As an officer employed by a wirehouse, a branch manager may face heightened legal considerations when breaking away. Employment contracts at wirehouses typically prevent brokers from recruiting others-particularly top producers-to leave with them and join a competing firm. Branch managers have potential influence on other brokers and are often targeted for so-called raiding cases, an industry term for taking 25% to 30% of gross revenue from a competitor in a directed, intentional move to poach top producers.
"As an authority figure, a branch manager could run into trouble if it appears as though he's soliciting financial advisors in his branch to make a group move," says Ron Amato, an attorney at Shaheen, Novoselsky, Staat, Filipowski & Eccleston.
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Call For Fiduciary Standard Unites Disparate Forces (Sort Of)
It's one thing when industry groups such as the Certified Financial Planner Board of Standards, Financial Planning Association and National Association of Personal Financial Advisors pound the table in support of the fiduciary standard of care. But what to think when a Wall Street titan does the same?
OK, when Goldman Sachs Group Chairman and CEO Lloyd Blankfein lent his public support to the fiduciary standard last month, he didn't exactly pound the table. Rather, he was testifying with other leading Wall Street executives before a Congressional committee hearing on Capitol Hill looking into the recent financial crisis.
According to published reports, during Blankfein's testimony he told the committee that he favors applying the fiduciary standard to broker-dealer registered reps who offer investment advice to retail investors. That brought words of approval from some industry folks who've long espoused the same.
Investment advisors are regulated under the Investment Advisers Act of 1940 and are governed by the Securities and Exchange Commission (SEC). They are held to the fiduciary standard of care, which requires them to act in their clients' best interests.
Broker-dealers, who are regulated under the Securities Exchange Act of 1934 and are overseen by the Financial Industry Regulatory Authority (FINRA), are held to the suitability standard that requires them to make recommendations that fit a client's risk tolerance, objectives and financial status.
The different approaches have governed the two sides for nearly 70 years, and ongoing financial services industry reform efforts in Washington have ratcheted up the debate: Investment advisors want the fiduciary standard applied to broker-dealers, while broker-dealers want to apply a universal standard of care to all advisors, including investment advisors. RIAs equate a universal standard with a diluted standard that could lead to conflicts of interest.
To combat that, various organizations from across the financial spectrum last month penned a letter to leading members of the Senate Committee on Banking, Housing and Urban Affairs that asked them to resist efforts to weaken proposed legislation requiring all financial advisors to abide by the fiduciary standard.
In particular, the groups say that Section 913 of the "Restoring American Financial Stability Act of 2009" would provide "straightforward and sensible" consumer protection by eliminating the broker-dealer exemption from the Investment Advisers Act. That exclusion enables brokers to avoid registering as advisors if the advice they provide is incidental to selling securities.
"For too long, brokers have been free to market themselves as trusted advisers and offer extensive advisory services without having to meet the fiduciary standard appropriate to that role," the organizations said. The draft bill "eliminates the legislative loophole that has allowed this dual standard to persist."
The participating groups are the Consumer Federation of America, the North American Securities Administrators Association, Fund Democracy, the Investment Adviser Association, the CFP Board, FPA and the NAPFA.