The Securities and Exchange Commission has put out a questions-and-answers bulletin explaining how broker-dealers and investment advisors should approach conflicts of interest.

The SEC starts the Q&A by confirming that yes, all broker-dealers and investment advisors do indeed have conflicts of interest.

“Specifically, they have an economic incentive to recommend products, services, or account types that provide more revenue or other benefits for the firm or its financial professionals, even if such recommendations or advice are not in the best interest of the retail investor,” the SEC wrote.

The conflicts can include those related to compensation, revenue or other benefits — including commissions, markups, bonuses, gifts, entertainment and travel — to the firm, its financial professionals or its affiliates for the services rendered to retail investors, according to the regulator.

The SEC also emphasizes that it’s the firms’ responsibility to identify the conflicts of interest, as per Regulation Best Interest and the Advisers Act.

To do so, firms should define conflicts of interest, establish a process to identify them, ensure an ongoing and periodic process to do so and establish training programs for financial professionals about identifying conflicts of interest and bringing them to the management’s attention, according to the regulator.

“Finally, the staff believes that firms should establish a ‘culture of compliance,’” the SEC wrote. “As applied to conflicts of interest, creating an environment where conflicts are taken seriously and financial professionals feel empowered and encouraged to take an active role in identifying conflicts so that they may be adequately addressed may significantly decrease the likelihood of a violation."

The regulator also said that identifying and disclosing any conflicts of interest isn’t sufficient, as some of them “should (and in some cases, must) be addressed through mitigation.”

To do so, the SEC suggests that firms avoid compensation thresholds that promote incremental sales of certain products or services, minimize compensation incentives favoring one type of account over others, eliminating compensation within comparable product lines, adjusting compensation for professionals who fall afoul of managing conflicts of interest and limiting the types of products or strategies that can be recommended by their financial professionals.

In addition, certain conflicts of interest must be eliminated altogether, with particular attention to benchmarks, quotas and other performance metrics set on the firms’ financial professionals, according to the regulator.

Back in 2020, Merrill Lynch said it was restricting what its staff can accept as gifts and entertainment from investment managers and other third parties.

Due to “potential conflicts of interest,” third-party product and service providers will no longer be able to “pay for gifts, meals and entertainment for employees” of Merrill, the firm told staff at the time.

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The Financial Industry Regulatory Authority says it has censured and fined Morgan Stanley over allegations that its research reports contained errors.

Between Aug. 30, 2019, and Feb. 28, 2020, the company allegedly put out around 11,000 equity research reports that included inaccurate stock ratings in their price charts, according to a letter of acceptance, waiver and consent published by the industry’s self-regulator.

The errors were the result of an alleged lack of a supervisory system properly designed to ensure the information was correct, Finra says.

More specifically, the company revised the software used to generate price charts approximately around August 2019, in order meet new European Union regulatory requirement about the length of disclosures for recommended securities, according to the letter of acceptance.

The software, however, “contained a typographical error that caused the price charts in certain research reports to display stock ratings from five years prior to the report, but labeled those ratings, inaccurately, as being from three years prior to the report,” Finra said.

After a firm supervisor spotted the problem in January 2020 and escalated the issue, Morgan Stanley nonetheless continued publishing reports with inaccurate historical ratings until the end of February that year, according to the letter of consent.

Moreover, between April 7 and May 17, 2021, Morgan Stanley allegedly didn’t accurately disclose required beneficial ownership information in 1,616 equity research reports, following the acquisition of an unnamed investment management company, Finra says.

The watchdog added that the company provided “extraordinary cooperation” in addressing the issues, including hiring outside counsel to correct both issues before any regulator detected them, voluntarily improved its supervisory systems and assisted Finra with its investigation.

Morgan Stanley consented to a censure and to pay a $325,000 fine without admitting or denying the findings, according to the letter of acceptance.

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Focus Financial Partners has its sights set on more mergers and acquisitions this year.

“We continue to believe that 2022 will be one of our best years for M&A,” Focus founder, chief executive officer and chairman Rudy Adolf said Thursday during a call with analysts to discuss the company’s second quarter earnings.

That implies that many more M&A deals are in the pipeline for the company since it has closed or announced only 14 deals so far this year, which includes 11 mergers from partner firms and three new partner firms, according to a regulatory filing on Thursday. That’s significantly lower than the 38 transactions it had in 2021 — a record year of M&A activity for the company.

“Our partner firms remain active in seeking mergers to strengthen their client service capabilities and enhance the growth of their business and we expect deal volume and momentum to only increase once current market volatility subsides,” Adolf said.

Focus has three different acquisition models: a partner firm model, a merger model and Connectus Wealth Advisers.

With the partner firm model, Focus acquires registered investment advisor and management firms. In this model, Focus owns 100% of the assets and acquires on average about 50% of the firm’s earnings while the firm owns the other half. Focus gives the firms it acquires access to growth capital and value-added services.

With the merger model, Focus facilitates its current partner firms to acquire wealth management practices and additional customer relationships. Connectus, itself a Focus partner firm, acquires wealth management practices whose founders are primarily interested in focusing on managing their client relationships.

Focus currently has 87 partner firms, which as of March were located in more than 250 offices in four countries, with more than 2,500 principals and employees.

The company aims to have 125 partner firms; around $4 billion in revenues; $1.1 billion in adjusted earnings before interest, taxes, depreciation and amortization; and a 28% ebitda margin by 2025, Adolf said during its Investor Day in December and then again during an earnings call with analysts in February.

Focus is “very selective and disciplined” when choosing partner firms, Adolf said, noting, “that’s how we built this business.”

“We are walking away from many opportunities where we don't like the pricing, or we don't think it is a good fit for our business objectives here,” he added.

Adolf said he sees “firms as platforms” and aspires to “help them grow” and eventually “acquire other firms.”

As a possible recession looms, Adolf said Focus remains “prudent” with capital deployment, noting that its “diversified revenue stream” will help “mitigate our market sensitivity.”

Adolf expects Focus to post a revenue growth of about 20% for the year, and estimates earnings before interest, taxes, depreciation and amortization growth at about 16% to 18%.

On Thursday, Focus reported total revenues of $539.2 million for the second quarter, up 26.8% year-over-year. Its ebitda for the quarter was $137 million, up 27.1% year-over-year.

Adolf also expects Focus’ partner firms to “adapt quickly” to a changing market environment. “Because our partners have autonomy, they are nimble in how they manage their businesses,” he said.

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For years, advocates of active management have argued that when the bull market bucks, investor interest in such products will pick up.

Now that we’re in growling bear territory, we asked advisors about their stance on active management.

Two thirds, or 66%, of the 125 advisors we surveyed between July 7 and July 15 said they are more inclined to consider an active manager now than before.

Advisors who are newer to the field said they are more likely to consider active managers than more seasoned practitioners.

When it comes to the vehicle of choice, 66% of the advisors we surveyed said they are most likely to consider mutual funds. That's despite actively managed mutual funds seeing assets shrivel by 21% between the close of 2021 and June 30th, according to Morningstar Direct data.

However, the less tenured advisors we surveyed are most open to considering exchange-traded funds for active access. All of the respondents with less than five years of experience said they would consider actively managed ETFs. On the other hand, only 58% of respondents with more than 20 years of experience said they would likely look at products in that wrapper.

Less than half, or 41%, of the respondents who were open to active managers overall said they are likely to consider separately managed accounts as a means of incorporating active strategies into their portfolios.

Only a fifth of respondents said they are likely to consider third-party models.

Breaking results down by channel shows that insurance channel respondents were particularly enthusiastic about mutual funds. Indeed, 83% of advisors we surveyed in the category who are considering active managers said they are likely to employ mutual funds. That compares with 58% who said they would consider ETFs.

Meanwhile, 72% percent of registered investment advisor respondents said they would consider mutual funds compared with 68% who would turn to ETF options.

Overall, ETFs followed in close second among advisors considering active managers, with 65% of those considering employing them when choosing active strategies.

That comes as managers traditionally focused on active management, such as Capital Group, American Century and others continue to roll out active ETF suites.

Similarly, investors appear to be getting acclimated to tapping ETFs for exposure beyond indexes: 15% of all net new money poured into ETFs during the first five months of 2022 went to active products. Still, at $312 billion they represent only a sliver — 4.7% — of the ETF market.

Of those considering active managers, 44% of the respondents in the RIA channel said they are likely to consider SMAs compared with 43% of the respondents in the national broker-dealer and wirehouse channel and 42% in the insurance channel.

Of all channels surveyed, insurance providers were by far the most likely to consider mutual funds above any other product type.

The bear market hasn’t prompted everyone to consider allocating to active. A third of respondents we surveyed expressed a general lack of confidence in active managers. When asked why, the most commonly cited reason boiled down to autonomy: 47% of active-management skeptics said “I prefer to build and manage portfolios myself.”

Meanwhile, 44% expressed a lack of faith in active managers’ ability to perform. Finally, 28% of advisors eschewing active cited cost as the primary deterrent.

Only 7% of respondents pointed to end investors’ opinions as a reason to steer clear because “clients simply don’t want to hear about them or trust them.”

Alana Pipe is the data visualization technical lead at FA-IQ's parent company, Money-Media, and a member of the Ignites Research team, which conducts original surveys on various aspects of the asset management industry.

Robinhood’s chief executive officer has dismissed talk of a possible acquisition of the firm and set out the firm’s own goals for mergers and acquisitions.

Chris Koegel, head of investor relations at Robinhood, asked CEO Vlad Tenev during the firm’s second-quarter earnings call on Wednesday about “any word” on the firm getting bought by retail brokerage Charles Schwab or crypto trading platform FTX, according to a transcript published by The Motley Fool.

Sam Bankman-Fried, founder and CEO of FTX, disclosed earlier this summer that he bought a 7.6% stake in Robinhood, according to Barron’s. And last month, reports emerged that Robinhood could be an attractive target for Schwab as well as Morgan Stanley and market maker firm Citadel Securities, according to Forbes.

“So in one word, no,” Tenev said, according to the transcript. “I think we're in a great position as a stand-alone company. I love us as a stand-alone company,”.

“We've got a strong balance sheet. We've got an awesome team and we're delivering on our product road map, as I mentioned, at a pace that we haven't seen before. So actually, I'd flip it on the other side,” the CEO added.

Tenev said that Robinhood had around $6 billion on its balance sheet that it could use to acquire other firms “that can help us accelerate our road map,” adding that the firm is “on the lookout,” according to the transcript.

Robinhood chief financial officer Jason Warnick likewise said in the call that “the best use of our cash right now is to fund the business, both our organic initiatives to drive growth, as well as potentially to use for acquisitions.”

Tenev also said that Robinhood is on track to close the planned acquisition of U.K.-based crypto platform Ziglu by the end of the year, which would “accelerate our entry into the U.K. and the rest of Europe,” according to the transcript.

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Insurance distributor and wealth management firm Integrity Marketing Group says it’s acquiring the registered investment advisor firm Gladstone Wealth Partners.

Founded in 2012 by Robert Hudson, Gladstone currently oversees more than $13 billion in client assets, offering an open architecture, multi-custodial RIA platform as well as access to a full-service broker-dealer, according to Integrity.

Integrity didn’t disclose the financial terms of the deal, which “is scheduled to close upon regulatory approval,” according to the firm.

As part of the transaction, Hudson and Gladstone chief executive officer Richard Frick will become managing partners in Integrity, the company says.

"The addition of Gladstone Wealth Partners to the Integrity family means that we can serve the life, health and wealth needs of Americans better than ever before as we help them plan for the good days ahead,” Bryan Adams, co-founder and CEO of Integrity, said in the announcement.

“Gladstone's wealth management expertise combined with Integrity's strength in marketing, technology and product distribution will give rise to far-reaching new solutions,” he added. Gladstone, meanwhile, will be able to tap Integrity's insurtech platform for “robust technology optimized by deep data insights and constant product development,” according to Integrity.

“Through this transaction, many of our existing Gladstone advisors will become equity owners in Integrity, which will enable them to participate in the future appreciation of our combined business,” Frick said in the announcement. “Recruiting and serving the industry's premier financial advisors has always been a core strength of ours and I have never been more excited about the future of our business, our partners, our advisors and their clients than I am today."

Integrity has close to 6,000 employees working with around 500,000 agents and advisors serving over 11 million clients annually, according to the firm. This year, Integrity will oversee more than $30 billion in assets under management and advisement through its RIA and broker-dealer platforms, the company says.

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