LPL & Discretionary Equity Accs

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Aug 8, 2006 5:59 pm

I would simply assume.  It's easy for someone to look you up otherwise.

Aug 8, 2006 6:04 pm

By all means, look me up.

Aug 8, 2006 6:11 pm

"Why do you bother to pay for E&O insurance?  What is a situation that you believe could develop where they would pay off for you?"


When a bona-fide error is made by me.  Let's say a client asks me to sell 1000 shares and I buy 1000 shares, and let's say it'sa volatile stock like GOOG and the price moves $50 against me before the client catches the error on a confirmation.  That mistake costs me $5,000 and my E&O insurance $45,000.


"There are certain universal truths, and one of them is that having a Series 24 license yourself does not qualify as being proper supervision of yourself--your 24 qualfies you to supervise others.


Don't you remember studying things like an OSJ must be inspected at least annually by a principal not charged with managing that OSJ?"


Absolutely.  I do an annual exam and oversight on a satellite branch, and an outside principal came to my office back in June to do an exam on me.  Thus, I think we've covered that concern.

Aug 8, 2006 6:18 pm
Indyone:

When a bona-fide error is made by me.  Let's say a client asks me to sell 1000 shares and I buy 1000 shares, and let's say it'sa volatile stock like GOOG and the price moves $50 against me before the client catches the error on a confirmation.  That mistake costs me $5,000 and my E&O insurance $45,000.



Are you sure?  Why would an insurance company offer coverage that could be so easily abused?



Indyone:

Absolutely.  I do an annual exam and oversight on a satellite branch, and an outside principal came to my office back in June to do an exam on me.  Thus, I think we've covered that concern.



In an arbitration that will appear to be virtually no supervision--which is my entire theme.


How aware are you of what is going on in that satellite branch?  If one of that reps clients decides to demand arbitration you'll be named too--can you demonstrate that you are not guilty of "failure to supervise?"


Is the principal who comes by your shop once or twice a year going to be able to make a credible case for his abilty to to supervise you?


Compliance issues are becoming more and more involved and less and less friendly.

Aug 8, 2006 6:27 pm

Yes I'm sure...I once worked with a rep who had E&O pay off on a similar trade error.


I speak with my satellite office almost daily and sign off on all new accounts, all correspondence, all trades, etc.  In addition to the annual on-site exam, LPL does ongoing electronic surveillance.  When I came back from nationals last week, I had a fax from LPL requesting documentation on a VA trade from the satellite office and giving me two days to fax said documentation to them.  That's just an example of some of the off-site surveillance LPL compliance conducts regularly.


I agree that compliance is less and less friendly, but of the three firms I've worked with over the last 17 years, I think LPL has as good a handle on this issue as any.

Aug 8, 2006 6:35 pm
Indyone:

I agree that compliance is less and less friendly, but of the three firms I've worked with over the last 17 years, I think LPL has as good a handle on this issue as any.



Do you believe that a public arbitrator and the legal experience arbitrator will accept the argument that making phone calls makes one innocent of a failure to supervise complaint?


Have you worked at a full service wirehouse--with an onsite branch manager and perhaps an onsite compliance officer?

Aug 8, 2006 8:40 pm
NASD Newbie:
joedabrkr:
NASD Newbie:

[quote=joedabrkr]Indyone is right about SAM II  versus SAM I.  I  run that sort of business, though not quite that level of assets.

I have not found any issues with compliance so far.  My turnover is running around that level.  There is no 'churning' issue because you are not being paid any portion of the ticket charges.

Hope that helps.
[/quote]


You can't be brought into arbitration on churning charges because you're not earning a portion of ticket charges?




How can it be labeled as "churning" if you're not getting paid for the activity.
 


Churning is a noun used in lieu of excessive activity.


How?  By filing a demand for arbitration.


Will you be found guilty even though you did not benefit?  Of course--if the client lost money and the panel decides that they were being churned it doesn't matter if you got paid or not.


Fiduciary responsibility and all that.


How many of you are aware of a really weird one.  A guy using Schwab's on-line service churned himself.  Demanded arbitration and was awarded his money back because Schwab did not have a system in place to keep a client from destroying themselves.



Newbie might not be the most kind member to this discussion board but I will give him credit for knowing his stuff.

Aug 8, 2006 10:49 pm
BUDDYROSE:
NASD Newbie:
joedabrkr:
NASD Newbie:

[quote=joedabrkr]Indyone is right about SAM II  versus SAM I.  I  run that sort of business, though not quite that level of assets.

I have not found any issues with compliance so far.  My turnover is running around that level.  There is no 'churning' issue because you are not being paid any portion of the ticket charges.

Hope that helps.
[/quote]


You can't be brought into arbitration on churning charges because you're not earning a portion of ticket charges?




How can it be labeled as "churning" if you're not getting paid for the activity.
 


Churning is a noun used in lieu of excessive activity.


How?  By filing a demand for arbitration.


Will you be found guilty even though you did not benefit?  Of course--if the client lost money and the panel decides that they were being churned it doesn't matter if you got paid or not.


Fiduciary responsibility and all that.


How many of you are aware of a really weird one.  A guy using Schwab's on-line service churned himself.  Demanded arbitration and was awarded his money back because Schwab did not have a system in place to keep a client from destroying themselves.



Newbie might not be the most kind member to this discussion board but I will give him credit for knowing his stuff.



Then you are rather easily impressed.......

Aug 9, 2006 7:40 am

NASD made a comment on (and I paraphrase) "Why would you want
discretionary anyway...why take on the extra fiduciary responsibility?"



I think the a good answer is the benefit of trade execution through
block trading.  Many times it takes several days to get contact
with a client to gain authorization to buy or sell in non-discretionary
wrap accounts.  I don't know anything about arbitration
personally, but I like the model drift reports, performance reporting,
and miriad of other benefits our clients and ourselves enjoy under the
discretionary platform, and feel these things help my the clients and
stay away from the arbitration table. 



As for the origional post question regarding trade fee's:  Would
the benefits of going to LPL be that much better than your current
platform and be worth the risk and hassle of moving?

Aug 9, 2006 8:22 am

Unless you are trading something volatile you do not need formal discretionary authority--and having it will almost certainly come back to bite you if you do get charged with anything.


It is perfectly acceptable to accept oral instructions to, "Take me out if it starts to move against me, but don't put me into anything else without talking to me."


Should you be dragged into arbitration you will have a clear record of not simply moving from A to B to C and so forth.


Having the power of attorney signed causes you to assume a much higher level of fiduciary responsiblity because you're admitting that you don't talk to the client.  Plaintiff's attorneys love to find out that their client gave a broker discretion--it's a gimme that they're going to win their case.


If you're simply managing funds the idea that you need discretion is absolutely specious.


If you're managing individual equities all you should get is limited discretion to take the guy out of a position that is going against him based on your judgement.  There is no reason why you cannot call him and tell him, "Jeff, the XYZ trade was not working out so I took you out of it.  You've got $xxx left and I suggest you put it into ABC which looks like a much better horse to ride."


Arbitration panels know that the worst idea in the world becomes great when you don't have to explain it.

Aug 9, 2006 10:39 am
NASD Newbie:

Unless you are trading something volatile you do not need formal discretionary authority--and having it will almost certainly come back to bite you if you do get charged with anything.


It is perfectly acceptable to accept oral instructions to, "Take me out if it starts to move against me, but don't put me into anything else without talking to me."

That's called time and price discretion.  Most of the major firms have developed policies prohibiting that practice over the last few years-although I'm sure it happens all the time.

Should you be dragged into arbitration you will have a clear record of not simply moving from A to B to C and so forth.


Having the power of attorney signed causes you to assume a much higher level of fiduciary responsiblity because you're admitting that you don't talk to the client.  Plaintiff's attorneys love to find out that their client gave a broker discretion--it's a gimme that they're going to win their case.


If you're simply managing funds the idea that you need discretion is absolutely specious.

You really don't know what it's like to run a book of business, do you?


If you're managing individual equities all you should get is limited discretion to take the guy out of a position that is going against him based on your judgement.  There is no reason why you cannot call him and tell him, "Jeff, the XYZ trade was not working out so I took you out of it.  You've got $xxx left and I suggest you put it into ABC which looks like a much better horse to ride."

You sound just like all the other wirehouse middle management drones...So let me get this right, you think it's better to have informally verbally granted "sorta discretion" instead of written authorization, a fee based platform so as to eliminate confilct of interest issues, and performance reporting and clearly delineated written goals and risk tolerance info?  Riiiiiight.......


Arbitration panels know that the worst idea in the world becomes great when you don't have to explain it.

Aug 9, 2006 11:51 am

joeboy:

You sound just like all the other wirehouse middle management drones...So let me get this right, you think it's better to have informally verbally granted "sorta discretion" instead of written authorization, a fee based platform so as to eliminate confilct of interest issues, and performance reporting and clearly delineated written goals and risk tolerance info?  Riiiiiight.......



I believe that unless the client is a surgeon who may be in an operating room when something simply must be done to protect him, or a judge or attorney who may be in court, or a teacher who may be in a class, there is no reason why you should ever get a client to agree to give you carte blanche with their account.


If I am your client it is easy enough to discuss the parameters with me.  "I am not wild about stop loss orders, so what I suggest is that you authorize me to take you out of the position along with my other clients if it goes against you.  I will then get in touch with you to let you know what I did and suggest another trade that I think is suitable."


Should you show up in an arbitration hearing and try to say that you had no obligation to let me know what was going on because I had given you power of attorney they're going to hang you out to dry.


Also, claiming that you had no vested interest in churing my account because you were using a fee based platform instead of commission based is going to go nowhere.  All my attorney has to do is ask you why you made so many trades and you'll become so twisted up with your stammering excuses that your case will be lost right there.


You may not like to hear what I am saying, but you are a fool to not listen anyway.

Aug 9, 2006 11:59 am
NASD Newbie:

joeboy:

You sound just like all the other wirehouse middle management drones...So let me get this right, you think it's better to have informally verbally granted "sorta discretion" instead of written authorization, a fee based platform so as to eliminate confilct of interest issues, and performance reporting and clearly delineated written goals and risk tolerance info?  Riiiiiight.......



I believe that unless the client is a surgeon who may be in an operating room when something simply must be done to protect him, or a judge or attorney who may be in court, or a teacher who may be in a class, there is no reason why you should ever get a client to agree to give you carte blanche with their account.


If I am your client it is easy enough to discuss the parameters with me.  "I am not wild about stop loss orders, so what I suggest is that you authorize me to take you out of the position along with my other clients if it goes against you.  I will then get in touch with you to let you know what I did and suggest another trade that I think is suitable."


Should you show up in an arbitration hearing and try to say that you had no obligation to let me know what was going on because I had given you power of attorney they're going to hang you out to dry.


Also, claiming that you had no vested interest in churing my account because you were using a fee based platform instead of commission based is going to go nowhere.  All my attorney has to do is ask you why you made so many trades and you'll become so twisted up with your stammering excuses that your case will be lost right there.


You may not like to hear what I am saying, but you are a fool to not listen anyway.



You are in so far over your head and you have NO CLUE!  It's amazing!

Aug 9, 2006 12:01 pm
joedabrkr:



You are in so far over your head and you have NO CLUE!  It's amazing!
 


As a stand alone statement that is meaningless.

Aug 9, 2006 2:13 pm
NASD Newbie:

[quote=joedabrkr]

You are in so far over your head and you have NO CLUE!  It's amazing!
  [/quote]


As a stand alone statement that is meaningless.



Just like most of your commentary.....

Aug 9, 2006 2:20 pm
NASD Newbie:

I believe that unless the client is a surgeon who may be in an operating room when something simply must be done to protect him, or a judge or attorney who may be in court, or a teacher who may be in a class, there is no reason why you should ever get a client to agree to give you carte blanche with their account.


If I am your client it is easy enough to discuss the parameters with me.  "I am not wild about stop loss orders, so what I suggest is that you authorize me to take you out of the position along with my other clients if it goes against you.  I will then get in touch with you to let you know what I did and suggest another trade that I think is suitable."


Should you show up in an arbitration hearing and try to say that you had no obligation to let me know what was going on because I had given you power of attorney they're going to hang you out to dry.


Also, claiming that you had no vested interest in churing my account because you were using a fee based platform instead of commission based is going to go nowhere.  All my attorney has to do is ask you why you made so many trades and you'll become so twisted up with your stammering excuses that your case will be lost right there.


You may not like to hear what I am saying, but you are a fool to not listen anyway.



See the bold print.  That's called time and price discretion, and it's not acceptable in most firms nowadays.  Very problematic stuff because it's open to interpretation.  Define "if it starts to go against you" for example.

Oh, and by the way I'm a little above the silly trick of editing someone's screen name when I quote their posts.   And you ask if people think I'm childish?  Really now.....

Aug 9, 2006 2:42 pm
joedabrkr:



See the bold print.  That's called time and price discretion, and it's not acceptable in most firms nowadays.  Very problematic stuff because it's open to interpretation.  Define "if it starts to go against you" for example.

Oh, and by the way I'm a little above the silly trick of editing someone's screen name when I quote their posts.   And you ask if people think I'm childish?  Really now.....
 

You don't need to explain to me what time and price exceptions are.  You will never find a client who will argue about it--so just do it.


You're the one who said you don't want to have to talk about your decisions with the client--I'm simply saying that that attitude is the surest way I can think of to get yourself barred for life.


You're still a relative newbie--you have years to blow up and with your casual attitude towards rules and your vocal disrespect for managment paint a picture of a compliance problem waiting to happen.


A monkey with a pencil could do as well as you've done in your career--wait till the going gets tough and then get back with me with your cocky attitude.

Aug 20, 2006 8:23 pm

ahh old dino boy knows everything EXCEPT discretion.


That in itself would suggest that you ARE a ej gp.....


clueless


in the dark


and love turning the manure!

Aug 20, 2006 11:56 pm
NASD Newbie:
joedabrkr:



See the bold print.  That's called time and price discretion, and it's not acceptable in most firms nowadays.  Very problematic stuff because it's open to interpretation.  Define "if it starts to go against you" for example.

Oh, and by the way I'm a little above the silly trick of editing someone's screen name when I quote their posts.   And you ask if people think I'm childish?  Really now.....
 

You don't need to explain to me what time and price exceptions are.  You will never find a client who will argue about it--so just do it.


You're the one who said you don't want to have to talk about your decisions with the client--I'm simply saying that that attitude is the surest way I can think of to get yourself barred for life.


You're still a relative newbie--you have years to blow up and with your casual attitude towards rules and your vocal disrespect for managment paint a picture of a compliance problem waiting to happen.


A monkey with a pencil could do as well as you've done in your career--wait till the going gets tough and then get back with me with your cocky attitude.



Wow....I am honestly amazed that you would even suggest that!

I'd love to see how some of the wirehoue compliance comps would react to a statement like that.....

Aug 21, 2006 7:21 am

Do you think I'd ever put that in writing above or below my name?


Regardless the fact is that you can verbally assume timing discretion.  Most compliance types are going to say that if you regularly make use of it you should get it in writing--but the reality is the less you have in writing the better off you are.


If a client drags you into arbitration and the discretionary paperwork is entered as evidence it becomes an albatross around your neck because of all the fiduciary issues that go hand-in-hand with it.


On the other hand your attorney should be able to get the guy to admit that you and he always had an "understanding" that you would protect his best interests and take him out of something that did not seem to be working well.


The panel will know that there is no need for a formal power of attorney for that relationship--and the albatross is not in the room.


Getting discretionary paperwork signed is a bad idea unless the client truly cannot be reached during business hours.


Even then, there is no compelling reason for you to be allowed to reinvest their money without talking to them.  "Take me out without talking to me if it seems prudent, but don't do anything else with my money without talking to me" is the only safe way to go.


Your comment that you don't like to have to explain your decisions is a really really really dangerous thing to believe, much less to say.