There’s an App for That: Investing Apps Challenge Brokerdealers

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5075869_f260Brokerdealer.com blog update is courtesy of InvestmentNews’ Sarah O’Brien.

Independent brokerdealers face challenges everyday. Now with the boom of smartphones, investors are demanding investment apps for their phones. Independent brokerdealers struggle to compete because they don’t have the resources to meet these demands.

An increasingly tech-savvy investor base is challenging independent broker-dealers to meet the demand for simple technology in a way that fits into the complexities of advisers’ businesses and keeps investors’ personal information protected.

“The benchmark is being set, whether we like it or not,” said Edward O’Brien, senior vice president of technology platforms for Fidelity Institutional, during a recent InvestmentNews roundtable discussion with IBD technology leaders.

“Everyone loves the simplicity of their apps and their iPhones and everything they use every day,” Mr. O’Brien said. “We’ll be expected to somehow figure it out and sort it out for our users.”

A Spectrem study released last year showed that 23% of mass affluent investors (net worth $100,000 to $1 million) use mobile technology devices — such as smartphones and tablets — to buy and sell investments, as do 39% of millionaires ($1 million to $5 million) and 62% of ultrahigh-net-worth investors ($5 million to $25 million).

But as younger investors, who are more reliant on their mobile devices and more comfortable using technology for a multitude of tasks, begin to develop more wealth and seek out financial advisers, those percentages are expected to rise.

“The next generation spends more time on devices we haven’t even thought about yet,” said Patrick Yip, director of advisory market technology strategy for Pershing.

Security — whether regarding account access through mobile devices or for electronically stored private data — is also a major concern as technology evolves.

“Where does security fit in all of this and how do we keep privacy protected for clients?” asked Doreen Griffith, executive vice president and chief information officer at Securities America Inc.

She pointed out how frequently hacking episodes and security breaches occur at companies across all industries. According to Symantec’s 2014 Internet Security Threat Report, in 2013, there were 253 security breaches, representing a 63% annual increase and resulting in the exposure of 552 million identities.

Also, 38% of mobile users experienced mobile cybercrime in the previous 12 months, with lost or stolen devices remaining the biggest risk, according to the report.

PRIVACY EXPECTATIONS

“I think the consumer expectation of privacy is going to be changing with all of the security [breaches] that are going on,” said Ryan Reineke, chief operating officer and senior vice president of technology at Cambridge Investment Research Inc.

The IBM Security Services 2014 Cyber Security Intelligence Index showed that, among the industries monitored by the company, finance and insurance were the most targeted for hacking attempts, making up about 24% of all attempts. The study also showed that among IBM’s clients, the average company endures about 1,400 security breach attempts a month.

Additionally, security concerns come into play with IBD third-party vendors. If an IBD uses a cloud service, for instance, the company has to worry about that provider’s system getting hacked.

“How about all these security reviews that we put the vendors through?” asked Jon Patullo, managing director of technology product management at TD Ameritrade Institutional. “If we were able to standardize that, it would make it easier on all of us to integrate with them as well.”

Also important is figuring out to what degree mobile device usage should be part of an IBD’s technological focus.

“One of the things we’re struggling with is trying to strategically decide where we’re going and whether or not we’re really being mobile-focused [or] touchscreen-focused, or the next thing might be voice-focused,” said Darren Tedesco, managing principal for innovation and strategy at Commonwealth Financial Network. “Ultimately where we think it’s going is to talk … It’ll be “Trade Darren Tedesco, Roth IRA, 100 shares, at market, done.’

“When you’re dealing with that as the user experience, you’re dealing with the interface,” Mr. Tedesco said.

For the full article from InvestmentNews, click here.

Fidelity Fined For Overcharging Fees for 7 Years

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fidelityBrokerdealer.com blog update courtesy of InvestmentNews’, Mason Broswell.

One of the largest mutual funds groups, Fidelity Investments has been ordered to pay a fine after inappropriately charging fee-based accounts that received brokerdealer services for over 7 years.

The Financial Industry Regulatory Authority Inc. has ordered Fidelity Investments to pay a $350,000 fine after the firm allegedly overcharged more than 20,000 clients a total of $2.4 million.

From January 2006 to September 2013, Fidelity inappropriately charged for certain transactions in fee-based accounts in its Institutional Wealth Services group, which provides trading and brokerage services to investment advisers and their clients, Finra said in a letter of settlement.

Finra said the overcharges resulted from a lapse in supervision over how Fidelity applied fees under its asset-based pricing model, which generally charged on assets rather than by transaction.

“The firm did not clearly delegate responsibility for the supervision of fee-based brokerage accounts,” Finra said in the letter of settlement. “In fact, until 2013, the firm did not designate a supervisory principal to oversee its [institutional wealth services] asset-based pricing program.”

As a result, certain clients may have been double-billed or charged excess commissions in addition to the asset-based management fee, according to Finra’s letter. For instance, in over 1,000 fixed income transactions initiated by advisers, clients were erroneously charged a markup on the transaction in addition to the asset-based fee, Finra said.

Fidelity discovered the problems in the spring of 2012, self-reported the issue to Finra and voluntarily reimbursed all clients, according to Adam Banker, a spokesman for Fidelity. The issues affected roughly 1.5% of the brokerage accounts held for investment advisers and the majority required reimbursement of less than $100, according to Mr. Banker.

“[Institutional Wealth Services] conducted a thorough internal review of this matter, which resulted in the implementation of enhanced controls and oversight for its asset-based pricing program,” said Mr. Banker in an emailed statement. “IWS completed these steps prior to the conclusion of Finra’s review of this matter.”

The firm agreed to the settlement letter without admitting or denying the findings.

Fidelity’s Institutional group is the third-largest custodian when ranked by number of registered investment adviser clients and serves around 3,000 RIAs, according to InvestmentNews’ RIA Custody Database.

Fidelity’s direct-to-consumer, workplace savings accounts and correspondent broker-dealer clearing business, which operates as National Financial, were not affected, Mr. Banker said.

BrokerDealers Look to Millennials

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download (4)Brokerdealer.com blog update is courtesy of InvestmentNews’ Sarah O’Brien.

Now that 2015 is in full swing, brokerdealers are looking expand their client bases. At a roundtable hosted by InvestmentNews, brokerdealer leaders discussed what their plans are for the New Year.

It’s a new year, but independent broker-dealers are looking far beyond 2015 as they manage both ongoing challenges and emerging opportunities in their industry.

InvestmentNews recently hosted a roundtable of IBD industry leaders to discuss the future of their business. With a huge transfer of wealth expected over the next several decades — estimated at about $42 billion — IBDs are positioning themselves to help their advisers capture a piece of those assets as they deal with a new generation of investors that is demographically diverse and technologically savvy.

“As their parents get older, the millennials will become more participatory in helping with their [parents'] wealth,” said Wayne Bloom, chief executive of Commonwealth Financial Network. “You have to speak to your core clients, but also to their children in a manner in which they are comfortable, using technology — social media, email, chat, video — to make sure they understand you’re doing a good job for their parents.”

Many financial advisers meet with the children of their clients as a free service. But a Spectrem Group study released last year shows that just 29% of clients with assets of $25 million or more said their children or grandchildren have established a relationship with their adviser. And 44% said they think it’s important for their children or grandchildren to meet with their adviser.

“I think there needs to be some sort of an alignment between the adviser, the primary client and their children,” said Larry Roth, CEO of Cetera Financial Group, a subsidiary of RCS Capital. “We all know from communicating with our kids. We used to actually call them on the phone, then email … and then they jumped to texts.”

“I think a lot of the younger generation [trust] their iPhones more than they trust the financial community — and with good reason,” Mr. Bloom said. “What are the headlines they’ve been exposed to? A lot of bad actors, firms that haven’t done the right thing, the mortgage crisis.”

Whether those young investors will end up with an adviser is complicated by the emergence of robo-advisers, an asset-management model in its infancy.

“Today’s robo-advisers, to me, are so laughable because they really don’t do anything,” Mr. Roth said. “The financial advisers we all work with are members of their community; they know their clients, they know their families … They have a sense about what [clients] hope to do with the next five, 10, 20 years of their lives. I think the practice of the future will have all the technology that Schwab or Fidelity or any of the coolest robo-advisers might have, but it’s the human being that makes all the difference.”

Robo-advisers manage about $19 billion, according to research firm Corporate Insight. That represents only a sliver of the financial advice market, which as of 2013 stood at $36.8 trillion, according to Cerulli Associates.

For the entire article from InvestmentNews, click here

Countdown of Biggest Regulatory Brokerdealer Fines of 2014

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Bgavelmoneymi-resize-600x338rokerdealer.com blog update courtesy of Investment News.

Brokerdealer.com works to provide people with a full and complete database of brokerdealers best suited for their needs. Unfortunately, some brokerdealers do not always follow the rules and this year many received hefty fines. Investment News ranked the top 10 of the biggest fines handed down to brokerdealer firms this year, excluding penalties given to indivuals at the firms.

10.  WFG hit for supervisory failures

Firm Fined: WFG Investments

Fine Amount: $700,000

Reason for Fine: Failing to commit the time, attention and resources to a range of critical obligations in its supervision of registered reps.

9. Berthel Fisher forced to pay over compliance

Firm Fined: Berthel Fisher & Co. Financial Services Inc.

Fine Amount: $775,000

Reason for Fine: Failure to supervise the sale of alternative investments such as non-traded REITs and leveraged and inverse ETFs.

8. LPL’s alternatives sales prove costly

Firm Fined: LPL Financial

Fine Amount: $950,000

Reason for Fine: Supervisory deficiencies related to sales of nontraded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid investments.

7. Stifel’s million-dollar problem

 Firm Fined: Stifel Nicolaus & Co. and its subsidiary, Century Securities Inc.

Fine Amount: $1 million

Reason for Fine: Selling leveraged and inverse ETFs to customers for whom the investments were unsuitable, as well as the firms not having proper training or written procedures in place to make sure their advisers had an “adequate and reasonable basis” for recommending the products.

6. Retired brokers cost Morgan Stanley

Firm Fined: Morgan Stanley

Fine Amount: $1 million

Reason for Fine: Paying approximately $100 million in commissions to approximately 780 unregistered, retired brokers without properly ensuring they were no longer soliciting or advising.

To see the full list of fines and see which firm received the largest fine of 2014, click here

 

 

FINRA makes it clear for Brokerdealers, Their Rules Aren’t Toys

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Brokerdealer.com Blog update courtesy of Investment News.

FINRA, Financial Industry Regulatory Authority, fined 10 banks on Thursday for total of $43.5 million for promising positive analyst coverage after initial public offering.

Citigroup Inc. and Goldman Sachs Group Inc. were among 10 banks fined for failing to shield analysts from pressure to promote stocks a decade after a U.S. crackdown sought to end Wall Street conflicts of interest.

MW-BX587_toys_r_MG_20140326121052The investment banks promised favorable research to Toys “R” Us Inc.
and its private-equity owners in 2010 to win roles in its initial public offering, the Financial Industry Regulatory Authority said Thursday in a statement. The regulator fined the firms a total of $43.5 million, faulting them for “implicitly or explicitly” making promises that their analysts would give positive coverage. Six of the 10 firms didn’t have adequate supervisory procedures to prevent the practice.

Citigroup, Goldman Sachs, Credit Suisse Group AG, Barclays Plc and JPMorgan Chase & Co. were fined $5 million each. Deutsche Bank AG, Bank of America Corp., Morgan Stanley and Wells Fargo & Co. will pay $4 million. Needham & Co. will pay $2.5 million. The firms didn’t admit or deny wrongdoing, according to FINRA.
“The firms’ rush to assure the issuer and its sponsors that research was in sync with the pitch being made by their investment bankers caused them to overstep the prohibitions against analyst solicitation and the promise of favorable research,” Brad Bennett, FINRA’s chief of enforcement, said in the statement.

FINRA said Thursday that Toys “R” Us and its owners demanded that analysts and bankers agree on valuation. For example, the owners told Barclays that they were interviewing analysts “after having been burned” on other deals in which they learned too late about analysts’ negative sentiments, according to FINRA.

Brokerdealer.com offers many databases full of brokerdealers who choose to abide by the rules of FINRA and you can find them here.

For the entire article from Investment News, click here.