirect, received by the provider, its affiliates, and/or subcontractors; (2) identify potential conflicts of interest; and (3) satisfy reporting and disclosure requirements under Title I of ERISA.

The final rule applies to ERISA-covered defined benefit and defined contribution pension plans.  Furthermore, the final rule covers providers who expect at least $1,000 in compensation to be received for services to a covered plan. It applies to, among others, fiduciary service providers to a covered plan or to a “plan asset” vehicle in which such plan invests and investment advisers registered under federal or state laws.

Finally, the final rule does not set forth a specific format for the required disclosures. However, it does include an appendix with a sample Guide to Services and Compensation.

SEC Grants Additional Registration Relief to Certain Special Purpose Vehicles Created by Registered Advisers

Tuesday, March 13th, 2012

On January 18, 2012, the staff of the SEC’s Division of Investment Management issued a no-action letter to the American Bar Association’s Committee on Hedge Funds providing additional guidance and expanded relief from registration for certain special purpose vehicles (“SPVs”) created by a registered investment adviser.

The SEC staff confirmed existing conditional relief from registration as an investment adviser for certain SPVs despite recent amendments to the Advisers Act, pursuant to Dodd-Frank.  In addition, the scope of the relief from registration was expanded to apply to multiple SPVs created by a registered adviser (including those not acting as a private fund’s general partner or managing member), as well as SPVs with independent directors.  Significantly, the SEC staff indicated that it would be permissible if only one adviser of a group of related advisers registers, provided that certain conditions are met.