LPL Financial LLC is the early winner in picking off big-producing registered representatives from beleaguered broker-dealer Securities America Inc., including a million-dollar star producer who joined the firm this month.
Meanwhile, Securities America, which parent company Ameriprise Financial Inc. put up for sale in April, has erected a temporary roadblock in an effort to block reps from making a move.
In what many industry observers considered to be an unusual move for an independent broker-dealer, the firm has invoked a standard — but little-used — clause in brokers' contracts that requires that reps give 30 days' notice when leaving the firm.
Securities America is in the second round of negotiations with potential buyers, and the effort to keep brokers in place an extra month is a way to demonstrate to suitors the firm's stability even as it contends with legal issues around the sale of busted private placements, industry observers said.
The firm is working to finalize a $160 million class action settlement with investors who bought the allegedly fraudulent private placements from the firm's brokers.
“It smells like window dressing for a sale,” Shawn Smith, principal of recruiting firm Financial Advisor Placement Services, said of the move to invoke the notice period.
Securities America's management said that the enforcement of the 30-day clause is simply business as usual.
“Our contract calls for a 30-day notice, and we have always asked our advisers to honor that,” chief executive Jim Nagengast wrote in an e-mail. “If, for some reason, they feel they cannot, we are willing to work with them.”
At least one Securities America broker said the enforcement of the 30-day clause appears to be a departure from standard operating procedure.
“My understanding is that it's probably unusual,” said Donald Patrick, an adviser and managing director of Integrated Financial Group in Atlanta, widely considered Securities America's largest branch office network.
The 40 advisers affiliated with Mr. Patrick's group produce about $12 million in fees and commissions per year, industry sources said. Mr. Patrick, who declined to confirm his production level, said he has not resigned from Securities America but also declined to comment on whether he is looking to leave.
When asked why Securities America is requiring brokers to give a month's notice, Mr. Patrick said: “I don't know the answer to it. I have guesses, and that's all.”
LPL this month snagged two Securities America brokers, Lori Price and Robert Hapanowicz. In 2009, Ms. Price was ranked among the top 1% of the firm's brokers, producing more than $1 million annually in fees and commissions, industry sources said. Mr. Hapanowicz's ranking and production level could not be determined.
Their exit comes on the heels of Sue Ricker's departure for LPL in April. Ms. Ricker was a leading producer at Securities America.
SIGNING BONUS
LPL is being particularly aggressive, offering Securities America brokers signing bonuses that range between 20% and 40% of their previous year's fees and commissions, industry recruiters said. While far less than wirehouse deals, it is on the high end in the independent-broker-dealer industry.
Mr. Hapanowicz declined to comment on the reasons for his departure. Ms. Price said she was attending an industry meeting at the end of April just as Ameriprise announced its intention to sell Securities America, and had a slew of offers from competitors.
She chose LPL because of the scale of its offerings, including research. She wasn't looking to change broker-dealers, but “opportunity knocked,” she said.
She added that she gave 30 days' notice to Securities America after consulting with her attorney.
An LPL spokesman declined to comment specifically about the Securities America recruits. “There is an intensifying flight to quality happening throughout the independent-broker-dealer industry, in tandem with ongoing consolidation, and we continue to benefit from this trend from a recruiting perspective,” said the spokesman, Joseph Kuo.
LPL is not the only firm to pick up notable Securities America brokers. Gregory Acosta went to NFP Securities Inc. in March, and Barry Shevlin moved to Cambridge Investment Research Inc. in April.
The great majority of Securities America advisers, however, have stayed put. The company had 1,826 reps and advisers at the start of the year and finished May with 1,810, said Janine Wertheim, a company spokeswoman.
But the departures could accelerate in the coming weeks, industry observers said. Mr. Smith said several Securities America advisers have discussed forming large marketing organizations of 30 or more reps who produce $10 million in fees and commissions. Such marketing groups of advisers have greater leverage in negotiating favorable payout rates with new broker-dealers.
For the most part, “the brokers aren't moving and they're waiting until [Ameriprise] finds a buyer,” he said. “They're looking in case they don't like the buyer.”
E-mail Bruce Kelly at [email protected].
