Joe Duran, CEO of United Capital, believes that the RIA business is at a major crossroads as it emerges from the recession and some firms find it difficult to capitalize on opportunities because of cost and margin pressures. Moreover, he thinks the prospect of higher capital gains taxes in 2011 may spur a surge in merger and acquisition activity among RIAs and others.
The proliferation of holding companies entering the space continues unabated, despite the fact that many have failed to succeed so far. "Today, you have more than 20 or so firms, each with its own unique strategy," Schwab's DeVoe says. "Recently, we've seen a trend toward more specialization, which gives advisors more choices."
At the same time, there are reports many firms are considering another succession strategy-selling their firms over time to junior partners at prices that are less advantageous than what a financial or strategic buyer might pay. While the founding partners don't get to enjoy a big payday, the strategy ensures greater continuity and eliminates third parties more interested in return on investment than client satisfaction.
FINRA Expands Arbitration Pilot Program
The Financial Industry Regulatory Authority (FINRA) last month announced it expanded a pilot program enabling investors filing claims to choose three "public" arbitrators rather than the traditional three-member panel that includes one industry, or nonpublic, member. The number of participating firms will increase from 11 to 14, and the number of eligible cases will rise to 411, a nearly 50% jump.
The two-year pilot program, launched in October 2008, is aimed at addressing criticism that arbitration panels consisting of nonpublic members are biased against investors. "We're aware of the negative perceptions that accompany the presence of a nonpublic arbitrator when cases go to three arbitrators," says FINRA spokesman Brendan Intindola. "This program gives us something to compare with the status quo and a roadmap for any possible changes."
The three new firms contributing cases to the pilot program are Oppenheimer & Co. with 15 cases, and Chase Investment Services and Raymond James Financial Services/Raymond James & Associates with ten cases each. Among the 11 firms currently participating, five are increasing the number of pilot cases from 40 to 60-Citigroup Global Markets, Merrill Lynch, Morgan Stanley Smith Barney, UBS Financial Services and Wells Fargo Advisors.
Among other participating firms, Ameriprise Financial Services and Edward Jones both have 18 cases; while Charles Schwab, Fidelity Brokerage Services, LPL Financial and TD Ameritrade all have ten cases each.
Only the claimant filing the claim-typically a retail investor-can elect to participate in the program and the firms cannot choose which cases are eligible. The program concludes on October 5, 2010.
FINRA says arbitration claims are up this year, which is customary after a market downturn as irate investors
seek compensation from the securities industry for their losses. There were almost 5,000 arbitration claims through the end of August, a 65% increase over the year-earlier period.
Nonpublic arbitration panelists are people with some connection to the securities industry. They can be currently active, retired, or somebody who left the industry for another occupation. Public panelists generally are comprised of
attorneys, doctors, business owners or other professionals.