According to a published report today, the top wirehouses are holding billions of dollars of up-front notes given to entice brokers to join, or stay, at those firms. Morgan Stanley Wealth Management reported holding more than $5.2 billion in outstanding loans to its 16,300 financial advisors. That equals over $320,000 per MS adviser.
UBS Wealth Management Americas, which has 7,119 advisers, reported holding nearly $3 billion in recruitment loans to advisers, averaging approximately $420,000 per adviser.
The upfront loans are usually equal to as much as 150% of the broker’s “trailing twelve” gross production during the prior year and are structured to be forgiven over anywhere from 7 to 12 years. The notes are forgiven in equal amounts each year provided the broker remains the firm and continues to meet performance goals.
Many of the Morgan Stanley notes have been the subject of arbitrations involving brokers who contend they were misled into joining or remaining at the firm and should not have to pay back their notes upon leaving. Morgan Stanley reported that, in the current quarter, it will not be able to recoup at least $128 million in notes which could be attributable to some of those disgruntled advisers.
Shustak Reynolds & Partners, P.C., California and New York, represents financial institutions, registered representatives, investment advisers and others in the financial services and securities industry. The firm has had substantial experience dealing with these type of up-front, forgivable loans. The firm’s web site is www.shufirm.com
The SEC holds Registered Investment Advisers (RIA’s) accountable to the highest standards for the advice they provide in exchange for the right to receive compensation for that advice. The employees of a given RIA are actually called Investment Adviser Representatives (IAR’s).
Compliance Issues
Over the last several years the SEC and Finra have begun to encourage, and often expect, securities-related firms to employ internal investigations whenever possible, and to share the results of such investigations with these regulators. It has now become expected that ongoing internal investigations that are self-reported to federal regulators is just a part of the warp and woof of an RIA’s compliance program.
One of the key issues is the relationship between the RIA or IAR’s compensation for financial advice and contractual compliance. One of the strengths of Shustak Reynolds & Partners is that we are well equipped to walk you through any internal investigations your RIA needs to show good faith in compliance. Our firm has experience with internal investigations of various scope and duration and can help your company save time and money through our creatively designed programs.
What RIA’s who have yet to do an internal investigation may be surprised at is that our firm not only provides effective compliance investigations, but we are able to present our findings in such a way that reveals opportunities to adapt any compliance lessons you learn in such a way that it positively affects your bottom line in the future.
The Experienced Counsel of Shustak Reynolds & Partners
If you or your firm is currently considering conducting an internal investigation for the benefit of showing compliance we can help. In addition you have been hit with certain impending customer claims and regulatory threats don’t wait another moment – enlist the advocacy of Shustak Reynolds and Parnters. Leverage storied experience of our firm for the benefit of your RIA.
