“Top” Connecticut Advisor Suspended
Updates in paragraph four with comments from Rafal’s spokesman and to note the payments had been refunded in paragraph six.
The dangerous thing about judging advisors by assets under management is that the numbers don’t always tell the whole story.
Take John W. Rafal of Old Lyme, Conn. who for a decade has been on “Barron’s” roster of top 100 independent brokers and in August vaulted to Number 6 in the country and Number 1 in Connecticut. He oversees more than $4 billion of assets under management, the ranking says.
Last month, the Connecticut Department of Banking weighed in with its own assessment. Rafal built his business by engaging in “dishonest or unethical” practices, according to a consent order he signed with the regulator.
A spokesman for Rafal noted that the charges stem from a one-time event, and the consent order does not characterize the history of the firm as involving dishonest practices. He said that since founding the firm in 1982, Rafal had a “perfect regulatory record” until this charge.
Rafal, the founder and CEO of Essex Financial Services, which is owned by a savings bank, arranged to pay an annual fee of $50,000 to a local lawyer who referred a multi-million dollar investment advisory account to Essex.
Rafal knew that the lawyer was not licensed as an investment adviser, making him ineligible to receive a referral fee. Rafal nevertheless ordered Essex’s chief compliance officer to begin paying the lawyer, and mischaracterized the payments as being for nonexistent legal services. The attorney returned the roughly $25,000 that he had been paid thus far as part of the agreement in April 2013, according to the consent order.
Rafal was fined $25,000 and suspended by the state regulator for 15 days. Essex Financial, which was fined $25,000 for failing to supervise Rahal after bringing the issue to the state’s attention, subsequently fired Rafal, according to a regulatory filing. A person answering Essex Financial’s phone confirmed that he is no longer with the firm.
In a letter to clients cited by “The Day” a local paper, Essex Financial disclosed that Rafal is being investigated by the Securities and Exchange Commission over the issue. The paper also reported that the lawyer who was not a registered investment adviser was fined $3,500 by Connecticut for accepting the payment.
The incident that stained Rafal after 40-plus years in the wealth management industry has been “blown way out of proportion” he told the “The Day.” He settled to avoid further litigation after already paying about $50,000 in legal fees, he said.
Essex Financial oversees $2.8 billion in discretionary and nondiscretionary accounts as an investment adviser, according to an SEC filing. It also operates as a broker-dealer, clearing through Pershing Financial Services.