Ameriprise Close To A Deal With Securities America Clients?

Tuesday, March 29, 2011 05:53
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Ameriprise Close To A Deal With Securities America Clients?

Tags: independent broker-dealers

By the time you read this, there's a good chance Ameriprise lawyers have settled with aggrieved ex-clients of Securities America. But the drama won't stop there.

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Even if Amerprise has come to a deal on the approximately $400 million that its independent broker-dealer unit lost for its clients by selling them a bad "medical debt" fund, relations between the company, Securities America, and its roughly 1,800 advisors have been tested and in some cases probably frayed.

 

This is probably not the "deteriorating" situation that one disgruntled rep is reportedly seeing and we will probably not see a mass exodus of advisors, but the Securities America that emerges from here will different one way or another.

 

Having to lean so publicly on its corporate parent only demonstrated the limitations of the company's equity structure. Lawsuit or no, any national broker-dealer with only $9 million in capital to work with is not in great shape.

 

While Securities America could theoretically have always called on its parent in an emergency, we've now seen just what kind of "process" was in place for that type of plea for help and how unclearly the companies' joint goals could be articulated.

 

And we are talking about the sixth-largest broker-dealer in the country here, so there are a lot of clients at stake. Their feelings have barely been probed here.

 

And while Ameriprise and Securities America seem to be paying some attention to retaining the advisors, having your brokerage firm nearly die because it couldn't pay its legal penalties doesn't really inspire confidence in investors.

 

The public can still remember the disruptions surrounding the death of Lehman Brothers and Bear Stearns -- not to mention the ongoing transformation of Merrill Lynch, Smith Barney, and Morgan Stanley. They don't want that to happen to them.

 

While the veil of corporate communications may restrict Securities America reps from talking much to their clients about what's going on, this is a good lesson for all advisors to think about.

 

What do you tell your clients in a worst case scenario? And do you want them to hear the bad news from you, or from the financial media? And how do you reassure them that their interests are safe in any event?

 

Meanwhile, word is that a lot of Securities America advisors are grateful that they did work at a company with fairly deep corporate connections -- even if accessing those connections hasn't been a smooth process.

 

Compared to outright failures like QA3, which imploded and left advisors having to scramble for affiliation, Securities America is a unit of a publicly traded company. If Ameriprise wants to cut the cord, it will sell the firm or spin it out.

 

Either way, there will be resources to smooth the transition that QA3 advisors didn't get.

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