In a recent InvestmentNews article, Bruce Kelly reported that National Holding’s acquisition of broker-dealer WFG Investments was called off because it was too “complicated.” National Holdings had intended to acquire select assets of Williams Financial Group, including its retail broker-dealer WFG for $2.3 million. The company’s brokerage and advisory assets total approximately $3 billion.

Or…did FINRA do it?

What may have killed the deal is that selling WFG’s assets would have required the approval of the Financial Regulatory Authority (FINRA), and WFG has been square in FINRA’s line of target. The firm was fined for failing to adequately execute critical obligations in its supervision of registered representatives

In Kelly’s reporting, he indicated that Wilson Williams, retiring CEO and Chairman of Williams Financial Group, WFG’s parent company, explained that National Holdings and WFG “decided to go in different directions.” And, he added, WFG is helping its 200 brokers and advisers move to three different firms, including a National Holdings broker-dealer National Securities Corp.

While not as productive financially, Williams said, “it’s the right thing to do for the advisers and their clients.” Williams also reiterated that FINRA did not kill the deal. Rather, he said, large legal fees and certain business lines, including WFG’s institutional trading and bond desk were not good fits for National Holdings. Maybe so. However…

…More consolidation on the way

While the WFG deal did not go through, more consolidation is expected. Small broker-dealers, which Kelly reported are considered the most vulnerable, are merging with larger firms. For example, earlier this month, Royal Securities Co. of Grandville, MI, a 17-person broker-dealer managing $1.1 billion in assets, said it was joining VantagePointe Financial Group, a planning firm that does its securities business through Signator Investors Inc.

At issue is that independent brokers increasingly have seen margins compress steadily since the credit crisis as record low interest rates eat into their bottom lines. New regulations, including the Department of Labor fiduciary rule, also are reported to have hampered the sale of high-commission products such as non-traded real estate investment trusts and variable annuities, increasing the pressure on firm finances.

In a tight market, compliance hygiene matters

If the market for compatible mergers is heating up, the most likely winners in a joint venture/roll-up beauty pageant are not just those with the largest balance sheets, but also the cleanest rap sheets. It’s clear, that regardless of administration or budgets (and FINRA and the SEC announced they are asking for budget increases for 2018), all the regulatory bodies will still be looking for compliance errors and omissions (or outright wrongdoing!). They will continue to scout out bad actors acting badly.WFG may have locked the barn door after the horse was stolen and that FINRA fine may not be the primary reason the deal with National Holdings went south — but in an “apples and apples” comparison, which firm would you want to align with — the one with a hefty FINRA fine or…

So, the moral of this story is to still be prepared. Noncompliance can be costly, but compliance solutions don’t have to break the bank. Whether it’s the SEC, IIROC or your local State Regulatory body, you know your time is coming and you know reviewing your firm’s regulatory compliance exposure is always mission critical.

So let’s talk (212-233-1155). Ask about Patrina’s comprehensive, 8-module compliance solution and compliant data capture, file storage, and records archiving specifically designed for the financial services community. We’ve got you covered.