Three advisors tell why they fled Securities America for Commonwealth

Brooke’s Note: The Securities America situation reminds me of the downfall of Arthur Andersen in 2002. A largely respectable firm made up mostly of respectable people goes from fixture on the landscape to trade bait. For us consumers of media, it’s like theater playing out daily in the newspapers and on the airwaves. But for the people trapped inside – many with no ties to wrongdoing – it’s a bit of a nightmare. This article captures some of that.

Three former Securities America advisors with total assets of more than $400 million have fled the troubled firm to the safe haven of Commonwealth Financial Network.

Industry veterans Tom Hine, 50, principal of Glastonbury, Conn.-based Capital Wealth Management LLC; Rick Tonkinson, 56, founder and managing partner of Miami-based Tonkinson Financial; and John L. Smallwood, 43, managing partner of Shrewsbury N.J.-based Smallwood Capital, all say they hope the move to Commonwealth will be their last broker-dealer change.

No easy choices

After dealing with scandals, lawsuits and financial instability at Securities America, the three advisors say Commonwealth’s financial stability, culture, technology and advisor customer services were appealing to them.

But it was not an easy choice.

“It’s been a painful decision,” Tonkinson says. “Any person that has left Securities America has gone through similar torment. It’s like a divorce. You’re walking away from a relationship that you thought you’d be there until you retired. I didn’t want to be making a change in broker-dealers at this point in my career.” See: First Allied builds a bridge to potential Securities America defectors.

Tonkinson Financial has 1,200 clients, and manages more than $200 million in assets. Tonkinson ranked in the top 2% of advisors at Securities America. Capital Wealth Management, has 200 clients and generates more than $120 million in assets and Hines was also ranked in the top 2% of advisors at Securities America. Smallwood Capital Management has more than 400 household clients and oversees $100 million in assets. Smallwood ranked in the top 100 advisors at Securities America for the past five years.

Slow-drip stratagem

Commonwealth has a small recruiting force, concedes Andrew Daniels, managing principal of field development. But what his firm lacks in manpower, it makes up for in persistence, he says. See: Commonwealth raises payouts for big advisors and slashes trading commissions.

Daniels describes his efforts as reactive because he only contacts advisors once they’ve approached his office. But once they do reach out to him, he stays in touch for years.

For instance, Tonkinson contacted Commonwealth more than six years ago when he switched broker-dealers and ultimately decided to join Securities America. Smallwood also contacted Commonwealth three years ago when he ultimately chose Securities America.

Daniels stayed in touch with both men even after they landed at Securities America.

“We had a slow-but-consistent drip campaign and we kept on sending them Commonwealth stuff through the years,” he says.

Broken culture

The three advisors lost confidence Securities America after a scandal in which clients of the Omaha, Neb.-based broker-dealer lost around $400 million in an alleged Ponzi scheme involving private placement in Medical Capital Securities.

While there are a number of companies who are said to be interested in buying Securities America, the advisors said they didn’t want to wait for the fallout.

In fact, Smallwood wishes he had chosen Commonwealth three years ago when he the made the decision to go to Securities America.

“Within 60 days, we knew we made the wrong decision but that was July 2008 and the world blew up and we were stuck,” he says.

The final straw for Smallwood came this spring when court filings began to reveal an unpleasant picture of the company in which virtually no due diligence had been completed to protect investors from the Ponzi scheme.

“We lost all faith in that group,” Smallwood says. “We felt like the culture was broken and it was a huge distraction to our business. Every day, we were watching and wondering what’s going to happen to us. Are we going to shut down or is someone going to buy us?”

Tonkinson says he still liked some of the managers at Securities America but saw the company unraveling and feared that the firm’s culture would be even more compromised by a new buyer.

“I don’t want to be waiting for Securities America to be purchased by some 800-pound gorilla who will ruin it and the small-company feel it used to have,” he says. “What killed me with Securities America is – I hate to say it – but they poisoned the water and once they poisoned the water I didn’t want to drink it anymore.”

Tom Hine: The scandal at Securities
America caused him to lose faith
in its management team

Hine says the scandal caused him to completely lose confidence in Securities America’s management team.

“If the management team that got us into this problem is the same team that’s going to try to find a way out I just didn’t have much confidence in them,” he says.

Contenders

All three advisory firms said the other broker-dealers on their short list were LPL Financial and Cambridge Investment Research.

All three advisors had faith in the financial wherewithal of LPL – the largest independent broker dealer in the country – but they worried about getting lost in such a giant organization.

“Once you get into a large organization you may not get the same level of customer service in a smaller one,” Tonkinson says. “Larger doesn’t necessarily mean better.”

Mini-Commonwealth

The advisors liked Cambridge but say Commonwealth ultimately seemed a better fit due to its culture, technology and offerings.

Smallwood says he was impressed with everything about Commonwealth from the firm’s advanced planning department to the website development department. He also feels comfortable with Commonwealth’s brand name and feels his clients will as well.

Tonkinson feels that his firm’s ideals and Commonwealth’s match perfectly. For instance, Tonkinson prides himself on running an advisory firm with a sense of fun. Each Friday at 4 p.m., for instance, the staff takes a break for wine and cheese. Tonkinson’s firm also takes philanthropy seriously and donates about $200,000 – or 10% of its revenues – annually.

“We’re a family business and we came to the same conclusion that Tonkinson is basically a mini-Commonwealth,” he says. “We mirror Commonwealth. We understand each other and have a mutual respect.”

Hine says he likes Commonwealth’s stability and approach. He recalls speaking at Commonwealth’s national conference three years ago and being surprised that the company brought him in even though he was with a different broker-dealer.

“At the time I wasn’t even thinking of going there, but I liked the way they treated me. I thought they were very open-minded.”

RIA dreams

The advisors say they each considered becoming an RIA but the regulations involved caused them to decide against it.

“There are too many details to handle,” Smallwood says. “We are still a fairly sizable commission-based business and we weren’t willing to let go of that yet.”

Hine says switching broker-dealers is challenging enough at this point but he may form his own RIA in the future.

“It’s just too complex to do it right now,” Hine says. “The timing is not good.”

See: Commonwealth’s revamp of technology includes subtracting Advent.