Archive for April, 2012

Social Media Hurdles

Monday, April 30th, 2012

According to an article in Financial Advisor magazine, while many advisers say they would love to make greater use of social media, they claim they are barred thanks to the regulatory climate.  According to the article, advisers point to the SEC and FINRA alerts and guidelines on social media compliance over the last few years.  One example can be found in the SEC’s Risk Alert issued in January.  According to that Risk Alert, investment advisers that use or permit the use of social media by representatives, solicitors and/or third parties should consider periodically evaluating the effectiveness of their compliance program as it relates to social media.  In this regard, the agency is prompting firms to create usage guidelines and content standards for their employees, as well as sufficiently monitor and approve the content and training.  According to the article, in order to comply, advisory firms are hiring personnel specifically to confirm that employee communications posted on social media websites are permissible.  The article notes that one of the issues is that while larger institutions may have deep pockets to put the resources in place to ensure compliance with the regulatory requirements, smaller and medium-size firms are taking the position of not using social media websites because of the cost and time needed to monitor compliance.

Private equity firm quietly buys control of fi360 for $11.5 million

Monday, April 30th, 2012

According to an article in RIA Biz, control of fi360 has been acquired by private equity firm Bluff Point Associates Corp. for $11.5 million.  Bluff Point acquired control from the purchase of ownership interests held by a family of outside investors (who declined to be identified).  Certain fi360 managers still have ownership within the company, but the article does not identify the percentage.

The CEO of Bluff Point believes that fi360 is “poised for dramatic growth.” According to industry professionals quoted throughout the article, the investment by Bluff Point is an indication that fi360 is likely to launch new services. The impact of a revised fiduciary standard (if any) on the direction of fi360 remains to be seen.

FINRA forced to hike fees due to ‘significant loss’

Thursday, April 26th, 2012

According to InvestmentNews, FINRA plans to increase a number of user fees it charges broker-dealers by up to 50% to help cover a significant loss from last year.  In reference to the new fees, FINRA CEO, Richard Ketchum, stated “the broader economic downturn continues to affect trading volumes and industry revenues, which in turn has led to a decrease in FINRA’s revenues and resulted in a significant loss for fiscal year 2011.”  Specifically, the fee hikes will be attributed to advertising reviews, corporate financing and new member applications, as well as a proposed 25% increase in the trading activity fee.

New SRO Bill Proposed

Wednesday, April 25th, 2012

House Financial Services Committee Chairman Spencer Bachus, R-Ala., has formally introduced a bill that would shift the oversight of investment advisers from the Securities and Exchange Commission to a self-regulatory organization (SRO).  The bill is entitled the Investment Adviser Oversight Act of 2012, and would require advisers to become members of a national investment adviser association.

According to InvestmentNews, the new bill is very similar to the draft legislation Mr. Bachus had previously introduced in the Fall of 2011.   Mr. Bachus, who is stepping down as chairman of the Financial Services Committee at the end of this year, does not have a timetable for a panel vote.  “I just don’t know yet; but it’s a priority,” Mr. Bachus said in a brief interview.

Many RIAs fear a new SRO would be more costly and intrusive than the SEC, and would lack the expertise to enforce the fiduciary-duty standard under which they operate.  FINRA, the current SRO for broker-dealers has been lobbying in favor of SRO legislation and has indicated that it is well-positioned to take on adviser oversight.

SEC Chairman, Mary Shapiro, also  commented on the bill during the course of a recent session with lawmakers.  While Ms. Shapiro did not directly endorse Mr. Bachus’ bill, she did speak favorably about the role of SROs, noting that they bolster SEC oversight at a time when the commission lacks the funding to meet all of its regulatory obligations.  “The ability to leverage a SRO organization is really critical,” Ms. Schapiro told lawmakers. “Look at our numbers.  We examine about 8% to 9% of investment advisers every year.”

It is still uncertain what will happen with this bill or whether an SRO for RIAs will ever come to fruition, but it is another step in the process.

The JOBS Act Eliminates Restrictions on Advertising Private Placements

Friday, April 20th, 2012

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) into law.  The law is meant to provide small businesses and start-ups with easier access to capital, with the result being an increase in jobs.  The JOBS Act loosens regulations for private placements, which has many fans, but an equal number of critics who believe that incidences of fraud will explode.

The JOBS Act moved through Congress very quickly.  Now the SEC will need to engage in rulemaking for some provisions, while others are in effect immediately.

The JOBS Act provides relief to smaller companies (less than $1 billion in revenues) conducting an IPO, an increase in the funding available in a Regulation A offering and the facilitation of “crowdfunding” on the internet to solicit a large quantity of small investments.  The more practical benefit to MarketCounsel’s clients, however, is the changes to the private placement regulations.  In particular, the prohibition on general solicitations and advertising has been eliminated for Regulation D filings.  Currently, private offerings can not be offered to the general public.  Issuers (such as hedge fund managers) need to have an existing relationship with those that they solicit.  While issuers have been liberal in claiming existing relationships, the requirement is a hurdle.  The JOBS Act gives the SEC 90 days to revise certain private offering regulations to eliminate the general solicitation and advertising prohibitions.  All purchasers will have to be Accredited Investors (as opposed to the current regulations that allow a certain number of non-accredited investors).

The JOBS Act Eliminates Restrictions on Advertising Private Placements

Friday, April 20th, 2012

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) into law.  The law is meant to provide small businesses and start-ups with easier access to capital, with the result being an increase in jobs.  The JOBS Act loosens regulations for private placements, which has many fans, but an equal number of critics who believe that incidences of fraud will explode.

The JOBS Act moved through Congress very quickly.  Now the SEC will need to engage in rulemaking for some provisions, while others are in effect immediately.

The JOBS Act provides relief to smaller companies (less than $1 billion in revenues) conducting an IPO, an increase in the funding available in a Regulation A offering and the facilitation of “crowdfunding” on the internet to solicit a large quantity of small investments.  The more practical benefit to MarketCounsel’s clients, however, is the changes to the private placement regulations.  In particular, the prohibition on general solicitations and advertising has been eliminated for Regulation D filings.  Currently, private offerings can not be offered to the general public.  Issuers (such as hedge fund managers) need to have an existing relationship with those that they solicit.  While issuers have been liberal in claiming existing relationships, the requirement is a hurdle.  The JOBS Act gives the SEC 90 days to revise certain private offering regulations to eliminate the general solicitation and advertising prohibitions.  All purchasers will have to be Accredited Investors (as opposed to the current regulations that allow a certain number of non-accredited investors).

The JOBS Act Eliminates Restrictions on Advertising Private Placements

Friday, April 20th, 2012

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) into law.  The law is meant to provide small businesses and start-ups with easier access to capital, with the result being an increase in jobs.  The JOBS Act loosens regulations for private placements, which has many fans, but an equal number of critics who believe that incidences of fraud will explode.

The JOBS Act moved through Congress very quickly.  Now the SEC will need to engage in rulemaking for some provisions, while others are in effect immediately.

The JOBS Act provides relief to smaller companies (less than $1 billion in revenues) conducting an IPO, an increase in the funding available in a Regulation A offering and the facilitation of “crowdfunding” on the internet to solicit a large quantity of small investments.  The more practical benefit to MarketCounsel’s clients, however, is the changes to the private placement regulations.  In particular, the prohibition on general solicitations and advertising has been eliminated for Regulation D filings.  Currently, private offerings can not be offered to the general public.  Issuers (such as hedge fund managers) need to have an existing relationship with those that they solicit.  While issuers have been liberal in claiming existing relationships, the requirement is a hurdle.  The JOBS Act gives the SEC 90 days to revise certain private offering regulations to eliminate the general solicitation and advertising prohibitions.  All purchasers will have to be Accredited Investors (as opposed to the current regulations that allow a certain number of non-accredited investors).

linkedFA jumps the gun

Friday, April 20th, 2012

linkedFA, the social networking site that markets itself is a compliant option for financial advisors, probably could have used some advice from its users.  In an sent on April 12, linkedFA offered its users an opportunity to own a piece of the company in a $3.5 million private offering.  The email said this was being offered as a “thank you” to users and would be the last opportunity to invest until their IPO sometime in 2013.

Less than a week later, linkedFA attempted to rescind the offer in order not to violate Regulation D’s public offering restrictions.  A user of a website would not generally meet the “prior relationship” requirement for a private offering, and linkedFA has rescinded the offer and will not go through with the offering discussed in the email.

Wells Fargo Introducing New Bonus Program

Wednesday, April 18th, 2012

Wells Fargo Advisors Financial Network LLC (“FiNet”) has introduced a new annual cash bonus for its registered representatives and advisers that rewards them for landing new clients.  InvestmentNews is reporting that the new bonus program, which was introduced to a limited number of advisers at the end of last year, will be called the voluntary growth opportunity award.   CEO, John Peluso, stated that “bonuses used to be a percentage of [an adviser’s] production.  Now we are disproportionately allocating bonuses to those who are growing.”

Specifically, advisers must generate $350,000 in annual fees and commissions to qualify for the new bonus. With an average of $470,000 in annual production, many of the firm’s advisers will be able to take advantage of the program.  If an individual adviser brings in $1 million of new assets, they can qualify for the plan.  Moreover, those advisers who work in groups or practices have higher tiers to qualify, starting at $2 million in net new assets.  After that, the bonus is calculated from annual fees and commissions, with the adviser receiving between 1% and 7% of gross dealer concession.

Champion of 401(k) fiduciary standard stole from pension plans: U.S. attorney

Tuesday, April 17th, 2012

Based on an article on April 13, 2012 in InvestmentNews, a prominent 401(k) fiduciary advocate has been indicted on federal charges that he used assets he was advising on in retirement plans for home renovations and to purchase interests in a ski and golf resort.

According to the article, Michael Hutcheson was charged in Idaho on 17 counts of wire fraud and 14 counts of theft.  Amongst some of the allegations, Mr. Hutcheson directed the record keeper of a plan to send over $2 million in plan funds via 12 wire transfers from the plan’s account, cusotdied with Charles Schwab & Co. Inc., to accounts that were controlled by him personally.