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data analytics financeA major trend in the investment advisory world has been the flight of brokers or advisors from the large wirehouse firms (e.g., Morgan Stanley, UBS, Merrill Lynch) to small SEC or state Registered Investment Advisory firms. This article describes some of the forces driving this trend, and the legal implications for investors who may in future have claims against such brokers and their new firms relating to the handling of their investments.

This trend can be primarily explained by the fact that brokers keep more of their production (earnings from their investing activities) at small independent RIAs than they do at the wirehouses.  They also have more control of their own businesses. These factors benefit brokers. However, in general, the quality of supervision at such firms – a key factor in investor protection—is lower than at the wirehouses. Further, collecting against them for wrongdoing can be expensive and sometimes fruitless.

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