For John Brackett, business isn’t all that bad. He’s at his vacation home in Mexico with a margarita in one hand and the phone in the other. In such a setting, relaxation would be the order of the day. But not for Brackett, who’s sounding off on the sorry state of the independent broker-dealer industry; sales of “toxic” investment products, lawsuits, firms shuttered with little or no warning and reps set adrift. He’s not happy.
“I’ve got 30 years invested in this business,” he says. “You’ve got guys who are just as hard-working as I am and have diligently built up their businesses. They suddenly find themselves out on the street for something that was not of their doing.”
Brackett is a regional director with Financial Network Investment Corporation and a partner with BAR Financial in Pleasant Hill, Calif. He’s certainly experienced his share of stress and business uncertainty in the preceding three decades, but the manner in which he and his Financial Network colleagues have handled it serves as a model for other firms and reps experiencing similar issues. It’s one reason he can enjoy the aforementioned (and well-deserved) margarita, even at a time like this.
Founded in 1983 and at various times run by legendary figures like Miles Gordon and John Simmers, Financial Network Investment Corporation was sold to Aetna Financial Services in 1997. Aetna was then acquired by ING in 2000. When the financial crisis hit in 2008, ING (like many financial services companies) found itself in trouble, and quickly shed what it considered to be its “noncore” assets, its broker-dealer book among them. In stepped Lightyear Capital, a New York-based private equity firm, which purchased Financial Network and its sister broker-dealers; Multi-Financial Securities Corporation and PrimeVest Financial Services. Lightyear then announced the broker-dealers would be rebranded as Cetera Financial Group, headed by Valerie Brown.
“Throughout its many corporate incarnations, Financial Network has remained independent, committed to client-centric services and the independent broker-dealer business,” the firm says on its website. Which is good, because attempting to keep up with its “incarnations” will give you whiplash.
Today Financial Network is largely a “field-owned” broker-dealer with 2,400 reps. Each of the firm’s branch offices is independently owned and operated, and is supported by the national organization.
It was the seats at the table that advisors like Brackett and Dave Hubbard—a regional director in the Chicago area—were able to negotiate early on that lead to the smooth and orderly transition reps experienced with each sale. Now, young guys like Kurt Opella and Scott Wallace, co-regional directors with Financial Network in Texas, are learning the lessons and reaping the benefits at a time when so many of their peers and competitors are starting over.
“We have a regional director advisory council,” Hubbard, who runs Exemplar Financial Network, explains. “We elect five people to represent the regional directors. We sit down with the management and we talk about every part of the company. The home office cannot decide to take a left turn and change things that affect the lives of our advisors unless they have us on board.”
The benefit, he says, is the consistency it allows “to protect our advisors’ interests. I feel like I’m independent, but not alone.”
For the Lightyear deal in particular, Hubbard and Brackett were two of seven regional directors who were voted in to represent the reps. They pooled their money and hired a Wall Street law firm (one of the biggest, according to Hubbard) as well as their own investment banking firm.
“We went and sat down with ING management and said, ‘You need to involve us in this process or you’re not going to have anything to sell,’” Hubbard says.
“We met with every single potential suitor,” Brackett, (left), adds. “One guy came in and didn’t even bother to put on a tie. That killed it before the meeting even started. We were able to have frank discussions with Lightyear about our business before the deal was consummated so they had a good understanding of us and we had a good understanding of them.”
If only this was the norm in times of industry flux, rather than the exception. Ameriprise Financial filed an 8-K statement with the SEC on April 21 announcing that it would pay $150 million to settle arbitration and lawsuit claims against its independent broker-dealer subsidiary, Securities America, over the sale of certain private placement notes from Medical Capital Holdings and Provident Royalties LLC.
In late April, boutique broker-dealer Omni Brokerage Inc. filed notice with FINRA that it intended to cease business operations as a registered firm. According to SEC filings, the South Jordan, Utah-based Omni was the subject of numerous arbitration cases for its involvement with DBSI Inc., a commercial real estate investment company based in Idaho that sold Tenants in Common (TICs) investments.
Most recently, just before press time, San Diego-based WFP Securities also notified FINRA of its intention to close. It too was the recipient of lawsuits related to private placement issues involving Medical Capital Holdings Inc. and Provident Royalties LLC.
When asked about what’s to be done, Hubbard, (left), isn’t at a loss for words.