The Securities and Exchange Commission on Tuesday settled cases against three hybrid firms affiliated with LPL Financial over their failure to disclose forgivable loans they received from LPL.
Minnetonka, Minn.-based 360 Financial agreed to pay a $40,000 fine. VisionPoint Advisory Group of West Des Moines, Iowa will pay $45,000. And TRH Financial of North Liberty, Iowa, which does business as Hawkins Wealth Management, settled for $35,000.
None of the firms admitted guilt. However, the incidents raise questions about how extensive disclosures are among advisors embracing the popular hybrid broker-RIA model. LPL is one of many firms who have encouraged advisors and large enterprise offices to move from a commission business to the hybrid model where they can increase recurring revenues.
Many B-Ds have employed a variety of incentives, including forgivable loans, to incentivize advisors to accelerate their migration to fees. However, there are reports that the IRS could introduce stricter reporting requirements on forgivable loans, in addition to disclosure issues.
LPL was recently reported to renegotiate some of the payout agreeements for new recruits to its super-OSJs (Office of Supervisory Juridiction). It could limit the super-OSJ's ability to recuit new advisors on favorable terms, third-party recruitiers said. Driven by profit and compliance concerns, LPL is believed to be attempting to exert more control over its sprawling advisor network.
The SEC’s Chicago regional office alleged that the investment advisory businesses owned by the firms failed to disclose the loans on their ADVs. The loan terms required the firms and some of their advisors to remain affiliated with LPL and gave them an incentive to recommend LPL for clearing and custody. The conflict should have been disclosed, the SEC said.
VisionPoint and its advisors were the recipients of a total of $2.17 million in forgivable notes from LPL, 360 Financial received $446,356, and TRH/Hawkins Wealth $350,000.
Merri Jo Gillette, a partner at Morgan Lewis in Chicago who represents Timothy Hawkins of Hawkins Wealth, declined comment. Calls Wednesday to Mike Rogers, president of 360 Financial, and Jim Mars, managing partner at VisionPoint, were not returned.
“I believe that we will see more violations of this nature as brokers continue to break away and become RIAs,” said Cindi Hill of Hill Compliance Advisors in San Diego.