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Financial Advisor Crisis: Succession Plans

By Robert R. Boeche II, Esq. and Domanic Glenn of Shustak Reynolds & Partners, P.C. posted on Friday, June 19, 2020.

Financial advisors (“FA’s”) at registered investment advisory firms (“RIA’s”) are facing yet another challenge atop already shaky markets. According to the June 2020 DeVoe & Co. Study Report[1] (the “Report”), owners and senior members of RIA's are “approaching a succession crisis.” The Report notes that while the average RIA owner is in their early 60s and would prefer to pass on their loyal clientele and sell their well-established business internally, nearly 57% of surveyed RIA’s claim that a leadership transition would not only be difficult, but would create a “significant or severe challenge,” for the RIA. However, it is not too late to begin creating and bolstering a comprehensive succession plan. [...] Read More

MERRILL LYNCH ORDERED TO REIMBURSE $7.2 MILLION IN MUTUAL FUND OVERCHARGES

By Erwin J. Shustak, Esq. and Holly Nicoll, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Tuesday, June 16, 2020.

FINRA recently announced that Merrill Lynch will pay $7.2 million in restitution to customers overcharged on mutual fund accounts. FINRA’s enforcement action and fine affects over 13,000 separate Merrill Lynch accounts whose owners did not receive the available sales charge waivers and fee rebates available through rights of reinstatement. According to FINRA, rights of reinstatement allow investors to purchase shares of a fund after previously selling shares of that fund or another fund in the same fund family, without incurring a front-end sales charge, or to recoup all or part of a contingent deferred sales charge. The overcharges impacted customers in the aggregate amount of approximately $6 million. FINRA considers this to be a “Supervisory Failure” by Merrill Lynch. [...] Read More

“PAY WHEN PAID“ CONSTRUCTION CONTRACT CLAUSE UNENFORCEABLE

By James J. Reynolds of Shustak Reynolds & Partners, P.C. posted on Monday, June 8, 2020.

In the recent appellate case Crosno Construction Inc v. Travelers (2020), the Fourth District Court of Appeal (which includes San Diego, Orange and Riverside counties) determined a “paid when paid” contract clause, asserted by a payment bond surety as a defense to paying the claimant subcontractor, was unenforceable. This clause, found in the general contract, allowed the general contractor to delay payment to its subcontractor in the event the public works entity failed to pay the general contractor, until such time the general contractor was paid. The general contractor in Crosno sued the public entity for payment and the litigation stretched for several years. The surety adopted the clause as applicable to the payment bond and refused to pay the sub. [...] Read More

FINRA EXPUNGEMENT RULES UPDATE - FINRA’S RESPONSE TO PUBLIC COMMENTS

By Erwin J. Shustak, Esq. and Holly Nicoll, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Thursday, May 14, 2020.

Expensive changes are coming to FINRA’s expungement request. Under revised, proposed rules submitted by FINRA, expungements requests soon will be more limited, and will be more expensive in light of a revised fee schedule FINRA recently submitted for approval by the SEC. Changes to FINRA expungement rules have been expected for more than two years since FINRA first proposed them. [...] Read More

UBS Facing Onslaught of Investor Claims Over "YES" Option Strategy

By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Wednesday, May 13, 2020.

UBS Financial Services is reportedly facing an onslaught of filed and threatened investor claims after its Yield Enhancement Strategy (“YES”) options portfolio plummeted. The YES strategy was marketed and sold primarily to wealthy investors as a bond portfolio “enhancement.” The strategy purportedly incorporated a “defined maximum loss,” limited to the premiums investors paid. [...] Read More

RIA Alert: Do PPP Loans Trigger a Form ADV Disclosure?

By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Monday, May 4, 2020.

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, injecting more than $2 trillion in emergency stimulus funds into the economy. The initial bill included approximately $350 billion in loan money to be distributed to businesses through the Paycheck Protection Program (PPP). The overwhelming demand for these emergency PPP loans, which can be forgiven under certain circumstances, prompted Congress to release an additional $310 billion in loan funds in late April. With the economy grinding to a halt and wild market volatility, many small to medium-sized RIA firms were eligible for and received a portion of the $670 billion in outstanding PPP loans. Do these loans constitute a “material fact” that must be disclosed via the Form ADV? [...] Read More

What’s in a Name? Advisors, Brokers, and Regulation B-I

By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Thursday, April 30, 2020.

On June 5, 2019, the SEC adopted a new rule under the Securities and Exchange Act of 1934, which requires broker-dealers and their representatives to act solely in the “best interest” of their retail clients when making investment recommendations. Among other things, “Regulation Best Interest”–or “Reg BI”–imposes new conflict-of-interest rules and requires broker-dealers to establish, maintain, and enforce policies reasonably designed to identify, and fully and fairly disclose, any such conflicts to investors. [...] Read More

No Reg BI Extension Despite Health Pandemic

By Kara Siegel of Shustak Reynolds & Partners, P.C. posted on Monday, April 13, 2020.

Although COVID-19 has upended many aspects of American life and our economy, the SEC advises that the novel coronavirus will not delay implementation of Reg BI. On June 5, 2019, the SEC adopted a new rule under the Securities and Exchange Act of 1934, which requires that broker-dealers and their representatives act solely in the “best interest” of their retail clients when making investment recommendations. [...] Read More

FINRA RULE 2010 AND ALTERING SIGNED CLIENT ACCOUNT FORMS DURING THE CORONAVIRUS PANDEMIC

By Erwin J. Shustak of Shustak Reynolds & Partners, P.C. posted on Thursday, April 9, 2020.

FINRA rule 2010 is a sweeping provision that mandates brokers and licensed persons subject to FINRA’s jurisdiction maintain “high standards of commercial honor”. One of the most common violations of that rule, which are aggressively pursued by both employing firms and FINRA, is the prohibition against modifying, completing or altering, in any way, a signed client account document or other form. A recent case illustrates the risk to licensed persons who modify, complete or alter those forms and documents- even if they do so at the client’s request or for the client’s benefit and particularly during the coronavirus pandemic. [...] Read More

Will Morgan Stanley Compensate Clients Following Massive Order-Entry Outage?

By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Wednesday, March 25, 2020.

On March 25th, Murphy’s law took full effect when Morgan Stanley’s order entry and order status systems ground to halt, blocking financial advisors and clients from viewing account information and entering trades. The firm later reported that “multiple applications are experiencing latency or may be unstable.” Some clients reported problems accessing their accounts online; others reported seeing incorrect account values and balances. [...] Read More