Compliance February 4, 2010

BofA Settles with SEC, Faces Suit from Cuomo

It was a big day for Bank of America (BofA), as the bank settled one lawsuit and was handed a new one.
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Bank of America today announced a proposed $150-million settlement of a long-brewing regulatory complaint with the Securities and Exchange Commission (SEC). Meanwhile, New York Attorney General Andrew Cuomo filed a lawsuit against the bank, its former CEO Kenneth D. Lewis, and its former CFO Joseph L. Price.

The lawsuit, filed today in New York State Supreme Court, asserted that BofA failed to disclose massive losses at Merrill Lynch so that shareholders would vote to approve the merger.

“Bank of America, through its top management, engaged in a concerted effort to deceive shareholders and American taxpayers at large,” Cuomo said in a statement. “This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules. In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America’s misdeeds.”

Settlement with the SEC

BofA’s settlement with the SEC encompasses two pending cases with the regulator. The first, which was set to go to trial in March, charged the bank with misleading investors over bonuses paid to Merrill Lynch executives before its acquisition by BofA (see “SEC Charges BofA $33M for Violations Related to Merrill Deal”). The second alleged that BofA failed to disclose extraordinary financial losses at Merrill Lynch prior to a shareholder vote to approve the merger (see “SEC Files another Suit against BofA”).

Under the terms of its proposed settlement with the SEC, BofA agreed to pay $150 million to its shareholders as a civil penalty. Furthermore, the bank agreed to other three-year conditions, including providing shareholders an annual “say on pay” advisory vote for the compensation of executives

The settlement is subject to approval from Judge Jed S. Rakoff, who rejected an earlier settlement (see “It’s a No-Go for BofA Settlement with SEC”).

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In Practice February 4, 2010

How Many Brokers Really Went Independent in 2009?

Top custodians said they attracted more advisers to independence in 2009.
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According to Discovery Database, which tracks movements among financial advisory firms, in 2009 more than 2,800 registered representatives “broke away” from a broker/dealer firm and moved to a registered investment advisory (RIA) firm. Interestingly, the majority of those reps came from independent and institutional B/Ds rather than wirehouses.

It turns out the speculation that many wirehouse brokers would choose to go to a RIA did not turn out to be true, Discovery noted. Almost half (48%) of wirehouse advisers who chose to move stayed within the wirehouse channel. The independent channel acquired a much smaller slice (13%).

Overall, 2009 saw more than 22,000 reps moved from one broker/dealer firm to another. Wirehouse brokers were the most mobile; an average of 37% of all movement per month came from a wirehouse broker/dealer, according to Discovery. (Mergers, such as Morgan Stanley Smith Barney and Wells Fargo Advisors, are not reflected in Discovery’s rep movement.)

RIA Custodians Report Successful Years

While wirehouse advisers did not leave their broker/dealers in droves, the top RIA custodians reported record years for attracting advisers to the independent channel.

Charles Schwab remains the leader in the space, with $590 billion of assets under custody, according to the firm. In 2009, Schwab Adviser Services said it had a “record year,” supporting 172 new advisory teams as they either started or joined an independent firm—a 40% increase from 2008.

Fidelity Investments said it helped a record 191 broker teams go independent—including not only RIAs, but also advisers who joined a broker/dealer client of National Financial, Fidelity’s clearing services arm. Fidelity Institutional Wealth Services had more than $370 billion in assets under custody as of September 30.

“While brokers have been going independent for years, 2009 will likely be looked upon as a watershed year for movement,” said Michael Durbin, president, Fidelity Institutional Wealth Services, in a Fidelity release. “With the current market situation, we expect there to be even more movement in 2010.”

TD AMERITRADE Institutional, which has just more than $100 billion of assets under custody, also reported a strong year in 2009. While it does not provide numbers of breakaway brokers, the firm said recruitment of breakaway brokers was up 30% over 2008.

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