More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
In the face of intense market volatility, financial advisors are surprisingly upbeat about the future of their businesses and expect a lot of advisors to change companies. So says veteran executive recruiter Mark Elzweig, president of a boutique search firm with a nationwide reach, Mark Elzweig Co., in New York City.
“Despite tremendous gyrations in the market in the last few weeks, advisors are optimistic and remain confident that their franchises are very solid. They feel there are good long-term opportunities for investors, who need effective risk-management programs to protect them on the downside. I haven’t heard anyone say to us, ‘I want to leave the business and do something else’,” says Elzweig (left) in a telephone interview with AdvisorOne.
Indeed, the recruiter anticipates 2012 to be a year when many more wirehouse advisors will change firms–a big contrast to 2010 and 2011.
“Once the market crashed in 2009,” Elzweig says, “there was so much movement. In 2010 most major wirehouse advisors–whose production was $500,000 or better–[took] retention bonuses and decided to give their new firms and management a chance.
“But as we soon go into 2012, more of the upfront portion of those bonuses have amortized,” he says. “So in the [new year] we’ll see a lot more broker movement. Once the environment is more normal, people who feel there’s a reason to make a change will do so. Even now, we’re [getting] busy.”
There is already a great deal of activity among independent advisors, what with a record number of smaller broker-dealers closing largely because of the onslaught of new regulatory requirements.
“Increased regulations are making it more and more difficult for smaller broker-dealers to stay in business because their regulatory costs are going up,” Elzweig says. “Regulation is biased toward large, established players who have the money and resources for layers of full-time compliance people. In many ways the Dodd-Frank Act could be described as the Big-Firm Market-Share Protection Act–it skews the market in favor of the larger firms. Only they are set up [with staff] to handle regulations that require a lot of process.”
John L. Brackett, a partner of BAR Financial, in Pleasant Hill, Calif., and regional director of broker-dealer Financial Network Investment Corp., worries about the effect new regs are having on smaller broker-dealers. BAR’s advisor force numbers more than 400, and the independent owns and operates five large OSJs in California, New Mexico, Pennsylvania and Florida.
“FINRA has decided to regulate through enforcement, and they’re coming up with some of the most bizarro things. They want OSJs to analyze the [asset allocation] in client portfolios. That’s the advisor’s job–not the compliance person’s job. This is the Bernie Madoff backlash! We’re dealing with enforcement regulations that are closing broker-dealers and running advisors out of the business.”
Though Elzweig focuses on recruiting wirehouse and regional FAs, he notes: “When we’re aware of quality people at smaller firms, we are most definitely approaching them.”