You are forming a corporation, great! Corporations offer many protections and benefits for entrepreneurs. But corporations are also closely regulated and subject to many restrictions. So, what happens when you want to form a corporation that is based on your passion, and your passion includes more than just profit? [...]

As Wells Fargo continues to reorganize its Wealth Management division, the firm recently dealt a major blow to its 330+ international financial advisors by announcing it will be exiting the international wealth management space altogether by September 2021. [...]

After more than a year of review and public comment, the Securities and Exchange Commission (SEC) announced on December 22, 2020 that it had finalized long-awaited reforms to the advertising and solicitation rules under the Investment Advisers Act of 1940 [...]

California courts routinely refuse to enforce employment agreements that have non-compete provisions, and more frequently are rejecting certain non-solicitation provisions, based on California’s strong public policy favoring an employee’s right to work that is enumerated in California Business and Professions Code § 16600 [...]

A homestead exemption protects a specified dollar amount of a debtor’s equity in his or her principal dwelling from attachment by a judgment creditor. In California, debtors are automatically protected by the homestead exemption contained in California Code of Civil Procedure section 704.730. [...]

The Office of Compliance Inspections and Examinations (“OCIE”) recently sent out an alert highlighting the deficiencies regarding Rule 206(4)-7 (the “Compliance Rule”), a subsection of the Investment Advisers Act of 1940 (“Advisers Act”). It is significant for advisers to understand and uphold these requirements in order to avoid compliance violations. [...]

In October 2020, the U.S. Securities and Exchange Commission (“SEC”) proposed an order which could expand when/what “finders” are permitted to receive as compensation without registering as a broker. [...]

On October 22, 2020, a panel of FINRA arbitrators rejected claims brought by JPMorgan against three registered representatives–Nathan Shields, Mark Obrzut, and Jackson Stewart–who left the JPMorgan for Raymond James in 2018. [...]

In our March 2020 post, published soon after stay-at-home orders were issued across the country, we hypothesized that the pandemic could present a unique opportunity for financial advisors seeking to transition from one firm to another. As it turns out, the number of advisors who have changed firms in 2020 is not all that different from years past. After an initial decline in mid-March, advisors have been moving at an increasing pace throughout the year. According to a Financial Advisor IQ article, the “game of musical chairs” continues, and advisor transitions have now returned to the same level as the fourth quarter of 2019. [...]

Just last month, Florida federal Judge Tom Barber shot down Wells Fargo’s motion for an emergency temporary restraining order (“TRO”) against their former brokers, Brady Pedler and Joseph Santana. Wells Fargo claimed the firm would suffer “irreparable harm” due to Pedler and Santana’s solicitation of former clients to their new employer, RBC Wealth Management. Pedler and Santana managed $306 million in assets during their time at Wells. This ruling followed a similar result in Michigan, where Judge Janet Neff denied J.P. Morgan’s emergency TRO motion against a former broker who left to join Ameriprise Financial. [...]

The SEC and other regulatory bodies have made protecting the non-public personal information of clients a top priority. This can be seen in the multitude of rules, enforcement actions and books, and records requirements imposed upon registrants in the past few years. [...]

It can be difficult to know whether a broker’s mistake constitutes a private securities trading violation. Some rules are clear-cut; others are not. While employed as a Morgan Stanley Wealth Management broker, Christopher Reid executed approximately 200 equity and options trades for a new client his employer previously had rejected as a potential firm client. After being rejected by Morgan Stanley, that client opened a self-directed brokerage account with another FINRA member brokerage in June 2018. The name of the brokerage firm where these trades took place was not disclosed in the Letter of Acceptance, Waiver and Consent (“Consent Letter”), which is a document commonly created through settlement of the FINRA disciplinary process. [...]

On August 26, 2020, the Securities and Exchange Commission (SEC) adopted updates to the definition of “accredited investor” under the Securities Act of 1933. Historically, only investors who met specific income or net worth requirements qualified for the accredited investor designation, which permits participation in private markets. Now, an individual can also qualify as an accredited investor based on established, clear measures of financial sophistication. Also, certain entity types that were previously excluded from the designation are now allowed. [...]

Earlier this year, Morgan Stanley announced plans to purchase E*Trade Financial Corp., with the deal scheduled to close by end of 2020. The acquisition would include E*Trade’s $360 billion in assets, $18.2 billion of which is comprised of custody business for Registered Investment Advisors (RIAs). Many wonder what Morgan Stanley, a global wirehouse firm with over 16,000 advisors who primarily engage in brokerage and commission-based business, plans to do with E*Trade’s RIA business. Unlike other, independent brokerages, Morgan Stanley does not currently permit its advisors to operate on RIA platforms. [...]

The CFP Board certifies and bestows the CFP designation on professionals who meet rigorous education, training, and ethics standards. In an average year, the CFP Board conducts 6,900 background checks as part of their dual mission of CFP certification and enforcement of professional standards. [...]

The SEC's Regulation Best Interest (Reg BI) under the Securities Exchange Act of 1934 establishes a "best interest" standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts. The new rule, which formally took effect June 30, 2020, is viewed as a replacement for the Department of Labor’s (“DOL”) previous, and now dead, fiduciary rule. One of many objections from the financial industry to the DOL fiduciary rule were the significant limitations it placed on the ability to collect fees and commissions in connection with retirement accounts. [...]

Earlier this month, the United States Supreme Court ruled in Bostock v. Clayton County, Georgia that it is illegal for employers to fire employees solely for being gay or transgender. The Court’s ruling, a 6-3 decision, addresses three cases simultaneously: Bostock v. Clayton County, Georgia; Altitude Express, Inc., et al. v. Zarda et al., and R.G. & G.R. Harris Funeral Homes, Inc. v. Equal Employment Opportunity Commission et al., all of which involved an employer terminating “a long-time employee simply for being homosexual or transgender.” [...]

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. [...]

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. [...]

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. [...]