SEC Chair Wants To Reign In ETFs

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(MarketsMuse.com) SEC Chair Has A Dream (to reign in complex ETFs, make brokers and advisers pledge to be fiduciaries and to impose more exams on brokers)

SEC Mary Joe White has a dream, and even if she aspires to leverage the inspirational outlook of  Dr. Martin Luther King, securities industry members are debating whether her dream could prove to be a reality any sooner than the civil rights agenda expressed by Dr. King so many years ago.  In a series of comments during the past several weeks from Chairperson White regarding the SEC’s agenda for the remainder of her tenure as President Obama’s designated SEC Chairperson, Ms. White, who is operating with only 3 of 5 Commissioners until two open vacancies are filled before the Second of Never,  she is vowing one of the top three items on her list includes “better understanding exchange-traded funds aka ETFs before the SEC approves prospectuses.” That makes sense.

One only wonders why that elementary concept had never occurred to any one previously—despite repeated calls from among others, former SEC Commissioner Steve Wallman (1994-1997) who has long questioned the approval process for many of the complex exchange-traded products the SEC has rubber-stamped, including inverse and commodities-related products that even professionals often do not understand.  Since his departure from the SEC, Wallman has proven adept at doing the right things while serving at the helm as Founder/Chairman/CEO of the investment firm Foliofn.com.

Other matters of importance according to White include “the desire on part of SEC to introduce “fiduciary definitions for registered advisers and brokers..” which in plain speaks means : White’s agenda is to figure out how to completely change the culture of the securities brokerage industry by forcing people to be ethical and moral. MarketsMuse sources have indicated White is proposing to have those folks swear an oath that says:

“My first obligation is to protect my clients’ interest above all else and to make sure I never even think of trying to sell them something that might be inappropriate for their goals or possibly even toxic—despite the fact my office manager says I have to sell house product only or I’m out of a job. After I meet that first obligation, my second obligation is to then make enough money to pay for my kids college and have enough left over for that condo in Florida.”

Insiders familiar with White’s agenda have told MarketsMuse that she has acknowledged her seemingly altruistic mission is not without challenge or headwinds given that the “securities industry at large is much like the NRA when it comes to influential prowess.”

Directly and indirectly, Wall Street firms and its executives contribute hundreds of millions of dollars every year to lobby SEC Officials and members of Congress(which the SEC reports to) on behalf of their interests—which presumably includes two big drivers that have driven the investment industry since the days of Joe Kennedy Sr.: (i) selling investment vehicles that look great on paper and in marketing collateral [even if they might or might not prove to be toxic at some point and might or might not be appropriate for a specific individual given that people’s moods change a lot] (ii) how to pay the mortgage on the brokers’ first house, the $200k for each of their kids college tuition bills, the country club memberships that provides venues in which to sell those investment products,  sharpen up the golf game, and of course, pay for the second and third homes, etc etc.

Another item on White’s laundry list is to expand the  exam program for registered brokers and advisers. Currently, 10% of the nearly 12,000 advisers sit and take ‘refresher tests’ that are abridged versions of the Series 7—an exam that has approximately 40% brokers FAIL the first time and 30% fail the second time. Some could argue the test is maybe too difficult, given the national average score is 67 vs. a passing grade of 72. Or, one could argue the barrier to entry to become a registered broker or adviser is simply being a good test taker. Idiots and Muppets can get licensed, as long as they take 8 practice exams the night before the actual exam and memorize the correct answers. So, Chairperson White wants more folks taking more tests; a good thing for the SEC because this is big a revenue-generator for the Agency—which has repeatedly claimed it does not have enough money to even pay for air conditioning in its Washington DC office. Staff members have said this alone is vexing, given that SEC examiners and enforcement agents have become accustomed to keeping windows wide open five months of the year and continuously grapple with files on their desks blowing out of their windows and many of those files pertain to complaints filed by investors and updated paper notes sent by from enforcement agents in the field via courier pigeons.

Courtesy of  an admittedly more illustrious news media outlet than MarketsMuse might be, the following is ‘official coverage from InvestmentNews.com:

To continue reading, please click here

BrokerDealers For Sale-Glut Makes Buyers Market

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A glut of independent brokerdealers (IBDs) for sale is creating a buyer’s market, putting pressure on prices across the independent broker-dealer space.

While no “Black Friday Sale” signs are expected to appear (that’s right, Black Friday is a negative in the world of Wall Street), according to coverage from InvestmentNews.com, coupled with a further investigation by the curators at BrokerDealer.com, prices for IBDs are going lower, not higher; creating opportunities for new entrants and headaches for rumored sellers that include Cetera Financial Group.

(InvestmentNews.com) November 25 A glut of independent broker-dealer firms (IBDs) for sale is creating a buyer’s market for independent broker-dealers that could put pressure on the prices sellers are able to attract.

Firms for sale include Cetera Financial Group, AIG Adviser Group and Next Financial Group, which collectively represent 15 individual broker-dealers and more than 15,000 registered representatives and advisers.

BrokerDealer.com maintains the world’s largest directory of broker-dealers in more than three dozen countries and a robust database of those interested in buying or selling broker-dealers

“There is a higher number of potential opportunities than we have ever seen before,” said Richard Lampen, president and chief executive of Ladenburg Thalmann Financial Services, which has completed five broker-dealer acquisitions since 2007. “The $64,000 question is, how many deals are going to get done?”

“With so many potential sellers in the market, and rumors of more sellers, I’m curious to see how the market-clearing process will work,” Mr. Lampen said. “There are some willing buyers, but is there a price that’s going to work?”

Mr. Lampen said sellers are going to have a reality check when it comes to offers their properties are likely to attract. He said the industry has put behind it the outsized valuations of independent broker-dealers used in acquisitions by RCS Capital Corp., a brokerage holding company that one-time real estate mogul Nicholas Schorsch put together in a flurry of acquisitions between 2013 and 2014.

“Some sellers still think it’s 2014, and Nick Schorsch price expectations are out there,” Mr. Lampen said. “But it’s hard to imagine any one overpaying at this stage in the process.”

CETERA TOPS THE LIST

The largest of the firms reportedly in play is Cetera Financial Group, the network that Mr. Schorsch put together. It is made up of 10 broker-dealers with about 9,500 reps and advisers. Larry Roth, the CEO of Cetera and its parent company, RCS Capital, told advisers on a conference call recently that a half dozen companies had shown interest in the firm and that a new owner or significant private-equity investor would be in place by year-end.

The full story from InvestmentNews.com is here

SEC Passes Equity Crowdfunding Rules-A Boon For BDs?

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Will New Regs Create A Boon For BDs?  Brother, Can You Raise $1mil?

(RaiseMoney.com)–If only coincident to the Halloween Trick or Treat Holiday, it’s now official, on Friday Oct 30 the US Securities & Exchange Commission (SEC) passed new equity crowdfund regs, opening the path to what some believe will be a multi-billion dollar tidal wave of startup funding, and also, what more cautious experts believe could be an entirely new cycle of speculative investing by unsophisticated investors. The new rules approved will make it easier for start-ups to sell shares directly to the masses. Brother, can you spare $1million?

They could also be big business for a broad universe of broker-dealers, as well as handful of Los Angeles firms (among many others) that want to act as the stock exchanges where these deals will take place.

The rules, which will take effect in about six months, allow private companies to raise up to $1 million a year from small-time investors without most of the reporting and auditing required of larger firms or companies raising more money.

For the entire story from RaiseMoney.com, please click here

 

 

Fidelity Brokerage Arm Is Broken Says Regulator

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Fidelity Brokerage Services was charged in an administrative complaint by State of Massachusetts’s  top securities cop Thomas Galvin with “dishonest and unethical behavior” for allowing unregistered investment advisers to make trades through the Fidelity broker-dealer platform, thereby generating fees for both the firm and the unregistered advisers.

At least 13 unregistered Massachusetts investment advisers used Fidelity’s platform, according to a statement from secretary of the commonwealth William Galvin.

For those advisers, “Fidelity served as a haven from regulatory oversight as it ignored blatant unregistered investment advisory activity,” according to a statement from Mr. Galvin’s office.

“We do not believe that Fidelity has violated any laws or regulations in connection with this matter,” said Adam Banker, a Fidelity spokesman. “We look forward to reviewing the details of this matter and addressing them appropriately.”

“Fidelity, of all companies, knows full well the range of investor protection provisions resulting from regulatory oversight,” Mr. Galvin said in the statement. “For them to knowingly allow unregistered activity on their broker-dealer platform is a profound failure of their regulatory obligations.”

In one instance, more than 20 Fidelity customers paid one unregistered investment adviser who was trading on their behalf $732,000 in advisory fees over a 10-year period, according to the complaint. The complaint alleges that Fidelity had knowledge that the individual was acting as an adviser during that entire period and encouraged his trading activity by providing the purported adviser, who made thousands of trades in the accounts of his clients, with gifts such as frequent flyer miles and tickets to a professional sporting event.

Fidelity had policies in place since 2011 that specified red flag risk warnings for certain levels of third-party trading, but those were ignored until recently, according to the statement from Mr. Galvin.

Broker-Dealers Breakaway to Equity-Owned Boutiques

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Breakaway-Broker Movement Continues…

Traditional wire-house brokerdealers and brokers/investment advisors are increasingly departing big securities firms and migrating to equity-owned boutiques that provide these brokers with private equity ownership in a business model that makes more sense to them, and hopefully more dollars.

WSJ’s Michael Wursthorn summarized this new trend in a recent column “Rise of the Broker Turned Entrepreneur…” and gives an update to continuing saga in the now multi-year “breakaway-broker” movement with extract below..

For financial advisers who launch their own independent practices, having equity is king.

Those ownership stakes are very different from the shares many held in big securities firms that previously employed them. The private-company equity comes with big advantages but also risks.

During the financial crisis, brokers at the major brokerage firms suffered a steep drop in a key portion of their compensation: the value of the shares they were given in those firms. Since then, some brokers say they generally have less interest in receiving shares in the firms they work for, instead favoring higher cash payouts, if possible.

But that attitude is being put aside by brokers who are taking flight from the big firms to launch their own practices or who join one already established. In fact, the allure of an ownership stake in a private practice is helping to push more advisers to join the growing number of so-called breakaway brokers.

For the entire 10 October article from the WSJ, click here