Monthly Archives: March 2012

BD Corner: Increased Fines and Harsher Penalties Imposed on Brokers and Principals by FINRA in 2011

In 2011, FINRA reported 1,488 disciplinary actions, up from 1,310 in 2010. Also significant, fines in 2011 jumped 51% in 2011, up from $45 million in 2010 to $68 million last year. 2011 fines, however, were far lower than the recent high water marks of $184 and $1111 fined by FINRA in 2005 and 2006, respectively. The number of individuals barred by FINRA also increased significantly in 2011, from 288 in 2010 to 329 in 2011, constituting an increase of more than 14%.

The top areas of enforcement actions by FINRA in 2011 included:

  • Advertising. Sanctions jumped from $4.74 million in 2010 to $21.1. million last year, with the number of cases involving alleged advertising violations doubling in 2011. In addition to review of communication with investors directly, FINRA has also cracked down on inaccurate or fraudulent internal communications, i.e. inaccurate internal representations about product risk to representatives.
  • Short selling. These cases generated $16.8 million in fines, driven by a $12 million fine against UBS for violating Regulation SHO and failing to properly supervise short sales.
  • Auction rate securities was another active area, with seven cases and close to $10 million in fines in 2011.
  • Suitability. In 2011 this area saw a whopping 106 cases involving suitability allegations, up from just 53 cases in each of the previous two years. Fines in this area rose from $3.75 million in 2010 to $7.1. million in 2011.
  • Finally, 2011 saw 91 FINRA disciplinary actions and $6.6 million in reported fines concerning improper U4, U5 forms and Rule 3070; up from 67 cases and $1.45 million the prior year.

The 2011 increases evidence the more aggressive tone at FINRA, which continues to tackle  issues arising out of the 2008 financial crisis and recent high profile enforcement failures such as the Bernie Madoff and R. Allen Stanford schemes. Another contributing fact to the increased focus on enforcement may be internal pressure within the SRO to prove itself in the eyes of the SEC, Congress, and the public to reach in order to become the regulatory body for investment advisers.

For additional information about FINRA or any other compliance concern, please contact or by phone at (619)298-2880.

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Retirement On The Horizon? Start Planning Now

As the baby boomer generation careens towards retirement, many owners of investment advisory firms are thinking about succession planning for the first time. If you are among this group, it is never too early to begin the process of preparing for your eventual exit from the business.

Plan Early

The best first step in this process is to consult with one or more experts. Depending on the complexity of your business, you may want (or need) to engage an attorney, CPA, your own financial planner, a banker, a business valuation specialist, and/or even a psychologist to help manage family and other emotionally-fraught relationships intertwined with your business. Once the experts are engaged, the owner and his or her team of advisers must establish the owner’s ultimate goals: his or her “end game.” Some key information to collect and consider in setting these goals include:

  • A personal budget analysis for the owner (both current and future needs);
  • Risk protection analysis (including healthcare and life insurance expenses for the owner and his or her family);
  • Desired sale price and the amount and timing of payouts;
  • Level of involvement in the business after sale;  and
  • Rewards to the employees and employment risks created by a sale of the business.

Add Value

Once the end game is known, reaching the goal will undoubtedly require maximization of the business’s value. A number of value drivers can be evaluated and improved in the early stages of exit planning. Some simple first steps include:

  • Improving business efficiency by implementing systems and processes. This is crucial for investment advisers, where value often is derived largely from the owner, to transfer value from the owner to the firm.
  • Improving management and creating stability in the workforce is another important value driver because these individuals know the firm’s trade secrets.
  • Ensuring diversity in the business line. If 18-20% or more of the company’s profits are derived from one client, the business is not sufficiently diversified.

Act Now

Any business owner that is contemplating an exit in the next ten years should act now. Deloitte reported recently that “71% of small and mid-sized enterprise owners plan to exit their business within the next ten years…” Capital is going to be more readily available at the beginning of this cycle. If you are within this cohort, the earlier you begin planning the greater chance you have to maximize your return and improve your future.

For additional information about succession planning considerations, please contact Sarah Weber, Associate Attorney at Jacko Law Group, at or (619) 298-2880.

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