Ron Carson Takes Forgivable Loans from Cetera
Paying “forgivable loans” and other big bonuses to newly hired brokers and advisors for hitting future revenue, tenure and customer asset-transfer targets has become a questionable practice of late, but at least one superstar recently accepted such offers from a major independent broker-dealer.
Ron Carson, who in January affiliated his brokerage business with Cetera Advisor Networks after 27 years with LPL Financial, the biggest independent firm, received “transition assistance, forgivable loans and expense reimbursements to assist in moving client accounts” to Cetera, according to a January 25 regulatory filing from Carson Wealth Management.
“The loans have the potential to be forgiven by Cetera based upon a predetermined level of assets under management moved on to the Cetera Advisory platform,” it said. “The transition assistance and expense reimbursement payments are contingent upon the firm reaching predetermined production levels.”
Some advisors may also benefit from loans that will be forgiven based on “maintaining a relationship with Cetera,” it said, language that typically indicates a longevity bonus.
Neither Carson, whose website says he was “LPL Financial’s top-ranked registered representative for 25 consecutive years,” nor a spokesman for Cetera’s parent company returned requests for comment.
The disclosure, in an ADV brochure that registered investment advisory firms must distribute to clients, did not quantify how much Carson’s Omaha-based firm could receive. The brochure acknowledged that such arrangements create conflicts of interest “because we may have an incentive to direct client accounts to Cetera in consideration of the actual or anticipated incentives or consideration we will receive.
“We are sensitive to this conflict of interest and take steps to ensure that it does not affect our decisions for our clients,” it said. While such language appears to satisfy Securities and Exchange Commission requirements that disclosure is an effective regulatory anesthetic, Carson Wealth went further by adding that it reviews trades to “safeguard that the clients’ best interest comes first.”
As a hybrid firm with 82 investment adviser representatives and 75 brokers, Carson Wealth Management is subject to a customer-best interest fiduciary standard for its customers’ advisory accounts and a less-rigorous suitability standard for their brokerage accounts.
However, under the new fiduciary rule issued by the Department of Labor, broker-dealers are prohibited from offering recruiting-related payments that are contingent on meeting asset or sales targets on retirement accounts.
The rule’s April 10th implementation date is likely to be delayed by a Trump administration review and does not apply to non-retirement accounts, but many large broker-dealers have jumped on the rule to justify removing “back-end” incentives tied to hitting future goals and significantly reducing the size of recruiting packages.
That, in turn, has prompted smaller firms and independent broker-dealers that traditionally did not compete through high-priced recruiting deals to step up marketing of their “cultural” advantages over larger firms while stressing that the pay gap has narrowed.
Large firms such as Merrill Lynch, Morgan Stanley and UBS Financial Services have until recently offered top brokers payments and forgivable loans that approached triple the multi-million-dollar revenue many produced in the previous twelve months. About one-third was typically paid in cash upfront, with the rest spread over approximately five to nine years. Independent broker-dealers generally proffer 10% to 50% of such “trailing-12” revenue paid over five to seven years, recruiters said.
For Carson Wealth Management, which according to its latest filings manages about $3.1 billion in 14,800 advisory accounts and consults on more than $7 billion of assets in total, negotiating emoluments for both advisory and brokerage business is not new.
“In the past CWM, its CEO, affiliated companies, and advisors received a series of loans from a previous broker dealer, LPL Financial, LLC, to assist with the transition of advisory business onto the LPL custodial platform,” its ADV filing with the Securities and Exchange Commission said. “These loans contained clauses that allowed for the loans to be forgiven by LPL based on the scope of business CWM and its advisors engaged in with LPL, including the amount of CWM’s client assets that were held with LPL as their account custodian.”
Carson did not leave anything behind, apparently. “All loans have either been forgiven or paid in full as of the date of this disclosure brochure,” the January regulatory filing said.
It also said that Carson receives marketing and recruiting support from TD Ameritrade and Fidelity Investments for an outside advisor training business called Peak Advisor Alliance that that can create conflicts of interest.