FSC Securities Corp. looks to be a big winner in the fight over reps still affiliated with QA3 Financial Corp, which is shutting down this week. FSC has about 50 such reps that produce $7 million in fees and commissions pre-registered to join the broker-dealer.
The big reason QA3 reps have looked to FSC is the financial stability of the firm, said executives and brokers involved in the move.
“Financially, our firm is sound,” said Mark Schlafly, FSC's chief executive, adding that the firm had no debt and was sitting on excess net capital. Brokers such as QA3, and others that went out of business last year, were thinly capitalized and legal costs and potential liabilities pushed them over the brink.
FSC's seemingly new-found reputation for financial stability is a clear turnaround from the firm's fortunes of almost two-and-a-half years ago. One of the broker-dealers owned by American International Group Inc., FSC faced numerous questions about its financial health after the federal government bailed out its parent, AIG. Moreover, a sale of the AIG broker-dealers in August 2009 was halted hours before it was scheduled to be announced.
The demise of QA3 became official last week. In an e-mail that landed in brokers in-boxes on Friday, Steve Wild, QA3's owner and chief executive, wrote: “In light of the arbitration award rendered against QA3 on Jan. 14, and the fact that our errors-and-omissions carrier has not yet provided coverage set forth in our policy, we have made the difficult decision to cease conducting business as a broker-dealer, effective as of the close of business on Feb. 11.”
Shawn Smith, principal of Financial Advisor Placement Services, a recruiting firm, said the recrutiment frenzy at QA3 is " like a smash and grab for these guys."
He said some reps had seen the firm's closing coming and had made contingency plans for finding a new broker-dealer.
Indeed, QA3 broker John Jastremski, who is based in San Diego, said he was well prepared for the news of the B-D going out of business.
Mr. Jastremski acknowledged that he had considered about half a dozen broker-dealers over the past few months and was prepared to make a move two weeks before QA3 said it was closing. “There's no question that a firm's net capital was the number one concern for me,” he said.
Mr. Jastremski, who is moving to FSC, echoed Mr. Schlafly's comments about that firm's financial soundness. But he declined to comment about the level of payout and upfront money FSC was offering him and the other advisers. When compared with other broker-dealer offers, he said, the FSC package is “fair.”
He added: “There's no question other firms were more aggressive.”