By Matthias Rieker
For a financial adviser, having an outside business can require
some choreography--to keep activities separate and make sure an
ethical line isn't crossed
Douglas Meyer knows all about choreography. A broker for Wells
Fargo Advisors in Deerfield, Ill., he's also a musical-theater
producer who has been involved in two Tony award-winning shows.
During the day, he manages about $700 million for several
hundred Wells Fargo clients. In his free time, he helps put up
blockbuster shows such as "The Producers" and "Hairspray" in New
York. He knows the thrill of hanging out with film director and
comedian Mel Brooks, who wrote "The Producers," and actress Angela
Lansbury, who played in a revival of "A Little Night Music."
"I have no singing, dancing, acting ability at all," he says,
but has long had a love of theater. "I am always out there looking
for new things" to produce.
He's one of many advisers who have another business on the side,
providing excitement, relaxation and, often enough, some additional
income.
The activity also can bring in new clients to the advisory
practice, but advisers need to be careful about following their
companies' and regulators' requirements.
One basic rule: Let the firm know about it. Another: While
referrals are OK, keep the businesses separate.
So far this year, the Financial Industry Regulatory Authority
has reprimanded 28 brokers for not disclosing an outside business
to their employer. Last year, 71 were reprimanded.
In most cases, lawyers and brokerage executives suspect brokers
didn't ask for approval because they knew they wouldn't get it,
particularly for businesses that are of a financial nature and
could be a conflict of interest--for example, setting up a hedge
fund or real-estate trust.
At Wells Fargo, each request is reviewed individually to make
sure there isn't a conflict of interest. Mr. Meyers says each show
he produces has to be approved, because Broadway shows are usually
their own legal entity.
LPL Financial doesn't want brokers in its independent network
spending more than 30% of their time on an outside business, the
company's risk and compliance chief, Michelle Oroschakoff, said at
a recent conference. Regional broker-dealer D.A. Davidson & Co.
of Great Falls, Mont., demands that "clients take priority." Other
firms limit the amount of money brokers can make with an outside
business.
Tif Joyce of Joyce Financial Management, an LPL firm in Santa
Rosa, Calif., bought an 11.5 acre property north of San Francisco
in 1989 as a country getaway. Ten years later he started a
vineyard.
The first harvest produced an award-winning wine. But the second
year, bad weather spoiled the season. In the end, he found the
operating costs to be too high and two years ago he started leasing
out the vineyard.
He took away some lessons that apply to investing and financial
planning. "Don't get swept away by euphoria when things go well,"
he now tells clients of his advisory practice, which manages about
$105 million for 119 households. "You have to have a plan B."
Mr. Meyer says his theater adventures have taught him the
benefit of rehearsal, and he has become a much better public
speaker. "If I have a big meeting, it helps me a lot," he says.
Dave Foreman, a Cheyenne, Wyo., broker with D.A. Davidson, says
he "caught the bug" of ranching at the age of 14, and 10 years ago
finally bought a remote cattle ranch that was established in
1879.
When he drives back to work on Mondays, he says, "I feel I leave
paradise." But once he is in his office, where he manages about
$320 million for more than 400 clients, "I find myself renewed and
particularly clear thinking."
Mr. Foreman is also clear about which activity is his day job.
"I have to be available for clients" even on the ranch, he says.
But many of his clients are ranchers or in a related business, and
owning his own ranch "gives me an authentic position to speak
from," he says.
A wide range of activities qualify as outside business as
defined by regulators and brokerages, including work for charities
and even coaching a child's soccer club.
Mr. Joyce even declared the oldies dance band he leads and plays
guitar in, "The Swingin' Earthlings."
"I decided to have a little fun with compliance," he says. His
answer to the compliance question about the purpose of the
business: "To drive the dance floor crazy." There were no further
questions.
Write to Matthias Rieker at matthias.rieker@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires