Ami Forte Drama Continues To Unfold; Former Morgan Stanley Superstar Gets FINRA Ban

It’s been a good four years since the Ami Forte shenanigans began. The sordid story of an advisor, a geriatric client, a strange love affair, and epic churning has weaved its way through the FINRA arbitration process and come out the other side. Ami didn’t fair so well.
“The Financial Industry Regulatory Authority has permanently barred Ami Forte, a former Morgan Stanley advisor, for excessive trading and churning in the account of Home Shopping Network co-founder Roy Speer, who had dementia.”
“Morgan Stanley fired Forte in 2016 after Speer’s widow and estate were awarded $34.4 million in an arbitration claim. The firm and Speer are currently in litigation over her obligations to pay part of the award.”

“Forte, who had a romantic relationship with Speer, accepted the lifetime bar without admitting or denying the allegations.”

“I neither placed nor supervised any of the trades that Finra has deemed inappropriate,” she said in a prepared statement that noted the regulator will not be pursuing any claims against her for monetary fines or restitution.  “I am pleased that we have been able to reach an amicable settlement with Finra.”

I don’t know. This one is kind of embarrassing for nearly every party. Morgan Stanley allowed Ami to hand out (insert racy comment here) for outsized commissions. Ami’s team clearly looked the other way while she was handing out said sexual favors. Ami herself made the choice to engage in this scheme and seemed to be totally cool with it. And the client, no matter the cover of some level of dementia, seemed to be more than happy to accept what Ami was ‘handing’ out. Oof.

In the end (and to be clear, this story hasn’t come to its end just yet), Ami no longer has a place at the FINRA table and has admitted that her wealth management career is over. We wonder, though, if state and federal authorities may get involved in the same way they did with Tom Buck. I wonder if that has crossed the minds of Ami’s legal team? Hmmm.

Merrill Copy-Cat: Thundering Herd Is Stacking New Households Based on ‘Carrot and Stick’ Comp Plan

Whenever something of scale works at the wirehouses you can bet the others are going to do their best to copy it without making it look like they are copying it. Exhibit A is Merrill’s current comp plan adjustment based on new household additions, and whether or not an advisor makes the grade.

Via Barron’s:

“The wirehouse is on track to add 47,000 new households in 2019,” Sieg said. “That’s based on annualized first-quarter results and would mark a big increase over the 7,000 households Merrill added in 2017. Net new households added per advisor are now more than four, while the average Merrill Lynch household has about $1.4 million.”

“The wirehouse’s current compensation scheme includes a carrot-and-stick approach to getting the thundering herd to bring in new clients. An advisor’s pay suffers if he or she doesn’t bring in more than four new households and gets boosted if they recruit six or more.”

Those numbers have moved the needle enough to be highlighted on a BofA quarterly call. That in and of itself is meaningful.

You can expect Morgan Stanley and UBS to devise likeminded scripts over the last half of 2019 and announce them internally early next year. Finding a meaningful ‘carrot and stick’ isn’t easy in today’s wealth management landscape. It seems Merrill did just that.

UBS and Morgan Stanley: The Numbers Don’t Lie; Recruiting Losses Outpacing Record Outflows Set In 2018

Exiting the broker protocol was hailed as a bold, but necessary move by both Morgan Stanley and UBS last year. New programs were put in place to retain star advisors and stem the tide of departures to rival firms up and down the competitive wealth management marketplace. The recruiting numbers don’t lie, it isn’t working.

Based on the stated asset transfer numbers listed at AdvisorHub, both UBS and Morgan Stanley are on pace to outflank the record setting broker departures set in 2018. Big teams, big assets, reputation value – all headed elsewhere. It looks and feels like the firms decisions to exit the broker protocol and pursue litigation against any advisor choosing to ply his craft at any other firm has been a bust.

Morgan Stanley saw around $6.5B in client assets exit the firm last year. So far, through June of 2019, that number is nearly $11B and should easily double last years take by year end.

UBS watched $13B beat a path to other firms throughout 2018. As of June of 2019, that number is near $7B and has accelerated over the past two months.

Merrill Lynch continues to have its own problems without exiting the protocol, and Wells Fargo got hammered last year with ‘exit inducing’ headlines. But Wells Fargo has eschewed any talk of exiting the broker protocol and stemmed the tide, on a percentage basis (though it looks as if they could still lose north of $20B in client assets this year), versus a crowd leading number in 2018.

Morgan Stanley and UBS just decided to double down on a trend of advisors moving away from big box shops by becoming adversarial with their biggest and best producers. Given how entrepreneurial and ‘maverick’ advisors tend to be, not the greatest choice of strategies by either firm.

Will the wave of moves slow down or give way to legal hurdles set up by the broker protocol exit? It doesn’t look that way through the first half of 2019. We’ve stated before that we think a ‘broker protocol 2.0’ could find its way onto the wealth management landscape. If enough client assets bolt, another shift will have to occur.

Wells Fargo Announces Wealth Management Leadership Changes; Jim Hays Will Head Wells Fargo Advisors

Wells Fargo keeps digging its way out of the negative headlines and walking its way into the good graces of advisors and ultimately, clients. The announcement of a new head of Wells Fargo Advisors is another step in the right direction.

In a reshuffling of senior management, Wells Fargo & Co. said late Wednesday that Jim Hays, a 14-year veteran of the firm, would become the new head of Wells Fargo Advisors.

As Wells has buttressed its remake with large recruiting deals and bonuses for recruiters, the positive headlines have begun to trickle in. Banking on a comeback from continued trips to Capital Hill to explain its retail misdeeds will take more time, but getting the leadership right has to come first.

Mr. Hays most recently was head of the newly formed Private Wealth Financial Advisors Group; teams of advisers who work primarily with high net worth and ultra-high net worth clients.

Mr. Hays replaces David Kowach, who is moving over to head community banking. Mr. Kowach will report to Mary Mack, head of consumer banking. He had been in charge of Wells Fargo Advisors since 2016. Mr. Hays will report to Jonathan Weiss, head of Wells Fargo’s Wealth & Investment Management Group.

Mr. Kowach started his career working with clients as a financial adviser, according to a statement from the company. He has worked in the financial services industry for more than 28 years, most with Wells Fargo Advisors.

This moves continues to get positive reviews across the industry, and mostly from advisors on the ground at Wells Fargo. That bodes well for the firms stability and quest to slow down departures and simultaneously bring in new teams on big recruiting deals.

Watch closely as we expect more leadership changes and announcements to make their way to the newswires.

Goldman Sachs’ Retail Wealth Management Strategy: After United Capital Purchase, Goldman’s CEO Signals Continued ‘Growth Via Acquisition’ Strategy

If Goldman Sachs is anything, they are opportunistic. Seeing trends in finance and investment banking and acting on them as quickly as they can. Sometimes they act on behalf of clients, but often times they act on behalf of Goldman and Goldman alone. Their latest push into, what some consider for Goldman, the down market ‘mass affluent’ tier of wealth management has industry insiders talking.

And what they are talking about is what Goldman isn’t saying, but rather doing. Evaluating acquisitions up and down the ladder of wealth management clientele based on assets and profitability. Their latest move, which just closed, to acquire United Capital in a $750M all cash deal is both aggressive (any all cash deal is aggressive and noteworthy) and a window into the changing soul of the poster child of global investment banking.

For several years now the goose that lays the golden egg at financial institutions has become wealth management. Steady flows of fees, products and services, and the ability to manage those upward somewhat disconnected from market fluctuations has made wealth management a Wall Street darling. The likes of Morgan Stanley, UBS and others have seen their annual share of revenue and profits connected to wealth management skyrocket since the financial crisis.

Goldman Sachs has not only noticed but seems to be acting as if they have an opportunity to pounce on potential balance sheets that have a certain level of bloat that they don’t have.

A couple of quotes from Goldman Sachs CEO, David Solomon, make it clear that his firm is on the hunt for wealth management assets via acquisition:

“We have a very big infrastructure that we can continue to feed in terms of all the wealth, in terms of all the asset management and wealth management products we have.”

“United Capital came up for sale, we looked at it, we thought it was a really good fit to accelerate our business, so we decided to act on it…If something similar appears to complement the company’s asset management business, we’ll consider it.”

A clear indication that Goldman Sachs is committed to growing its wealth management business well beyond just the ultra-high net worth community. United Capital is clearly a mass affluent acquisition.

Pure speculation here but what other firms look a bit like United Capital? We certainly could name a few: HighTower, Focus Financial, Dynasty, Steward Partners. To say nothing of the national scale available to Goldman should they choose to wade into the middle market wealth management space occupied by Stifel, Ameriprise, Raymond James and others. Or does this heavy-footed pivot by Goldman turn to a firm like UBS and its US wealth management operations?

Whatever the next move is, the fact that Goldman was aggressive in its acquisition of United Capital, and is being vocal regarding its wealth management acquisition strategy looms large over the wealth management industry.

It will be a fascinating and ongoing discussion.

UBS Wealth Hits The Reset Button, Again: Key Executives Shuffled Or Replaced

UBS Wealth has had a difficult time moving the needle of late. They’ve all but mothballed meaningful advisor recruiting and turned their sights on advisor retention (which isn’t going necessarily as planned). A recruit here or there will find its way into the headlines, but leadership at the firm is more focused on cost controls than headcount.

All that being said a flurry of changes were made to the unit and the bank at large a couple of weeks ago. A rundown via Bloomberg gives us some color:

“After a year marred by huge legal fines, questions about succession planning and a deepening slump in share prices, Ermotti unveiled a revitalized board, replacing wealth management co-head Martin Blessing with former Credit Suisse Group AG banker Iqbal Khan. Blessing, a former Commerzbank CEO, and Ulrich Koerner, president of asset management and Europe, Middle East and Africa, will both leave the bank as part of the changes.”

“Other appointments — including the elevation of Suni Harford as asset management head and Sabine Keller-Busse as EMEA president — are an attempt by the bank to replenish a management board weakened by top level departures in recent years. The revamp also positions Khan, 43, as a future CEO candidate after Chairman Axel Weber said earlier this year that the bank was in the early stages of succession planning as he and Ermotti enter their eighth year in charge of the world’s largest wealth manager.”

That is a lot to keep track of, if you are scoring at home. A potential CEO successor, changes to the board, asset management units, etc. All in the name of boosting confidence in the banks direction and (let’s be honest here) boosting the stock price.

Time will tell if this moves the needle. What we do know is that advisors at UBS are more interested in technology platform upgrades (or a lack thereof), and the firms move away from the broker protocol.

Wells Fargo Recruiting Momentum: Florida Teams Of Scale Leave Morgan Stanley For Wells Fargo

The ‘bounce back’ for Wells Fargo continues. This time the advisors and assets have made the move in Boca Raton, FL.

“Wells Fargo Advisors shook another broker loose from Morgan Stanley’s south Florida offices on Thursday, recruiting $4-million producer Jeffrey R. Zapoleon in Boca Raton, according to a source familiar with the move.”

“The 37-year industry veteran, who has been with Morgan Stanley and its Smith Barney predecessor for three decades, did not return a call for comment.”

“Zalolean, whose team includes his daughter, Samantha, accepted a recruiting deal from  Morgan Stanley in January 2009, just a few days before it announced its plan to absorb Smith Barney. He was producing more than $2 million on more than $300 million of client assets, he said at the time.”

Mr. Zapolean wasn’t the only advisor that saw Wells Fargo as greener pastures. A Morgan Stanley colleague saw it the same way.

“The move is at least the second in a week by a multimillion-dollar Morgan Stanley team in Florida to Wells Fargo. Last Friday, Gary R. Burwick, a 21-year industry veteran who with partner Marc Engleman was producing $2.5 million, joined a Wells office in Fort Lauderdale.”

That’s a lot of assets making their way to Wells Fargo via the ACAT system.

Wells has been exceptionally aggressive in recruiting. Paying both recruiters and recruits outsized bonuses to join the firm. You know the saying, “Money talks, and…”.

TRO Reversal: Morgan Stanley Loses Bid To Extend Punitive Measure Against Broker Who Defected To UBS

It seems that Morgan Stanley’s policy of zero discrimination when it comes to handing out TRO’s took a legal hit. Specifically, a legal reversal, as a judge could not find ‘irreparable harm’ as a fleeing broker requested a TRO be lifted.

“Judge Ann Aiken of the U.S. District Court in the District of Oregon on Wednesday denied Morgan Stanley’s request to extend a temporary restraining order against David J. Sayler, writing that the firm failed to prove it would suffer ‘irreparable harm’ from his using allegedly proprietary data in violation of his employment contracts.”

“If Sayler is found to have violated the 2017 and 2019 Agreements by soliciting covered client accounts, the loss to Morgan Stanley is likely more financial than reputational,” Aiken wrote. “Such harms can be redressed by damages…and are not, therefore, irreparable.”

“Courts typically continue TROs as preliminary injunctions that remain in effect until a determination by a Finra arbitration panel, said Thomas B. Lewis, a securities employment lawyer at Stevens & Lee in Princeton, N.J.”

“The decision appears to be the first in which a judge reversed his or her order in more than a dozen cases that Morgan Stanley has brought since leaving the Protocol for Broker Recruiting in November 2017.”

Now, as the above reads, this doesn’t happen very often. But it certainly gives advisors that leave Morgan Stanley a small precedent and a fighting chance to deny ‘irreparable harm’. That is something for advisor solicitors to hang their legal hats on.

What it won’t do it stop Morgan Stanley from passing out TRO’s for Halloween, you can be assured of that fact. But in this particular case, score one for the little guy.