Page 6 – Leslie Schwaebe Akins LC

Broker Misconduct: What It Is and How to Fight Back

Wed, 29 Jan 2025 16:39:57 GMT

When you hire a broker, you expect them to act in your best interest. Unfortunately, some brokers engage in unethical practices that put investors at risk. Understanding broker misconduct is essential for protecting your investments.

Common Forms of Broker Misconduct

Unauthorized trading happens when a broker makes transactions without client consent.
Excessive trading (churning) generates commissions for the broker but hurts the investor.
Failure to disclose risks can lead investors into unsuitable investments.
Margin abuse occurs when brokers encourage high-risk margin trading without fully explaining the risks.
Breach of fiduciary duty happens when brokers prioritize their own interests over clients’.
If you suspect broker misconduct, acting quickly can help prevent further losses.

How to File a Claim for Broker Misconduct

Victims of broker misconduct can file complaints with FINRA or pursue legal claims with an experienced broker misconduct attorney to recover damages.

Take Action Today

If you’ve suffered losses due to broker negligence or fraud, we can help. Schedule a consultation today to explore your legal options.

How to Spot Investment Fraud Before It’s Too Late

Fri, 24 Jan 2025 16:38:45 GMT

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Investment fraud is more common than many people realize, and it can lead to devastating financial losses. Whether you’re a seasoned investor or new to financial markets, understanding the red flags can help you avoid becoming a victim.

Common Warning Signs of Investment Fraud

Fraudulent investment opportunities often promise guaranteed, high returns with little or no risk.
Scammers use high-pressure sales tactics to push investors into quick decisions.
Fake investment firms may lack proper licensing or regulatory oversight.
Ponzi schemes rely on new investor funds to pay earlier investors rather than legitimate profits.
A lack of clear, verifiable financial statements is a red flag for fraudulent operations.
These red flags can help you identify scams before they cost you money. If you believe you’ve been a victim of investment fraud, legal options are available to recover your losses.

What to Do If You Suspect Investment Fraud

If you suspect an investment is fraudulent, gather all documents, report it to the SEC or FINRA, and consult an investment fraud attorney to explore your legal options.

Protect Your Investments

If you’ve been targeted by an investment scam, you don’t have to navigate this alone. Contact us today for a free consultation and let us help you recover your losses.

SEC Charges Hedge Fund Adviser With Deceiving Investors by Inflating Fund Performance

Tue, 15 May 2018 16:57:00 GMT

SEC Press Release 2018-83
The Securities and Exchange Commission today announced that it has charged
New York-based investment adviser Premium Point Investments LP with inflating the value of private funds it
advised by hundreds of millions of dollars. The SEC also charged Premium Point’s CEO and chief investment
officer Anilesh Ahuja as well as Amin Majidi, a former partner and portfolio manager at the firm, and former trader
Jeremy Shor.
According to the SEC’s complaint, the scheme ran from at least September 2015 through March 2016 and relied
on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker
quotes for mortgage-backed securities (MBS). In addition, the defendants allegedly used “imputed” mid-point
valuations, which were applied in a manner that further inflated the value of securities. This practice allegedly
boosted the value of many of Premium Point’s MBS holdings and further exaggerated returns. The complaint
alleges that the defendants overstated the funds’ value in order to conceal poor fund performance and attract and
retain investors.
“Investors rely on their investment advisers to fairly and accurately value securities, and that is especially true
when the securities trade in opaque markets,” said Daniel Michael, Chief of the Enforcement Division’s Complex
Financial Instruments Unit. “As we allege, Premium Point masked its true performance, which denied investors
the opportunity to make informed investment decisions.”
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges the defendants with
fraud, with aiding and abetting fraud, or both. The SEC complaint seeks permanent injunctions, return of allegedly
ill-gotten gains with interest, and civil penalties.
The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of this
matter, today announced charges against Ahuja, Majidi, and Shor.
The SEC’s investigation, which is continuing, was conducted by H. Gregory Baker and Brian Fitzpatrick of the
Asset Management Unit, Osman Nawaz of the Complex Financial Instruments Unit, and Preethi Krishnamurthy of
the New York Regional Office under the supervision of Mark D. Salzberg of the Asset Management Unit. The
litigation is being conducted by Ms. Krishnamurthy, Mr. Baker, and Mr. Nawaz. The SEC acknowledges the
assistance and cooperation of the U.S. Attorney’s Office and the FBI in this matter.

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SEC Files Charges in International Manipulation Scheme

Tue, 15 May 2018 16:55:00 GMT

SEC Files Charges in International
Manipulation Scheme
FOR IMMEDIATE RELEASE
2018-85

The Securities and Exchange Commission today charged four individuals for their roles in a fraudulent scheme that generated nearly $34 million from unlawful stock sales and caused significant harm to retail investors.

According to the SEC’s complaint, the defendants manipulated the market for and illegally sold the stock of microcap issuer Biozoom Inc. As part of the alleged scheme, the defendants hid their ownership and sales of Biozoom shares by using offshore bank accounts, sham legal documents, a network of nominees, anonymizing techniques, and other deceptive practices. The defendants also allegedly directed a wide-ranging promotional campaign and employed sophisticated, manipulative trading techniques to artificially inflate Biozoom’s share price. The alleged scheme culminated in the defendants’ illegal sales of Biozoom, which netted them nearly $34 million in unlawful proceeds.

“Manipulative and deceptive conduct undermines the integrity of our markets,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement. “The charges announced today demonstrate our commitment to unraveling even the most sophisticated international schemes that exploit retail investors.”

The SEC’s complaint, which was filed in federal district court in the Southern District of New York, charges Francisco Abellan Villena, Guillermo Ciupiak, James B. Panter Jr., and attorney Faiyaz Dean with violating antifraud and registration provisions of the federal securities laws and seeks monetary and equitable relief. The SEC previously obtained a judgment against Abellan for his role in another market manipulation scheme. In
separate actions, the SEC charged two registered representatives for their roles in the unregistered sales of Biozoom stock and a brokerage firm for supervisory and recordkeeping failures.

The SEC obtained a court order in 2013 freezing proceeds from the unlawful Biozoom sales. It subsequently obtained a default judgment and established a fair fund, which has returned more than $14 million to harmed investors. The SEC also previously charged a lawyer and officer of Biozoom’s predecessor entity.

The SEC’s continuing investigation is being conducted by Marc E. Johnson and Jennie B. Krasner with the assistance of the Enforcement Division’s Information Technology Forensics Group, and under the supervision of Deborah A. Tarasevich and Ms. Chion. The litigation is being conducted by Duane K. Thompson and Daniel Maher, and supervised by Cheryl Crumpton.

The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the British Columbia Securities Commission, the Comision Nacional del Mercado de Valores of Spain, the Cyprus Securities and Exchange Commission, the Hong Kong Securities and Futures Commission, the Ontario Securities Commission, and the Supertendencia del Mercado de Valores of Panama.

Contact our investors fraud attorney in San Diego at Leslie Schwaebe Akins A Law Corporation today to discuss your case.

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FINRA Sanctions Fifth Third Securities $6 Million

Tue, 15 May 2018 16:52:00 GMT

FINRA Sanctions Fifth Third Securities, Inc., $6 Million for Cost and Fee Disclosure Failures and Unsuitable Recommendations Related to Variable Annuity Exchanges

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Understanding Margin Accounts

Mon, 14 May 2018 22:24:00 GMT

The SEC’s Office of Investor Education and Advocacy is publishing this Investor Bulletin to educate investors about the use of margin accounts to buy securities, including the related risks.

The Difference Between Cash and Margin Accounts

A “ cash account ” is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account.

A “ margin account ” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Margin increases investors’ purchasing power, but also exposes investors to the potential for larger losses. Here’s what you need to know about margin.

Understand How Margin Works

Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment (your $25 gain is 50% of your initial investment of $50). But if you bought the stock on margin – paying $25 in cash and borrowing $25 from your broker – you’ll earn a 100 percent return on the money you invested (your $25 gain is 100% of your initial investment of $25). You may also owe your broker interest on the $25 you borrowed.

The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let’s say the stock you bought for $50 falls to $25. If you fully paid for the stock, you’ll lose 50 percent of your money (your $25 loss is 50% of your initial investment of $50). But if you bought on margin, you’ll lose 100 percent (your $25 loss is 100% of your initial investment of $25), and you still must come up with the interest you owe on the loan.

Investors who put up an initial margin payment for a stock may, from time to time, be required to provide the broker with additional cash or securities if the price of the stock falls (a “ margin call ”). Some investors have been shocked to find out that the brokerage firm has the right to sell their securities that were bought on margin – without any notification and potentially at a substantial loss to the investor. If your broker sells your stock after the price has plummeted, then you’ve lost out on the chance to recoup your losses if the market bounces back.

Recognize the Risks

Margin accounts can be very risky and they are not appropriate for everyone. Before opening a margin account, understand that:

You can protect yourself by:

Read Your Margin Agreement

To open a margin account, your broker will have you sign a margin agreement. The margin agreement may be part of your general brokerage account opening agreement or may be a separate agreement. The margin agreement states that you must abide by the margin requirements established by the Federal Reserve Board, FINRA, any applicable securities exchange, and the firm where you have set up your margin account. Be sure to carefully review the agreement before you sign it.

As with most loans, the margin agreement explains the terms and conditions of the margin account. For example, the agreement describes how the interest on the loan is calculated, how you are responsible for repaying the loan, and how the securities you purchase serve as collateral for the loan. Carefully review the agreement to determine what notice, if any, your firm must give you before either selling your securities to collect the money you have borrowed or making any changes to the terms and conditions under which interest is calculated. In general, a firm must provide a customer at least 30-days written notice of changes in the method of computing interest.

Know the Margin Rules

The Federal Reserve Board, self-regulatory organizations (SROs) such as FINRA and the securities exchanges, have rules that govern margin trading. Brokerage firms can establish their own “house” requirements that are more restrictive than those rules. Here are some of the key rules you should know:

Before You Trade – Minimum Margin

Before trading on margin, FINRA, for example, requires you to deposit with your brokerage firm a minimum of $2,000 or 100 percent of the purchase price of the securities, whichever is less. This is known as the “minimum margin.” Some firms may require you to deposit more than $2,000.

Amount You Can Borrow – Initial Margin

According to Regulation T of the Federal Reserve Board, you may borrow up to 50 percent of the purchase price of equity securities that can be purchased on margin. This is known as the “initial margin.” Some firms require you to deposit more than 50 percent of the purchase price.

Amount You Need After You Trade – Maintenance Margin

After you buy stock on margin, FINRA rules require your brokerage firm to impose a “maintenance requirement” on your margin account. This “maintenance requirement” specifies the minimum amount of equity you must maintain in your margin account at all times. The equity in your margin account is the value of your securities less how much you owe to your brokerage firm. FINRA rules require this “maintenance requirement” to be at least 25 percent of the total market value of the securities purchased on margin (that is, “margin securities”). However, many brokerage firms have higher maintenance requirements, typically between 30 to 40 percent, and sometimes higher depending on the type of securities purchased.

Here’s an example of how maintenance requirements work. Let’s say you purchase $16,000 worth of securities by borrowing $8,000 from your firm and paying $8,000 in cash or securities. If the market value of the securities you purchased drops to $12,000, the equity in your account will fall to $4,000 ($12,000 – $8,000 = $4,000). If your firm has a 25 percent maintenance requirement, you must have $3,000 in equity in your account (25 percent of $12,000 = $3,000). In this case, you do have enough equity because the $4,000 in equity in your account is greater than the $3,000 maintenance requirement.

But if your firm has a maintenance requirement of 40 percent, you would not have enough equity. The firm would require you to have $4,800 in equity (40 percent of $12,000 = $4,800). Your $4,000 in equity is less than the firm’s $4,800 maintenance requirement. As a result, the firm may issue you a “margin call” to deposit additional equity into your account since the equity in your account has fallen $800 below the firm’s maintenance requirement.

Special Margin Requirements – Pattern Day Trader Margin Requirements

For a customer that is a “pattern day trader” FINRA requires that the broker impose special margin requirements on the customer’s margin account. In general, these include an increased minimum equity requirement of $25,000 and a restriction that caps the purchasing power in the margin account at four times the maintenance margin excess as of the close of business of the previous day for equity securities. For additional information on these “pattern day trader” margin requirements, please read our Investor Bulletin: Margin Rules for Day Trading .

Understand Margin Calls – You Can Lose Your Money Fast and With No Notice

If your account falls below the firm’s maintenance requirement, your firm generally will make a margin call to ask you to deposit more cash or securities into your account. If you are unable to meet the margin call, your firm will sell your securities to increase the equity in your account up to or above the firm’s maintenance requirement.

However, your broker may not be required to make a margin call or otherwise tell you that your account has fallen below the firm’s maintenance requirement. Your broker may be able to sell your securities at any time without consulting you first . Under most margin agreements, even if your firm offers to give you time to increase the equity in your account, it can sell your securities without waiting for you to meet the margin call.

Margin Loans – Carefully Consider the Risks of Using Margin Loans for Non-Securities Purposes.

In addition to purchasing securities, some brokers may allow you to use margin loans for a variety of personal or business financial purposes, such as buying real estate, paying off personal credit, or providing capital. Using margin loans for non-securities purposes DOES NOT change the way these loans work. These loans are still secured by the securities in your margin account and thus subject to the same risks associated with purchasing securities on margin described above. The terms and conditions of these loans vary between brokers and are generally specified in the margin agreement. You should carefully consider the margin risks described above as well as any fees which may be associated with these loans before using them for any non-securities purpose.

Additional Information

For additional information on margin rules for day traders, please read our Investor Bulletin: Margin Rules for Day Trading .

For FINRA’s resources related to margin accounts, please read FINRA’s Investor Alert “ Investing with Borrowed Funds: No “Margin” for Error ,” and FINRA’s investor bulletins “ Purchasing on Margin, Risks Involved with Trading in a Margin Account ” and “ Understanding Margin Accounts, Why Brokers Do What They Do ”

SEC Division of Economic and Risk Analysis White Paper “The Financial Illiteracy and Overconfidence of Margin Traders.”

For additional investor education information, see the SEC’s website for individual investors, Investor.gov .

Key Questions You Should Consider Before Buying Securities in a Margin Account

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Morgan Stanley Wealth Profit Jumps 19% on Fees and Loans (Advisorhub.com)

Wed, 02 May 2018 06:40:00 GMT

(Updated with additional comments from company executives on a conference call.)

First-quarter profit at Morgan Stanley’s wealth management division rose 19% to a record $1.2 billion in the first quarter as the company continued to reap the benefits of emphasizing fee-based assets and lending.

Revenue at the wealth unit rose 8% to $4.4 billion from $4.1 billion a year ago, representing 39% of its parent company’s $11.1 billion in revenue for the quarter.

The division’s pretax net income from continuing operations of $3.4 billion comprised 33.9% of the company’s pretax earnings as a whole and 34.2% of its after-tax profit of $2.67 billion.

Morgan Stanley has made a bigger bet than other large competitors on wealth management through its purchase of Smith Barney from Citigroup after the financial crisis.

In a conference call on first-quarter results with analysts on Wednesday morning, Chief Executive James Gorman said the retail wealth business gives the company “ballast” and “stability” to offset riskier and potentially more profitable activities in trading and investment banking.

Morgan Stanley’s 15,682 brokers generated “strong fee-based asset flows” from new and existing clients of $18.2 billion during the first three months of 2018, the company said. The new money was down 3% from last year’s first quarter, however, and off 13% from a record $20.9 billion of new advisory account money in the fourth quarter of 2017.

Like its competitors, Morgan Stanley has favored asset-based fee accounts over traditional commission accounts because they generate fees regardless of customer interest in trading. The percentage of total wealth client assets in fee-based accounts at Morgan Stanley jumped to 45% as of March 31 from 42% 12 months earlier, hold record-high assets of $1.06 trillion.

The wealth unit’s total client assets were up 8% year-over-year to $2.37 trillion.

Merrill Lynch on Monday reported that its flow of fee-based assets fell 17% to $24.2 billion in the first quarter, but said client assets in the accounts climbed to $2.30 trillion. Net income at Merrill and its U.S. Trust private banking cousin jumped 34% to $1.03 billion, slightly ahead of Morgan Stanley’s results.

Morgan Stanley’s bottom line also was fattened by rising interest rates and growing loans to wealthy clients. Net interest income in wealth management climbed 8% to $1.1 billion from a year ago (though it was down 1% from the fourth quarter). Loans and lending commitments to wealth clients were up 12% from a year ago and 2% from last quarter to $78.7 billion.

The firm’s retail lending portfolio, comprised largely of mortgages and portfolio-backed loans, has tripled in the past five years as Morgan Stanley sought to catch up with rivals such as Merrill Lynch, UBS Wealth Americas and Wells Fargo Advisors that are owned by banking giants. The firm has incentivized brokers to sell credit products, but Chief Financial Officer Jon Pruzan warned on the earnings call that the pace of lending and net interest income growth is bound to slow due to a shrinking number of untapped customers.

“We do expect NII growth but it will be slower than in the last five years,” Pruzan said. “We clearly cannot continue at that clip.”

Pruzan and Gorman appeared to differ on their views of traditional commission-based trading by retail customers in the first quarter. The CFO said that investors were actively repositioning portfolios amid the volatile market period, but Gorman said transactional activities were “extremely light.”

The company booked retail commissions of $747 million, down from $823 million in the year-earlier quarter, but attributed much of the decline to losses on investments related to brokers’ deferred compensation plans. The company had gains on the deferred-comp investments in 2017’s first quarter.

Morgan Stanley cut its recruiting budget for experienced brokers last year, and the company ended the first quarter with 95 fewer brokers than the 15,777 it had 12 months earlier. Headcount dropped a net 30 during the first quarter, but Pruzan said the production of lost brokers was generally “quite low.”

Merrill’s broker headcount fell by a net 124 during the first quarter to 14,829, while Wells Fargo Advisors last week said its brokerage force bled a net 155 brokers in the first three months of the year to 14,399.

Average annualized revenue of all brokers at Morgan Stanley climbed to $1.12 million based on first-quarter production, up from $1.03 million a year ago.

Compensation expenses at the wealth division inched up to $2.5 billion in the first quarter from $2.3 billion a year ago because of the higher production, Morgan Stanley said. Non-compensation expenses were “essentially unchanged” from a year ago at $764 million.

Wealth management notched a 26.5% profit margin for the quarter, up from 24% in the first quarter of 2018.

Article from: https://advisorhub.com/morgan-stanley-wealth-profit-jumps-19-on-fees-and-loans/

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Beware: Regulators Won’t Take Excuses For Reverse-Churning (investmentnews.com)

Thu, 19 Apr 2018 06:40:00 GMT

With regulators zeroing in on reverse-churning, and lawsuits popping up around the practice, advisers should be paying attention.

The concern stems from conflicts of interest that advisers face when deciding whether to move clients from commission-based accounts to often more expensive fee-based accounts (depending on how much trading occurs, which additional services are provided and how much the fee is). But some advisers have felt pushed in that direction regardless of the circumstances, especially in retirement accounts, because of the compliance demands of the Labor Department’s fiduciary rule.

And there’s the rub: If the transition to a fee-based account is not in a client’s best interests, it shouldn’t happen.

That leaves advisers and their firms with a few choices: Use the best-interest contract exemption to allow for the variable pay of commissions, change the commission structure to be level, or move a client into a fee-based account. The third choice is the easiest to execute.

But advisers had better be sure they can justify the higher fee if that’s the route they go.

Why? Because regulators have rightly been focusing more on the movement between accounts and are eager to find instances of profiteering. Are clients being moved to fee accounts because it really is in their best interest or because it’s an easier way for advisers to meet a regulatory requirement?

Red flag

Last October, the Consumer Federation of America sent letters to DOL Secretary Alexander Acosta, SEC Chairman Jay Clayton and Finra Chief Executive Robert Cook raising such concerns. The organization pointed to comment letters from industry groups and firms that some of them are moving clients to fee accounts to comply with the DOL rule even though those clients would be better off in commission accounts. There’s a red flag.

In their exam priorities for this year, both the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. included a focus on account transitions.

The SEC said practices that result in investors paying inadequately disclosed fees — such as “advisers that changed the manner in which fees are charged from a commission on executed trades to a percentage of client assets under management” — would be examined. And Finra included guidance in its priorities warning dually registered advisers against any switch that “clearly disadvantages the customer.”

This isn’t the first time regulators have faced potential blowback from or inappropriate reactions to the DOL rule. In 2014, the SEC included parking clients in wrap accounts as an area of scrutiny.

As Blaine Aikin pointed out a few years ago in a column in InvestmentNews, “The first occurrences of reverse-churning came to light around 2005, when the SEC adopted an exemption permitting brokers to accept fee-based compensation. In a subsequent sweep of fee-based brokerage accounts by Finra, it found not only widespread absence of trading activity, but also double-dipping, in which brokers charged commissions for investment products that were subsequently placed in the fee-based accounts.”

So whatever the fate of the Labor Department’s fiduciary rule, securities regulators’ attention to account switching is here to stay — as is their focus on fees in general. In an SEC risk alert last Thursday, the agency pointed to frequent compliance issues it found during exams, and among them was charging clients additional fees, such as brokerage fees, when the client had been placed in a wrap account.

Given that reality, advisers better be prepared to answer these questions the next time an examiner comes knocking: Which services are performed to justify the fees? What was the decision-making process used to determine whether a fee account was a better model for the client than a commission account?

Article from: http://www.investmentnews.com/article/20180414/FREE/180419947/beware-regulators-wont-take-excuses-for-reverse-churning

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Edward Jones Sued for Shuttling Customers to Fee Accounts (Advisorhub.com)

Fri, 13 Apr 2018 16:23:00 GMT

Four Edward D. Jones & Co. customers have filed a class-action lawsuit against the company and its executives, asserting that its aggressive promotion of fee-based advisory accounts is an illegal “reverse churning scheme” benefiting the firm at the expense of investors.

The complaint, filed in federal court in the Eastern District of California on March 30, said the firm has pressured its more than 16,000 brokers to switch their largely middle-income brokerage customers from commission accounts into advisory accounts that charge as much as 2% of assets annually, even though the clients “generally engaged in very little trading.”

Jones, which booked more than 75% of its revenue in 2017 from mutual fund sales to mom-and-pop customers, began marketing fee-based accounts in 2008 but accelerated its push “aggressively” in 2016, according to the complaint.

The St. Louis-based firm orchestrated the strategy “under the guise” of complying with the Department of Labor’s fiduciary rule governing retirement accounts that became partially effective last year, and much of the money was channeled to proprietary mutual funds that Jones introduced in 2013, it said.

“In orchestrating this scheme to churn revenue from essentially dead assets, Edward Jones made misleading statements and material omissions to their clients, including Plaintiffs, about the amount of fees they would pay,” the filing said.

The lawsuit, which also names Jones managing partner James D. Weddle, nine other senior executives and two proprietary asset management units as defendants, does not estimate the number of potential customers who could be represented in the class. The purported class covers people whose accounts switched from transactional brokerage to fee-based advisory accounts between March 30, 2013, and March 30, 2018.

“Edward Jones has consistently offered both fee-based and commission-based client accounts that adhere to all regulatory requirements,” spokesman John Boul wrote in an emailed statement. “We believe Edward Jones client accounts are among the best options in the industry, and we intend to vigorously defend this action.”

Average annual balances in Jones’ advisory programs, Advisory Solutions and Guided Solutions, more than doubled to $265 billion in 2017 from $101 billion in 2013, according to the complaint. Fees generally range between 1.35% and 1.50% of assets annually, and can reach 2% when administrative fees and underlying fund expenses are included, it said.

A wide range of firms, from Jones to Ameriprise Financial to wirehouses such as Merrill Lynch, Morgan Stanley and UBS, have been promoting advisory accounts in recent years because they generate stable fees regardless of retail customers’ trading activities. Fee accounts also protect firms and brokers from allegations of churning, or trading merely to generate commissions.

The rapid growth of the advisory accounts, however, has raised regulatory concerns about firms’ diligence in determining the most appropriate account for particular customers. Those who do little trading, for example, might pay less in a commission account than they would in an advisory account with an asset-based fee.

The Financial Industry Regulatory Authority highlighted that issue, known as “reverse churning,” as an examination priority this year.

The lawsuit asserts that Jones’ marketing materials imply that advisory and commission accounts are comparable and do not fully disclose the conflict of interest inherent in Jones’ liberal use of its in-house “Bridge Builder” funds in advisory accounts. The fund family is managed by Olive Street Investment Advisors, a unit of parent company Jones Financial.

Jones generated nearly $17.2 billion in fees from advisory accounts between 2013 and 2017, according to the lawsuit.

“In order to continue to grow its bottom line, which had flattened before it had begun moving to a fee-based model, Edward Jones clearly intended to – and did – compel clients into a fee-based advisory program, regardless of whether such a move was suitable,” it said.

John Garner of the Garner Law Office in Willows Calif., a co-counsel in the class-action along with Ivy Ngo of Franklin D. Azar & Associates in Aurora, Col., said the plaintiffs who reached out to his office are high-profile leaders in their communities, and include a county supervisor, a retired law enforcement official and a community organizer.

Article Source: https://advisorhub.com/edward-jones-sued-shuttling-customers-fee-accounts/

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UBS Mega-Brokers in Houston Walk to RIA Independence (Advisorhub.com)

Fri, 13 Apr 2018 16:14:00 GMT

A $9-million trio of UBS brokers in Houston left last week to form an independent advisory firm, betting they can retain the bulk of their ultra-rich family clientele in spite of the firm’s recent exit from the Protocol for Broker Recruiting.

Brian Bova, David Leeds Eustis and Marc Oster, managing directors who had each been at UBS for at least 15 years, have set up Inscription Capital as an advisory firm, financing the transition with money from GPS Investment Partners, a private equity firm in New York, according to several sources who spoke on condition of anonymity.

The upper-high-net-worth “private wealth management” brokers, who were overseeing about $2 billion of customer money and are using Fidelity Investments as their RIA custodian, have parked their brokerage licenses with Purshe Kaplan Sterling Investments, according to regulatory filings. Albany, New York-based PKS specializes in working with investment advisers to help them collect 12b-1 mutual fund sale fees and other ancillary revenue.

“They had a pretty good business, and UBS is all over their book,” said a veteran broker who spoke on condition of anonymity and said the team’s clients include families with oil-sector riches.

Several industry lawyers and recruiters said the move is notable because of the size of the practice and because UBS’s December exit from the Protocol for Broker Recruiting could trigger a lawsuit seeking to restrain the brokers from calling former clients.

Reached at Inscription Capital, Eustis declined to comment on the team’s motivations for leaving, its decision to go independent or what moves it may have taken to defend itself against a potential restraining order filing from UBS.

A UBS spokeswoman did not return a request for comment on the move or on its potential response.

The team, which until July of 2015 included Will Leven, now a private wealth manager at Merrill Lynch, had a long UBS lineage. Eustis has been with the firm since 2000, Oster since 2001 and Bova since 2003, according to their BrokerCheck histories.

The trio was wooed aggressively by consultants and firms that offer products, platforms and transition financing to large wirehouse teams seeking independence, according to several sources.

Their choice of GPS, which typically buys up to 19% of equity in firms it affiliates with, appears to be broadening the private equity firm’s reach from portfolio companies that are focused on asset management products to individual wealth management. The firm, which was co-founded by Marc Spilker, a former co-head of Goldman Sachs Investment Management, hired senior Dynasty Financial Partners recruiter Tim Bello in 2016 to extend its reach to breakaway brokers.

Bello and Spilker did not return requests for comment.

The UBS team also received at least $350,000 of “transition-related assistance” from Fidelity Clearing and Custody, according to Inscription’s ADV filing with the Securities and Exchange Commission. Custodians typically earmark some of their financing to help breakaway brokers and advisors reimburse clients for account transfer and closing fees and a greater amount to induce them to move assets to its various product platforms.

—Jed Horowitz contributed to this story.

Article Source: https://advisorhub.com/ubs-mega-brokers-in-in-houston-walk-to-ria-independence/

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Securities America, PNC, Geneos to Pay $15 Million for Mutual Fund Violations (Advisorhub.com)

Fri, 06 Apr 2018 16:24:00 GMT

The Securities and Exchange Commission on Thursday said PNC Investments, Securities America Advisors, and Geneos Wealth Management agreed to settle fiduciary duty breach charges related to mutual fund sales by paying $15 million in penalties and restitution to customers.

The three firms each settled charges of putting customers who were paying fees in advisory programs into A-share funds that charged ‘12b-1’ marketing and distribution fees when cheaper institutional share classes were available.

PNC Investments agreed to the largest penalty—$6.4 million in disgorgement and a $900,000 fine. In addition to failing to disclose conflicts of interest in selling the higher-priced shares, the Pittsburgh-based advisory unit of PNC Bank was also accused of charging advisory fees when no advisors were assigned to accounts.

It and Centennial, Colorado-based Geneos also failed to disclose to customers that they were receiving compensation from unidentified clearing firms for using their mutual fund programs. Geneos agreed to pay $1.6 million in disgorgement and a $250,000 penalty.

Securities America, a Nebraska-based independent broker-dealer owned by Ladenburg Thalmann, will disgorge $5.1 million and pay a $775,000 penalty for the over-riding charge against all three firms of violating best-execution and disclosure obligations by selling higher-cost shares than were available.

The firms accepted the settlement without admitting or denying the charges, but the SEC used the occasion to publicize its limited-life amnesty program for firms that self-report fund share-class sales violations.

“We strongly encourage eligible firms to participate in the recently announced Share Class Selection Disclosure Initiative as part of an effort to stop these violations and return money to harmed investors as quickly as possible,” C. Dabney O’Riordan, Co-chief of the SEC’s Asset Management Unit, said in a prepared statement.

The program that was rolled out in February and ends on June 12 aims to offer “more favorable settlement terms” and no civil penalties to qualifying firms. An SEC spokeswoman declined to comment on responses in the securities industry to the program.

LPL Financial and some other firms have banned sales of class-A shares in advisory programs and Morgan Stanley last week said it will restrict the time period in which its brokers can receive 12b-1 trail commissions for selling class-C shares of mutual funds.

Article Source: https://advisorhub.com/securities-america-pnc-geneos-pay-15-million-mutual-fund-violations/

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Wells Ups Bounty for Headhunters in Short-Term Recruiting Push (Advisorhub.com)

Thu, 05 Apr 2018 16:25:00 GMT

In a promotion that appears aimed at replenishing its scandal-depleted salesforce, Wells Fargo & Co. on Thursday unrolled a super-charged “referral” fee for headhunters who bring eligible recruits to any of the bank’s five wealth management channels.

Its Wells Fargo Advisors unit will pay 10% of a candidate broker’s trailing 12-month revenue if he or she is hired between now and September 30 of this year, according to a letter agreement reviewed by AdvisorHub that was sent by Sarah K Warren, the St. Louis-based broker-dealer’s manager of “Lead Generation.”

Most brokerage firms pay recruiters 6% of an experienced broker’s trailing-12 fees and commissions, and Wells typically pays its top 10 most active recruiters 8%. Although Wells pays the 6-8% fee on the first $750,000 of a broker’s production, the fee drops on the production balance above that.

There is no cap on the new 10% referral offer, meaning a firm recruiting a $1-million producer can pocket $100,000. And the fee will be paid on hires from both “designated” and “non-designated firms,” the letter said, in an appeal to recruiters that may not have contacts at larger and/or high-reputation firms.

The fattened referral fee is likely to concentrate headhunters’ efforts on Wells for a few months but has a downside, said three recruiters. It signals a level of despair following the loss of more than 350 brokers after the account-opening scandal at Wells Advisors’ sister bank.

“They’re desperate to get people,” said Michael King, a headhunter in New York, noting new articles about potential problems and investigations within Wells’ wealth management business. “The fact that the brokerage firm is now involved is a little troublesome.”

Another recruiter who spoke on condition of anonymity also cited practical considerations, considering the limited shelf life of the “temporary referral” bounty.

“It’s asking a lot to identify a candidate, urge them to take meetings, do the meetings with them and be onboard within six months,” said the headhunter, a former wirehouse manager who spoke on condition of anonymity. “For the next sixty to 90 days recruiting firms will focus their attention on Wells but after that it’s diminishing returns since it will be hard to qualify them by the end of September.”

He said that while he believes Wells will emerge from the scandals’ shadow, it remains difficult to convince top brokers currently to chance losing their clients by moving. “The large universe of advisors will be happy to consider it in two years, but no one wants to have to explain now when there are headlines about congressional scrutiny, SEC scrutiny and substantial fines,” he said.

A spokeswoman for Wells Fargo, Helen K. Bow, said in a statement that the new policy was part of, “[a]n effort to continue to be a leader in attracting high quality financial advisors, during a period of low FA movement across the industry.”

The 10% fee will be paid for recruits to all parts of Wells’ brokerage business—its core Private Client Group of standalone Wells Advisors offices, its Wealth Brokerage Services units operating from Wells bank branches and its international private client services unit. It also applies to advisors hired at smaller broker-dealers that use Wells’ First Clearing channel for back-office and financing services, according to the letter.

“They want to attract attention,” said Ron Edde, a recruiter in San Diego.

by Jed Horowitz, with Mason Braswell, contributing.

Article Source: https://advisorhub.com/wells-ups-bounty-headhunters-short-term-recruiting-push/

If you or someone you know are in need of legal advice, do not hesitate to contact our San Diego investment fraud attorney at Leslie Schwaebe Akins LC today to discuss your case.

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