Young IFP Securities’ net capital shortfall was ‘accounting error’, CEO says

Bill Hamm and his mammoth affiliate left LPL Financial in 2019 to start their own broker-dealer company, IFP Securities, with 190 financial advisors, as well as registering a hybrid investment advisor.

It was a journey. Three years later, the broker-dealer reported a drop in net worth of nearly half a million dollars, showing a net equity gap of $120,000 at the end of 2022 in its annual audited financial report it filed last week with the Securities and Exchange Commission. . A year earlier, IFP Securities reported a net worth of $406,000, well above the $41,000 required minimum.

The industry net worth rule reflects how much cash a firm has on hand at the end of the day. According to the Financial Industry Regulatory Authority Inc., the rule requires broker-dealers such as IFP Securities to always have and maintain net worth at a certain level in order to protect clients and creditors from monetary losses that can occur if companies go bankrupt. Failure to meet net worth levels means that firms may have to cease operations and close.

In the past, especially during the 2008 credit crunch and its aftermath, a broker-dealer that fell below the required net worth level caused alarm for securities regulators.

In an interview Thursday morning, Hamm, owner and CEO of IFP Securities, downplayed the net worth issue mentioned in Focus’s annual report, calling it an “accounting error” unearthed by the firm’s auditors this year in connection with its expense reporting.

“The cash was there, it was just accrual accounting,” Hamm said, referring to accounting methodology. “By January 2 or 3, net worth was back up to $350,000.”

According to the Investopedia.com website, accrual accounting is a method of accounting in which income or expenses are recorded at the time a transaction occurs, rather than at the time a payment is received or made.

IFP Securities, headquartered in Tampa, Florida, is part of the larger Independent Financial Partners group. According to the latest ADV form, RIA, IFP Advisors, has $10.5 billion in client assets.

The firm recently answered Finra’s net worth question but has not received a response from the regulator, Hamm said, adding that the broker-dealer accounts for 15% of the Independent Financial Partners group’s earnings. The firm also increased the number of financial advisors since opening in 2019 to 260, up 37%.

“We’re happy where we are, but I wouldn’t say there weren’t any problems along the way,” Hamm said. “There are quite a few things we didn’t know about being a broker-dealer.”

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