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Mighty Oxford Financial loses big case with client

July 20, 2013

Timing is everything in the investment game—a lesson Reid Hospital & Health Care Services in Richmond learned all too well in 2011 when an 11-day delay in cashing in tens of millions of dollars in securities cost it more than $2.5 million.

But there is a happy ending to that odyssey for Reid—though not for its investment adviser, Oxford Financial Group Ltd. of Carmel, which the hospital alleged was responsible for the foul-up.

Reid found a sympathetic ear in American Arbitration Association arbitrator Peter Silverman, who, after four days of hearings in May, ordered Oxford late last month to pay the hospital $2.2 million.

It was a rare bit of bad news for Oxford, which over three decades has become an investment-advisory powerhouse, in part by cultivating relationships with many of Indiana’s richest families.

CEO Jeff Thomasson was only 22 when he started Oxford in 1981. Today, it oversees more than $20 billion in assets for more than 500 clients in 36 states. In June, the firm ranked No. 6 on Forbes’ list of top 50 wealth managers, ranked by assets.

Oxford wouldn’t have grown so impressively without an abundance of satisfied customers. But Reid isn’t one of them. The hospital took Oxford to court last year, arguing that trades it authorized on Aug. 1, 2011, were not executed until Aug. 12.

That wasn’t just any 11-day span. The immediate sale would have spared the investments from getting whipsawed by the Standard & Poor’s Corp. Aug. 5 announcement that it was stripping the United States of the AAA credit rating it held for 70 years.

Oxford was aware that stock prices had become volatile in late July and that the difficult conditions were continuing into August, Reid alleged in its 18-page lawsuit, which was later transferred to arbitration.

In fact, in an Aug. 5 update issued to Oxford clients, the firm “recognized that the market was firmly in correction territory, economic recovery looked weak, government stimulus was fading, risk of policy mistakes was high, and equity valuations were high by historical standards,” according to the suit, which was filed by the Fishers law firm Maddox Hargett & Caruso.

In response to an inquiry from IBJ, Oxford issued a statement saying that while it “does not agree with the arbiter’s assessment and stands behind its model and procedures, it will comply fully with the ruling.”

Oxford said the arbitrator wrongly treated Oxford as if it were a broker-dealer with authority to execute trades. In fact, as a fee-only investment adviser, Oxford serves only as a consultant, Jeff Stroman, the Oxford managing director who worked with Reid before it severed their 20-plus year relationship, said in the statement.

“While it may assist in the execution of transactions,” Stroman said in the statement, “we are not licensed to sell securities … and did not handle trading operations for Reid Hospital.”

Furthermore, Thomasson added in Oxford’s statement, the “market loss to Reid Hospital was a result of the inefficient processes and decisions of the hospital and its custodian,” the bank in Richmond that executed trades.

But Mark Maddox, the hospital’s attorney, countered that it was Oxford, not the bank, that held up the process after receiving the trade orders.

Maddox noted that Oxford markets itself as superior to a broker-dealer because advisory firms owe a fiduciary duty to their clients. He said he found it ironic that in the arbitration Oxford attempted to use that status as an investment adviser to relieve itself of responsibility for the losses.

There is a silver lining for Oxford: Its longtime insurance carrier has come to the rescue. The settlement the arbitrator ordered Oxford to pay was covered by Chubb Insurance, according to the company’s statement.

A sweet start for Swedish

WellPoint Inc. shares have risen 33 percent since CEO Joseph Swedish took the helm March 25, a run-up that has added $6.4 billion to the health insurer’s market value.
 

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Analysts are warming to Swedish, a veteran hospital executive, though they say much of the appreciation in WellPoint shares stems from what Deutsche Bank’s Scott Fidel describes as “continued subdued health care utilization trends.” That factor is also helping WellPoint’s rivals, including Minnesota-based UnitedHealth Group.

But WellPoint will take any help it can get after the bumpy tenure of CEO Angela Braly, whom angry investors forced out in August 2012. The company’s shares on July 15 reached $85.35—their highest level in more than five years.•

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