There have been many firms that have gone out of business recently due to the sale of private placements that have gone awry. The specific private placements that have dragged down more than one dozen broker-dealers, resulting in the displacement of nearly 2,500 advisors*, include DBSI, Medical Capital and Provident Royalty. The list will most likely continue to grow as we see more and more regulatory scrutiny in all facets of our business.
The names of broker-dealers still in business who were big sellers of these products has been widely reported in industry publications. Many have been named in investor suits and arbitrations and there are a number of regulatory investigations, as well. While these firms continue to operate, questions swirl regarding their long-term future. Some may fall by the wayside, while others are acquired by better-capitalized rivals. Advisors can only speculate on the fate that such events will have on their firm, including related to the advisors’ payouts, E&O premiums, platform fees and clearing charges.
Many of these additional firms will have no choice but to close their doors due to the strain that these lawsuits and other regulatory mandates will have on their net capital. These issues have and will continue to open the door for a continued flight to quality firms as these advisors look for new homes.
We have received, reviewed and opened our door to a handful of these advisors. While there have been hundreds, we have selectively chosen just a few to join our ranks. These issues and likely more in the future will present themselves as an opportunity to find the quality advisors we are comfortable adding to the Summit family.
*Source: InvestmentNews website July 25, 2011