An activist hedge fund investor on Tuesday afternoon said it had taken a 6.3% stake in LPL Financial Holdings Inc., sending the independent broker-dealer’s stock price higher as the rest of the market declined.

LPL’s shares are undervalued, Marcato Capital Management said in a filing with the Securities and Exchange Commission. Marcato acquired the LPL shares through various funds it controls “in the belief that the shares are undervalued and are an attractive investment.”

Marcato could enter into discussions with LPL’s board to discuss “strategic alternatives” for the company, including a potential for a merger or acquisition, according to the filing.

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“These discussions may review options for enhancing shareholder value through strategic alternatives or operational or management initiatives including, but not limited to, improving capital structure and/or capital allocation, M&A, asset allocation, and general corporate strategies,” the company wrote in the filing.

The company’s share price has lagged since it reached a peak of $55.37 in March 2014. Its recent low was $37.72. The stock surged almost 4% after the Marcato filing with the SEC; in early afternoon trading in New York, LPL shares were trading around $41.80. The S&P 500 was down about 1.6% on Tuesday.

ONGOING DIALOG

“LPL Financial maintains an active and ongoing dialogue with its investors and values their input as we work toward the common goal of driving stockholder value,” an LPL spokesman, Brett Weinberg, said in an email.

When asked specifically about a potential merger for LPL, Mr. Weinberg declined to comment.

With close to 14,000 affiliated registered reps and investment advisers, LPL has had growing pains over the past few years. LPL has been in the spotlight recently due to its host of problems with the Financial Industry Regulatory Authority Inc., (FINRA) as well as state regulators. Two products that have caused LPL to pay fines or restitution to clients have been nontraded real estate investment trusts, a popular alternative investment, and variable annuities.

CEO Mark Casady said over the summer that LPL was near the finish line with fines and settlements stemming from securities regulators’ actions.

Alex Kramm, an analyst for UBS who follows LPL, said investment firms such as Marcato focus on why companies are undervalued.

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

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Looking to step up its indexed annuities and life wholesaling game, Raymond James Financial Inc. announced Friday it would acquire The Producers Choice, an insurance marketing organization.

The deal is expected to close mid-summer, and Producers Choice will act as part of Raymond James Insurance Group. Sixty Producers Choice employees will join the firm.

The acquisition addresses two major objectives for Raymond James, which has partnered with Producers Choice for nine years: It gives the broker-dealer greater control over the way annuities are wholesaled and marketed to Raymond James’ advisers, and the firm will have the opportunity to work with Producers Choice’s client base of independent insurance agents, broker-dealers and banks.

To continue reading about Raymond James acquistion of The Producers Choice from InvestmentNews, click here.

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Finra released a revised proposal Wednesday for a rule designed to help investors understand the financial incentives their brokers had for switching to a new firm.

Under the rule, brokerages would have to send an “educational communication” to investors working with a broker who is moving to their firm. The document customers receive would outline questions they should ask their broker about the compensation and other inducements the broker is getting to transfer to the new firm.

The questions would help investors determine whether the broker’s financial incentives create a conflict of interest and whether investors would incur costs by following the broker to a new firm.

The broker-compensation proposal is a revised version of one the Financial Industry Regulatory Authority Inc. filed with the Securities and Exchange Commission in March 2014 but later withdrew amid industry resistance.

To continue reading about this investor educational communication focused Finra proposal, click here.

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Brokers endorsed a move by their regulator this week to toughen sanctions for violations of the suitability rule even as they acknowledged the standard leaves room for interpretation.

The Financial Industry Regulatory Authority Inc.(FINRA) on Tuesday revised its Sanctions Guidelines, which included raising its suggested suspensions to two years from one for brokers making unsuitable recommendations. It also strongly advises possible barring of brokers and expulsion of firms for fraudulent activity.

Cracking down on suitability violations will help clients, said Jeremy Gottlieb, owner of Gottlieb Wealth Management. In reviewing investments of clients transferring to his firm, he often sees evidence that their portfolios were built on the basis of product sales rather than what is in their best interest.

To continue reading about these tougher sanctions that are being backed broker dealers everywhere, click here.

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Finra is putting the brakes on its proposal for a massive data-collection system over concerns about the security of customer information, the organization’s chief executive is expected to tell Congress on Friday.

The Financial Industry Regulatory Authority Inc. has received strong industry resistance to its so-called Comprehensive Automated Risk Data System over its potential costs and the possibility that it will expose customer data to hackers. The comment period for the proposal ended on Dec. 1 last year.

In prepared testimony, Finra chief executive Rick Ketchum said that although CARDS will not collect client names, addresses and Social Security numbers, Finra shares concerns about “bad actors” being able to obtain information that “could possibly be reengineered to identify individuals.”

The regulator is studying the potential data-security threats, Mr. Ketchum will tell the House Financial Services Committee, and is evaluating whether CARDS data can be collected through “existing data sources.”

To continue reading about what Ketchum is expected to tell Congress tomorrow, click here.

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Broker-dealer North Capital Private Securities has agreed to add the crowdfunding site OneVest to its platform that syndicates private offerings for investors. The platform, called 99Funding, has a minimum investment of $1,000 to $5,000, depending on the offering, but no fees for advisers or investors.

North Capital Private Securities vets each investment opportunity by reviewing documents, analyzing investment propositions against the market, doing background checks on principals and performing other due diligence.

More advisers are getting involved in crowdfunding, according to Jim Dowd, managing director of North Capital Private Securities.

“Just now it’s sort of getting into the more established financial services phase where financial advisers and independent broker-dealers are starting to look at these opportunities on behalf of their clients,” he said. “It’s driven by clients more than anything. Clients are insisting on these opportunities instead of brokers or advisers bringing the opportunities to them.”

REGULATORS TAKE ACTION

Crowdfunding grabbed regulators’ attention a couple years ago when Ohio officials sought to shut down a crowdfunding site for allegedly misleading investors about the earnings potential of investment opportunities.

Since then, state regulators, like in Massachusetts, have wanted investors to know that “some crowdfunding platforms might exaggerate potential returns and not present fair and balanced risk and opportunity,” according to Mr. Dowd.

“That’s why we embrace the idea of regulation from the beginning,” he said.

Marianne Hudson, executive director at Angel Capital Association, a network of accredited angel investors, said that if done right, crowdfunding can be a way to diversify a portfolio.

“It’s just a matter of finding out if it fits in your interest and understanding and own investment preferences,” she said. “A lot of them offer opportunities to make smaller investments . . . which then totally adds for diversity.”

Having the ability to make small investments may make the process more attractive to advisers and their clients who can then allocate a portion of their portfolio to this type of investment.

Ms. Hudson’s advice to financial advisers is to do their own due diligence.

“They need to get each individual platform to make sure they’re comfortable,” she said.

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Bank of America Merrill Lynch executive John Thiel’s move last week to call for a “best interest” standard of care and for working with the Labor Department marks a turning point in the debate over a fiduciary standard, industry observers and proponents of a uniform standard said.

Rather than treating it as a “force to be reckoned with,” Merrill Lynch has turned the fiduciary standard into a competitive advantage, said Blaine Aikin, chief executive of fi360, a fiduciary consulting firm. Betting on a controversial proposal from the Labor Department also gives more credibility to the wirehouse’s push for goals-based wealth management and puts pressure on other major brokerage firms to speak up, Mr. Aikin and others said.

“They’re saying, ‘We’re not afraid of that [best-interest standard]. That’s how we think the business should be run, and we’re not afraid,’” said Barbara Roper, director of investor protection at the Consumer Federation of America.

In voicing his support of that standard, Mr. Thiel broke ranks from top executives at other wirehouses. Indeed, those executives have all said they support a best-interest standard in theory, but have refrained from going so far as to support the DOL proposal.

The Securities Industry and Financial Markets Association has said the DOL’s proposal would limit the industry’s ability to serve mass-affluent clients because it would hamper their ability to receive commissions. It has offered support for the SEC coming up with a rule, as long as it can preserve certain elements of the brokerage business model.

That stance against the DOL, however, has drawn criticism and painted Wall Street as being opposed to investor interests. A New York Times story from June last year was titled “Brokers Fight Rule to Favor Best Interests of Customers”. The issue gained more attention when President Barack Obama said that conflicted advice was costing Americans billions.

Merrill Lynch’s move shows that the wirehouses may have more to gain, particularly from a marketing perspective, by supporting the issue, according to Mr. Aikin.

“It’s a smart approach to take,” he said. “I do think it puts pressure on [other firms].”

The move also made sense for Merrill Lynch from a business standpoint, Mr. Aikin said. The four wirehouses have all been trying to bill their advisers as sitting on the same side of the table as clients as they push more fee-based relationships or managed accounts where advisers are already required to act as fiduciaries, he said.

“It’s a natural place to go, and we see that change taking place,” Mr. Aikin explained. “And then technology is just making things much more transparent, so it’s very difficult to have nontransparent types of communication or conflict forms of compensation that exist in the products.”

To continue reading the article from InvestmentNews, click here.

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Brokerdealer.com blog update courtesy of InvestmentNews.

Yes, you read the title right, SEC officials are blasting the commission for turning a blind eye to fining brokerdealer firm Oppenheimer & Co. Inc. for further misconduct. As you may remember a brokerdealer.com blog from last week, Oppenheimer & Co. Inc. was fined $20 million for improper penny stock trades. The SEC said that the firm failed to prevent suspicious penny stock trading and pump-and-dump schemes. Officials are now claiming that further fines should be given to Oppenheimer due to continued misconduct. 

Two members of the Securities and Exchange Commission blasted the agency’s decision to spare Oppenheimer Holdings Inc. from additional sanctions related to a recent settlement, saying regulators were turning a “blind eye” to the investment bank’s pattern of misconduct.

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, said they opposed a waiver of a penalty that would have barred Oppenheimer from raising money for private firms and hedge funds after the company admitted last week to improperly selling billions of shares of penny stocks.

“These violations are just the most recent chapter in a long and unfortunate history of regulatory failures, some more significant than others, but cumulatively indicative of a wholly failed compliance culture,” Mr. Aguilar and Ms. Stein wrote in a statement released Wednesday.

Their dissent is the latest example of partisan disputes at the five-member SEC over how the agency polices Wall Street. The fight over waivers stalled an earlier settlement with Bank of America Corp. and portends future difficulties for companies seeking to end enforcement cases, especially if they are repeat offenders.

Ms. Stein previously criticized a penalty waiver that benefited Royal Bank of Scotland Group Plc and fought to attach more onerous conditions to a reprieve that Bank of America obtained after settling a $16.7 billion mortgage-bond case. SEC Chair Mary Jo White, an independent, and Commissioners Daniel Gallagher and Michael Piwowar, both Republicans, voted in favor of the waiver for Oppenheimer.

The SEC has typically granted waivers to keep from punishing parts of financial companies that weren’t implicated in the wrongdoing at issue.

Oppenheimer spokesman Stefan Prelog said the firm will hire “a fully independent law firm” to review its compliance procedures. The findings and recommendations will be reported to the company’s independent directors, he said.

‘LACKS TEETH’

Mr. Aguilar and Ms. Stein said the SEC’s action “lacks teeth” because it leaves the door open to Oppenheimer hiring a law firm it already uses, which “has every incentive to be accommodating by ignoring or dismissing inadequacies in the firm’s practices.”

Oppenheimer admitted Jan. 27 that it failed to report red flags that its client Gibraltar Global Securities, a Bahamas-based firm, was selling penny-stock shares without being registered in the U.S. The firm acknowledged additional sales of penny stocks for a different customer that resulted in about $588,400 in commissions, according to the SEC. Oppenheimer agreed to pay $20 million to settle the case.

“The company is dedicated to putting these issues behind it through the adoption of a strong compliance infrastructure,” Mr. Prelog said in the statement.

U.S. representative Maxine Waters, a California Democrat, agreed with Mr. Aguilar and Ms. Stein.

“Investors and the American public are greatly disserved when our regulators throw away valuable enforcement tools and adopt a policy of ‘too-big to bar,’” Ms. Waters said in a statement, adding that said she will work with other Democratic lawmakers on legislation that “sends a strong message to the markets that wrongdoers like Oppenheimer will be sufficiently held accountable for their misdeeds.”

Oppenheimer has settled at least 30 separate cases with regulators since 2005, according to Mr. Aguilar and Ms. Stein’s statement. In 2010, the firm agreed to pay $31 million to investors to settle the New York Attorney General’s claims it misrepresented the safety of auction-rate securities. The firm agreed in 2013 to pay $675,000 to the Financial Industry Regulatory Authority Inc. to settle claims that it charged unfair prices to customers buying municipal securities.

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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

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A former LPL Financial broker has been ordered to pay nearly $2 million in disgorgement and penalties after being accused of bilking clients of nearly $1.7 million.

Starting in 2008, Blake B. Richards instructed at least seven clients to write checks to entities he controlled, such as “Blake Richards Investments” or “BMO Investments,” with the understanding that those funds would be invested in fixed-income investments, variable annuities or equities, according to a case filed in the U.S. District Court of the Northern District of Georgia. Instead, those funds went to pay his personal expenses, the Securities and Exchange Commission said, and Mr. Richards would provide fictitious account statements.

The majority of the funds were retirement savings or life insurance proceeds from deceased spouses, the SEC said in a press release.

“None of the investments appeared on the client’s brokerage account statements, and Mr. Richards received no commission income from these investments,” the SEC said in a statement. “Mr. Richards then siphoned off the funds entrusted to him for his personal use.”

The ruling Thursday came as part of a summary judgment by Judge Willis B. Hunt Jr.

Read the rest of the story at InvestmentNews.com

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