Archive for October, 2016

WSJ Reports: SEC Sharpens Focus on Registered Investment Advisers

Friday, October 21st, 2016

In re­sponse to a boom in the num­ber of so-called reg­is­tered in­vest­ment ad­vis­ers, or RIAs, the SEC has boosted by 20% the num­ber of ex­am­in­ers as­signed to mon­i­tor­ing wealth-man­age­ment firms and in­vest­ment com­pa­nies.

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@Diana_Britton recaps the RIA M&A market on @wealth_mgmt with insight from David Mrazik. @echelon_group’s #DDMSummit2016

Thursday, October 20th, 2016

David Mrazik added that he has plenty of clients who have taken a lower purchase price because they really liked one buyer over another.

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Breakaways from the wirehouses continue to rise. @HDelux talks with @NeilAWeinberg on ‘How Banks Are Losing Clients to Their Own Employees’ @business

Monday, October 17th, 2016

Brian Hamburger, a lawyer in Englewood, New Jersey, who specializes in helping brokerage employees go independent, figures he’s left his “fingerprints” on as many as one-third of protocol memberships, including 6 Meridian’s. “We’re working at varying stages with several multibillion-dollar teams. We expect more big deals this year,” Hamburger said.  Hamburger is part of a cottage industry of business consultants, technology vendors and law firms that has cropped up to help advisers make the leap to independence. A critical part of their playbook is the tricky task of invoking the industry protocol, without running afoul of regulations or employment contracts.

To invoke the protocol, departing advisers typically start planning months or years ahead. They hire an outside lawyer or consultant who sets up a shell company, sometimes in the name of a trusted proxy: “A college buddy or a crazy uncle,” Hamburger says.  That company then joins the protocol. Soon after, typically on a Friday, the advisers resign, take ownership of the protocol firm and work through the weekend schmoozing their clients while their former colleagues do the same, like the dueling sports agents in the film “Jerry Maguire.”

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@HDelux plays the heavy on DOL rules at @RaymondJames national Wealth Managers Conference and goes light on fear-mongering. @RIABiz

Tuesday, October 11th, 2016

Both to reinforce those concerns and allay any paranoia from them was Brian Hamburger, president and CEO of MarketCounsel. His big point is that RIAs need need not quail at the prospect of the new rules, which are still subject to legislative amendment and, depending on the outcome of the presidential election, could be done away with altogether.  Even if they should survive intact, Hamburger says, RIAs should be fine.  “None of the new rules, even the proposed ones, will be crippling to your business — they are quite logical,” he said. “But my advice is to go straight until you must turn, so while a rule is in its proposed form don’t lose too much sleep over it.” Hamburger delivered that nuanced message to the 300-plus conference attendees, which included existing RIA clients as well as more than 60 visiting advisors exploring the Raymond James RIA custodial platform. He also delivered a soup-to-nuts survey of risk-mitigation and regulatory-compliance best practices, especially in light of the new Dept. of Labor fiduciary rules, which are set to go into effect this spring.

The most attention needs be paid to the SEC’s shifts in scrutiny regarding examinations.  With IRA rollovers, Hamburger said, if you cannot prove that your client is better off as a result of your actions, be prepared for scrutiny and perhaps skepticism. Quantitative items are increasingly more important than qualitative fees, and therefore the results have to be better than before, he continued. Gone is the default choice. In addition, if you recommend having assets managed by a third-party manager, you had better be ready to substantiate that recommendation.
The SEC will also be wanting more detail in ADV disclosures as to where assets are custodied and how they are managed. And, Hamburger said, there will be new scrutiny of marketing materials, social media activity, and gaps between stated and actual performance or service.
Hamburger canvassed other areas of interest including whistleblowers (no contracts will be allowed to prohibit an employee going to regulators with an issue), custody transfers (more due diligence is required in verification of client identity), and recidivist advisors (scrutiny of firms that hire advisors with negative CRD records).

Hamburger’s litmus test is if an advisor’s eyes “light up over the phone.” But if he senses an advisor is “frozen at the thought of making tons of decisions,” then he knows independence may not be the right path. See: MarketCounsel launches legal hyperspace button for breakaways who get fired by Merrill Lynch (and friends) before the ‘go’ date.  The RIA channel is the fastest growing segment of the industry, said Hamburger. “Independence is an advisor’s biggest strength and yet can be their biggest weakness.” Hamburger commented on a successful trend in which RIAs focus on a small number of client families, offering fewer services, but adding more value.

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@AndrewWShilling of @onwallstreet and Daily Brief from @wealth_mgmt report the launch of The Harvest Group.

Thursday, October 6th, 2016

Roger Ingwersen, his son Todd and daughter Laurie launched The Harvest Group, with assistance from regulatory and compliance firm MarketCounsel and the Hamburger Law Firm, which specializes in working with investment advisers, the spokeswoman said.

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Sharron Ash talks about the obligations of CFP certificants with @Ann_Marsh at @FinPlan.

Thursday, October 6th, 2016

“I think that CFPs should be afraid of unchecked disciplinary actions that could be taken against them, or unchecked policies and procedures that they didn’t sign up for,” says Sharron Ash, chief litigation coiunsel at the Hamburger Law Firm in Englewood, New Jersey, who regularly represents planners against the board. “Advisers typically don’t have any idea what it means to be a member of this club.”  CFPs need to understand that holding the certification “carries with it a pretty dark underbelly,” Ash adds. “You can end up fighting against the very flag you thought you were carrying.”  “It is a club. It’s a fraternity,” Ash says of the board. “And it’s not accountable.”  While that’s a common argument, Ash says most CFPs don’t realize that arbitration can be just as expensive and as time-consuming.

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@HDelux: ‘The 4 SEC exam priorities advisors need know now.’ with @think_emilyz @ThinkAdvisor

Thursday, October 6th, 2016

Now more than ever, good compliance is good business, said Brian Hamburger, founder and CEO of MarketCounsel, during an External IT conference in New York this week.
Hamburger specifically highlighted four examination priorities that the Securities and Exchange Commission “has shown by their actions, not by their words.”  “If you want to know what their words say, you can simply take a look at their examination priorities that they publish each year, typically in the first quarter,” Hamburger told the crowd. “Those are on their website.”  Hamburger breaks down four areas that he said the SEC is “actually focused on.”

“The SEC, for all intents and purposes, should be ahead of this issue,” Hamburger said. “They are the registrar” of broker-dealers, investment advisors and investment companies. “They’re also the government arm that deals with private funds…. That said, they have failed to act in terms of extending the fiduciary obligation to anyone else besides RIAs. The DOL is ahead on this issue.”  “The SEC is coming in and they are effectively boot-strapping what they’d like to see, which is this extended fiduciary obligation, within their regulatory exams,” he said. “So there’s no rules, right? If you look through the SEC’s website, you’re not going to see any action with respect to the extension of the fiduciary obligation to brokers.”  Despite this, Hamburger said the SEC has taken a pretty aggressive position and is addressing this at “just about every single examination.”  “It’s one of the first questions they’re asking, and they’re asking the question of, ‘Can you show us how you are managing conflicts of interest in connection with your recommendation to rollover IRAs?’” he said.

“Where this oftentimes comes into play is lead counsel, who is not necessarily familiar with the rules and regulations within the financial services industry, will write a really sound agreement for the departing employee,” he said. “Within the severance agreement, they will include provisions that they are prohibited from receiving any type of whistleblower payment.”

“It doesn’t matter if you’re duly registered or a fee-only advisor, [the SEC wants to know] you obtained the most efficient share class for your client,” Hamburger said. “And one further is whether or not, within that sector, especially for passively managed funds, you went out and found the most inexpensive and efficient passively managed fund for your client.”  Hamburger’s advice to advisors: “Whatever your research is, you’re going to maintain it. Because the best answer to that question is, ‘Here is our due diligence.’”

“The SEC has effectively said, ‘if you’re an advisor, and you hire individuals that have previously been sanctioned, they’re going to specifically come in to target you and ask about your supervision with respect to these employees,’” Hamburger said.  According to the SEC, such individuals “may present an increased risk of future misconduct, and thus can present harm to clients.”  Hamburger and his team at MarketCounsel have a “bit of an issue” with this.  “While it sounds great—everyone loves the regulators that go after the bad guys—these are folks that have already paid their debt back to the industry,” Hamburger said. “They’ve already reached some kind of settlement or brought a case to fruition.”

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@RIABiz examines BNY Mellon’s suit against Silicon Valley RIA and David Mrazik weighs in.

Thursday, October 6th, 2016

David Mrazik, managing partner of the Hamburger Law Firm and managing director of the MarketCounsel, both in Englewood, N.J., says that this legal battle is a bit of a head-scratcher.  “How much of this is a real legal course of action?” Mrazik asks. “It’s a shrewd tactical decision, putting these sorts of claims out in public and exerting counter-pressure back on the bank. It’s not a one-sided story, but there are a lot of facts we need to learn to see what is real and what’s imagined here.”

The fact that there is litigation at all in this case is somewhat surprising to Mrazik. See: The odd logic ‘Enron’ lawyers are relying on to sue LPL Financial for securities fraud — logic that’s attracted five potential copycat investigations in 10 days.  “It’s unusual to be so public and wind up in litigation,” he says. “Settlements are usually the most likely outcomes in cases like this. There’s a predisposition to trying to mediate or arbitrate and keep everything private. As the buyer, though, you have some incentive to make this public as a precedent-setter to try to disincentive this activity from happening further.” See: Bank of America throws a legal wrench at big wealth management start-up.

Unusual or not, there is a legal battle here with “two very different pictures of the universe,” said Mrazik. “Time will tell what the truth between the lines is but it leads one to believe there’s more here than might have first met the eye from the initial BNY complaint.”  As for why BNY started all this in the first place, he speculated that “if you’ve just completed an acquisition and want to dissuade people from leaving, and protect your asset value, one can see why they would want to be out in front by taking control of the first shot fired, to dissuade people from heading for the exits.”  Mrazik is cautious about addressing the specifics of the Lyell complaint but did call it “somewhat atypical” that the employees would only be told of the deal after the fact and be given just a few hours to look over the purchase agreement. See: Merrill Lynch and Bank of America cultural tension may spin out a new round of breakaways, recruiters say.  “On the other hand we don’t know what the terms were of ownership interest so without all of that to be able to dissect what their rights were as equity holders is a guessing game,” he says.

Mrazik does recall that according to one of the attachments, essentially the shareholders did sign the purchase agreement but only with respect to a particular restrictive covenant section — the one barring solicitation. “It’s not a coincidence Lyell filed this in California. They could have chosen another jurisdiction or federal court. California is probably among the most hostile states toward restrictive covenant arrangements in the United States.  Mrazik says another court will come into play in this battle – the court of public opinion – especially with regard to all the references in the filing to the cultural changes that took place at Atherton Lane. Lyell’s lawyers say the purpose of the Lyell suit is to even the playing field between the parties and expose to the world that BNY is falsely advertising itself. See: Spinning 200+ years of legacy culture as a virtue, BNY Mellon uses Pershing INSITE to show its software side, softer side — as it gets beyond NetX360 and men with a hard-wired approach

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FINRA crackdown puts it on pace for a record year. Sharron Ash speaks with @GregIacurci @newsfromIN.

Thursday, October 6th, 2016

Sharron Ash, chief litigation counsel at MarketCounsel, a regulatory compliance consulting firm, said that while such stand-out fines certainly play into the increase, the amounts of smaller fines Finra assesses have been growing as well.

“I think the more important piece is the smaller fines that have a cumulative effect,” Ms. Ash said. “What that should tell you is, yes, you have this standout of super-fines, but the vast majority of their fine growth is going to be attributable to laying it on the backs of the brokers, where they’re paying more.”

Finra published the latest version of its sanction guidelines, which provides general principles about the group’s sanction considerations and determinations, in 2015. Ms. Ash believes Finra has taken the sanction guideline “to really a whole new level.”

“They’re taking a very aggressive stance, generally, and they’re trying to send a message,” she said. “In the past, with earlier versions of sanction guidelines, it’s been effective to look at past precedent, but I think this new sanction guideline represents an effort on their part to cut off the anchor.”

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@FinPlan Reports on The Harvest Group’s Launch with assistance of @MarketCounsel and @HamburgerLaw

Wednesday, October 5th, 2016

Roger Ingwersen, his son Todd and daughter Laurie launched The Harvest Group, with assistance from regulatory and compliance firm MarketCounsel and the Hamburger Law Firm, which specializes in working with investment advisers, the spokeswoman said.

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