First Financial under a cloud: Still no buyer

Despite a hot market, First Financial Planners Inc. is having a hard time selling itself.

The independent chain of brokers and financial advisers, based in Chesterfield, Mo., met last month with some potential buyers, but First Financial’s recent problems with regulators are gumming up a potential deal, sources say.

A central figure in the problems is Roy Henry, the company’s founder and former head. The National Association of Securities Dealers recently fined him and his company each $40,000 for alleged misconduct.

Those problems have caused some to question the company’s value and whether it is wise to take over a broker that has been under the watch of regulators. The trouble comes at a time when the market to buy independent firms, by many accounts, is unusually strong.

The company’s 755 brokers and financial consultants bring in $100 million in gross commissions annually, says one source. With the current market’s appetite for buying up independent broker-dealers, firms can sell for between 25% and 35% of their brokers’ gross commissions, says one consultant. That would put the value of First Financial at between $25 million and $35 million.

But companies with a history of problems often fetch less, says Mark Tibergien, a principal in Seattle with Moss-Adams Advisory Service. “Compliance problems demoralize reps,” he says.

value is an issue

An independent firm’s value lies with its brokers and their books of business. “Buyers look at how easy will it be to digest this,” he says. In those cases, “it’s easier to poach” brokers, he adds. “If they’ve got problems, it would be real tough” to sell at the top of the market, he says.

Mr. Tibergien, who says that he has not been a consultant in the deal, adds that a major insurance company or a large regional broker dealer is a potential buyer.

First Financial Planners’ chief operating officer and chief financial officer, Michael Uelk, did not return phone calls for comment by deadline last week. Brokers referred questions about compliance to Rosanne Horan, in charge of compliance, who also did not return calls.

In September 1999, Missouri securities regulators hit the firm with a laundry list of charges. The regulators’ order of consent included findings that the firm’s compliance department had only three people watching the sales of 755 brokers, that supervisors never looked at certain branches and that its agents used ads not approved by the company’s compliance department or the NASD.

And Mr. Henry had his share of alleged misconduct, according to the agreement he signed with Missouri officials. When customers complained about Mr. Henry, he, not the compliance department, often handled the calls, according to the Missouri order of consent.

Mr. Henry and the firm sold clients millions in notes to supposedly finance an expansion, including buying a stock exchange seat and purchasing a trust company. Neither happened, the documents say.

The acts of misconduct for which Mr. Henry and his company were fined by the NASD include using a confidentiality clause to stifle customers’ complaints, not updating their complaints against brokers in a timely manner, and selling shares in a limited partnership to customers under false terms, according to NASD Regulation documents.

scrutiny continues

In total, the firm is facing 23 regulatory actions from a variety of states, according to NASDR.

And the firm is still under regulators’ watch. “We’re looking at them in terms of the consent order,” says Doug Omman, commissioner of securities.

Although the firm has not been audited recently, he says, it has cleaned up its act. “We believe [the firm is] operating differently” than it did when Mr. Henry ran it, he says.

Mr. Henry, who still owns a majority of the firm, agreed to step down in September 1999. He stayed as a broker until February 2000, according to documents filed with NASDR.

The firm’s other owners include its brokers. First Financial Planners is the parent company of FFP Securities Inc., a broker-dealer, and FFP Advisory Services Inc., a registered investment adviser.

Recruiters and rival firms are calling First Financial Planners’ salesmen. Brokers say they are getting offers but staying put.

They want to stay with an independent firm. “I think I can do better on my own,” says Gary Benke, a broker in Belle Mead, N.J.