More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
LPL Financial (LPLA) announced on Monday that it is no longer allowing standalone reps to be their own supervisors (but they can keep their Series 24 and 26 licenses). Independent broker-dealer recruiter Jon Henschen, citing a LPL Financial registered rep, said that going forward, they will need to do one of the following:
— Be under a multi-rep office of supervisory jurisdiction (OSJ)
— Be supervised through the home office, which will cost an additional $4,800 per year
— Be tied to one of their institutional affiliates (such as bank channel)
“LPL has a high number of standalone reps, so this move will cause a lot of controversy and ultimately outflow to other firms,” Henschen (right) told ThinkAdvisor. “The additional $4,800 per year for home office supervision is an unusually high cost, which makes an already expensive broker-dealer now one of the most expensive.”
He added that most of the firms with which he works supervise all their reps and cover that expense through the revenue they generate via the payout grid.
“LPL Financial reps will either have to eat the $4,800 by going in under the company, or go to a multi-rep OSJ that will take 5% of their payout. Either way it’s an added cost. With all the bad press LPL has been getting lately, it was a move to appease FINRA. It’s one more thing that will drive reps to other firms.”
Whether or not Henschen’s assessment proves accurate is far from settled. In June, the broker-dealer behemoth announced that its RIA platform reached $50 billion in assets under custody, nearly doubling its asset base of a year ago. LPL’s RIA platform was used by 152 firms with $27.1 billion in assets as of March 2012. In late May 2013, 208 firms with $50 billion in assets were doing business on the platform.
LPL Financial emailed the following statement on Wednesday:
“LPL Financial is beginning a process to transition advisors operating as single-person Offices of Supervisory Jurisdiction (OSJs) to a new model under which LPL home office supervisors will serve as the OSJ. This will impact roughly 2,200 single person OSJs (SPOs). Under this new model, SPOs will have the option to:
Transition to Home Office Supervision or join an existing qualified multi-person Office of Supervisory Jurisdiction (OSJ). An OSJ is a field office with a Registered Principal, who is qualified to supervise other advisors. Under Home Office Supervision (HOS), advisors are supervised by principals in LPL’s home office.
This transition is the latest in a series of steps taken by LPL Financial to strengthen compliance oversight across the organization, and ensure the company is well positioned for sustainable growth and success. The company has been working on this for some time, underscoring how LPL Financial has been proactively looking for continuous improvement opportunities while also being responsive to new regulatory rules related to practice management. In addition, a major factor has been FINRA’s soon-to-be-enacted consolidated supervision Rule 3110 that will require firms, among other things, to adopt a new on-site supervisory structure for SPOs using designated “senior principals.”