The article discusses the fact that in the past year many customers trusted the advice of Wall Street's biggest brokerage firms and lost most or all of their investments in the process. Mr. Singer states that the excess of poor recommendations, conflicts of interest and insider trading secrets will have a devastating effect to the industry. You can read the full article online here.

You can read the full article online here.

The article discusses the recent expulsion of Miguel A. Chavez by the Financial Industry Regulatory Authority (FINRA). The expulsion comes as a result of Chavez's association with firms that sell securities after he opened an outisde account and did not inform his employer of the account. Mr. Lewis states that brokers who are contemplating a job change may want to move their assets to another brokerage if they anticipate a dispute about money owed for a signing or retention bonus, which are typically secured by promissory notes.

You can read the full article oline here. (PDF)

The article discusses a recent class action lawsuit led by Mark Thierman which seeks to change the current practice of brokerage firm's demanding advisors pay back the full balance of promissory notes after they have left the firm. The suit was filed the same day a FINRA arbitration panel ordered Thomas Banus to repay Smith Barney roughly $39,000, the balance plus interest on the loan Banus received when he joined Smith Barney two years earlier.

The suit argues that Citigroup did not fulfill it's obligations to Banus, or the other members of the class action, and the mismanagement of the firm forced the advisors to seek employment elsewhere.

If Thierman is successful in proving that Citigroup breached that duty, due to the similarity of  employment contracts used at brokerage firms, this suit could have a major impact on large firms throughout the country. However, Mr. Singer states, "At the end of the day the defense will say, 'A contract is a contract. You knew what you were getting into when you signed the deal. Now, own up to it."

You can read the full article online here. (PDF)

The ruling comes shortly after the sentencing of Bernard Madoff who stole over $50 billion from investors during his decade-long Ponzi scheme and could now have repercussions in similar suits against other “feeder funds.”

Mr. Singer states that this case could help to lay the foundation for future actions against feeder funds, even those which were involved in the Madoff scam. Mr. Singer also states that the ruling brings to light the need for Congress to update commodities and securities laws in order to keep up with the changing markets. 

You can read the full article here. (PDF)

Mr. Singer states that while he is happy that Madoff received the maximum sentence possible, it will do little to change the ways of criminal Wall Street investors. Mr. Singer warns that regulation of our securities markets has to be preemptive and focused on prevention instead of punishment in order to prevent another similar situation from occurring again in the next five to ten years.

You can watch the full interview online here.
 

Going independent can be an enormous opportunity for you as a financial adviser. Perhaps most importantly, you have the flexibility to do what you believe is best for each of your clients, to create a firm that reflects your approach and your experience. At the same time, you are building a business that could have significant value when you are ready to sell it down the line.

Of course, you also have the risks and the responsibilities of running your own business. But increasingly, advisers are willing to accept the risks in order to embrace the opportunities.

The full-service or regional broker/dealers you work for are interested in making it as difficult as possible for you to take your clients with you when you go – for obvious reasons. But there are ways to keep the process from being too confrontational, and for increasing the likelihood that it turns out in your favor.

The first step is to engage a law firm that has experience in this area. Legal experts can provide guidance for severing the ties with your broker/dealer, as well as in other areas of setting up your new business.

Restrictive Covenants
Your attorney can help you assess where problems are likely to arise, and provide you with alternatives for dealing with the problems. The first step is to determine whether you have agreed to any restrictive covenants that will affect your ability to interact with your clients once you leave the firm.

If you work for a full-service or regional broker/dealer, the chances are very good that you have a non-solicitation agreement, in which you agreed not to solicit your clients when you are leaving the full-service or regional broker/dealer. If you are not sure whether you have signed such an agreement, your attorney may be able to tell you whether the broker/dealer you work for usually requires this agreement. But the strong likelihood is that you have a non-solicitation agreement in place.

You may hear the comment that non-solicitation agreements “aren’t worth the paper they are printed on.” However, that is not actually the case. Brokerage firms are very serious about protecting their client rosters by enforcing their non-solicitation agreements.

Another issue is whether you have any promissory notes with the firm you are leaving. You might have signed a promissory note if, for example, you borrowed money from the firm. Some firms also require that you repay the cost of training or other costs associated with your employment at the full-service or regional broker/dealer.

Your attorney probably will ask you how your firm usually deals with advisers who leave the firm. That is no guarantee that they will treat you the same way, of course. But it is an indication of how they are likely to react to the news that you are leaving.

Your attorney also will want to know how long you have been with the firm, and how many of your clients came with you to the firm from a previous firm, compared with how many clients joined you while you were at your current employer.

If you try to leave without resolving the issues of promissory notes and restrictive covenants, or even if you address them but not to the satisfaction of your broker/dealer, your broker/dealer can take you to court to get a temporary restraining order to stop you from contacting your clients.

In this case, your attorney can help you to negotiate a solution with your broker/dealer. Such solutions usually involve one of two things:

• Monetary compensation. Often the registered representative agrees to pay the broker/dealer a percentage of trailing 12 months compensation in order to get out of the non-solicit agreement.
• Time. The broker/dealer may require the registered representative to abide by the terms of the non-solicitation agreement for a period of time, usually one year.

The Protocol
It seems that most of the cards are held by the broker/dealer. But you do have some protection, through the Protocol for Broker Recruiting, generally referred to as the protocol.

The Protocol for Broker Recruiting was developed in 2004 among Citigroup’s Smith Barney, Merrill Lynch and UBS Financial Services. The idea was to further client privacy and freedom of choice when advisers move between firms. If your current firm and the firm you are joining are both members of the protocol, and if you strictly follow the protocol, neither you nor the new firm has any liability, monetary or otherwise. However, the protocol does not keep the previous firm from bringing a claim for raiding.

Since its creation in 2004, and especially in the last half of 2008 and so far in 2009, the protocol has been extremely popular -- and most of the new firms joining the protocol are registered investment advisers. It costs nothing to join the protocol.

Leaving Your Firm
So what should you and shouldn’t you do when leaving a firm, in order to conform to the protocol and make a smooth transition for yourself and your clients?

First, understand that you absolutely may not solicit clients before you have resigned from the firm. That means you can’t tell them you are going to be leaving or give them any kind of hint that you are going out on your own. In fact, it is best if you don’t talk about your pending resignation with anyone at the firm you are leaving, no matter how much you think you trust them. If word of your plan leaks out, even accidentally, you probably will be fired summarily, before you are ready to make your move.

When you are ready, you should resign in writing to your local branch manager. Such resignations traditionally are done late on a Friday afternoon so that if the firm decides to take you to court, it cannot do so until Monday.

Be very brief in your letter of resignation. This is not the place to outline your grievances against the firm or to thank people for the experience of working there. The best resignation letter says simply, “I hereby resign my employment effective immediately. I can be reached at….”

In addition to your letter of resignation, you also should give your manager a spreadsheet file including six categories of information: client name, address, email, phone number, account title and account number.

You also should create a spreadsheet file for yourself, with the same information except for the account number. Pursuant to the terms of the protocol, that is all you are allowed to take when you leave your firm. You may even, for example, be asked to surrender your BlackBerry if the broker/dealer believes it contains information that is proprietary to the firm.

Be calm and rational when you leave. It is likely to be an uncomfortable and even difficult moment, but you can take heart from the realization that, statistically speaking, most of your clients probably will decide to come with you.

Additional Assistance
In addition to helping you leave your broker/dealer, an experienced attorney can help you with a wide range of other decisions you have to make when you set up a new business.

You need to choose the legal structure of your business. There are advantages and disadvantages to setting up, for example, an S corporation or an LLC. An attorney can explain the differences and help you decide what structure is best for you. If you have a partner or partners, an attorney can draw up a partnership agreement. And an attorney can help you think through how you might want to exit from your business someday.

Your attorney also should be able to help you with issues such as compliance, and can be an important resource in the event of regulatory reviews. The right attorney can be an invaluable partner as you create the kind of business you want to call your own.

Mr. Singer comments on the 13 trading sessions, which began May 1st and ended May 20th, in which the Dow Jones industrial average failed to hold a streak for longer than one day. Over the course of the 13 days, the markets were up one day, then they were down the next, and vice-versa. You can read the full article online here.

You can read the full article here. (PDF)

Mr. Singer notes that while Ms. Shapiro is highly qualified to serve as chairman of the SEC, she needs to be a tougher regulator in the upcoming months, and notes that her hiring Robert Khuzami as head of SEC enforcement wasn't the best start. You can read the full article online here.

The conference offers attendees the opportunity to meet and network with the leaders and opinion-shapers of the independent advisory profession.  The Barron’s Winner’s Circle Top Independent Advisors Summit is designed to facilitate a free-flowing exchange of information, ideas and insights through peer-based communication and an unwavering focus on best practices and winning wealth-management strategies.

The workshops are dedicated to helping you understand the pros and cons of becoming a Registered Investment Adviser (RIA), and will discuss topics such as:

• The Good, the Bad and the Truth: Interact with advisers who have transitioned to becoming registered investment advisers
• The Economics: Will it make financial sense for you?
• Compliance and Legal Matters: Get the critical information you need to know
• How to Choose the Right Custodian: Discover programs at each of the top custodian firms that can help you through the transition

You can read the full article here. (PDF)

On Thursday March 5, 2009, FINRA issued a press release entitled FINRA Announces Creation of "Office of the Whistleblower": Dedicated Team to Handle High-Risk Tips.  On that same day, Mr. Singer published an open letter to FINRA seeking a long overdue and oft postponed meeting (by FINRA) for the purpose of raising the FINRA Dissident/Reform agenda with our self-regulator. The article highlights the many years of experience Mr. Singer has lobbying for what it calls “more cogent rulemaking and more effective regulation.”

You can read the full article online here.