Tom Buck Is Back: Former Merrill Lynch Star Requests Early Release From Prison

It is well documented here that we think Tom Buck got a ridiculously raw deal. Sure, there may be details that we aren’t aware of, but getting a 40 month prison term for what amounts to charging commissions versus wrap fees is absurd (and maybe a little unauthorized trading on the side). Yes, absurd.

Be that as it may, Mr. Buck still finds himself in prison and looking for ways to come home. As COVID-19 has swept its way across the country, prison populations have been hardest hit. Practicing social distancing isn’t something that works well in packed facilities.

As a 66 year old man Mr. Buck is at higher risk of contracting the virus, while also dealing with pre-existing conditions such as asthma. He’s formally requested an early release based on these concerns.

The early release request was covered by multiple media reports:

“Buck has been a “model prisoner” who takes yoga classes, has raised a puppy to be a service dog and is a clerk in the prison labor program, his court petition said. He also has participated in a prison course on residential re-release among other classes, it said.”

“The early-release request in court follows an April petition with the federal Bureau of Prisons. He has not received a response to one made last month after U.S. Attorney General William Barr ordered the bureau to prioritize early release of older convicts in Ohio, Connecticut and Louisiana prisons where Covid-19 outbreaks were virulent, according to this week’s filing.”

It seems that Buck has since passed the halfway point in his federal sentence, allowing him to qualify for the above order from U.S. Attorney General William Barr. But the wheels of justice move notoriously slow – and that lack of speed works both ways. Mr. Buck was able to push back his entry into the system multiple times before ultimately succumbing.

The guess here is that these appeals won’t be rushed and could take a few months to be decided on. Given the overall health concerns posed by COVID-19, that reality could prove deadly.

Morgan Stanley Mashed: Smacked By SEC Over Wrap Fee Disclosures (or lack thereof)

Morgan Stanley will pay a $5m penalty to settle Securities and Exchange Commission (SEC) charges that it provided misleading information to clients in its retail wrap fee programs regarding trade execution services and transaction costs.

Morgan Stanley settled without admitting or denying wrongdoing, the SEC said, adding that the fine will be distributed to harmed investors.

For accounts in wrap fee programs, clients typically pay an asset-based ‘wrap fee’ that covers investment advice and brokerage services, including trade execution. According to the SEC’s order, the wirehouse marketed its wrap fee accounts as offering clients professional investment advice, trade execution and other services through a ‘transparent’ fee structure.

For at least five years through June 2017, the SEC said, some of Morgan Stanley’s marketing and client communications ‘gave the impression that wrap fee clients were not likely to incur additional trade execution costs.’ However, during that same period, the SEC said some managers at the wirehouse ‘routinely’ directed wrap fee clients’ trades to third-party broker-dealers for execution, which sometimes resulted in additional fees.

According to the SEC order, affected clients ‘lacked complete and accurate information needed to assess the value of the services received’ in exchange for the wrap fee paid to Morgan Stanley and the costs associated with their accounts.

‘Investment advisers are obligated to fully inform their clients about the fees that clients will pay in exchange for services,’ said Melissa Hodgman, associate director in the SEC’s enforcement division.

Indie Firms Fall Way Behind In Recruiting; And It’s Not Just About ‘Deal Size’, Blame Private Equity

It would be easy to explain away the slow finish and slow start (2019/2020) in recruiting for independents and RIA’s by citing the explosion in deal size at the wires and firms like First Republic and Rockefeller. But that is only part of the story, and frankly those dynamics generally existed most of last year when large teams trended towards the independent channel and away from ‘full service’ platforms.

So what is really going on here? What is the backdrop giving larger teams pause as they execute their due diligence and plan a move that will set the tone for the next two decades of their career. Why has the ‘hit the bid’ movement towards RIA’s and independent firms slowed waaaay down?

Two words: Private Equity.

In conversations with several notable experts in the RIA space, the private equity creep, and lack of transparency about why, what, and who owns significant pieces of big box RIA’s – it’s clear a conversation needs to be had about the ‘teeth’ private equity has sunk into the RIA movement.

Here is a piece of a conversation we had yesterday about the potential problems that private equity poses in the RIA space:

“It’s unclear how Rockefeller, Steward, Snowden, HighTower and others are going to shake out with professional private equity involved and the cloak and dagger term sheets they will never show recruits or anyone else- that’s what threw HighTower sideways a couple years back – the Preferred A convertible terms of second round of PE that had claws-even the management team was unaware of – it’s a major problem for any Independent firms offering equity – that have professional investors watching the clock and collecting a big coupon. Whereas First Republic and others are throwing around huge amounts of cash- add the big four are all back in the game – and Wells Fargo’s open pocketbook, indies will have a tougher year. Did I mention that the top recruiting firms are getting paid huge retainers and some are being paid 10%. Recently was told RJ has a new deal for recruiters paying them up to 10%.”

“Game is on like never before- LPL- 100%+ cash totally forgivable and now you have the big 3- Fidelity , Schwab and Pershing – actually uttering the words Transition Assistance- code name for forgivable recruiting deals- where just last year it was ‘Working Capital’. It’s extended as a repayable loan, at a fraction of the size. Indies will be and are being hit the hardest and will be forced into ‘rollup’ mode to survive- print that- put it in an envelope and open in 12-18 months – it will be news by then- not a observation or prediction.”

The details there are striking, but most important is the claim of a lack of transparency with recruits. And there’s the rub; recruits don’t want to sign on to a black box having know idea what there equity could be worth or diluted to in a couple years.

Another conversation went even deeper about the role of private equity in the independent space:

”So what’s happening with the term sheets is PE firms put in good lever and bad lever covenants. They miss goals set (higher the goals the higher the valuation, lower equity % at first to PE firm). But by agreeing to “reach goals” to give out less equity, they inevitably miss those lofty goals and pay dearly, bad levers are triggered, more equity, greater PE equity ownership, more control, possible reset higher on convertible note, comp/bonus cuts, additional board seats etc. It’s like the +400% recruiting deals, most firms know on average, with backend hurdles, etc, that they will only pay out 225% over a period of years. That’s how they set it up, knowing most will never see the full amount, Wall Street trick that has been used for decades, perfected by the wires. That same concept is now being used in the indie space, except on the corporate level.”

Read these quotes and do your homework folks. There are no free rides in finance and wealth management. If you take the big check and move to Morgan Stanley, you are making a deal with all manner of compromises. If you make a deal with a big box RIA (Steward Partners, Snowden, Focus, Dynasty, HighTower via merger or acquisition) you are also making some sort of compromise.

The choice is yours, but understand that the ‘purity’ of the indie trade isn’t what it used to be.

Morgan Stanley Mess: Female Advisor Sues Firm Amidst ‘Sexist’ Environment Allegations

Stop us if you’ve heard this sort of thing before – and stop us again if you think that the industry has more work to do in the area of equality and cutting out the specter of sexism. For decades it was pervasive, and a few bad apples remain that keep ruining the progress that has been made. Another case was just revealed last week at one of the industry’s biggest names, Morgan Stanley.

Here are the details, per court records and media reports:

“Kelley McGoldrick, 56, who joined Morgan Stanley’s Wellesley, Massachusetts, branch in November 2012, is seeking damages and lost wages from the wirehouse for a working environment she says “deliberately deprived her of income and made her working conditions intolerable” and ultimately “forced her to resign,” according to her lawsuit filed in April in federal court in Massachusetts.”

“Morgan Stanley’s corporate culture dictates a narrow role for women: supporting men as sexual props to attract male clients or as administrative support for high-producing men. Developing serious business and becoming significant producers is a role Morgan Stanley reserved for men,” her lawsuit says.”

Now obviously Morgan Stanley is going to disagree with these allegations and ‘vigorously defend’ their position as model citizen in the ways of equal opportunity and corporate culture. And in the end, let’s hope that they are able to prove a claim like this baseless. But everyone reading this assumes (probably correctly) that this kind of lawsuit will get settled and slid under the rug of a ‘non-disclosure agreement’. And never find its way to the press.

Is that the best thing for the industry? Another settlement that hides the realities laid out in the suit itself. I guess Ms. McGoldrick gets to make that decision. Maybe its the one way she gets to take back the control she never had while working at the firm.

SEC CLARIFIES: Defining The Term ‘Advisor’ Shouldn’t Be This Complicated

The Securities and Exchange Commission (SEC) has clarified when broker-dealers and their registered representatives would be permitted to use the terms ‘advisor’ or ‘adviser’ as part of their name or title once Regulation Best Interest goes into effect on June 30.

In the rulemaking itself, the SEC did not specifically prohibit the use of ‘advisor’ or ‘adviser’ by broker-dealers and their reps.

When providing investment advice or making recommendations to individual retail customers, a broker-dealer or its reps will generally be presumed to be in violation of Reg BI’s disclosure obligation if they use the terms, according to the FAQs. That’s unless they are also a state or federal registered investment adviser.

The agency said that being a broker-dealer affiliated with an RIA would not be sufficient to allow for the use of the terms ‘advisor’ or ‘advisor.’

However, these restrictions only apply to broker-dealers and their registered representatives. If someone is only licensed as an insurance producer, the rules regarding the use of ‘advisor’ or ‘adviser’ do not apply, according to the FAQs.

The FAQs also indicate that a broker-dealer can use these terms when acting as a municipal advisor, a commodity trading advisor, an advisor to a special entity, or ‘in a role specifically defined by federal statute.’

‘A broker-dealer that provides advice in other capacities outside the context of investment advice to a retail customer may in its discretion use the terms “adviser” and “advisor,”’ the FAQs said.

The debate about the extent to which broker-dealers should be able to hold themselves out as advisors or advisers has spanned decades. Barbara Roper, director of investor protection at the Consumer Federation of America, has said the transition began in the 1980s, when broker-dealers began to shift their focus to counteract the cheaper transaction costs offered by discount brokers.

‘Brokers started competing by marketing themselves as advisors, and that’s when they picked up titles like financial consultant and financial advisor,’ she said. ‘There’s some indication that the nature of the services that they provided evolved, but they continued to be regulated exclusively as sales people.’

Roper said advocates have been ‘begging’ the SEC since Arthur Levitt was chairman, from 1993 to 2001, to do one of two things: acknowledge that brokers have pivoted so that advice is the primary function they offer and hence regulate them as advisors, or acknowledge they are first and foremost sales people and therefore stop them from marketing themselves as advisors.

Continued Recruiting Aggression: Wells Fargo Deals Tick Higher Amidst Pandemic ‘Opportunity’

Whether you are an independent advisor, wirehouse advisor, bank broker, or any variation thereof; Wells Fargo wants to offer you a historic deal in the hopes that you will jump at the chance to take it. We’ve been privy to several Wells Fargo offers in the past two weeks and they are aggressive to say the least. Using the perceived opportunity to quickly transfer client assets in the midst of the realities of ‘shelter at home’ policies across the US – Wells Fargo has been more aggressive than anyone in recruiting advisors and deal making within wealth management of late.

We’ve routinely seen deals that press beyond the 335% – 350% number for wirehouse advisors of all sizes. Not just the top tier teams that Wells is chasing, but every wirehouse advisor that they sit in front of at the moment. Bank brokers are negotiating deals that are anywhere between 220% – 250% right now. Numbers that were absolutely unheard of in that channel just 18 months ago. The same aggressiveness is being deployed in their well known independent channel as well.

What is the thought process behind the push to ‘make it rain’ in the recruiting world right now? We spoke to two people in recruiting at Wells Fargo and came away with some answers.

“The timing is critical, and the news cycle is currently our friend, as opposed to an obvious nemesis. Instead of all eyes being focused on potential sins of the past, we can have conversations that are about the here and now, strength of the firms overall balance sheet, and the go forward plans of a shiny new management team.” – said a recruiter at the firm on condition of anonymity.

“Yes there is an obvious push – and it is directly correlated to what we see as an opening in advisors evaluation of this current crisis, the turmoil in the markets… every serious bear market has seen significant advisor movement over the past 30 years, so we’d rather be on the ready rather than chasing the rest of the field. Coming out of this, and whatever that looks like, our management team wants to be aggressive and proactive as is allowed within the industry. Deals are not going to be pulled back in anyway, with the caveat that if things get worse and a deeper recession than what is currently projected arrives, we will keep pressing forward. Opportunity doesn’t always announce itself, it has to be grabbed. We think that is what we are doing right now.” – a complex manager at Wells Fargo on the condition of anonymity.

Getting into the proverbial hive mind of Wells Fargo has been interesting over the past few days. How a bank of scale and one of the worlds largest wealth management organizations is using what looks to most to be a slowdown to pick up their recruiting efforts is compelling. Are they necessarily going against the grain? Maybe, maybe not. But one this is absolutely for sure – they are clearly committed to the path they are on.

UBS Grabs Morgan Stanley Talent Out West; Announces New Market Heads In California And Colorado

UBS continues to bolster its management ranks by grabbing talent from its rivals; most notably from Morgan Stanley. After executing their legal obligation that is ‘garden leave’ the former Morgan Stanley managers could finally be announced.

As per internal communications that were passed to us earlier today:

”I am excited to announce that Mitch Markley will be joining our UBS West Division team as the Rockies Market Head following his garden leave with Morgan Stanley.”

“Mitch Markley has been in the Wealth Management industry for 15 years serving roles in both Leadership and as an Advisor. In 2011 after 7 years as a Financial Advisor with Morgan Stanley in Denver Mitch transitioned to be the Business Development Manager for Colorado, Utah and New Mexico. In 2015, he was promoted to Branch Manager in La Jolla, California. During his tenure in California Mitch built out the Private Wealth Management and Graystone Consulting businesses in the San Diego market. In 2018 Mitch’s responsibilities expanded to include all North San Diego county for Morgan Stanley.”

“Mitch is a proud native of Colorado. He was born in Greeley, attended High School in Arvada and received his degree from the University of Colorado at Boulder.”

And the second hire was celebrated in much the same way:

”I am excited to announce that Justin Frame will be joining our UBS West Division leadership team as the Los Angeles-Orange County Market Head following his garden leave with Morgan Stanley.”

“Justin Frame is a seasoned veteran in the Wealth Management Business with 25 years at Morgan Stanley.  He began his career as a financial advisor, and as a CFP he developed his practice through comprehensive high net worth planning. After 12 years of club level success as an advisor he transitioned into leadership in branch manager roles throughout Colorado. In 2009, Justin took on a regional role as COO across 7 mountain states. A promotion to Complex Manager brought him to California in 2011 where he ran West Los Angeles.  For the last several years Justin has led in Orange County, most recently the largest Morgan Stanley Branch on the West Coast out of Irvine. Justin knows that people are the life blood of our business and was recognized by On Wall Street as a top 75 manager nationwide in 2017 and 2018.”

“Justin graduated from the University of Arizona.  Justin is active in the community serving on several boards, and is currently board chair for Working Wardrobes in Orange County. Justin embodies humble leadership and is excited to build relationships at UBS and spring boarding his experience to lead growth.”

UBS has renewed its recruiting push and remains aggressive with elite teams, specific to its chief wirehouse rivals. In a short conversation with a manager on the west coast the vibe was “…steady as she goes… no changes have been announced based on either market volatility or the coronavirus stuff.”

Hiring managers from rivals is usually intended to, in the short term, grease the skids to land big teams from the offices they’ve vacated. Let’s see if that proves effective for UBS in California and Colorado.

LPL Affiliates Merge; Gladstone And Financial Resources Join Forces To Create $24B Firm

LPL has long been known as an accomplished and extremely versatile aggregator. Frankly, they were in the RIA aggregation game before it was actually cool.

The latest news from the firms corporate RIA platform has proven their ‘bonafides’ once again.

“LPL Financial-affiliated hybrid RIA Gladstone Wealth Group is merging with fellow LPL affiliate Financial Resources Group Investment Services to create the single largest entity on LPL’s corporate RIA platform.”

“The combined entity, Gladstone Financial Resources Group, will have around $24bn in advisory and brokerage assets and 670 affiliated advisors. The combined firm is set to launch on May 15.“

Those are some serious numbers. Not only is the asset number truly substantial, but the number of advisors housed in the combined entity is massive. Gladstone and Financial Resources will now have the East Coast nearly completely covered.

“Financial Resources Group, which is based in Fort Mill, SC, runs the wealth management operations for banks and credit unions such as Sterling National Bank and CapStar Bank and for independent advisory firms such as Oakton Investment Management and GilesMcPhail Wealth Management.  Advisors affiliated with Financial Resources Group place their clients’ assets with LPL’s corporate RIA and brokerage platform.”

”Gladstone Wealth Group, which is based in Chester, NJ, employs advisors through LPL’s corporate RIA and through its own independent hybrid RIA. Advisors who join Gladstone’s independent hybrid RIA use LPL for their brokerage business and can either custody their clients’ assets with LPL or a third-party custodian such as Charles Schwab.”

Would it surprise us if a wave of these type of mergers quickened consolidation in the industry over the next year. And LPL remains uniquely qualified to lead that charge. Given the scale of RIA’s that are in one way or another affiliated with their platform, a good percentage of channel transactions will likely happen within their ecosystem

Whether intentional or not (and of course their execs with take credit) LPL should be smiling right now – sometimes the worm turns just right.


Goldman Sachs Scraps United Capital Name After Full Integration – Now Goldman Sachs Personal Financial Management

The United Capital Financial Advisers brand name is no more.

Goldman Sachs is rebranding the $25bn RIA as ‘Goldman Sachs Personal Financial Management,’ according to presentation materials for the company’s investor day.

Goldman Sachs also said that it wants to grow its high net worth wealth management division from its current sub-1 percent market share in the US.

The rebrand was long in the making. United Capital Financial Advisers chief executive Joe Duran (pictured) indicated at the MarketCounsel Summit in December of 2019 that a change was imminent.

‘People say: “Well, isn’t it sad that you’re going to lose ‘United Capital’?” The truth is, I invented the name so that it would sound big, like everyone had heard it before. It’s just a generic name. I’m not attached to it in any way,’ Duran said at the time.

Goldman Sachs purchased United Capital for $750m in cash in the summer of 2019. After initially pursuing a private equity backer, Duran ultimately opted to sell the company to a strategic buyer.

Before the Goldman Sachs sale, United Capital was backed by Australian investment firm AMP Limited, private investment firm Sageview Capital and venture capital investors Bessemer Venture Partners and Grail Partners.

Morgan Stanley CEO James Gorman: Coronavirus Forces Firm To Rethink Operations And Real Estate

James Gorman is hesitant to make predictions about the future with so much about the coronavirus pandemic still uncertain. One thing is clear, however: Morgan Stanley will have “much less real estate.”

“We’ve proven we can operate with no footprint,” Gorman, the firm’s chief executive officer, said in an interview Thursday with Bloomberg Television. “Can I see a future where part of every week, certainly part of every month, a lot of our employees will be at home? Absolutely.”
It’s an early glimpse of the longer-term changes Covid-19 holds in store for an economy that largely has been operating under stay-at-home orders for weeks. And it could spell tough times for commercial real estate in business centers with dense populations such as London, New York and Hong Kong.

On Wall Street, open for business because finance is considered an essential service, most employees are working out of their houses, apartments or, in many cases, vacation retreats. In Morgan Stanley’s case, 90% of the firm’s 80,000 employees are working from home.

Gorman, 61, had run the bank from self-isolation while recovering from the coronavirus. He said he’s surprised that a firm as complex as Morgan Stanley has been able to function “extremely well” with so much of its workforce off site.

“I’m still a huge fan of mentoring, bonding and having teams together and the creative surges that come from having people working together,” Gorman said.
It’s clear that these comments are a response to the serious realities that we are living in. Morgan Stanley has had several bouts of COVID-19 in their own wealth management offices in California and New York. Rethinking how offices work, how they are ‘spaced’, and the value that will provide in protecting both clients and employees – they need to get it right.