LPL Financial Holdings Inc has hired the global chief risk officer from Morgan Stanley's wealth division at a time when it comes under increased scrutiny over its ability to supervise more than 13,000 independent stockbrokers.
The hiring of Michelle Oroschakoff, 52, came as LPL Financial, the No. 4 U.S. brokerage firm, wades through a number of regulatory complaints about sales abuses and lack of adequate oversight for its fast-growing network of advisers across the United States.
Oroschakoff, a Morgan Stanley veteran who has held various senior legal and compliance jobs at the company, will supervise regulatory compliance, data security and privacy at the firm, among other risk management functions. She replaces LPL Financial's current Chief Risk Officer John McDermott, who is set to retire next month. The appointment was announced on Friday.
LPL Financial was ordered last month to pay a total of $9 million for significant email system failures and making misstatements to the Financial Industry Regulatory Authority (FINRA), Wall Street's watchdog.
Days later, the U.S. Securities and Exchange Commission filed civil fraud charges against a former LPL Financial adviser, charging he diverted some $2 million of client funds to use for personal expenses.
LPL Financial also signed an agreement with Massachusetts' top securities regulator this year to repay more than $5 million to investors for improper sales of non-traded real estate investment trusts.
"She's an excellent candidate for that job," said Gerald Baker, a Michigan-based compliance consultant who has known Oroschakoff for more than ten years. "She has a very excellent background in legal and compliance, regulatory and risk controls."
LPL Financial's move to bring in a chief risk officer from the outside is not surprising, especially after the actions by FINRA and the SEC, Baker said. "It reflects on how serious the firm takes these issues and wants to address them."
"It doesn't mean the resources they have are inadequate. It just wants to improve and install better controls to avoid similar problems in the future."
Oroschakoff, based in San Diego, will report directly to LPL's Chief Executive Mark Casady.
Morgan Stanley spokeswoman Christy Jockle confirmed Oroschakoff's departure and said her replacement will be announced in the near future.
BEEFING UP COMPLIANCE
LPL Financial, based in San Diego and Boston, has about 400 compliance staffers, but will grow well beyond that before year end, President Robert Moore said in an interview in conjunction with the Reuters Global Wealth Management Summit.
Moore said LPL Financial is beginning to centralize compliance in its regional and home offices and spending heavily to hire compliance staff and improve its systems.
"Mistakes happen and we're not going to be exempted from that, but the attitude around the way we identify, ultimately mitigate and address them are very fundamental to our future and ability to credibly lead," Moore said. "It comes at a cost that we have to find a way to absorb."
Oroschakoff is the firm's latest senior risk management hire. It named James Shorris, a former head of enforcement at FINRA, to head regulatory and compliance policy in September 2011.
Oroschakoff has also served as general counsel for Fisher Investments, an independent registered investment advisory firm based in Woodside, California. Prior to joining Morgan Stanley, she was associate general counsel and head of the firm's San Francisco litigation department.
"The biggest challenge she has is dealing with the great deal of diversity in terms of the types of advisers LPL has on the platform," said Ken Hoffman, managing director and president of Optima Group, a consultancy on strategic planning for executive management at LPL Financial.
LPL services single independent advisers in a traditional broker-dealer model, pure registered independent advisers and so-called "hybrid" advisers who both manage money for a fee and collect commissions.
(Reporting by Ashley Lau and Suzanne Barlyn; Editing by Lauren Young and Jeffrey Benkoe)