Raymond James vs. LPL

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Jun 3, 2005 10:00 am

Oracle, re your post about RJ being able to hire.  That is just a proposal from the SEC to the court in dealing with the Herula case (a rogue RJFS broker in Rhode Island).  It does apply to RJFS (no other part of RJF), but is only the SEC recommendation.  It is not in effect, and may never be depending upon how the judge ultimately rules on the case (which I think is expected sometime in July). RJ is obviously vigorously defending the whole matter in court.


Also, Oracle, re the fee-based issue at RJ -- this only dealt with a fee-based brokerage account that RJ began offering in 2001.  That's a straight "fee in lieu of transaction" account that RJ chose to offer to complement all its other fee-basd biz.  It's not an advisory account (i.e., where both transactions and advice are being rendered).  Regulators have taken the position that these brokerage accounts (not advisory accounts) are to be viewed as straight transaction accounts, and if a client would have been better off paying commissions than paying a fee, they were innappropriate (regardless of whatever other value the rep was bringing to the table).  So, RJ decided to reimburse the affected clients $138,000 and just stop offering the brokerage account entirely.  Clients in these accounts are being given the option of going to a regular commission account or convert to RJ's existing advisory accounts.  The vast majority are now in the advisory accounts. The point to all this, is that RJ is still very much in the fee-based biz as always.  RJ was the first b/d to be hit with this issue, and several other firms (including the wirehouses that started these "fee-based brokerage accounts") are being investigated as well.  


Here's a good article from "On Wall Street" mag that addresses the regulator vs broker-dealer issues with fee-based brokerage accounts:   http://www.onwallstreet.com/detail.cfm?page=/pubs/ows/200506 01002.html

Jun 3, 2005 4:30 pm
indytwo:

Duke


Thanks for the insight. How long have you been with RJ? (ten years?) What level of production are you at and how does your production break down.  Thanks



Yep, 10 yrs -- actually will have my 11th anniversary this summer.  Most is annuitized -- 25% trails, 45% fee-based (SMAs mainly, plus mutual fund/ETF wraps, & some managed futures accounts).  Rest is about 10% ins/annuities, 5% alternative investments, & balance is mostly stocks & bonds on commission.  Would rather not give specific gross, as someone at RJFS could come close to identifying me & I want to preserve anonimity.  But, I'm above $500k & below $1mm.

Jun 3, 2005 10:26 pm

For those of you at either firm, I would appreciate your honesty and candor in this regard...what is the one thing that you'd really like to have that you don't have?  Don't worry about shooting your firm in the foot...think of it as providing a public service to those of us trying to make a decision.


Now be honest...I know neither firm has everything, OK?!!!

Jun 6, 2005 10:58 pm
Oracle:

Indyone,


Are you looking to do fee based?


http://sev.prnewswire.com/banking-financial-services/2005042 8/DCW03427042005-1.html


You undoubtably have seen this but just in case you hadn't.


And LPL has some challenges with revenue sharing on their annuities:


http://www.kglg.com/case/case.asp?lngCaseId=4231


Not a big deal, but may effect your success of your clients following you.


Oracle





Clearly the attorneys in the case cited above re LPL are a bunch of MORONS!  They've attempted to solicit participation in a shareholder lawsuit against LPL.....but....errr.....LPL isn't publicly traded!  It's privately held.  How do you file a class action lawsuit by 'recent purchases of LPL securities' when the thing isn't traded?  Help me out here???

Jun 9, 2005 9:25 am

Thankfully somebody else mentioned this but I have to add in.  LPL is not publicly traded so no shareholders are suing LPL.  In terms of the VA suit - LPL was dropped from the suit approximately one month ago. 


New news that's accurate however is RJ has dropped it's fee in lieu of commission platform due to continued abuses by it's advisors and their inability to properly supervise.  Not my words but those of the regulators. 

Jun 9, 2005 9:37 am

The one thing we don't have that I wish we did?  Hmmmm.....; From a technology standpoint, we can do block trading but it's a bit labor intensive to trade across multiple accounts.  For example, if I had say 30 accounts that were in a specific risk/model category and all held say 8% GE stock.  Then the value shot up or down and I want to trade it/buy it to bring it back in line to the 8% it's not a matter of point and click to do it across mulitple accounts.  From a ticket charge cost stand point and time stand point it's not as efficient as it could be.  My understanding is there is an initiative at LPL now to build this out for release by mid-2006.  Hopefully it will. 



On a side note indyone - you mentioned you would be moving from a bank, correct.  One thing to really research is to identify your top production clients.  That is where you should focus on for moving assets.  A goal should be to move 80% of your production not your book.  Hey, one other comment too, on the 55% payout after expenses; that figure is so B/D dependent but more importantly, under the indy model - you control that costs.  There are fixed costs obviously, but beyond that, you get to determine how you spend the money, in areas that benefit you v a firm.  So for the wirehouse and jones people to point that out is a joke.  No indy b/d takes 60 cents on the dollar and spends as they determine, we take 10 cents on the dollar and let you spend the rest as you determine.  Like you said pretty much in your reply to that, the fact that you have the freedom to make those choices is the attraction to being independent.

Jun 10, 2005 6:30 pm

CM, I've seen a tech demo on LPL...and will soon see one on RJ also.  The LPL tech was awesome...much better than what I am used to. Thanks for the honest feedback on the platform.  Switching gears, I posted the following on the legal forum, but thought I might get more feedback here since the traffic is better...anyone out there...feel free to comment, and thanks in advance for any constructive opinion/advice...


I know that much of this post is a re-hash of information that has been posted on these forums in the past, but it is a summary of what I have found during my due diligence, along with some of my questions that I would appreciate some feedback on.


I started in the bank channel a bit over five years ago, and on the third day of my employment, I basically had a non-compete thrust in front of me that I was asked to sign.  While I had slight misgivings about the general nature of the document, I was grateful for the job opportunity, never dreamed of the day when I would be dissatisfied, and was fearful of the possible consequences if I refused to sign the document.  Of course, like almost all naive rookies, I signed the non-compete.  Where I retained the intelligence to keep a copy, I have no clue.


Now that I am very unhappy due to several adverse changes in the compensation schedule, and a bunch of mandatory UNPAID training days, I am looking at this stupid document and cursing myself for ever signing it.  Not only is there a one-year nonsolicitation clause, the firm went one step further and put a non-compete clause in that essentially completely bars me from being in the business in my current geographical area.  So unless I want to either move away or completely change careers, I feel helplessly locked in with my current employer.  I can understand the non-solicitation clause to a degree and I have no intention of sending out a form letter to all my clients saying dear clients, I have moved out.  Please come in and see me if you want to move your accounts to my new firm.  On the other hand, I am struggling with the fairness of a company telling me that I cannot make a living unless I move away or change careers.


After spending some time doing due diligence, I have reached several conclusions based on feedback from the firms I am looking at.  First of all, most everybody is in agreement that the clause barring me from being in the business in the same town is pretty much non-enforceable.  The comment I keep getting is that the firm cannot tell me that I cannot earn a living.  Apparently, the courts in the past have taken a pretty dim view of these clauses and elected to bar enforcement.


The second opinion that I keep hearing is that while I cannot solicit former clients for one year, my current (soon to be former) firm cannot prevent clients from coming to me and requesting the move.  Neither can my current firm prevent me from advertising in the local newspaper, or having an open house, either of which can certainly generate requests from former clients to move to my new firm.


Finally, and probably most obviously, my current firm cannot prevent me from chasing after new prospects that were not customers when I leave. So, if nothing else, it appears that these folks are fair game from day one.


Some questions I still have that I'd like for posters to address are 1.  What are my actions limited to if my previous firm files a TRO?  Does that completely stop me from all business or just transferring clients over from the old firm?  2.  Given my overall situation, if I follow the advice I've received thus far, what is the probable outcome of any action brought by my old employer?


Naturally, I am concerned about being able to make a living during the first year and yes, before you even ask, I will be consulting a securities attorney before I effect this change.  I am intersted in your opinions and if I am mistaken, your corrections, and of course, all constructive advice is appreciated.

Jun 10, 2005 8:23 pm

Did you know about the "noncompete" contract before you started with the bank? If not, you might have an out.


In my situation, I beat back some New York lawyers who wanted me to fork over training expenses. I interviewed with Dean Witter 3 times in the early '90's, and was hired. I quit my bank job as Assistant Bank VP, sold my house, and moved across state. My first day of employment at DW, they shoved a "noncompete and reimbursement of training expenses" contract in front of me for me to sign. No one had ever mentioned such a contract during the 3 interviews. I had never worked where an employment contract was required. I had to sign, what else could I do?


I left DW a couple of years later and one of their NY lawyers called me to say they wanted $25,000. I let them have it. I explained what happened and said that I was considering suing them for not mentioning the existence of an employment contract during any of my 3 interviews and that such a contract was a condition of employment. 


When the lawyer replied, "Well, you didn't have to sign it.", I told them that I had quit my bank job, sold my house, and moved across state, what the hell else was I supposed to do? The lawyer got quiet for a minute, then said thank you and hung up. That was 10 years ago.


You don't mention it, but if the bank did not mention the existence of an employment contract, during your interview(s), you might have a case of "having to sign the contract under duress". The "duress" being you had already quit your previous job and had no other choice but to sign the contract. Also, you might charge that the bank negligently or fraudulently omitted telling you of the requirement of a noncompete contract, prior to your employment.


Thus, if you weren't aware of the contract prior to employment, you might have a good case for getting out of it. (It worked for me in getting DW's attorneys off my back!) Consult a lawyer, in any event.


Jun 10, 2005 11:03 pm

LPL's technology is pretty impressive so far, although my experience is limited.



I never looked at RJ too closely because I found their recruiter to be
rather arrogant, and wasn't entirely comfortable with the fact that
they had a decent sized investment banking business.

Jun 10, 2005 11:31 pm

Doberman, I had a couple of interviews prior to taking the position and no, I'm confident that a non-compete was never mentioned prior to my employment, although we could get into a he-said-she-said argument on that one.  At one point in my thinking process I thought about the possibility of arguing this point, but I wasn't sure how much weight it would carry.  All I know is that I really didn't feel like I had any choice when the request was made for me to sign the non-compete as I didn't have any other job to go to.  I'll bet in practice that unless the prospect has a non-compete at his/her current firm, many prospective employers fail to mention the infamous non-compete in the interview process...it's not exactly an enticement to join.


I also thought about the fact that I never received anything (other than my continued employment) in exchange for signing the non-compete, so you could argue that there was no real consideration given to me.  Worse yet, the grid has changed since I started with the payout getting thinner.  That too, seems like a reason that the non-com shouldn't stand, but perhaps I'm just getting emotional.


Joe, thanks for the post.  I'm curious who your RJ recruiter was...maybe you could PM me on that?

Jun 11, 2005 1:54 am
Indyone:

Doberman, I had a couple of interviews prior to
taking the position and no, I'm confident that a non-compete was never
mentioned prior to my employment, although we could get into a
he-said-she-said argument on that one.  At one point in my
thinking process I thought about the possibility of arguing this point,
but I wasn't sure how much weight it would carry.  All I know is
that I really didn't feel like I had any choice when the request was
made for me to sign the non-compete as I didn't have any other job to
go to.  I'll bet in practice that unless the prospect has a
non-compete at his/her current firm, many prospective
employers fail to mention the infamous non-compete in the
interview process...it's not exactly an enticement to join.


I also thought about the fact that I never received anything (other
than my continued employment) in exchange for signing the non-compete,
so you could argue that there was no real consideration given to
me.  Worse yet, the grid has changed since I started with the
payout getting thinner.  That too, seems like a reason that the
non-com shouldn't stand, but perhaps I'm just getting emotional.


Joe, thanks for the post.  I'm curious who your RJ recruiter was...maybe you could PM me on that?





I don't remember, so there's nothing to PM.



Interesting point you fellas are making about non-disclosure of the
non-compete....and the imminent pressure to sign.  They like to
use that pressure to get your ink on paper.



As I've said before, if their platform, their manner of doing business,
was so competitive, why must they work so hard to defend it with all
these lawyers and fancy non-compete clauses.   
Hmmmmmm......

Jun 23, 2005 11:15 am

Trying to answer on the TRO question.  Indy Onel; whoever you are talking to as a recruiter for LPL have them get you in touch w/ LPL's legal team to review your contract.  They will give you a very detailed approach to take with your transition and transferring of clients that will keep your firm from getting a TRO and also avoiding the non-solicitation and non-compete portions of your contract.  If you follow their approach you will be fine.  Not saying it won't be bumpy because it may, but from a legal stand point; your bank will have no recourse to pursue you, let alone get the TRO.  Also note, just because those documents are signed, they just may not even decide to pursue you at all anyway - doubtful??? but maybe.  Bottom line is, for a period of 3 months it may be a pain, but the life time satisfaction you'll have of running/owning your own business will far exceed that pain and make it all worth while. 

Jun 23, 2005 4:34 pm

 I know I shared this on another post. But I am with LPL and am very satisfied with everything they do! I am moving the majority of my clients to fee base as most of you are to, but I also use Dimensional (DFA's) I do not think RJFS can use these?


 I would also consider going the RIA route? If things changed at LPL! 

Jun 25, 2005 11:47 pm

I've now visited RJ and have an LPL visit in the works.  For anyone curious, RJ was very impressive...excellent technology, great research, excellent financial planning department, very nice bond desk and hospitality that will be hard to beat.  About the only negative I could come away with was my meeting with the regional sales manager.  I felt like he had some doubts about whether or not I had enough revenue and AUM to make it with RJ.  While my numbers now are more than sufficient for their indy platform ($375K/year), I almost got the impression that he felt like as a bank channel rep, I wouldn't be able to bring enough of my assets with me to cover their $200K minimum production target.


I'm pretty confident that I'll be fine, but I didn't like being challenged (just my ego I guess) and that was a negative in an otherwise solid visit.  Assuming the visit with LPL goes very well also, this is shaping up to be a very difficult decision...stay tuned...

Jun 26, 2005 1:51 pm

Great discussion here. I am considering RJ, LPL and Commonwealth. Can anyone compare Commonwealth with the first two b/ds? Thanks.

Jun 27, 2005 9:21 am
Indyone:

I've now visited RJ and have an LPL visit in the works.  For anyone curious, RJ was very impressive...excellent technology, great research, excellent financial planning department, very nice bond desk and hospitality that will be hard to beat.  About the only negative I could come away with was my meeting with the regional sales manager.  I felt like he had some doubts about whether or not I had enough revenue and AUM to make it with RJ.  While my numbers now are more than sufficient for their indy platform ($375K/year), I almost got the impression that he felt like as a bank channel rep, I wouldn't be able to bring enough of my assets with me to cover their $200K minimum production target.


I'm pretty confident that I'll be fine, but I didn't like being challenged (just my ego I guess) and that was a negative in an otherwise solid visit.  Assuming the visit with LPL goes very well also, this is shaping up to be a very difficult decision...stay tuned...



Indyone, don't be too concerned about the RJ mgmt guy's discussion with you, altho I can understand why you were a little turned off by him questioning your ability to successfully transistion your book. 


RJFS tends to take a very "consultative" approach to recruiting.  They're not trying to be all things to all people, or push to "sell" someone on coming there, or being independent when that may not be what's best for the rep.  They've enjoyed a really high retention rate &, in part, that comes from making sure that reps will find the appropriate fit.


The fact is that bank reps CAN have difficulty in bringing over assets depending on how the rep does business.  If the rep is primarily an "order taker" and hasn't established sound client relationships, those clients are staying with the bank for the most part.  But if the bank rep has a relationship-based business, knows his clients, etc. then the rep should be no less successful than a rep coming from Merrill, etc.


So, while I can see why the mgmt guy may have irritated you, by questioning you about your business, etc. he was actually probably trying to do you a favor.  Bank reps in particular should carefully evaluate how their business will transition.  I could be wrong, but I think this guy was just trying to make sure sure you had done that.

Jun 27, 2005 9:29 am
fargo:

Great discussion here. I am considering RJ, LPL and Commonwealth. Can anyone compare Commonwealth with the first two b/ds? Thanks.


I don't know much detail about Commonwealth, but everything I've ever heard is that it is a high quality firm like RJFS & LPL.  Joe Dietch (sp?), its chairman, is apparently a visionary type of guy and has instilled a pretty strong supportive culture.  It's obviously much smaller than either RJFS or LPL, so can't have all the resources -- but it may have everything you need.  It's not self-clearing like RJFS or LPL, which is not that big of a deal for some, but clearly doesn't give the hand's-on operational efficiencies of having a b/d that clears for itself.  Reps seem to be happy there (or at least the few I've run across at various meetings).


I'd certainly put them on my short list if I were looking.

Jun 27, 2005 10:18 pm

Fargo, my guess, based on the research that I have done, is that RJ and LPL are the most robust firms available for Indys.  If you don't need the broadest product offering and a firm with the most muscle and/or biggest legal departments, Commonwealth is probably fine, although I'll admit my research on CW is pretty limited, as I knew right away that I wanted the biggest and the best.  Every wholesaler I asked told me that LPL and RJ appeared to be the 800 lb. gorillas of the independent rep B/D industry.

Jun 27, 2005 10:58 pm

Duke,


I understand the issues with client retention among bank channel reps, and I've heard all the insults about bank reps being lazy, poor producers, people that couldn't make it in the wirehouse, etc., etc., etc.  I'll freely admit that I probably wouldn't have made it in the wirehouse arena, as I just don't enjoy the cold-calling sales part of the business.  I much prefer the financial planning side of the business and that style works well for me.


I'm now to the point where I can pick and choose who I work with and I don't view clients as transactions.  I intend to prune my book as I leave and it will shrink further as a few clients will choose to stay with the bank for one reason or another.  I'm certainly looking forward to getting rid of the short-term CD rate shoppers, clients who are rapidly depleting their retirement accounts, people (I can't even call them clients) who ask how much the commission is on every transaction, and those who freak out every time the Dow drops 50 points.


The pipeline looks very promising and I'm OK with the RJ sales manager playing devil's advocate here, but I think the tide is changing, at least in my market.  Banks are wising up and hiring better reps instead of promoting people ill-suited to the industry as they have in the past.  Who knows, the sales manager at LPL may be an ___hole too...I'll certainly leave RJ in the mix...

Jun 28, 2005 10:16 am

Indyone, my comments didn't mean to deminish you as a bank broker, if you took it that way.  So, sorry about that if that's the way it came across.


There are many very professional, competent, high-end reps at banks who run their businesses no different from if there were at a wirehouse, etc.  My thoughts were just to zero in on those platform bank reps who do operate primarily as order-takers.  They are the ones who are fooling themselves if they think they're taking much of their book with them.


By the way, I don't know if LPL has changed its HQ visit agenda recently, but in many ways it was/is much "slicker" than RJ's.  It was a very packaged sort of dog & pony show with formal presentations, while RJ's was one of multiple informal meetings with various departments running all around the firm.  I mention this only because the "packaging" of the LPL visit is impressive, but seemed like more of a sales pitch.  RJ's allowed for more getting into the nitty-gritty of the firm's various departments.  I mention this only to be careful in evaluating form versus substance when you compare your two visits. 


In particular, LPL's tech presentation was really slick, but as with most formal presentations it glossed over much of the reality.  I know RJ's tech presentation is pretty informal, but it shows you the actual tech as you might be using it.  So, if LPL's tech presentation is still more of a prepared semi-canned presentation, I'd suggest you have them launch and navigate their various modules from scratch, just as if you were doing that, and ask them a lot of "how do I do this?" questions.  That'll give you a much better realistic appreciation for how the two tech platforms may be different.