Soon there will be only one sheriff in town. On January 21, 2007, the NASD announced that its member firms overwhelmingly approved necessary by-law changes to merge the regulatory bodies of NASD and NYSE into one self-regulatory organization (SRO). As a result, there will be one SRO for all securities brokers and dealers doing business with the public in the United States.
Continue Reading...In an effort to highlight the distinctions between investment advisors and brokers, early in 2006 the SEC adopted rule 202(a)(11)-1 (aka the “Merrill Lynch rule”) under the Investment Advisers Act of 1940. This rule specifically exempts from the definition of investment advisor certain services that brokers provide on a non-discretionary basis, and advice that is “solely incidental” to the brokerage role, regardless of the form of compensations that they receive for those services, does not transform the broker into a fiduciary under the rule. Likewise, and perhaps counter-intuitively, the designation “investment advisor representative” will not be dispositive on the issue. Actual functions, not labels, tend to be the litmus test.
Continue Reading...Co-authored by Jon Harris and Mark Enslin
Life used to be simpler. Years ago, in the Golden Age of transactional-oriented compensation, there were no compelling questions regarding the role that brokers played in servicing non-discretionary accounts. The distinction was readily apparent. They were salespersons, and got paid if they executed a trade. But with the advent and wide-spread acceptance of fee-in-lieu relationships, and the requirement that brokers qualify as investment advisor representatives if they are to share in the fees, the traditional role of the broker has been transformed.
Continue Reading...Annuity sales to senior citizens have significantly risen over the past several years. With this increase in sales has come consumer confusion, prompting regulatory warnings about misleading sales by companies and their agents to the uninformed buyer. http://www.nasd.com/InvestorInformation/InvestorAlerts/index.htm Companies now find themselves in even more rocky terrain as a result of a lawsuit filed this week in Minnesota. On January 9, 2007, the State of Minnesota filed a Complaint against Allianz Life Insurance Company, alleging unlawful sales practices by Allianz of deferred annuity products in Minnesota to unsuspecting senior citizens. In particular, the Complaint asserts that specified Allianz deferred annuity products have long income deferral periods (5-year plus) that are unsuitable for certain senior citizens, that such products lock-up monies for long periods unless steep surrender charges are paid, and that Allianz used deceptive marketing practices to lure seniors to invest, touting "immediate bonuses" when, in reality, such bonuses aren't fully paid for many years.
Minnesota is seeking civil penalties against Allianz, restitution for all Minnesota senior citizens injured by Allianz's actions, an injunction barring Allianz from selling deferred annuities to seniors without first determining their suitability, among other relief.
Continue Reading...Go and catch a falling star,
Get with child a mandrake root,
Tell me where all past years are,
Or who cleft the devil's foot,
Teach me to hear mermaids singing,
Or to keep off envy's stinging,
And find what wind serves to advance an honest mind.
John Donne
Like the person “true and fair” that John Donne seeks in his “Song”, successful motions to vacate arbitration awards are rare. When they are successful, they invariably are based on arbitrator bias. Indeed, given the informalities and lack of review inherent in the arbitration process, if the parties cannot trust that the neutral deciding the case is “true and fair,” the entire process seems fundamentally unfair. The Fifth Circuit Court of Appeals affirmed this fundamental policy in Positive Software Solutions, Inc. v. New Century Mortgage Corp. , No. 04-11432 (11th Cir. January 11, 2006). In that case, the sole arbitrator in a AAA arbitration failed to disclose that he and his law firm had acted as co-counsel with the counsel for the successful arbitration party in patent litigation that lasted 7 years. The losing party discovered this fact after the arbitration by conducting a computer investigation of the arbitrator. (It is unclear why this investigation was not conducted beforehand, and why there were no consequences for the failure to do so before the arbitration.) The Court determined that the failure to disclose these facts might create a reasonable impression of the arbitrator’s partiality. Thus, the Court vacated the award based on Section 10(a)(2) of the Federal Arbitration Act for “evident partiality.”
Ironically, the turn of a New Year typically brings a renewed interest in the past, as articles summarizing historical data and prognosticating on future events flood all channels of the media. One recent study, however, assembled by NERA Economic Consulting, caught my eye and is worth a read.
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Guest Blogger: Katherine Vessenes, JD, CFP® - President, Vestment Advisors
In my December 12 post, I outlined three of the five most common claims and issues that are currently being brought against broker dealers by unhappy registered reps. The first three included class actions for unpaid overtime; claims for illegal charges for sales assistants, trading errors, marketing costs and technology fees; and promissory notes. Let's take a look at the final two.
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