Merrill Lynch Reverses Ban on Commission-Based Retirement Accounts

Merrill Lynch, the wealth management arm of Bank of America, is reversing its ban on commission-based products in customer retirement accounts following the death of the Department of Labor’s fiduciary rule earlier this summer. The wirehouse said that requests from its customers and a new regulatory environment were the impetus behind the change.

Last year, Merrill Lynch banned brokerage retirement accounts in favor of a fee-based model to prepare for the fiduciary rule, which attempted to eliminate conflicted retirement investment advice by placing certain restrictions on commission-based product recommendations.

After the rule was overturned by the Fifth Circuit Appeals Court in March, Merrill said that its customers began questioning why their accounts were more restrictive than accounts held at rival brokerages that still offered commission-based trading.

“In response to client feedback, we’re announcing steps today that will provide our clients with greater choice and flexibility, while maintaining our support for a best interest standard for investment advice across all accounts,” said Andy Sieg, head of Merrill Lynch Wealth Management.

Merrill Lynch customers will be permitted to make commission-based trades in their accounts on October 1st.

The Securities and Exchange Commission is in the process of crafting its own broker conduct rule, known as regulation best interest, which will require brokers to act in the best interest of a retail customer when making any securities transaction recommendation.

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LPL Financial Adds Former First Allied Team to its Platform

LPL Financial LLC, the nation’s largest independent broker-dealer, has added Sackman & Son Financial Services to its broker-dealer and corporate registered investment advisory platforms. Sackman & Son, a third-generation financial services firm formerly affiliated with First Allied Securities, serves approximately $360 million of client brokerage and advisory assets.

Sackman & Son was founded in the early 1990s by Lee Sackman and his son Gary. The family has provided financial services to clients in the Waukegan, Illinois area for more than 50 years. Sackman has since retired, but his grandson Daniel Sackman is the third generation to take part in the family business.

Sackman noted that LPL’s self-clearing capabilities were a huge factor in the decision to change firms.

The firm also includes advisors Gary McBride and James Barnes and two support staff members. The team provides financial planning services, including retirement planning, education planning and long-term care strategies.

LPL Financial oversees approximately $659 billion in brokerage and advisory assets as of June 30, 2018 and serves more than 16,000 financial advisors.

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Resource Apartment REIT III Completes Purchase of $33.8 Million North Carolina Property

Resource Apartment REIT III Inc., a publicly registered non-traded real estate investment trust, has completed the purchase of Matthews Reserve, a 212-unit multifamily community located in the Charlotte suburb of Matthews, North Carolina, for $33.8 million, excluding closing costs.

Built in 1998, Matthews Reserve is comprised of one- to three-bedrooms units with patios or balconies, washer/dryer connections, and full-sized kitchens. Property amenities include a swimming pool with sundeck, fitness center, car-care center, dog park, and clubhouse. The property is currently 96 percent leased.

Matthews Reserve sits one mile from US-Route 74, a major interstate with direct access to uptown Charlotte, the home of major corporations that employ more than 85,000 area residents, including Atrium Health, Wells Fargo, Bank of America, and American Airlines.

The REIT’s Chief Executive Officer, Alan Feldman, believes the property’s location, expanding employment opportunities, and lifestyle amenities make it an attractive addition to the REIT’s portfolio.

“We are excited to acquire a community in the middle of it all, with a suburban location close to everything uptown Charlotte and an expanding metropolitan area have to offer,” said Feldman.

Resource Apartment REIT III invests in U.S. multifamily rental properties, as well as loans secured by multifamily rental properties. The company’s $1 billion offering was declared effective in April 2016 and raised $66.9 million in investor equity, as of August 28, 2018. The REIT’s portfolio is comprised of three multifamily properties purchased for $76 million, according to Summit Investment Research.

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SEC Charges Advisory Firm and Principal with Fraud for Associating with Barred Adviser

The Securities and Exchange Commission has filed charges against a Buffalo, New York, investment advisory firm and its owner for misleading firm clients about its association with a barred investment adviser, who is also being charged for violating the bar.

The SEC’s complaint alleges that in 2014, Walter Grenda sold his investment advisory assets, including his longstanding client base, to Grenda Group LLC and his son Gregory Grenda in anticipation of a negative outcome in an SEC fraud investigation.

In 2015, the SEC barred Walter Grenda from association with an investment adviser, but the SEC alleges that he continued to associate with Grenda Group by meeting with a prospective client and current clients in the firm’s offices, as well as making discretionary changes to clients’ investment accounts.

The complaint alleges that the firm and Gregory Grenda permitted Walter Grenda’s association with the firm, failed to disclose his bar to their clients, and made misleading statements to clients who inquired about the bar.

The SEC further alleges that Walter Grenda impersonated a Grenda Group client on a call to the firm’s broker-dealer and, while subject to the associational bar, Walter Grenda repeatedly impersonated his son on calls to the firm’s broker-dealer, after which the broker-dealer terminated its relationship with firm.

The complaint alleges that Grenda Group and Gregory Grenda later made misleading statements to clients and failed to disclose material facts about the termination.

“Associational bars are designed to protect retail investors from those the SEC has deemed unfit to provide advisory services,” said Marc Berger, Director of the SEC’s New York regional office. “Here, we allege that bar was circumvented, and took action to ensure investors are protected.”

The SEC’s complaint charges Grenda Group, Gregory Grenda, and Walter Grenda with certain violations of the Investment Advisers Act of 1940. It also charges Grenda Group and Gregory Grenda with fraud under the Advisers Act, and Walter Grenda for aiding and abetting their fraud. The complaint seeks penalties and permanent injunctions.

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Securities America Recruits $650 Million Super OSJ Hybrid from LPL Financial

Securities America, a wholly owned subsidiary of Ladenburg Thalmann Financial Services Inc. (NYSE: LTS), has added Patriot Financial Group, an independent hybrid registered investment advisor and super office of supervisory jurisdiction with approximately $650 million in total client assets and 33 total financial advisors. The group was previously affiliated with LPL Financial.

Westborough, Massachusetts-based Patriot Financial Group, led by founder and chairman David O’Donnell and chief executive officer Michael Tashjian, specializes in wealth management, retirement planning, and insurance solutions and provides a mix of fee- and commission-based service.

Patriot Financial Group provides personal insurance planning and business protection that accounts for key person life insurance, disability, general liability and business continuity insurance. The group, which has a 10-member office staff, also provides advisor support services including succession planning, transition support and team coaching on the vision of the business as well as on individual goals and roles.

“We have taken a very intentional approach to building our firm and our business model,” said O’Donnell. “We’re a strictly independent and advisor-centric model. Our platform is based on team-building and supports our advisors; each advisor is independent; each firm is advisor-owned. But they have the support of a larger group of specialists to call on to strengthen their practices.”

Securities America is one of the nation’s largest independent advisory and brokerage firms, with more than 2,500 independent advisors and $86 billion in client assets as of December 31, 2017.

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FINRA Bars Former PFS Investments Broker for Stealing $100,000 from Client

The Financial Industry Regulatory Authority has barred former PFS Investments broker Daniel Winger for stealing funds from an elderly client. Winger first entered the securities industry in 1986 and was affiliated with PFS for more than 31 years until his termination on August 16th.

Between April 2015 and April 2018, while Winger was associated with PFS, an elderly customer gave him checks totaling approximately $100,000 made payable to Dan Winger and Associates. According to FINRA, the customer understood that the checks were to be used for her benefit, including to pay commissions associated with her brokerage account and for taxes.

However, FINRA claims that Winger endorsed the checks, deposited them into a separate bank account, and used the funds for his own personal use.

Winger, who held FINRA Series 6, 63, and 26 licenses, was barred from practicing by FINRA, which he accepted without admitting or denying the charges, according to the letter of acceptance, waiver and consent.

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Lightstone REITs Appoint CFO and Treasurer

The boards of Lightstone Value Plus Real Estate Investment Trust V Inc., Lightstone Value Plus Real Estate Investment Trust III Inc., Lightstone Real Estate Income Trust Inc., three publicly registered non-traded REITs sponsored by the Lightstone Group, have appointed Seth Molod as the companies’ chief financial officer and treasurer effective August 27, 2018.

Molod was named executive vice president and chief financial officer of The Lightstone Group earlier this month, as reported by The DI Wire. He replaces Donna Brandin who resigned from the Lightstone Group at the end of June.

Prior to joining Lightstone, Molod was chair of real estate services and a member of the executive committee at Berdon LLP, where he worked for more than 25 years. In this role, he was responsible for oversight of the firm’s advisory practice, where he planned and structured partnerships, mergers and acquisitions, and joint venture arrangements to maximize economic and tax benefits.

The company noted that Molod “has extensive experience advising some of the nation’s most prominent real estate owners, developers, managers, and investors in both commercial and residential projects, and has worked with many privately held real estate companies as well as institutional investors, REITs, and other public companies.”

Molod is a licensed certified public accountant in New Jersey and New York and a member of the American Institute of Certified Public Accountants. He holds a bachelor’s degree in accounting from Muhlenberg College.

Lightstone is a privately held real estate company that develops, manages and invests in all sectors of the real estate market, including residential, hospitality, commercial, and retail and owns a $3 billion portfolio of 176 properties. The company sponsors several non-traded real estate investment trusts including Lightstone Value Plus REIT III and Lightstone Real Estate Income Trust, in addition to Lightstone Value Plus REIT and Lightstone Value Plus REIT II, which are both closed to new investors.

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Cetera Launches Advisor Equity Participation Program, Succession Planning Funding Program

Cetera Financial Group, the second-largest independent financial advisor network in the nation by number of advisors, will be launching two new advisor initiatives: an advisor engagement and equity participation strategy and a succession planning funding program.

Cetera’s advisor equity participation program was designed to support the alignment of interests among Cetera, its advisors and their clients, the company said. Cetera said that the program “provides advisors with ongoing upside in the development of the business as a whole, encouraging stakeholders at every level of the company and its advisors to focus on sustaining long-term growth.”

The succession planning funding program was designed to facilitate M&A transactions between independent financial advisor practices, including purchases of advisor practices not currently on the Cetera platform.

The initiatives were announced at last week’s Connect18 national conference in San Antonio, the first gathering of advisors and home office executives from across the Cetera network.

Cetera’s network of six independent broker-dealer firms includes Cetera Advisors, First Allied Securities, Brokerage Services, Cetera Advisor Networks, Cetera Financial Institutions, and Cetera Financial Specialists.

Cetera is the nation’s second-largest independent financial advisor network with nearly 8,000 advisors, as well as a retail service provider to the investment programs of banks and credit unions.

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AR Global’s Healthcare Trust Urges Investors to Reject MacKenzie Tender Offer

The board of Healthcare Trust Inc., a publicly registered non-traded real estate investment trust sponsored by AR Global, is urging shareholders to reject an unsolicited tender offer launched by MacKenzie Realty Capital and its affiliates.

MacKenzie is offering to purchase up to one million shares of Healthcare Trust common stock for $10.99 per share offer, which is approximately 45.7 percent less than the REIT’s current net asset value of $20.25 per share.

Healthcare Trust said that it became aware of MacKenzie’s latest offer after being notified by a shareholder that he had received a communication from the company.

“It is unfortunate that MacKenzie continues to use forms and materials which seem to be designed to mislead stockholders into believing they are issued by HTI,” the REIT said in a statement. “MacKenzie’s disdain for HTI stockholders is apparent from the condescending tone taken in its letter and the fact that MacKenzie didn’t take enough care to proof-read for grammar or accuracy, or to correctly reference HTI’s comprehensive public filings, from which they freely quote out of context and without indicating

In other Healthcare Trust news, the company has appointed Edward Michael Weil Jr. to serve its new chief executive officer and president replacing W. Todd Jensen, effective September 12, 2018.

Healthcare Trust invests in multi-tenant medical office buildings and owns a portfolio of 185 properties with a total purchase price of $2.5 billion as of the second quarter of 2018, according to Summit Investment Research. The company’s primary offering was declared effective by the SEC in February 2013 and closed in November 2014 after raising $2.2 billion in investor equity.

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Transamerica Entities to Pay $97 Million to Investors Over QI Model Errors

The Securities and Exchange Commission has charged four Transamerica entities for misconduct involving faulty investment models and ordered the entities to refund $97 million to misled retail investors.

According to the SEC’s order, investors put billions of dollars into mutual funds and strategies using the faulty models developed by investment adviser AEGON USA Investment Management.

AEGON, its affiliated investment advisers Transamerica Asset Management and Transamerica Financial Advisors, and its affiliated broker-dealer Transamerica Capital, claimed that investment decisions would be based on AEGON’s quantitative models.

The SEC claims that the models were developed solely by an inexperienced, junior AEGON analyst, contained numerous errors, and did not work as promised. The SEC found that when AEGON and Transamerica Asset Management learned about the errors, they stopped using the models without telling investors or disclosing the errors.

“Investors were repeatedly misled about the quantitative models being used to manage their investments, which subjected them to significant hidden risks and deprived them of the ability to make informed investment decisions,” said C. Dabney O’Riordan, co-chief of the SEC enforcement division’s asset management unit.

Without admitting or denying the SEC’s findings, the four Transamerica entities agreed to settle the SEC’s charges and pay nearly $53.3 million in disgorgement, $8 million in interest, and a $36.3 million penalty, and will create and administer a fair fund to distribute the entire $97.6 million to affected investors.

In separate orders, the SEC also found that AEGON’s former global chief investment officer Bradley Beman and former director of new initiatives Kevin Giles each were a cause of certain violations.

Specifically, the regulators claim that Beman did not take reasonable steps to make sure the mutual funds’ models worked as intended and that he and Giles both contributed to the firm’s compliance failings related to the development and use of models.

Beman and Giles agreed to settle the SEC’s charges without admitting or denying the findings and pay, respectively, $65,000 and $25,000 in penalties that also will be distributed to affected investors.

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