Compliance February 16, 2010

Broker Held Accountable for Sister's Investment Losses

A woman who sued her stockbroker brother won $608,000 under the decision a Financial Industry Regulatory Authority (FINRA) arbitration panel.
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Diana Hojecki and her husband, James, will take home $343,000 in compensatory damages, $15,000 in fees, and $250,000 in punitive damages, according to a report in InvestmentNews.

According to an announcement from Mark Tepper, the couple’s attorney, the couple suffered a nearly 80% investment loss during a three to four month period, while their portfolio was under management of Hojecki’s brother Kenneth Popek and Tampa-based brokerage firm Calton & Associates, Inc. The news report said the portfolio included shares of General Motors Co., Lehman Brothers Holdings Inc., and Washington Mutual Inc—all of which collapsed in the credit crisis.

The panel also awarded punitive damages against the brokerage firm, which, alongside Popek, has filed an appeal, according to the news report.

The panel also denied Popek’s request to expunge the matter from his records, according to the announcement.

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In Practice February 16, 2010

Independent Advisers Want to Make Business Changes

More than half of independent advisers said their clients have modified their expectations of retirement lifestyle or plan to delay retirement, according to a survey by Curian Capital, LLC.
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Clients aren’t the only ones who adjusted their strategies amid the financial turmoil of the last year. The survey also found that many advisers changed some of their methods in the past year, including the way they interact with clients and construct portfolios. More than three-fourths (78%) of advisers said they have changed the way they interact with clients, and 88% said investor emotions affected their ability to effectively manage client portfolios. Furthermore, more than half of the advisers said they have adopted a more tactical approach to portfolio construction, according to a release of the results from Curian, a provider of a fee-based managed account platform for financial professionals.

“Most advisers responding to our survey indicate that their clients’ goals and priorities have changed dramatically since the downturn. As a result, advisers have had to make a fundamental shift in their approach to portfolio construction, client interaction, and practice management,” said Chris Rosato, senior vice president of strategic development for Curian, in the release. “The advisers who recognize the need for change and seek out new solutions for meeting their clients’ needs will be the most successful in the coming year.”

Going into 2010, 68% of surveyed independent advisers defined their 2010 business mindset as one of acceleration and growth. However, a smaller percentage (56%) actually has a strategic plan in place to grow their business. A third of the advisers know that their business model needs to change—but aren’t sure how to change it.

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One thing is clear: Few advisers plan to stagnate. Only 10% of respondents feel their business strategy is sound and does not need to change.

The Curian survey, “2010 Outlook for Advisor Priorities,” surveyed more than 1,800 independent financial advisers in November.

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