Updates on Bitcoin, Texting, Growth Plans, Regulation & More

Earlier in the fourth quarter, the independent broker-dealer announced that seven groups moved onto LPL platforms from these broker-dealers, each with between $500 million and $999 million of assets, and four groups from NPH-affiliated firms with a total of $9 billion of assets. These 11 groups moving onto LPL’s platforms, thus, could add between roughly $12.5 billion and $16 billion in combined client assets.

“We are committed to executing their transition successfully and to deepening our relationships as we further introduce advisors to the depth of capabilities, technology and resources they can leverage to manage and grow their businesses,” said Bill Morrissey, LPL managing director and divisional president of business development, in a recent statement about the transitioning advisors.

Over the past few months, LPL executives have said that the NPH advisors will be moved onto its platforms in two onboarding waves by March 30, 2018.

Shift in Regulatory Review

The Financial Industry Regulatory Authority plans to issue a proposal that would free broker-dealers from keeping track and maintaining liability for registered investment advisor business — a huge win for hybrid BDs — but they’d also be forced to take a hit to fee revenues.

FINRA’s board approved at its December meeting the publication of a regulatory notice seeking comment on changes to its rule on outside business activities that seeks to streamline BDs’ obligations by “generally excluding from FINRA’s rule on a registered person’s personal investments and work performed on behalf of a firm’s affiliate” and eliminating supervisory obligations for non-broker-dealer outside activities, including investment advisory activities at an unaffiliated third-party advisor.

No date for release of the regulatory notice has been announced by FINRA.

FINRA’s plan is a “good-news, bad-news story,” said Jon Henschen of the recruiting firm Henschen & Associates. The good part is that broker-dealers “will no longer have to track and most importantly have liability for RIA business.”

The bad news: “The motive for taking a percentage payout on the RIAs advisory business will go away, leaving them only a profit center from commissions and trail business if the advisory assets are held away.”

Henschen explained that numerous hybrid firms “take a payout haircut anywhere from advisors’ compensation grid (90%) to perhaps 95% to 97% for supervision,” but FINRA’s plan would require them to take no haircut so they would only make revenue on commission product.

Henschen explained that numerous hybrid firms “take a payout haircut” from advisors’ compensation grid of about 10% (leaving FAs with 90%) to perhaps 3-5% for supervision (leaving FAs with 95-97%); but FINRA’s plan would require them to take no haircut so they would only make revenue on commission product.

“I refer to this as the crumbs model,” Henschen said, “because oftentimes advisors with this model have $100 million to $300 million of advisory revenue and perhaps $100,000 to $300,000 of commission and trails. So, the BD would be making money only on the crumbs part of the advisor’s overall revenue (commission and trails).”

The handful of broker-dealers “that currently take no haircut on RIA business would no longer have a niche that is unique that sets them apart from the crowd,” he added.

Some broker-dealers allow advisors to have their own RIA, “but they must custody those advisory assets via the BDs’ clearing arrangement and are not allowed to hold those assets at outside custodians like Schwab or TD Ameritrade,” Henschen said.

“Will they now be required to pay 100% payouts to these outside RIAs’ advisors on their advisory portion but still earn revenue from administration fee markups, third-party money manager markups and ticket charge markups as well as other miscellaneous brokerage account fees?” he asked.

Advisors that have their own RIA “are already under the fiduciary standard and are supervised by the state or the SEC, so having a broker-dealer needing to supervise them as well was redundant and also made the broker-dealer a deep-pocket target for frivolous litigation,” Henschen explained.

The recruiter said that he’s gotten numerous broker-dealer complaints about “compliance problems that happened on the RIA side [and] fell to the broker-dealer — resulting in large fines.”

Some firms have benefitted from broker-dealers paying these litigation fines, so this change would remove broker-dealers’ deep-pocket fall-guy status, Henschen points out.

Personnel News

Meanwhile, Ladenburg Thalmann says it is rolling out a centralized due diligence platform for its five independent broker-dealers to be led by Thayer Gallison, who recently led investment research and product due diligence for the Advisor Group of IBDs.

In this role, Gallison will work with executives and about 4,000 advisors affiliated with Securities America, Triad Advisors, Investacorp, KMS Financial Services and Securities Service Network. He will be based in Atlanta and report to Ladenburg Chief Risk Officer Craig Timm.

“The formation of our new enterprise due diligence platform is consistent with our approach as the industry’s foremost innovator of the network model, supporting successful independent advisory and brokerage firms that operate under autonomous brands, cultures and leadership teams,” said President & CEO Richard Lampen, in a statement.

The platform aims to boost “the existing capabilities of each of our subsidiaries in product due diligence and oversight, crucial areas that would otherwise consume considerable bandwidth among each firm’s home office staff,” Lampen added.

As of Sept. 30, Ladenburg’s client assets were nearly $153 billion, while advisory assets totaled $66 billion.

“In this new fiduciary environment, comprehensive due diligence will be critical in empowering advisors to make confident investment recommendations that serve their clients’ best interests,” Gallison explained in a press release.

Gallison, CFA, was with the Advisor Group — which includes Royal Alliance, FSC Securities, Woodbury Financial Services and SagePoint — for more than six years (May 2011 to November 2017), according to his LinkedIn profile. Earlier, he was a senior investment analyst at MV Capital Management (2006-2011) and GV Financial Advisors (2000-2006).

Separately, Cambridge Investment Research promoted Colleen Bell, who joined the firm in 2006, to Chief Fiduciary Service Officer and senior vice president of Fiduciary Services.

“Colleen has been instrumental in the collaborative leadership and development of Cambridge’s innovative solutions,” said President & CEO Amy Webber, in a statement. “At Cambridge, we are focused on the financial professional with an independent mindset and dedication to best serving the needs of their investing clients, and Colleen will continue to play a key role in supporting Cambridge’s independent financial advisors in an ever-changing advice industry.”