QA3 Financial was known for its relatively small, eclectic collection of financial advisors. But after the firm halted operations on Feb. 11, it will also probably become the latest symbol of the crushing financial burdens that are forcing smaller firms out of the broker-dealer business.
The Omaha, Neb.-based company stopped operating as a broker-dealer on Feb. 14, after a string of arbitration claims and awards caused it to fall short of its FINRA net capital requirements. The latest was a $1.6 million award from a FINRA arbitration panel, around January 6. In that case, the panel found that QA3 Financial did not adequately supervise a broker who sold a tenancy-in-common investment, a type of real estate deal, to a 70-year-old couple, according to press reports.
Also, QA3 Financial has gotten into legal battles with its errors and omissions (E&O) carrier, Catlin Insurance Co., over how much coverage the independent broker-dealer actually had. Those shortfalls in coverage forced the company to shutter its broker-dealer operations last Friday. QA3 sent a letter to its brokerage customers on Feb. 11, that assets, currently custodied at Pershing LLC, would be available for transfer to other custodians as of Tuesday.
Since then, teams of advisors have been working with the industry’s recruiters, hoping to land as a group with other independent broker-dealer firms, according to industry sources who asked to remain unidentified. QA3 has a fleet of about 444 advisors, whose average payouts came to about $112,500. That might seem like a small amount, but one recruiter point out that the number is significantly lower at other firms. Also, the registered reps there cleared trades through Pershing LLC. That group is known for attracting advisors with higher-net-worth clients, even if at first glance, the books of business look modest.
Several firms have already recruited former QA3 Financial advisors. FSC Securities Corp., based in Atlanta has already started the process of registering more than 50 of QA3 Financial’s old reps, Mark Schafly, FSC Financial’s president and chief executive officer, said in a telephone interview.
“We have spoken with a number of really talented advisors,” Schafly said. He added that although the firm does not set a minimum for assets under management, it recruits advisors that generate at least $250,000 in gross dealer concessions (GDC), the commissions paid to brokerage firms on investment and insurance product sales.
Commonwealth Financial, in Waltham, Mass., is another firm that could recruit advisors from QA3 Financial, according to industry sources. The company was unavailable to comment by press time.
QA3 operated with a hybrid business model, with platforms for registered representatives and registered investment advisors. QA3 Financial’s days as an independent broker-dealer are over, apparently. The company, however, will continue to conduct fee-based business, according to press reports.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access