September 29, 2023

Wealth Matters: Younger Generations’ Approach to Investing

The reports by Fidelity, U.S. Trust and Pershing show how the younger generations want to set themselves apart from the baby boomers. The reports yielded tips from which any generation could benefit but also contained some red flags indicating where the younger generations could stumble in the future from the same traits that seem like strengths today.

“When I was 25 years old, I wanted to emulate my parents,” said Craig D. Pfeiffer, a former vice chairman of Morgan Stanley and the founder and chief executive of Advisors Ahead, which trains advisers to work with younger clients. “I can remember proudly telling my father that I opened an account at a national financial services firm. When we wanted to buy our first home, we sought out our parents’ real estate agent. Today there is great pride in saying ‘I don’t have an account where you have one, and I’m proud that I’m not doing what you did.’ ”

That’s all well and good — and youthful rebellion is to be expected — but the decisions chronicled in these reports will affect the financial success of these generations for years. While some choices seem to be positive, others are going to take more time to play out. Here’s a look at some of the more interesting findings.

HAVING A SAY Fidelity’s Millionaire Outlook found that Gen X and Gen Y were deeply engaged in managing their money, though that engagement was not necessarily paired with a deep knowledge of investing.

The report said that nearly three-quarters of the young millionaires surveyed said they felt knowledgeable about investing, found it enjoyable and were actively involved in it. Yet that group also reported making 30 trades a month on average, meaning they may be less aware of fees and the risks of short-term speculation.

“Thirty a month is a big number,” said Bob Oros, executive vice president of Fidelity Institutional Wealth Services. “But I would look at it less as an absolute number. They’re actively engaged in how their assets are managed.”

Mr. Pfeiffer, who participated in the introduction of the Pershing report on the need to bring younger financial advisers into the advisory business, equated the heightened interest to the do-it-yourself movement in home repair. “They go to Home Depot and Lowe’s and try to fix it themselves,” he said. “Then they call the plumber to fix what they did. There is absolutely great risk around do-it-yourself.”

Rahul Shah, a founder of Peninsula Wealth in San Francisco said his clients broke down along generational lines and by wealth level. He said that Facebook employees with wealth exceeding $20 million had found advisers to help them manage the complexity, while those with a couple of million dollars were trying to figure it out themselves.

“There are a few who say, ‘Is there an app for this that can do this for me?’ ” he said. “Whether there is an app for that or not, everyone is going to behave emotionally when they’re managing their own money.” He said he would manage his client’s money better than his father’s money because he had an emotional attachment to his father’s money.

He added that many Google millionaires discovered this the hard way in 2008, when the financial markets collapsed four years after the company’s public offering.

SEEKING VALIDATION When Gen X and Gen Y investors ask for help, they want an adviser to collaborate with them and, in some cases, validate their decisions. The Fidelity report found that nearly all millionaires in this cohort worked with advisers — compared with just two-thirds of millionaire baby boomers — but that six in 10 said they used their adviser for a second opinion on investment decisions.

This article has been revised to reflect the following correction:

Correction: September 20, 2013




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An earlier version of this article contained an incorrect photo credit. The photo is by Wendy Carlson, not Andrea Bruce.

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A Shuffle of Aluminum, but to Banks, Pure Gold

The story of how this works begins in 27 industrial warehouses in the Detroit area where Goldman stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.

This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back–and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country.

Tyler Clay, a forklift driver who worked at the Goldman warehouses until early this year, called the process “a merry-go-round of metal.”

Only a tenth of a cent or so of an aluminum can’s purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year — and add the tons of aluminum used in things like cars, electronics and house siding — and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.

The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities.

The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan was trying to reach a settlement that could cost it $500 million.

Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle.

In the case of aluminum, Goldman bought Metro International Trade Services, one of the country’s biggest traders of the metal. More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.

Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

Goldman Sachs says it complies with all industry standards, which are set by the London Metal Exchange, and there is no suggestion that these activities violate any laws or regulations. Metro International, which declined to comment for this article, in the past has attributed the delays to logistical problems, including a shortage of trucks and forklift drivers, and the administrative complications of tracking so much metal. But interviews with several current and former Metro employees, as well as someone with direct knowledge of the company’s business plan, suggest the longer waiting times are part of the company’s strategy and help Goldman increase its profits from the warehouses.

Gretchen Morgenson contributed reporting from New York. Alain Delaquérière contributed research from New York.

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DealBook: Citigroup Profit Climbs 42%

Citibank's earnings report said that the bank was helped by bond and stock trading revenue.Mario Tama/Getty ImagesCitibank’s earnings report said that the bank was helped by bond and stock trading revenue.

Citigroup posted a 42 percent rise in second-quarter earnings on Monday, handily beating expectations, as the sprawling bank worked to cut costs and expand its international lending operations.

The bank, which has hitched much of its hopes for growth to emerging markets, reported a profit of $4.18 billion, or $1.34 a share, compared with $2.94 billion, or $1 a share, in the period a year earlier. Citigroup, the nation’s third-largest bank by assets, reported revenue of $20.5 billion, up 12 percent from the period a year earlier.

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Excluding a $477 million gain from a valuation adjustment on Citigroup’s debt, the bank reported earnings of $1.25 a share. The results were bolstered by strong gains in trading revenue.

The performance exceeded analysts’ profit expectations of $3.55 billion, or $1.19 a share. Citibank was expected to report revenue of $19.76 billion, up from $18.64 billion in the period a year earlier.

“Our businesses performed well during the quarter and these results are well balanced through our products and geographies, especially in the emerging markets, where growth is being challenged,” Michael L. Corbat, the chief executive of Citigroup, said in the bank’s earnings release on Monday.

Under Mr. Corbat’s leadership, Citigroup is continuing to refocus on businesses that fit within its core strategy. As part of that push, the bank has shed $18 billion worth of assets. Citigroup also sold the remainder of its stake in the Morgan Stanley Smith Barney brokerage joint venture. Mr. Corbat also reached deals during the second quarter to sell the bank’s consumer lending units in Turkey and Uruguay.

With international lending operations that dwarf those of many of its United States rivals, Citigroup’s opportunities for growth rise and fall with the fate of emerging markets. Any sluggishness overseas, particularly in Mexico where the bank has a large presence, always lurks as an issue that could undercut earnings.

More than 50 percent of Citigroup’s revenue comes from outside of North America. While the growth in emerging markets has certainly exceeded that in the the United States, it is still producing a dispirited response from Citigroup’s top banking executives. In Mexico, for example, economic growth was not as robust as expected, Citigroup said on Monday. “Mexico shocked everyone,” John Gerspach, the bank’s chief financial officer, said on a conference call on Monday.

As growth cools in China — it reported a slowdown in second-quarter gross domestic product on Monday — other Asian economies could be damped as well.

Emerging markets were hit, as well, when Ben Bernanke, the chairman of the Federal Reserve, said in Congressional testimony in May that the government was considering whether to scale back its bond-buying program if the American economy shows signs of improvement.

During a conference call on Friday, Jamie Dimon, the brash chairman and chief executive of JPMorgan Chase, commented on the strength of emerging markets when the bank reported its earnings, suggesting that some banks capitalized on the ensuing volatility while others missed out. “Our folks in emerging markets did a particularly good job, which might not be the same for some others reporting,” he said.

On Monday, Mr. Gerspach said that the bank “did a very good job of managing our business in the emerging market this quarter.”

And despite mercurial emerging markets, Citigroup registered gains abroad. Revenue from consumer banking abroad rose 6 percent, to $4.7 billion, compared with figures in the period a year earlier. Adding to the uncertainty for Citigroup is the mercurial regulatory challenges abroad. Profits from those units grew by 4 percent, to $826 million.

Still, Citigroup’s quarterly earnings point to broader challenges facing the United States banking industry. On Friday, JPMorgan Chase and Wells Fargo reported declines in mortgage banking revenue, eroded in part by refinancing machines that were beginning to slow. A sharp uptick in interest rates has caused the refinancing boom to sputter.

Continually rising rates could damp borrowers’ appetite for refinancing existing mortgages or buying a house. Within Citigroup’s consumer banking unit, profit fell slightly by 1 percent, to $1.95 billion. As fewer consumers fall behind on their bills, Citigroup was able to empty some of the reserves — approximately $228 million — for the losses. While it receives a boost from an improvement in credit quality, Citigroup is still grappling, like many of its large peers, with skittish American consumers who remain skeptical of taking on new debt.

The wariness was clear in Citigroup’s American lending operations. “The U.S. consumer is still going through a period of deleveraging,” Mr. Gerspach said on Monday.

Adding to the uncertainty in the United States are fresh capital rules introduced by regulators last week. Since the financial crisis of 2008, regulators have been steadily introducing new requirements aimed at bolstering capital levels that could help Wall Street withstand market turbulence.

Under the new rules, regulators are pushing for banks to hold more capital as a percentage of their assets. Banks have two months to comment on the rules. On Monday, Mr. Gerspach cautioned that the requirements could undercut the bank’s ability to compete with its international rivals.

“We would all be better if there was a level playing field around the world,” he said on Monday. Like its large peers, Citigroup is wrestling with how to offset income siphoned by new financial regulation and the lackluster American economy.

A bright spot for Citigroup was its securities and investment banking business. Within fixed income, revenue swelled by 18 percent, to $3.37 billion. Revenue from stock trading rose 68 percent, to $942 million, in the second quarter.

Investors are closely watching the bank’s quarterly reports during the first year under the leadership of Mr. Corbat, who took the reins after the ouster of Vikram S. Pandit. In October, Michael E. O’Neill, the bank’s forceful chairman, pushed Mr. Pandit out in favor of Mr. Corbat.

Building on the path outlined by Mr. Pandit, Mr. Corbat has promised to continue cutting costs. Toward that goal, Citigroup reduced assets in its Citi Holdings unit by 31 percent in second quarter, to $131 billion. In an encouraging sign for Citigroup, losses within the unit that houses a glut of unwanted assets fell to $570 million from $910 million in the period a year earlier. In the aftermath of the financial crisis, Citigroup created the unit in 2009 to house a morass of soured assets. Losses on that unit were the lowest since its creation.

Even as Mr. Corbat has aggressively moved to reduce the bank’s costs, operating expenses rose 1 percent, to $12.1 billion, from the period a year earlier. Last year, as one of his first initiatives after taking over as chief executive, Mr. Corbat announced plans to eliminate 11,000 jobs.

As the bank seeks to move beyond the specter of its mortgage woes, Citigroup agreed in June to pay $968 million to settle claims that it had sold shaky mortgage loans to Fannie Mae. Before the bank empties its reserves to cushion against mortgage losses, Citibank has said it will be conservative, waiting for substantial improvement in the housing market and overall economy.

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DealBook: Glencore Xstrata Names Mack to Its Board

John Mack, the former chief of Morgan Stanley.Hiroko Masuike for The New York TimesJohn Mack, the former chief of Morgan Stanley.

LONDON – Glencore Xstrata has named John J. Mack, a former chief executive of Morgan Stanley, and Peter T. Grauer, executive chairman of information provider Bloomberg L.P., as nonexecutive directors to its board.

The mining and commodities trading company is rearranging its board following the combination of Glencore International and Xstrata, which was completed last month. The company also named Peter Coates as an executive director; he advised Glencore Xstrata’s chief, Ivan Glasenberg, on the integration.

Glencore Xstrata is still searching for a chairman after the departure of John Bond, who failed to receive enough shareholder support at an investor meeting in May over anger about a plan to pay extremely high bonuses to retain some Xstrata managers. Tony Hayward, a former chief executive of BP who sits on Glencore Xstrata’s board, was appointed to fill the position on an interim basis until a permanent successor could be found.

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Mr. Hayward said on Wednesday that the new directors had “an excellent business track record and extensive international experience, which we believe will prove invaluable in continuing the strength of debate and challenge which has typified the operation of the company’s board.”

Mr. Mack retired as chairman of Morgan Stanley in 2011 and continues to be a senior adviser to the bank. He was Morgan Stanley’s chief executive from 2005 until 2009. Mr. Grauer was previously chief executive of Bloomberg and a senior partner at Credit Suisse’s private equity business. Mr. Coates previously managed Xstrata’s coal business after the company bought Australian and South African coal assets from Glencore.

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DealBook: Indian Tire Maker to Buy Cooper Tire for $2.5 Billion

One of India’s largest tire makers, Apollo Tyres, announced a deal on Wednesday to acquire the Cooper Tire and Rubber Company for $2.5 billion in cash.

The acquisition would give Apollo a major foothold in the United States, the world’s second-largest auto market after China. Cooper, which focuses on passenger and light- and medium-truck replacement tires, is the fourth-largest tire maker in North America. Its brands include Cooper, Mastercraft, Starfire, Chengshan, Roadmaster and Avon.

Under the terms of the deal, Cooper shareholders will receive $35 a share in cash – a 42.5 percent premium to its closing stock price on Tuesday and a 40 percent premium to Cooper’s 30-day volume-weighted average price. The Economic Times of India reported in October that the two companies were near a deal.

In premarket trading, shares of Cooper were up more than 40 percent.

The combined company will be the seventh-largest tire company in the world, with $6.6 billion in total sales.

“This transformational transaction provides an unprecedented opportunity to serve customers across a host of geographies in both developed and fast-growing emerging markets around the world,” Onkar S. Kanwar, chairman of Apollo, said in a statement.

Cooper, based in Findlay, Ohio, has its origins in a business founded in 1914. As of the end of last year, it employed 13,550 worldwide. The company said it would continue to recognize its labor unions and honor the terms of collective bargaining agreements.

Apollo, based in Gurgaon, India, near Delhi, was founded in 1972. It has plants in India, the Netherlands and South Africa.

Morgan Stanley and Deutsche Bank and the law firms Sullivan Cromwell and Amarchand Mangaldas Suresh A. Shroff Company advised Apollo. The investment firm Greater Pacific Capital acted as strategic and financial adviser to Apollo.

Bank of America Merrill Lynch and the law firm Jones Day advised Cooper.

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DealBook: In Stock Offering, Coty Seeks Up to $1 Billion

Coty makes several celebrity-branded perfumes, including one by Katy Perry.Dimitrios Kambouris/Getty Images for CotyCoty makes several celebrity-branded perfumes, including one by Katy Perry.

Coty sees plenty of investor appetite for celebrity-branded cosmetics, disclosing on Tuesday that it was hoping to raise as much as $1 billion from its forthcoming initial public offering.

It now plans to sell 57.1 million shares at $16.50 to $18.50 apiece, according to an amended prospectus filed on Tuesday. At the midpoint of that range, the company would be valued at about $6.7 billion.

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The new filing suggests Coty is one step closer to becoming a publicly traded company, a year after it tried and failed to buy its much bigger rival, Avon Products. Despite having the backing of its wealthy parent, the German conglomerate Joh. A. Benckiser, and Berkshire Hathaway, Coty was unable to coax the embattled Avon into a deal.

Days after withdrawing its bid, Coty filed for an initial public offering, but whipsawing markets kept the sale on ice until the recent boom in stock prices.

Over its 108 years, Coty has grown from perfumes into a global purveyor of fragrances and high-end nail polishes, with products endorsed by the likes of Beyoncé, Sarah Jessica Parker and Jennifer Lopez. It has posted three years of consecutive sales growth, reporting $4.6 billion in revenue last year.

The company reported only a tiny rise in revenue growth for the nine months ended March 31, at $3.59 billion. But profit has jumped considerably in that period: Coty earned $258.1 million, up more than fourfold from the period a year earlier.

The offering is being led by Bank of America Merrill Lynch, JPMorgan Chase and Morgan Stanley.

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Fair Game: Shareholders Can Slow the Executive-Pay Express

A more important question may be this: Do this year’s figures show any evidence of progress toward a new pay paradigm? You know, where the gap between the compensation of executives and workers narrows, or where company directors put shareholders’ interests before those of the hired hands?

After looking over the numbers, I asked some experts in the compensation arena if they’d seen any promising shifts toward greater fairness in executive pay.

“The more things change, the more they stay the same,” said Brian T. Foley, an independent compensation consultant in White Plains.

Still, there were some encouraging signs. Some outliers, like Alan R. Mulally of Ford Motor and James P. Gorman of Morgan Stanley, took pay cuts in 2012 because their company’s performance declined. That’s the way it’s supposed to be.

And there are some cases where shareholders are actually reining in executive pay. Consider the work of some 128,000 Verizon shareholders who are also retirees of the company.

Known as the Association of BellTel Retirees, this group, for the last 15 years, has achieved a series of corporate governance and executive compensation changes at the company. This year, the association won a partial victory in a battle over performance-based stock awards. The company, according to its proxy statement, agreed to reduce such awards to senior executives when Verizon shares underperformed, a change the retirees had urged.

The retirees have also proposed that Verizon shareholders approve any severance package that exceeds 2.99 times an executive’s base salary plus incentives. This proposal will be voted on at the company’s annual meeting on May 2.

There is movement elsewhere, too. James F. Reda, an independent compensation consultant in New York, said he was noticing a shift among boards to award lower compensation to incoming chief executives, especially if they are from inside the company. “When new C.E.O.’s are hired, in a lot of cases, they are getting below-median total-compensation packages, with the idea that higher pay will get phased in over time,” Mr. Reda said. “New hires are not coming up to the C.E.O. level of pay right away as they did in the past. Now boards are making sure that they work out.”

Mr. Reda’s point brings up what compensation experts say may be the most formidable roadblock to fairer pay practices: longstanding chief executives who prefer the status quo and who hold sway over their directors.

Jon F. Hanson joined the board of HealthSouth in late 2002, just before a long-running accounting fraud at the company came to light. He has been its chairman since 2005 through a turnover of the company’s top management and board. “When a new C.E.O. comes in,” he said, “it emboldens the compensation committees to look at the methods we are using to compensate our C.E.O.”

In a vote last year, 98.8 percent of HealthSouth shareholders supported its pay practices; the compensation of its C.E.O. Jay F. Grinney stayed essentially flat last year, even though the company turned in solid gains in the period.

“It’s the hardest to introduce a new form of compensation when you have a long-entrenched C.E.O.,” Mr. Hanson said.

There are plenty of those around, of course. And that may explain why a pay practice that has contributed mightily to ever-rising compensation — the use of the corporate peer group — remains intact at most companies.

Using peer groups to determine executive pay was supposed to ground it in reality, basing it on the practices of similar companies. Instead, such benchmarking created a kind of arms race in pay.

One problem is that the makeup of the peer group is easily manipulated. For example, if a medium-size company uses much larger and more complex businesses as its benchmark, its compensation can be skewed, sending it far higher than it should be.

“Peer-group data is, as always, part art, part science,” said Mr. Foley, the compensation consultant. “It can be very constructive if done well, but can also be heavily gamed.”

A decade ago, directors at the New York Stock Exchange awarded Richard A. Grasso, its chief executive at the time, $140 million in compensation. He was compared against a peer group made up of companies with median revenue more than 25 times that of the exchange and median assets 125 times its own.

A furor erupted back then, but the reliance on peer groups goes on. A compelling paper on the problems with peer groups was published last fall by Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, and Craig K. Ferrere, a fellow there. In it, the authors argue that corporate directors should eliminate peer groups and instead “develop internally consistent standards of pay based on the individual nature of the organization concerned, its particular competitive environment and its internal dynamics.”

Investor groups have embraced this argument against benchmarking, said Yale D. Tauber, the director of programs on executive compensation at the Conference Board Inc. “There is a growing dissatisfaction with where benchmarking takes us,” he said.

BUT effecting change in the boardroom on pay matters is a glacial process.

“When you have a new idea that is different from the status quo, there’s always some resistance to it,” explained Mr. Hanson, the HealthSouth chairman. “The dialogue is in the early stages, but at least people are discussing management’s compensation and benchmarking it against how they are performing and how the shareholders are doing. Management is beginning to realize that it’s not just about their compensation. We also have to make sure that the shareholders benefit. That’s the change I’m seeing.”

Let’s hope these discussions turn into action sooner than later.

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As LPL Financial Expands, Scrutiny of Its Practices Intensifies

The company, LPL Financial, has 13,300 brokers, 6,500 offices, 4.3 million customers — and a growing list of problems with regulators.

At a time when many big-name brokerage firms are losing market share, LPL executives in San Diego have guided the company out of obscurity to become the nation’s fourth-largest brokerage firm — after Wells Fargo, Morgan Stanley and Merrill Lynch — and the largest in much of rural America, where it specializes.

Now, as investors weigh whether to jump aboard the stock market’s record-breaking rally, LPL is one of the biggest firms trying to connect them with stocks, bonds and other products. But the low-cost model that has aided LPL’s explosive growth has brought with it shortcomings that point to the difficulties regulators face in overseeing far-flung financial advisers.

As LPL has expanded, state and federal authorities have censured the company and its brokers with unusual frequency. LPL brokers have been penalized for selling complex investments to unsophisticated investors, for speculative trading in customer accounts, and, in a few cases, for outright stealing from clients.

“LPL is on our radar screen more than any other firm,” said Lynne Egan, who oversees securities regulation in Montana. Last fall, Ms. Egan brought a case against LPL, accusing it of failing to supervise a broker. She said her office is preparing to bring another case against the company, involving multiple brokers.

In the last year and a half, state regulators in Illinois, Massachusetts, Montana, Oregon and Pennsylvania have penalized LPL for failing to oversee its brokers properly. Brokers at the company have faced the most common industry reprimand more frequently than brokers at its large competitors since the beginning of 2012, according to a review of data from the Financial Industry Regulatory Authority, or Finra, the industry’s self-regulator.

Executives for the firm declined to comment for this article, but a spokeswoman, Betsy Weinberger, said in a statement that LPL had taken “steps to enhance our overall platform, including investing in our compliance process and oversight capabilities to support our growth. We remain steadfast in our commitment to serving investors and doing the right thing.”

Ms. Weinberger said the company increased its risk and compliance budget 5 percent last year and 11 percent this year.

LPL was created in 1989 through a merger of two older brokerage firms, Linsco, of Boston, and Private Ledger, of San Diego. It grew to national prominence after 2005, when two large private investment firms, TPG Capital and Hellman Friedman, bought LPL and financed a number of acquisitions from California to New York. LPL went public in 2010, and its stock has been up slightly since then.

LPL’s rapid growth, and the problems that came with it, reflect forces that are changing the way millions of ordinary Americans interact with Wall Street. Since the financial crisis hit in 2008, prominent firms like Merrill, which long catered to individual investors, have lost brokers and customers.

Many investors have turned instead to independent brokerage firms like LPL. Unlike employees of the industry giants, LPL brokers are essentially contractors. They get LPL e-mail addresses and come under LPL compliance but pay for office space and staff.

For LPL and its brokers, it is a lucrative arrangement. With overhead costs relatively low, the company can pass a large percentage of commissions and fees — upward of 80 percent — back to its brokers. LPL has said that such a model is also an advantage for investors because the company does not have its own investment products, like the mutual funds created by the big banks, that it wants to push onto its customers.

But analysts say that the high commissions leave LPL less money for compliance and can attract brokers interested in skirting the rules. Brad Hintz, an analyst at Sanford C. Bernstein, said that LPL’s management had done a good job expanding the company and improving its compliance technology, allowing brokers with high standards to do well. But he said the scattered nature of its offices was an Achilles’ heel that exposed the company to lawsuits and regulatory risks.

“If the Indians run off the reservations, you have no one guarding the borders,” he said.

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DealBook: Morgan Stanley Trader Faces Inquiry on Possible Manipulation

Glenn Hadden, a powerful trader in the Treasury market.Goldman SachsGlenn Hadden, a powerful trader in the Treasury market.

On paper, Glenn Hadden seemed to be the ideal person to run a large bond trading operation at Morgan Stanley when he was hired in early 2011. Mr. Hadden, a former Goldman partner, was one of the most profitable bond traders on Wall Street.

But there was more to his story than just stellar financial results. He had left his previous employer, Goldman Sachs, after questions about his trading activity. And now, Mr. Hadden is under investigation over his trading in Treasury futures while at Goldman, according to a regulatory filing.

Specifically, regulators at the CME Group, which runs commodity and futures exchanges, are investigating whether Mr. Hadden’s purchases or sales of Treasury futures late in the trading day manipulated closing prices in the market and, in turn, made other of his trades more profitable, according to people briefed on the matter who were not authorized to speak publicly.

Mr. Hadden, who is now the head of the global interest rates desk at Morgan Stanley, has been given formal notice by the CME that an inquiry is under way, meaning that it is at an advanced stage.

Through a Morgan Stanley spokesman, Mr. Hadden, 42, declined to comment. Goldman Sachs also declined to comment, and Morgan Stanley would say only that Mr. Hadden continues to work at the firm as head of global rates.

Mr. Hadden is one of the highest paid professionals at Morgan Stanley and has been known throughout his career for aggressive and profitable risk taking. It is unusual for someone of Mr. Hadden’s stature to be the target of a civil complaint like this, and if he is found to have violated exchange rules, he could, in the extreme, face millions in fines and be barred from trading on the CME Group.

While Morgan Stanley and Goldman Sachs learned about the investigation only in recent months, both firms were aware of another controversy involving Mr. Hadden that took place not long after the CME trading now under scrutiny.

After receiving complaints involving Mr. Hadden from the Federal Reserve Bank of New York, Goldman Sachs took the extraordinary step of putting him on paid leave in 2009, according to several people briefed on the matter.

Goldman is one of 21 firms designated to trade United States government securities with the New York Fed. Traders at the Fed, according to people briefed on the matter, suspected that Goldman was trying to improperly profit from one of the federal government’s bond-buying programs, which are aimed at stimulating economic growth. A spokesman for the New York Fed declined to comment.

While neither Goldman nor Mr. Hadden was accused by regulators of wrongdoing in that case, Mr. Hadden’s leave from Goldman dragged on for months, in part because senior managers were divided on whether he should return to work, and whether he should have managerial responsibilities if he did return, according to people involved in the discussions.

In November 2010, Goldman told its employees that Mr. Hadden was leaving the firm. Morgan Stanley snapped him up soon afterward. Several senior executives there were aware of the New York Fed’s complaints when Mr. Hadden was hired, but they were satisfied that he had not done anything wrong, according to people involved in the decision to hire him.

“Wall Street is always looking for a proven moneymaker and has been known to look the other way on things in pursuit of that,” said Michael Driscoll, a former senior trader at the Wall Street firm Bear Stearns who now teaches at Adelphi University.

Mr. Hadden joined Goldman in 1999, just months before the firm went public, and rose to become one of the bank’s top traders. In 2008 he was made a partner, a title typically reserved for executives known inside Goldman as “commercial killers” — people who make an outsize financial contribution to the firm. Current and former colleagues said Mr. Hadden, who has been known to drink copious amounts of Gatorade at work, was almost “machinelike” when he traded. “He gets this look in his eye,” one former colleague said. “It is scary.”

His trading made him very wealthy. His exact compensation is not known but rival rates traders and head hunters estimate that in his best years he made more than $10 million.

Mr. Hadden was just the sort of swing-for-the-fences trader Morgan Stanley needed in late 2010, when it was working to rehabilitate its fixed income, or bond, department. That unit, where Mr. Hadden now works, was badly bruised during the financial crisis. Since then, its efforts to rebuild have been slowed by ratings cuts and new regulations that require it and its rivals to hold more capital against riskier operations. These rules are forcing Morgan to either scale back or get out of certain business lines altogether.

Trading interest rates, which fall under the bond department, however, is less capital intensive, so in recent years, Morgan Stanley has made a big push into this corner of Wall Street. Enter Mr. Hadden.

He has continued to deliver profits to Morgan Stanley, but his time there has not been without incident. In 2011, Mr. Hadden’s division was burned by a bad wager on United States inflation expectations, resulting in a loss of tens of millions of dollars, according to people briefed on the trade. Since then, Morgan executives have increased their supervision of Mr. Hadden’s activities, according to several people briefed on the matter.

A lot is riding on Mr. Hadden at Morgan, however. Not only does he run the firm’s powerful rates desk, but many of his bosses — including Colm Kelleher, co-president of institutional securities, and Kenneth M. deRegt, global head of fixed income sales and trading — had a role in hiring him.

Morgan Stanley reported the investigation to the Financial Industry Regulatory Authority, Wall Street’s self-regulator, on Nov. 19, according to a person briefed on the matter.

Mr. Hadden got his start in finance in Canada. He was raised in Ontario and attended the University of Western Ontario, where he played football. He worked on Bay Street, which is Toronto’s financial district, and eventually landed a job there with Goldman. He also worked for Goldman in London and New York.

He has not forgotten his Canadian roots. He is a big supporter of the Toronto Argonauts football team, and he held a charity-driven party in Toronto connected to the recent centennial Grey Cup.

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DealBook: Thai Billionaire Tries to Edge Out Heineken for Singaporean Brewery

Heineken and Thai Beverage are both attempting to buy Fraser  Neave's beer unit, whose brands include Tiger Beer.Wong Maye-E/Associated PressHeineken and Thai Beverage are both attempting to buy Fraser Neave’s beer unit, whose brands include Tiger Beer.

8:38 p.m. | Updated

A Thai billionaire’s takeover offer for a Singaporean conglomerate, Fraser Neave, could scuttle plans by the Dutch brewer Heineken to buy its beer unit.

The billionaire, Charoen Sirivadhanabhakdi, offered $7.3 billion in cash for the 70 percent stake in Fraser Neave that he did not already own — a 4.3 percent premium to Fraser Neave’s closing stock price on Wednesday. Heineken and Thai Beverage, which is controlled by Mr. Charoen, have been battling for control of Asia Pacific Breweries, the beer business jointly owned by Heineken and Fraser Neave. Last month, Heineken moved a step closer to gaining control of Asia Pacific Breweries after it raised its offer to $4.3 billion to buy Fraser Neave’s interest in the company.

Fraser Neave, whose brands include Tiger Beer, has recommended the offer to its shareholders, who are to vote on the deal at the end of the month.

By starting a multibillion-dollar takeover bid for Fraser Neave, Mr. Charoen may be able to overturn the deal with Heineken. Mr. Charoen already holds a 30 percent stake in Fraser Neave through Thai Beverage and TCC Assets, an investment vehicle he controls.

Through TCC Assets, Mr. Charoen offered 8.88 Singapore dollars ($7.22) on Thursday for each share in Fraser Neave, which also operates a large global real estate portfolio. The deal values the company at $10.2 billion. The offer is supported by loans from two Singaporean banks and Morgan Stanley.

Charoen Sirivadhanabhakdi, the chairman of Thai Beverage.Tim Chong/ReutersCharoen Sirivadhanabhakdi, the chairman of Thai Beverage.

“We believe the offer represents an opportunity for F.N. shareholders to realize the value of their investment in cash and to make a complete exit,” Mr. Charoen said in a statement.

For months, Mr. Charoen has been positioning himself to decide the future of Asia Pacific Breweries. In August, Thai Beverage increased its stake to 26.2 percent, making it the company’s largest shareholder and allowing Mr. Charoen to dictate whether Fraser Neave shareholders would support Heineken’s takeover. Thai Beverage has subsequently increased its holding to 29 percent.

Kindest Place, a separate company controlled by the son-in-law of Mr. Charoen, also bought an 8.6 percent stake in Asia Pacific. The Japanese brewer Kirin is the second-largest shareholder in Fraser Neave, with a 15 percent stake. Heineken said it would review the $7.3 billion offer for Fraser Neave. A Heineken spokesman declined to comment on whether it would increase its offer.

Shares in Fraser Neave closed up 4.8 percent in trading in Singapore, while stock in Heineken fell less than 1 percent in Amsterdam.

The battle for Asia Pacific Breweries comes as many of the world’s beer companies are turning to emerging markets in search of growth. With fast-expanding middle classes and economic growth running counter to the global slowdown, developing countries offer new sources of revenue compared with Western countries, which continue to struggle from the European debt crisis and volatility in the financial markets.

This year, Anheuser-Busch InBev, whose brands include Budweiser and Stella Artois, agreed to pay $20.1 billion for the half of the Mexican brewer Grupo Modelo that it did not already own.

And SABMiller bought the Foster’s Group, the biggest beer company in Australia, for $10.2 billion last year. With the acquisition, SABMiller gained exposure to a developed market that offered high profit margins but lacked the growth seen in emerging markets.

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