Bill Hamm and his giant branch office left LPL Financial in 2019 to launch his own broker-dealer, IFP Securities, with 190 financial advisors, and a hybrid registered investment advisor as well.
It's been a journey. Three years later, the broker-dealer reported a downward swing of almost half a million dollars in net capital, showing a net capital deficit of $120,000 at the end of 2022 in the annual audited financial statement it filed last week with the Securities and Exchange Commission. A year earlier, IFP Securities reported $406,000 in net capital, well above the minimum required of $41,000.
The industry's net capital rule reflects how much cash a firm has in its till at the end of the day. According to the Financial Industry Regulatory Authority Inc., the rule requires that broker-dealers like IFP Securities at all times have and maintain net capital at specific levels to protect customers and creditors from monetary losses that can occur when firms fail. Running afoul of the net capital levels means firms could have to cease operations and close.
In the past, particularly during the 2008 credit crisis and its aftermath, a broker-dealer dipping below required net capital levels caused alarm bells to ring for securities regulators.
In an interview Thursday morning, Hamm, the owner and CEO of IFP Securities, downplayed the net capital issue cited in the firm's annual Focus report, calling it an "accounting error" the firm's auditors found this year related to the reporting of an expense.
"The cash was there, it was just the accrual accounting," Hamm said, referring to the accounting methodology. "By Jan. 2 or 3, the net capital was back up to $350,000."
According to website Investopedia.com, accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs versus when payment is received or made.
Based in Tampa, Florida, IFP Securities is part of the larger Independent Financial Partners group. The RIA, IFP Advisors, has $10.5 billion in client assets, according to its most recent Form ADV.
The firm responded to Finra about the net capital issue recently but hasn't heard back from the regulator, Hamm said, adding that the broker-dealer accounts for 15% of the revenue from Independent Financial Partners group. The firm has also increased its head count of financial advisors since it opened in 2019 to 260, an increase of 37%.
"We are happy where we’re at, but I wouldn’t say there weren’t any challenges along the way," Hamm said. "There are quite a few things we didn’t know about being a broker-dealer."
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