More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Despite word that Securities America and Ameriprise Financial “made substantial progress” in last week’s mediation, the overall environment at Securities America has deteriorated markedly, with several advisors leaving this week and more set to leave soon, according to a departing Securities America rep and a veteran recruiter.
The news and conversations have “caught everyone off guard, and they are all freaked out … and have begun having meetings” about their next steps, the departing advisor, who has more than 20 years in the business and several years with Securities America, said in a phone interview with AdvisorOne on Sunday. “There’s a feeling that Securities America cannot last long, maybe two to three months or less, depending on what happens.”
In an interview on Monday, Janine Wertheim, Securities America’s senior VP and chief marketing officer, denied that any of its reps had left the broker-dealer “over the past few weeks because of these events.” In fact, she said that Securities America has “experienced a positive net gain” in the number of reps in 2011, and that its advisors have been “incredibly supportive of us.” There has been only one loss in the “last couple of weeks” of an advisor, she said, and that was a termination due to a “change in business model” at that rep’s practice.
Calls between executives at Securities America, which is led by CEO Jim Nagengast (left), and its advisors were cancelled last week but now have been rescheduled for late Monday and early Tuesday. “This is just to try and keep those advisors who may be nervous from jumping ship,” said the departing advisor. “I am extremely skeptical about what is happening.”
However, Wertheim said that beginning Monday afternoon, the broker-dealer was holding a series of conference calls with its reps to “bring them up to speed” on developments in the case, especially on the process that was announced late Friday, March 25, under which “all interested parties have committed to a process that we hope will result in a full and final resolution of these matters.”
What the Recruiters, IBDs Are Saying
A veteran recruiter confirmed the situation as described by the Securities America rep. “Some reps are already leaving, some will do so in the next couple of weeks and others in the next couple of months,” the recruiter said in a phone interview with AdvisorOne on Monday. “They all pretty much have a Plan B, with some saying this is a good time go.”
Still, the recruiter says, those advisors with large books of business “see switching firms as a herculean task and hope things work out.”
The recruiter is in contact with about 25 Securities America advisors of whom two-thirds want to move regardless of the outcome of any negotiations involving Ameriprise Financial.
And other broker-dealers are getting calls, too.
"We are currently in conversation with some advisors from Securities America who have reached out to us," said Robert Foney, chief marketing officer of Investors Capital, in an interview. "Our five-star service model is perfect for them as well as any for any advisor with an acceptable U4 and business mix, producing over $100,000 per year," added Foney.
At least one recruiter, though, says there may be a silver lining for Securities America.
“If Securities America [and Ameriprise] are able to engineer a settlement, this makes them look good,” said Mark Elzweig (left), an executive-search consultant in New York.
“The fact that they have a well-capitalized parent company standing behind them is a strong positive for Securities America. Most other independent broker-dealers don't. So, if Securities America can survive, the situation could turn out to be a strong positive for the firm.”
Host of Issues
According to the departing Securities America rep, the broker-dealer has been less than forthcoming, telling them that Ameriprise is setting aside $40 million for Securities America’ legal issues. However, the advisor said, that $40 million is for Ameriprise’s costs related to a settlement, as was disclosed in its annual report.
“The bottom line is that Securities America is misleading us as to the extent of the problem,” said the advisor.
As to advisors’ concerns over role that FINRA can potentially play in the situation, FINRA rules stipulate that if a firm falls below net-capital requirement, its business operations can be suspended.
When asked about the situation by AdvisorOne on Monday, FINRA said in a statement that it does not “announce what we might or might not do with respect to any firm.”
Movement of OSJs Disputed
The departing advisor further alleged that the top OSJs at Securities America “have been having meetings and are negotiating an en masse move within the four to six weeks.” By moving en masse, the OSJs hope to negotiate for higher payouts and better transition money.
Those advisors with significant RIA businesses will be slower to move, he added. “They want to be sure they can get the end-of-quarter fees and have time to look around.”
Again, Securities America's Wertheim said that the rep's assertion on the OSJs was inaccurate. “We’ve been in constant contact with all of our major branches, and they’ve been extremely supportive,” she said in the Monday interview.
Securities America’s ongoing recruiting efforts “will be hobbled going forward” due to the ongoing media attention and related issues,” the veteran recruiter said. “This will be tough to overcome.”
Securities America has had some good payouts, 92%, for advisors making yearly commissions and fees of about $100,000 to $120,000, he acknowledged. Still, some advisors he is working with are looking for better administrative fees on certain accounts than they now have with the broker-dealer.