Small Account Policies Hurt Advisers, Force Transitions

Small account policies at brokerage firms are understandable from a business perspective, but are a significant problem for the customer and the firm's advisors.

Brokerage firms do not want to spend the time or resources in dealing with small account (typically accounts with under $250,000 in equity). At the same time, they do not want to give up those accounts and the revenue they generate.

To remedy this dilemma, firms created "call centers" and forced brokers to transfer their small accounts to those call centers, where investors' accounts are handled by a random selection of advisers. The investor loses his adviser, and the adviser loses his customer. Not a good solution for the investor, but one that brokerage firms have been using with increasing frequency.

These policies at Wells Fargo, Merrill Lynch, RBC Wealth Management and other full-service firms have been imposing are particularly irksome to advisors in small markets that are not traditional pockets of wealth.

For example, according to AdvisorHub a Wells Fargo broker in Indiana cited small-account policies when he moved his family team to Stifel in June, as did a Colorado independent broker who joined LPL Financial in May after affiliating with Wells for 38 years.

Wells Fargo Advisors’ 2020 compensation plan penalizes private client group brokers with payouts of 20% on household accounts with less than $250,000—up from the previous floor of $100,000. Brokers at Wells typically keep 50% of clients’ fees and commissions after meeting monthly revenue hurdles.

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https://advisorhub.com/wells-brokers-with-405-million-leave-for-stifel-cite-small-account-policies/

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email to mja@sallahlaw.com.

Merrill Lynch Moves to Commission Free Trading - Sorta

Bank of America announced that Merrill Edge’s self-directed program will offer unlimited commission-free trades of stocks, ETFs and options for self-directed clients who are also enrolled in the bank’s Preferred Rewards, a program that gives clients additional benefits — like rewards on credit cards or preferential interest rates — for using multiple products and services at the company.

Merrill to Continue Pay Plan

According to InvestmentNews, Merrill Lynch will continue to reward its wealth management advisers for bringing in new client accounts.

Last year, Merrill Lynch unveiled a 2018 pay grid that rewarded advisers who brought in a healthy number of net new accounts. Those advisers who fell short of company goals had their compensation reduced. The plan was called the "growth grid."

Merrill's 15,015 financial advisers can expect to see such a compensation plan next year, said a senior Merrill Lynch executive. More at InvestmentNews.com

Merrill Lowers Broker Compensation

As firms are fighting to recruit brokers, and paying 3x trailing 12 to entice brokers to move, one would think the wirehouses would leave compensation levels alone.

Not so. According to On Wall Street, Merrill Lynch has announced that it is increasing its grid levels.

The changes might not make a significant difference but for producers below $1.5 million, the grid ranges will increase by $50,000. Reports are that more than half of Merrill brokers produce less than a million, so while the impact might be small, the number of brokers affected is significant.

UBS is recruiting like crazy. Maybe we will see an increase in compensation in response to Merrill's new move?

Merrill Raises the Bar on Broker Pay

Related articles

• DealBook: Bank of America Nears $17 Billion Settlement Over Mortgages 
• Merrill Advisors With $500M Go Indy
• Raymond James Sets Recruiting Record: $3B Team
• Merrill Using Robots, Not Brokers
• Efforts Continue to "BankofAmericanize" Merrill Brokers - No Compensation for "Small" Accounts

Merrill Advisors With $500M Go Indy

A former Merrill Lynch team with $500 million in client assets has launched an independent practice with Focus Financial Partners, the firm said.


Advisors Paul Squarcia and Erik Wallin have opened a new RIA, One Charles Private Wealth, in Hingham, Mass., according to Focus Financial.

The firm was launched through Focus Independence, a program designed to help wirehouse advisors open independent wealth management practices, the firm says.

Merrill Advisors With $500M Go Indy | IAG Breaking News:

Raymond James Sets Recruiting Record: $3B Team

Merrill Lynch lost a team managing more than $2.9 billion to Raymond James & Associates,

According to press reports, the move set a new recruiting record for Raymond James, surpassing a $2.4 billion team that left Morgan Stanley to join Raymond James in Florida.

Advisors Chris Mahoney, his brother Kevin Mahoney, Mark C. Marotta, Kristen Koluch, and Phil Murphy joined the firm in West Nyack, N.Y., about  40 miles from Manhattan.

The team, which is led by Mahoney, generated $7.7 million in annual production, according to Raymond James.

Related Posts:

Broker Dealers Move to Banking Fueling Transitions?

Raymond James Sets Recruiting Record: $3B Team 

Those Deals Really Are Negotiable! - Adviser Attrition at Barclays

Transition Agreements are Negotiable - Even For Credit Suisse Brokers

Broker Independence: Morgan Stanley Advisors Join FiNet

Merrill Loses $800 Million in Assets to Independent Firm

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The attorneys at Sallah Astarita & Cox  have decades of experience in representing brokers, and firms, in broker transition issues, and have represented brokers moving to and from every major firm, nationwide. For more information call 212-509-6544 or send an email.

Transition Agreements are Negotiable - Even For Credit Suisse Brokers

In October of this year, Credit Suisse announced that it was closing its retail brokerage unit and that it had signed a recruiting arrangement with Wells Fargo. That arrangement lets Credit Suisse brokers who are hired by Wells Fargo to smoothly transition their practices and clients to the Wells Fargo Advisors arm by early next year.

That agreement seemed to be a welcome solution to the recruiting issues that arise when a large number of retail brokers changed firms, but that soon changed. Wells Fargo put a cap on the upfront loan, which traditionally has been 2-3 times trailing twelve. For some brokers, their upfront loans would be more than $5 million, which is where Wells Fargo set the cap.

That cap then starts to unravel the benefit of entering into the recruiting agreement, because the brokers are not bound to deal with Wells Fargo. Brokers complained, and since firms like  Merrill Lynch, Morgan Stanley and UBS do not impose such caps. Credit Suisse brokers were encouraged to discuss relationships with those firms.

Credit Suisse brokers need to keep in mind that they are not locked into any particular deal, even if they go to Wells Fargo. Despite popular opinion, all employment deals, including transition bonuses, upfront loans and hurdles are negotiable, as demonstrated by Wells Fargo decision to modify the upfront cap for brokers who are affected, and sometimes offering $2.5 million in new deferred compensation that vests over four years.

Related Stories:

Credit Suiss Advisors Free to Move to Wells Fargo

Wells Fargo and Credit Suisse strike recruiting deal for 250 advisers

Credit Suisse brokers not happy with move to Wells Fargo

Wells Fargo-Credit Suisse Deal: First FA Out Picks Merrill

Broker Dealers Move to Banking Fueling Transitions?

Advisors Have Leverage In Employment Agreements

Reviewing Broker Transition Agreements

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Mark Astarita is a nationally known securities lawyer who has represented brokers and advisers in their transitions, loans and compensation issues for decades. He has negotiated deals, settlements and agreements with every major brokerage firm and dozens of regional firms. Mark has also represented brokers in disputes with every firm and does so in an efficient and cost effective manner. Call him for a free telephone consultation, and let’s see how I can help you. 212-509-6544 or email - mja@sallahlaw.com

Merrill Using Robots, Not Brokers

Continuing the push to avoid paying brokers, Bank of America's thundering herd of Merrill Lynch financial advisers is about to be joined by a robot who doesn't get paid at all.

Merrill has tried to avoid paying its brokers commissions on "small" accounts for years, using tactics such as siimply refusing to pay brokers for such accounts, and taking the accounts away from the broker and sending the accounts to a call center.

There are now reports that the firm has put dozens of employees to work on an automated investment prototype for Merrill Edge, which targets accounts under $250,000.


'Merrill s Bulls Enter the Digital Advice Race | IAG Breaking News

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Mark Astarita represents brokers in disputes with their firms - including Merrill Lynch. Visit his site at www.securitieslawyer.us and his firm's site at www.sacllc.com

Problems When Failing to Report Customer Complaints

FINRA rules require firms, and brokers, to report certain customer complaints on the broker's Form U-4 within 30 days of receipt of the complaint. FINRA's requirements for complaint reporting are extremely broad, and quite frankly, unfair. While FINRA's reporting requirements need to be changed, they also need to be followed.

The details of the requirement have changed over the years, but today, if a broker's customer files a sales practice complaint, in writing, or an arbitration or lawsuit, and alleges damages of  $5,000 or more or alleges forgery, theft, misappropriation or conversion of funds or securities, the complaint must be reported on Form U-4 for at least two years. The disclosure questions have become convoluted over the years as FINRA expands the universe of reportable complaints, but are detailed in Item 14 on Form U-4.

This is true even if the broker is not named on the complaint. Because customer attorneys decided it was clever not to name individual brokers in FINRA arbitrations, in the hopes of causing a rift between broker and firm, FINRA decided that if the firm can identify the broker (and it almost always can do so), the complaint or arbitration is reportable on the brokers U-4 - even though he was not sued.

Failing to file a required amendment can result in fines of up to $25,000 and a 30 day suspension - for the broker as well as the firm. It is FINRA"s position that each registered individual has the responsibility to keep his U-4 current and accurate, regardless of what his firm does or says. Brokers are still responsible for accurate filings, even if the firm gives them incorrect information regarding a disclosure.

Firms are also responsible, although sometimes the sanction is not as significant as it might be. Take the recent fine against Merrill Lynch. According to FINRA, Merrill took a year to report allegations that one of its financial advisers was siphoning money from client accounts. Finra fined Merrill $175,000 for this falure. The problem is that because the allegations went unreported, the broker was hired at another firm, and allegedly continued his thefts at the new firm.

If this failure to report had been at a small firm, the fine would have been more significant to the firm than this fine was to Merrill. And you can be sure that an individual, either the President, the CCO or the registration manager would have been named.

Not so when you are dealing with a large firm.

For more information, go to Finra Fines Merrill Lynch Over Delay in Reporting Allegations Against Adviser - NASDAQ.com

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The attorneys at Sallah Astarita & Cox include seasoned securities regulatory attorneys, with decades of experience in SEC and FINRA regulatory and compliance regulations. For more information call 212-509-6544 or send an email.

Efforts Continue to "BankofAmericanize" Merrill Brokers - No Compensation for "Small" Accounts

I am not quite sure when a $250,000 account became a small account, but Merrill Lynch told its brokers on Wednesday that it is eliminating pay for servicing clients with less than $250,000

Now, if you are a client at Merrill, with an account worth "only" $250,000, are you going to stay with Merrill? Of course not. 

And if you are a broker at Merrill, with any number of accounts in that range, are you going to stay with Merril?

For more information, go to Merrill Raises Broker Bonuses, Eliminates Pay On Small Accounts

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

Death By 1,000 Cuts - Morgan Stanley Raises Grid Hurdles

The last decade or so has seen the decline in the number of retail brokers, and recently the decline in the number of large brokerage firms. While some may view the latter as a positive, the simple fact is that it is getting more and more difficult for individual financial professionals to maintain their practices, support their clients, and earn a living.

The reality is that the wirehouses would prefer that individual advisers did not exist, so that they could put the commission side of the ledger into the profit column. While that is not going to happen, the firms are moving in that direction. Decreasing commissions, making it impossible to remove false U-5 filings, increased and defamatory BrokerCheck disclosures all have the effect of reducing broker mobility and advancement.

We see these issues every day in our practice - gimmicks to reduce compensation and to increase hurdles, increasing the use of the "zero compensation" for small account policy, bogus terminations in order to avoid bonus payments, or stealing profitable books of business, abusive partnership agreements, and false U-4 and U-5 disclosures. We continue to fight these abuses on behalf of our financial professional clients, but that is one fight at a time, and not a fight that every professional can afford to mount.

And there are the changes that cannot be economically challenges - because the cost to an individual professional is relatively small, but the benefit to the firm is in the millions of dollars. While by no means the worst offender, Morgan Stanley is the latest. It has announced its 2014 compensation plan. In the second amendment in three years following the Smith Barney acquisition, Morgan Stanley is raising revenue bands by 10% for advisors bringing in under $2.5 million. A $1 million producer, for example, would now have to make $1.1 million to attain the same 44% payout.

Fee based account payouts will be decreased by an ‘investment services fee’ of 5 basis points, or 0.05%, on assets held in fee-based accounts. The fee will apply to new money as of 2014. We expect to see that "fee" applied to all accounts by 2015.

Watch for a similar announcement from Wells, Merrill and UBS.

For more detail see Morgan Stanley Raises the Bar with 2014 Comp Plan 
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The attorneys at Sallah Astarita & Cox include veteran securities litigators, former SEC Enforcement Attorneys and brokerage firm attorneys. We have decades of experience in securities employment matters, having represented hundreds of professionals for over 30 years. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Related articles

• Morgan Stanley gives brokers incentive to find clients' outside money
• Morgan Stanley trader: I signed my own death warrant when I complained about £518,000 salary 

Ex-Merrill Broker Sentenced to Three Years for Sales Practice Violations

A federal judge in the U.S. District Court for the Eastern District of Missouri sentenced Greg J. Campbell on charges that he had siphoned off almost $2 million from client accounts, including that of an 85-year-old client with dementia, for personal use.

According to press reports, Campbell was ordered to repay $1.8 million in restitution and forfeit property purchased with client funds. Campbell’s scheme began in September 2007 while he was a broker working for Merrill Lynch, according to a court filing by the U.S. Attorney’s office in St. Louis, Mo.

The reports continue sayin that he opened and oversaw Loan Management Accounts, which are credit lines collateralized by securities held in customer accounts, under his clients’ names and then used those funds for down payments on a personal residence, mortgage payments, vehicle lease payments and living expenses, the filing said. He hid the activities by falsifying signatures on letters of authorization, replacing balances at one account with those of another client’s, and sending account statements to unrelated addresses to which only Campbell had access, according to the complaint.

More details are available at Ex-Merrill Broker Sentenced to More Than 3 Years 

UPS Pension Investigation

We are currently investigating claims involving the management of brokerage accounts by Merrill Lynch for employees and former employees of UPS and their pensions. Allegations have surfaced regarding over-concentration, and the use of the stock as collateral for loans.

If you have any information regarding these issues, please call our office at 212-509-6544 or email us at ups-info@sallahlaw.com

Bank of America Still Causing Problems for Merrill Brokers

Bank of America has always been a disaster in the brokerage business, with a long history of mistreatment of its brokers. That outrage became well known when it took over the failing Merrill Lynch in 2008. Bank of America forced brokers out of the firm, by reducing payouts, refusing to pay for business which had already been booked, and for generally not having a clue how to run a brokerage firm. Merrill Lynch was not much better, given the fact that it was virtually bankrupt by the fourth quarter of 2008.

The complete mismanagement of the firm, first by Merrill, compounded by Bank of America, forced brokers to leave the firm, and doing so at their own financial peril, leaving behind significant deferred compensation and outstanding promissory notes. Apparently, staying was even worse.

That trend continues, three years later. On Wall Street is reporting that UBS is hiring teams of Merrill Lynch brokers. In an article "UBS Hires Raft of Veteran Merrill Brokers" Ashley Lau reports that UBS had placed a premium on brokers from Merrill, Bank of America's brokerage unit, by increasing up-front bonuses offered to those who signed before the end of 2011. That move came at the same time that Merrill brokers were about to receive the last of two big payouts on previous incentive plans.

The article continues to say that industry analysts said in early January that they expect to see more defections from Merrill's "Thundering Herd" of brokers, many already frustrated with changes since Bank of America purchased the firm three years ago, after the award payments are made in late January and early February.

We have been representing brokers in transition, contract and promissory note matters for over two decades, and are presently representing former Bank of America and Merrill Lynch brokers with their transition and promissory note issues. We have set up a dedicated email address for inquires from brokers who need assistance with their employment issues with Merrill Lynch, or any other wirehouse - brokers@seclaw.com


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FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees

FINRA has fined Merrill Lynch, Pierce, Fenner & Smith $1 million for failing to arbitrate disputes with employees relating to retention bonuses. Registered representatives who participated in the bonus program had to sign a promissory note that prevented them from arbitrating disagreements relating to the note, forcing the registered representatives to resolve disputes in New York state courts.

After merging with Bank of America in January 2009, Merrill Lynch implemented a bonus program to retain certain high-producing registered representatives and purposely structured it to circumvent the requirement to institute arbitration proceedings with employees when it sought to collect unpaid amounts from any of the registered representatives who later left the firm. FINRA rules require that disputes between firms and associated persons be arbitrated if they arise out of the business activities of the firm or associated person.

In January 2009, Merrill Lynch paid $2.8 billion in retention bonuses structured as loans to over 5,000 registered representatives. Merrill Lynch structured the program to make it appear that the funds for the program came from MLIFI, a non-registered affiliate, rather than from the firm itself, allowing it to pursue recovery of amounts due in the name of MLIFI in expedited hearings in New York state courts to circumvent Merrill Lynch's requirement to arbitrate disputes with its associated persons. Later that year, after a number of registered representatives left the firm without repaying the amounts due under the loan, Merrill Lynch filed over 90 actions in New York state court to collect amounts due under the promissory notes, thus violating a FINRA rule that requires firms to arbitrate disputes with employees.

FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees

Moody Lowers Bank of America's Debt Rating

Not much of a surprise here - Moody's Investors Service has lowered Bank of America Corp.'s debt ratings, saying it is now less likely that the U.S. government would step in and prevent the lender from failing in a crisis.

Still watching for the Merrill spinoff........

Moody's lowers BofA's debt ratings, shares tumble

Bank of America is Doomed. Just File Bankruptcy Now

While I still have a problem with Henry Blodget still participating in the financial industry, even as a columnist, great article on Bank of America's imminent bankruptch. The full title is BANK OF AMERICA IS DOOMED, Says Chris Whalen-Stop Firing People and Just Declare Bankruptcy Now.

Whalen is arguing for a government seizure of the bank, and a reorganization. I am not so sure that is possible, but he makes a great point - 

Bank of America is rearranging chairs on the deck of the Titanic. And firing thousands of people who don't need to be fired.

BANK OF AMERICA IS DOOMED, Says Chris Whalen—Stop Firing People And Just Declare Bankruptcy Now

Merrill Brokers Next Target for BofA?

The forced departure of Sallie Krawcheck may be a sign of more than just problems at Bank of America - we may be seeing the start of an internal attack on Merrill Lynch brokers.

We all know the contempt that Bank of America has for it's own securities firm employees - witness what it did to its bank brokers when it cut their pay in half, but industry media is speculating that two of the reasons Krawcheck was canned was first, her refusal to force Merril Lynch brokers to push Bank of America products on their customers, and two, her opposition to a move to radically alter compensation at Merrill Lynch by altering the commission structure and putting brokers on a salary plus bonus.

I am sure that she was opposed to the salary and bonus plan, most right-thinking industry executives know that such a compensation scheme does nothing to benefit the broker, and will cause long term damage to the business. Bank of America will undoubtedly wrap itself up in the American flag and claim that it is a move designed to align the broker's interests with the customer, but that is simply nonsense. Wrap fee accounts did that - the broker is compensated for his success in managing the assets. Putting brokers on salary is simply a money grab - taking money from your own employees to shore up your abysmal failure on the banking side.

We all know that Bank of America is failing, and that the only profitable piece of its operations is Merrill Lynch. Again, rather than fix its problems on the banking side, it is going to attempt to cannibalize the brokerage side, and take compensation from its employees.

That is not a coghent business plan. Has BofA really forgotten what happened when it pulled a similar stunt on its bank brokers? They left in droves.

Watch for Merrill brokers to do the same. 

Related articles, courtesy of Zemanta:

• Two Interesting Rumors Circulating After The Firing Of Sallie Krawcheck (BAC)
• What Sallie Krawcheck's Ouster Means For Merrill Lynch (BAC)
• Analysis: Krawcheck ouster fuels Merrill brokers' bank angst

Merrill Loses Another Promissory Note Case

As most readers are aware, brokerage firms structure their signing bonuses for producing brokers as long term loans which are forgiven over time. When the broker leaves the firm, regardless of the reason, the firm sues to collect the balance on the loans.

Those claims are often met with significant counterclaims by the broker - after all, the broker left the firm for a reason, usually a significant breach by the firm.

While the brokerage firms often win in those cases, since the promissory note is just that, Merrill Lynch has been losing these cases lately, as it appears that Merrill's mistreatment of its brokers over recent years is finally coming home to roost.

Last month, a FINRA Panel refused to enforce a promissory note at Merrill's request. This month, another  FINRA arbitration panel denied Merrill Lynch's request to enforce a million dollar note, and ordered Merrill Lynch to pay the broker 1.5 million dollars.

The broker keeps the one million dollars represented by the note, and Merrill pays him an additional 1.5 million dollars.

 And, to add insult to injury, the Panel assessed all forum fees against Merrill.

I have represented numerous Bank of America and Merrill Lynch brokers in employment related cases, including the defense of claims on promissory notes. While I do not know anything about this case, in my view of the world, these cases are simply an outgrowth of the poor management of Merrill Lynch which led to its financial demise, and the nearly incompetent management of the brokerage firm by Bank of America. Management of both firms took steps in their own self-interest, regardless of the impact on employees and brokers and destroyed careers in the process.

Sometimes damage to employees in management decisions is unavoidable. A reputable company compensates the employees harmed by those management decisions. Merrill Lynch and Bank of America do not compensate the employees; they sue the employees.

No wonder Bank of America/Merrill lynch finds itself in financial ruin. BofA's stock traded at over $50 a share a few years ago. Today it hovers around $10.

A copy of the award is available here.

FINRA Fines Credit Suisse $4.5M; Merrill Lynch $3M - Financial Planning

The Financial Industry Regulatory Authority has hit Credit Suisse Securities LLC with a $4.5 million fine and Merrill Lynch with a $3 million fine for not properly representing data and supervising the residential subprime mortgage securitizations they sold.
The fines, which were announced by independent regulator FINRA on Thursday, were for improper handling that took place at the firms in 2006 and 2007. Each firm’s violation prevented certain investors from adequately understanding the nuances of residential subprime mortgage securities (RMBS), according to FINRA’s investigation.
RMBS are subject to certain disclosure rules when they are sold. Firms are required to provide investors with past delinquency rates for similar financial products. They are also required to tell investors how they calculated those delinquency rates.
Both Credit Suisse and Merrill Lynch failed to adequately follow those rules, according to FINRA.