Cetera Financial Group is telling its thousands of independent brokers that any sales of their own businesses must be approved by the corporate compliance office.
Not doing so could lead to potential FINRA enforcement cases, according to the message sent last fall by the Los Angeles-based wealth management firm's compliance division. Financial Planning obtained a copy of the email blast, which has not been previously reported.
The message, marked "confidential," could come as a harsh warning to any financial advisor who may take assets off Cetera's platforms when tapping into the
The message displays how independent wealth management firms that employ advisors as 1099 contractors rather than direct W-2 staff sometimes take stances that restrict
"In recent weeks, many advisors have been receiving solicitations from professional investors seeking to acquire a full or partial interest in the advisor's practice," according to the email from Cetera's compliance unit. "Please note, depending on the nature of the transaction, it will likely be deemed to be a private securities transaction (PST) and/or an outside business activity (OBA), which requires prior approval by your broker-dealer compliance department.
"Unapproved PSTs are often deemed a 'selling away' violation by regulators and can lead to material challenges going forward," the email continued. "FINRA has suspended, fined or even barred registered representatives for entering into PSTs or having OBAs without first notifying their firm and gaining approval. Please direct any questions you may have to your Compliance Department at [email address]."
Representatives for the Financial Industry Regulatory Authority, which oversees brokerages, declined to say whether or not independent brokers could face allegations of breaching the regulator's rules by selling their businesses without getting approval from their brokerage's compliance department.
Enforcement cases depend "on the facts and circumstances" of any particular matter, spokeswoman Rita De Ramos said.
"We don't comment on compliance communications of member firms," she said in an email. "But in general, FINRA enforces its rules concerning outside business activities and private securities transactions."
Cetera didn't make any executives available for a direct interview, but the firm did send responses to FP's questions from Chief Risk Officer Joe Neary.
The company remains "fully supportive of an independent advisor's ability to sell their practice in part or in full" but is "equally committed" to helping planners avoid violating the rules of regulators such as FINRA and its overseer, the Securities and Exchange Commission, Neary said. The sale of part or all of an advisor's business is a private securities transaction, he said.
Any questioning of the firm's bona fides as a home to independent brokers "is not only misguided, but completely inaccurate," Neary said. "Our communication seeks to protect our advisors from running afoul of long-standing industry rules; in no way does it prevent them from monetizing their life's work. We have approved and supported hundreds of partial and full sales of practices over the years and will continue to do so."
Cetera and rivals including LPL Financial, Advisor Group and Commonwealth Financial Network wage intense fights among each other to recruit and retain independent brokers, who must notify their employers of their involvement in anything from charities they run and real estate developments to securities-related businesses like investment funds and registered investment advisory firms.
Bad actors
Cetera's email blast reflects "a growing movement of restricting advisors' independence and freedoms at broker-dealers," according to recruiter Jon Henschen of
Other examples include brokerages that buy advisory practices for themselves, place barriers to transferring client accounts when advisors change firms and seek to hang on to some customers by
"Perhaps driven by [leveraged buyout] PE, the industry is getting less friendly to an advisor being able to just up and leave if they choose to," Henschen said in an email. "Wanting a more predictable revenue flow is an obvious motive. Wirehouses have countered turnover by converting to teams, which makes a move much more difficult because it is harder to get consensus to move from many advisors versus one or two."
The email blast shows how there are "different shades of independence" in the industry, according to Brian Hamburger of
In an interview, he compared the situation to Americans who "love this notion of freedom and independence" but often forget there are limits tied to other important concepts like public safety or privacy.
Since Cetera and other brokerages are required to supervise and monitor their registered representatives, the email blast is "probably ahead of the curve, with other firms that should be out there talking about these risks and hazards," said Hamburger.
"They're not writing to fee-only investment advisors; they're writing to their registered representatives who may or may not have advisory practices," he said. "You can be an independent registered representative of a broker-dealer, but that doesn't mean you're free of restrictions. You still have to play by the rules. You still have these requirements, regardless of whether you're deemed to be independent or not."
At more than $2.4 billion
The email message speaks to the many choices advisors should consider when thinking about leaving a firm like Merrill Lynch or Morgan Stanley to go independent, according to Matthew Liebman of Blue Bell, Pennsylvania-based
Liebman's team dropped Merrill for independence with the aid of Dynasty Financial Partners in 2021; last August, he dropped his registration with Purshe Kaplan Sterling Investments to be an "RIA-only" advisor.
In an interview, Liebman declined to comment on Cetera specifically but said that he and his team had concluded that the best setup for them and their clients was an independent RIA with an SEC Form ADV listing them as the owners.
"There is independence, and then there's independence," he said. "To me, you're really independent when you own your own ADV. As a wirehouse advisor doing the initial search, I don't think I really appreciated that."
