Most Nonindependent Advisors See Greater Shift to RIA Model

About three-quarters of advisors at financial firms anticipate a continued rise in the number of peers making the leap to independence, according to a study by Charles Schwab. A survey of more than 200 advisors working at major financial firms showed that the shift to independence "isn't a passing fad," says Tim Oden, senior managing director of business development at Schwab Advisor Services.

A lot of the results from the survey "confirmed what we see here on a day-to-day basis," observes Oden, whose work involves finding ways to grow the independent channel. "It was nice because it points to the fact that what we hear from people in the recruiting process is similar to what people are thinking about before the recruiting process." There was some difference in reactions between younger and older advisors: 65% of advisors younger than 40 said they found the RIA model appealing, versus 43% of advisors 40 and older.


Investing in TICs? Proceed With Caution

Advisors with clients who want to move money into real estate investments known as tenant-in-common offerings under section 1031 of the Internal Revenue Code need to be wary. These products present numerous potential pitfalls - and they've come under regulatory fire.

"TICs can involve high risks and liquidity problems. In many cases, brokerage firms misrepresent these risks and instead focus on the income stream that is promised [and sometimes guaranteed] by these investments," as the White Law Group, a securities fraud litigation and FINRA arbitration investor protection firm, warns on its website.

In January, FINRA issued a regulatory notice assessing the risk of TICs and other complex real estate investments, including the possibility "that the product will not perform as many investors anticipate, or that it might be sold on the basis of enhanced yield." The following month a FINRA arbitration panel awarded $1.37 million to San Diego clients of the California law firm of Miller & Milove against LPL Financial, which serves more than 13,000 financial advisors with research and investment products as well as administrative services.

Miller & Milove charged that LPL was aware that the properties were incapable of generating income to pay the projected returns. Instead, the plan all along was to repay the investors with their own money. LPL says it only offers such investments to accredited investors through trained advisors.

Through spokesman Michael Herley, LPL said: "1031 tenant-in-common offerings are complex investments. As such, the programs and program sponsors are subject to a rigorous due diligence process. These offerings must have investment merit before they are approved for sale, and many are rejected. In addition, because of their complexity, these offerings are available only to accredited investors under Regulation D, and usually require that prospective investors have significant prior real estate experience.


Advisory Fees Inch Up, At Least on the High End

Advisory fees are inching up for the wealthiest clients. According to research firm Cerulli Associates, many advisors to high-net-worth investors have increased their fees over the last three years.

While high-net-worth clients are extremely price sensitive, advisors have been able to make a case to clients as the economy begins coming out of the financial crisis, says Rob Testa, a senior analyst at Cerulli. The firm found that four in 10 RIA firms and multifamily offices raised their fees over the past three years, as did 23% of bank trusts and private client groups.

The increases - primarily to asset-based fees and retainer fees - were modest, Testa says. The research was culled from Cerulli's annual high-net-worth provider survey covering some 200 wealth managers and advisory firms.


Sec Accuses California Advisor of Multimillion-Dollar Fraud

A Tustin, Calif., woman is facing a long list of civil and criminal penalties after allegedly orchestrating a multimillion-dollar investment fraud scheme. In a civil complaint filed Feb. 14, the SEC charged Brenda Eschbach with securities fraud, investment advisory fraud and acting as an unregistered broker-dealer.

The commission alleges that, from 2003 to 2009, Eschbach, 55, misappropriated more than $3 million of her clients' assets. Eschbach's bank statements reveal that money clients intended for investment were instead put toward her personal expenditures, including mortgage payments, Mercedes lease payments, private school tuition and trips to Las Vegas and Atlanta, according to the SEC complaint. Eschbach's attorney did not respond to several requests for comment.

Eschbach pled guilty in September to money laundering and mail fraud for sending false account statements to clients in a separate case. In February, the U.S. District Court for the Central District of California sentenced her to 41 months in prison and ordered her to make restitution to the tune of $2.5 million.