Archive for October, 2013

Brian Hamburger weighs in on the CFP Board’s compensation controversy @FAmag

Wednesday, October 30th, 2013

According to Financial Advisor Magazine, the CFP Board shows no signs of backing down on its controversial compensation definitions. The board has yet to address “commission-only” planners, some of which should be describing themselves as “fee and commission.” Brian Hamburger offers his thoughts on these fee structures in “CFP Board Seems To Love Hostile Fire”:

“I think if you’re fee-only, the client should have the opportunity to engage you independently of any brokerage firm,” said Hamburger, founder of MarketCounsel LLC.

Clients of RIAs could custody at a number of B-Ds and still engage the advisor for a fee, he said, but to hire a fee-based Merrill Lynch advisor, a client has to hire Merrill, which directly or indirectly compensates brokers from a variety of revenue sources, Hamburger said. That’s why he agrees that CFPs at brokerage firms should be termed “fee-and-commission.”

Click here to read more.

MarketCounsel Gathers Industry Leading Service Providers for MarketCounsel Summit 2013 #MSUM13!

Tuesday, October 29th, 2013

MarketCounsel revealed the all-star roster of speakers and topics for its 6th annual MarketCounsel Summit throughout this month. Now, they announce that they have assembled many of the industry’s top service providers in support of the event, including leading brokerage, custody, technology, practice management, and other service providers. The MarketCounsel Summit is scheduled for December 10 – 13, 2013 at the Four Seasons Hotel in Las Vegas, Nevada.

“Each year we set out to provide a platform to host to compelling discussions about the most provocative issues affecting today’s independent investment adviser,” said Brian Hamburger, MarketCounsel’s president and chief executive officer. “That conversation would be incomplete without meaningful participation from both the industry heavyweights right alongside its new and emerging platforms. It’s a remarkable community we have assembled,” he continued.

For more details about the Summit, or to learn more about our sponsors and remaining opportunities, please see the press release or visit


Wirehouses Look to End Bonus Wars

Thursday, October 24th, 2013

InvestmentNews published an article with representatives from Morgan Stanley and Merrill Lynch bragging that compensations costs may fall due to less signing and retention bonuses being paid out.  Morgan Stanley’s chief executive, James Gorman said that he expects compensation costs to fall as financial advisers switch firms less frequently.  Mr. Gorman said that the bonuses during the financial crisis  amounted to a “tax on the industry.” Of course, Mr. Gorman did not acknowledge that it was a voluntary tax that the industry did not have to pay if it had self-discipline.

Merrill Lynch’s John Thiel said that Bank of America will not offer new retention bonuses to top performers after the payouts they received in 2008-09 are paid off in the next couple years.  Mr. Thiel stated that “every firm has experienced turnover in the last three or four years with people who had a retention package, so my question is, ‘did it really work?’”

Wirehouses recently got some help from FINRA in controlling their spending addiction.  As MarketCounsel has reported, FINRA recently announced that its Board of Governors approved a proposal requiring brokers to disclose recruitment compensation paid to them as an incentive to move to a new firm.  Morgan Stanley and Merrill Lynch both backed this rule which will act as a deterrent to brokers from seeking compensation to move firms.  In addition, it will make it easier for wirehouses to quit paying retention bonuses as brokers don’t have money being offered to leave.  FINRA and the supporting wirehouses would have us believe that the rule is meant to provide transparency to clients being asked to move firms, but history (and these recent comments) make that intention hard to believe.

Brian Hamburger diffuses Broker Protocol concerns @RIABiz

Thursday, October 24th, 2013

In “Backs to the wall, wirehouses renew legal efforts to stem team breakaways — with junior partners sparking the tension,” RIABiz reports attorneys are concerned with a recent spike of lawsuits filed by wirehouses against breakaway brokers.  But Brian Hamburger quells their concerns citing that these cases share a lack of planning or poor implementation:

“People have a need to plan for their departure and proceed with precision, and they don’t always do that,” says Brian Hamburger, founder and managing member of the Hamburger Law Firm LLC and president and chief executive of MarketCounsel LLC. “The Broker Protocol isn’t a get-out-of-jail-free card. It’s a limited agreement, and you’ve got to do all of these things right.”

Click here to read more.

SEC Finally Proposes Crowdfunding Rule

Wednesday, October 23rd, 2013

The SEC voted unanimously today to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.  The release is over 500 pages and seeks comments during a 90-day period.  The SEC also released an abridged fact sheet on the proposal.

Up until now, crowdfunding has generally involved raising capital through the internet for a variety of projects ranging from innovative product ideas to artistic endeavors like movies or music. The JOBS Act, which was signed into law in April of 2012, created an exemption under the securities laws so that this type of funding method can be used to offer and sell securities.  The crowdfunding provision of the JOBS Act was intended to make it easier for startups and small businesses raise capital in relatively low dollar amounts.

Title III of the JOBS Act established the foundation for a regulatory structure that would permit these entities to use crowdfunding, and directed the SEC to write rules implementing the exemption.  It also created a new entity – a funding portal – to allow internet-based platforms or intermediaries to facilitate the offer and sale of securities without having to register with the SEC as brokers.  According to the SEC, these measures were intended to facilitate capital raising by small businesses while providing significant investor protections.

Some of the key provisions of the proposed rules include:

  • Companies can raise up to $1 million dollars through crowdfunding in a 12-month period.
  • Investors would be permitted to invest limited amounts based upon their net worth or income (capped at $100,000) during a 12-month period.
  • Certain companies are not eligible for funding, including those that have no specific business plan or those that indicate their business plan is to merge with or acquire an unidentified company.
  • Securities purchased cannot be resold for one year.
  • Companies seeking crowdfunding will be required to file certain information with the SEC and provide it to investors. The information includes:
    • Information about officers, directors and 20% owners.
    • A description of the company’s business and use of proceeds.
    • A description of the financial condition of the company.
    • Financial statements of the company which (depending upon the amount offered and sold) may need to be reviewed or audited by an independent CPA or auditor.
  • The transactions must take place through an SEC registered intermediary, either a broker-dealer or “funding portal.”

MarketCounsel will continue to monitor these rules with a specific eye towards how investment advisers may be effected.


SEC Sanctions Advisers for Repeat Violations

Wednesday, October 23rd, 2013

The SEC has increased rhetoric regarding being a tougher cop on the beat going forward.  While time will tell whether we see a change in enforcement actions, it has long been accepted that a sure way to be referred to enforcement is by ignoring deficiencies found during past examinations.  The SEC announced that it took action in two cases against firms under its compliance program initiative, which targets firms that have been warned by SEC examiners about deficiencies.

Despite prior warnings from examiners, Modern Portfolio Management and its owners failed to complete annual compliance reviews in 2006 and 2009 and made misleading statements on the firm’s website and investor brochure.  The parties agreed to be censured and pay $175,000 in penalties.  The owners must complete 30 hours of compliance training.  In addition, the firm must appoint a new chief compliance officer and retain a compliance consultant for three years.

Equitas Capital Advisers, Equitas Partners and their owners and chief compliance officers failed to adopt, implement and review proper policies and procedures.  The firms made false performance, compensation, and conflicts of interest disclosures.  In addition, the firm inadvertently yet repeatedly billed clients inaccurately (both over and under billing).  SEC examiners warned the firms of these deficiencies during 2005, 2008 and 2011 examinations.  The parties reimbursed all overcharged clients, agreed to pay $225,000 in penalties, agreed to censures and hired independent compliance consultants.  The firms must also notify clients of the enforcement actions.

Each of the parties mentioned had ample warning of their deficiencies.  One of the first places that advisers should look to when reviewing the effectiveness of their compliance program is past deficiencies found by the firm or examiners.  These issues become low hanging fruit for examiners during subsequent visits and can result in enforcement that is easy to avoid.

MarketCounsel Reveals the Remaining Speakers and Topics for #MSUM13!

Tuesday, October 22nd, 2013

MarketCounsel released the core of its 6th annual Summit agenda two weeks ago. Now they release the event’s additional general and breakout sessions, resulting in three packed days of meaningful conversation for the independent investment adviser industry. The MarketCounsel Summit is scheduled for December 10 – 13, 2013 at the Four Seasons Hotel in Las Vegas, Nevada.

“The topics reflect a combination of what advisers tell us they want to hear with topics we want them to hear about,” said Brian Hamburger, MarketCounsel’s president and chief executive officer. “The speakers and faculty of this MarketCounsel Summit include some of the most intriguing thought leaders and successful investment advisers ever assembled and it’s an honor that they have chosen to come together at our event,” concluded Hamburger.

For more details on the sessions and speakers, please see the press release or visit

United Capital Gets Cash Infusion

Tuesday, October 22nd, 2013

United Capital released news today that it has secured a $38M cash infusion. Private equity firm Sageview Capital has committed $30 million, while Bessemer Venture Partners and Grail Partners, which have funded earlier rounds for the firm, put in a combined $8 million.  In the past United Capital has stated that it was done raising capital from such venture groups due to it being an expensive way to do so.

Unique to this round of funding, United Capital announced this funding will also provide some liquidity opportunities for select Managing Directors of the firm – believed to be those who were among the earliest of acquisitions by United Capital. Those who qualify will be given the opportunity to sell portions of their privately held United Capital shares, once per year. Details such as who qualifies for the liquidity opportunity and what conditions apply are not yet known.

The annual liquidity also acts somewhat like a retention “bonus” at a wirehouse.  Those retention bonuses are forgiven over a period of years as incentive for brokers to stay with the firm.  The annual liquidity event may make it more likely that qualifying Managing Directors will stay with United Capital for similar reasons.

@Fidelity4RIAs Provides Access to MarketCounsel’s “Succession Ready” Program

Tuesday, October 22nd, 2013

Fidelity Institutional Wealth Services today released new research from their 2013 Fidelity RIA Benchmarking Study, stating that 67% of participating firms do not have a succession plan in place.

To help advisors accelerate their path toward succession planning, Fidelity is providing its clients access to a business continuity program called “Succession Ready.” Offered by the consulting firm MarketCounsel, the program provides Fidelity’s RIA clients access to a turn-key program at a reduced rate. The “Succession Ready” program aims to put some certainty around the unexpected, such as an advisor’s death or disability.

“We have found that prudent business continuity planning creates a logical bridge to begin the dialogue on succession planning,” said Brian Hamburger, president of MarketCounsel. “Looking at the issue from a practical scenario, the unavailability or sudden loss of key personnel makes the issue real. It’s a genuine business concern that advisors feel called to take on to protect their clients, employees and families. Advisors can begin to envision that without having to take on more difficult scenarios such as their own death.”

To learn more about the program, click here.

Court Smacks UBS in TRO Hearing Against Protocol Departure

Friday, October 18th, 2013

UBS’ October 10th victory in obtaining a temporary restraining order against former UBS employee Andrew Hergert, based upon UBS’ claims he was simply an “Investment Associate” and thus not entitled to transition under using the Protocol for Broker Recruiting, was short lived. Just a day after receiving Hergert’s written submissions to the Court in opposition to the TRO, including that he was part of a partnership that bore his name, the Court has vacated its restraining order, leaving Hergert free to solicit his clients under the Protocol.

In an opinion highly critical of UBS’ tactics, the U.S. District Court in Seattle concluded that UBS did not disclose material facts which would have led the court to decline to enter injunctive relief, at least while it awaited an opposition from Mr. Hergert. Those facts include the existence of forgivable loan agreements that Hergert signed which specifically allowed him to take a list of clients if he were to leave UBS, as well as the existence of a partnership agreement between Hergert and Kevin Cahoon at UBS.

The court’s order concluded: 1) UBS is not likely to succeed on the merits of any of its claims; and 2) UBS is not likely to suffer irreparable harm. Recognizing the practical effects of the Protocol for Broker Recruiting, the Court determined irreparable harm unlikely because, “among other things, UBS willingly permits certain employees to take client lists following the same procedures that Mr. Hergert invoked. The court views that as a concession that the harm that results from its employees taking lists of clients is not irreparable.”

Not only did UBS lose its injunctive relief.  The court was so disturbed by UBS’ lack of candor in filing for the TRO that it ordered UBS to show cause why it should not enter an order that sanctions UBS for failing to disclose material facts to the court in its motion for a TRO. The Court’s decision will undoubtedly weigh heavily into whether UBS decides to commence an arbitration against Mr. Hergert, or lick its wounds and go away, leaving him free to compete for clients without threat of liability. Hopefully it will also make UBS think twice before going after other departing representatives.