FOCUS Report Wells Fargo Advisors Financial Network, Llc

X-17A-5 [Paper] - FOCUS Report

Published: 2005-03-23 19:39:10
Submitted: 2005-03-01
Period Ending In: 2004-12-31
scanned.pdf Scanned paper document


                                                               MIMI
                                                                 5041218
                                                                         N&                                                                      §28320405
    ANNUAL AUDITED REPORT                                             Inf         deomreaore                  \                                      >
                                                                      nformation Required of rokers and Dealers                             X__   79\{
              FORM X—17A—5                            Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a—5             g?
                   PART II                                                            Thereunder


     REPORT FOR THE PERIOD BEGINNING                                   01/01/04                    AND ENDING                         12/31/04
                                                                     MM/DD/YY                                                        MM/DD/YY



                                                                A. REGISTRANT IDENTIFICATION
NAME OF BROKER—DEALER:


          Wachovia Securities Financial Network, LLC

ADDRESS OF PRINCIPAL PLACE OF BUSINESS:
(Do not use P.O. Box No.)                                                                                     %\8‘mc

901 East Byrd Street 8th Floor
                                                                                          (No. and Street         K W “ Lv


Richmond                                                                |                          i\\%fl                             (’,\\3219
                                      (City)                                                   (State)            \Q\\{/V(zm Code)


NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Jeffrey Wallace                                                                                                   (804)782—4162

                                                                                                                    (Area Code —— Telephone No.)



                                                                 B. ACCOUNTANT IDENTIFICATION
INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*
(Name —— if individual, state last, first, middle name)


KPMG, LLP

401 South Tryon Street                                          Charlotte                      NC                                         28202
(ADDRESS)           Number and Street                                City                           State                                Zip, Code


CHECK ONE:
                                 X     Certified Public Accountant
                                       Public Accountant
                                       Accountant not resident in United States or any of its possessions.
                                                                                                                            PRAcEssED

                                                                                                                               Mar 29 X3
                                                                                                                                THomsol J
                                                                                                                                 FINANCIAL

  *Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a
  statement offacts and circumstances relied on as the basis for the exemption. See section 240.17a—5(e)(2).




                                                                                                     .V
      §§;A


                                                                               23—


                                                           OATH OR AFFIRMATION
       I, Jeffrey Wallace, swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statements and
       supporting schedules pertaining to the firm of Wachovia Securities Financial Network, LLC as of December 31; 2004, are
       true and correct. I further swear (or affirm) that neither the company nor any partner, proprietor, principal officer or
       director has any proprietary interest in any account classified solely as that of a customer except as follows:




                                                                         \4 /AQZ; —
                                                                    Name~Fé r@ Wallace
                                                                    Title‘   Chiéf Financial Officer




       Notary Public                                     “



                                                This report ** contains (check all applicable boxes):
UX 0 0 0 0000 0CEA




                      (a)   Facing Page
                      (b)   Statement of Financial Condition
                      (c)   Statement of Income
                     ‘(d)   Statement of Cash Flows
                      (e)   Statement of Changes in Stockholder‘s Equity of Partners‘ or Sole Proprietor‘s
                            Capital
                      (f)   Statement of Changes in Liabilities Subordinated to Claims of Creditors
                      (g)   Computation of Net Capital          {
                     (b)    Computation for Determination of Reserve Requirement Pursuant to Rule 15c3—3
                      (i)   Information Relating to the Possession or Control Requirements Under Rule
                              15¢3—3                        1
                      (J)   A Reconciliation, including appropriate explanation, of the computation of Net
                              Capital Under Rule 15c3—1 and the Computation for Determination of the Reserve Requirements
                              Under Exhibit A Rule 15c3—3
                            Schedule of Segregation Requirements and Funds in Segregation Pursuant to
                              Commodity Exchange Act
                     (k)    A Reconciliation between the audited and unaudited Statements of Financial
                              Condition with respect to methods of consolidation
                     ()     An Oath or Affirmation
                     (m)    A Copy of the SIPC Supplemental Report
                     (n])   A Report describing any material inadequacies found to exist or found to have
                              existed since the date of the previous audit



        ** For conditions of confidential treatment of certain portions of this filing, see section 240.17a—5(e)(3)


WACHOVIA SECURITIES FINANCIAL NETWORK, LLC
    (A Wholly Owned Limited Liability Company of
      Wachovia Securities Financial Holdings, LLC)

             Statement of Financial Condition

       (With Independent Auditors‘ Report Thereon)

                   December 31, 2004


                                Suite 2300
                                Three Wachovia Center
                                401 South Tryon Street
                                Charlotte, NC 28202—1911




                                         Independent Auditors‘® Report



Board of Directors
Wachovia Securities Financial Network, LLC:


We have audited the accompanying statement of financial condition of Wachovia Securities Financial
Network, LLC (the Company), a wholly owned limited liability company of Wachovia Securities
Financial Holdings, LLC, as of December 31, 2004, that you are filing pursuant to Rule 17a—5 under the
Securities Exchange Act of 1934. This statement of financial condition is the responsibility of the
Company‘s management. Our responsibility is to express an opinion on this statement of financial
condition based on our audit.

WeQOnducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the statement of financial condition is free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company‘s internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
statement of financial condition. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall statement of financial
condition presentation. We believe that our audit above provides a reasonable basis for our opinion.

In our opinion, the statement of financial condition referred to above presents fairly, in all material
respects, the financial position of Wachovia Securities Financial Network, LLC as of December 31, 2004,
in conformity with accounting principles generally accepted in the United States of America.



                                                 KPMG LCP
February 23, 2005




                                 KPMG LLP, a U.S. limited liability partnership, is the U.S.
                                 member firm of KPMG International, a Swiss cooperative.


                        WACHOVIA SECURITIES FINANCIAL NETWORK, LLC
                             (A Wholly Owned Limited Liability Company of
             6                Wachovia Securities Financial Holdings, LLC)
                                         Statement of Financial Condition
                                               December 31, 2004
                                                  (In thousands)


                                                      Assets

Cash and cash equivalents                                                    30,757
Receivable from brokers, dealers and clearing organizations                   7,732
Financial instruments owned, at fair value                                    2,100
Loans to financial advisors, net                                             23,773
Receivable from affiliates                                                      793
Other assets                                                                  2,135
              Total assets                                                   67,290
                                        Liabilities and Member‘s Equity
Commissions payable                                                           6,890
Financial instruments sold, not yet purchased, at fair value                     69
Note payable to affiliate                                                    10,997
Accrued compensation                                                            535
Accrued expenses and other liabilities                                        3,107
              Total liabilities                                              21,598
Subordinated borrowing and accrued interest                                   3,544
Member‘s equity                                                              42,148
Commitments and contingent liabilities
              Total liabilities and member‘s equity                          67,290


See accompanying notes to financial statements.


                      WACHOVIA SECURITIES‘ FINANCIAL NETWORK, LLC
                          (A Wholly Owned Limited Liability Company of
                           Wachovia Securities Financial Holdings, LLC)
                                 Notes to Statement of Financial Condition
                                             December 31, 2004

                                     (In thousands, except where noted)

(1)    Organization and Basis of Presentation
       Wachovia Securities Financial Network, LLC (the Company) is a wholly owned limited liability
        company of Wachovia Securities Financial Holdings, LLC (WSFH), a 62% owned consolidated
      _ subsidiary of Wachovia Corporation (Wachovia). WSFH serves as the holding company for the
        retail brokerage and c learing b usinesses c ontributed by W achovia a nd P rudential F inancial, Inc.
        (Prudential) and is headquartered in Richmond, Virginia. Wachovia and Prudential own 62% and —
        38%, respectively, of W SFH. W SFH‘s principal o perating s ubsidiaries are W achovia S ecurities,
        LLC ( including its sub51d1ary W exford Clearing S ervices, L LC), F irst C learing, L LC (FCLLC)
        and the Company.
       The Company is registered as a broker—dealer with the Securities and Exchange Commission (SEC)
       and is a member of the National Association of Securities Dealers, Inc. All securities transactions
       are cleared through FCLLC on a fully—disclosed basis. Accordingly, the Company does not carry
       securities accounts for customers or perform custodian functions relating to customer securities. As
       such, the Company is exempt from the prov151ons of SEC Rule 15c3—3 under the Securities
       Exchange Act of 1934.

       The preparation of the Statement of Financial Condition in conformity with accounting principles
       generally accepted in the United S ates of A merica requires management to m ake e stimates and
       assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets
       and liabilities at the date of the Statement of Financial Condition. Actual results could differ from
       those estimates.

(2)    Summary of Significant Accounting Policies
       Fair Value

      ~Cash and cash equivalents, financial instruments owned and financial instruments sold, not yet
       purchased are carried at fair value.

       Receivables from brokers, dealers, and clearing organizations, loans to financial advisors,
       receivable from affiliates, commissions payable, note payable to affiliate and payable to affiliates
       are recorded at amounts that approximate fair value. The fair value of these items is not materially
       sensitive to shifts in market interest rates because of the limited term to maturity of many of these
       instruments and/or their variable interest rates.

       Income Taxes

       The Company is a single—member limited liability company and is treated as a disregarded entity
       pursuant to Treasury Regulation Section 301.7701—3 for federal income tax purposes. Generally,
       disregarded entities are not subject to entity—level federal or state income taxation and, as such, the
       Company is not required to provide forincome taxes under Statement of Financial Accounting
       Standards No. 109, Accounting for Income Taxes. The Company‘s taxable income primarily


                      WACHOVIA SECURITIES FINANCIAL NETWORK, LLC
                              (A Wholly Owned Limited Liability Company of
                              Wachovia Securities Financial Holdings, LLC)
                                    Notes to Statement of Financial Condition

                                               December 31, 2004

                                       (In thousands, except where noted)

      becomes taxable to the respective members of WSFH d ue to the treatment o fW SFH as a n on—
      taxable flow—through partnership entity for federal income tax purposes.

(3)   Financial Instruments Owned and Financial Instruments Sold, Not Yet Purchased
      At December 31, 2004, financial instruments owned and financial instruments sold, not yet
      purchased consist of the following, at fair value:

                                                                                                Financial
                                                                             Financial         instruments
                                                                            instruments        sold, not yet
                                                                               owned            purchased
      Bankers‘ acceptances commercial paper, and certificates
         of deposit                                                    $          1,271    $            ——
      U.S. Government and agency obligations                                       369                  ——
      State and municipal government obligations                                   ——                    69
      Corporate obligations                                                         50                  —
      Equity securities                                                            410                  —
                      Total                                            $          2,100   ©$             69


                                i



(4)   Loans to Financial Advisors

      The Company provides loans to certain financial advisors which are forgiven or repaid either as a
      percentage of the financial advisor‘s gross production or on a fixed repayment schedule. The
      amortization period for these loans does not exceed eight years.

      The Company has established an allowance for doubtful accounts to offset amounts not collected
      from financial advisors. Loans to financial advisors of $23,773 are reported net of the allowance
      for doubtful accounts of $1,420 at December 31, 2004.

(5)   Note Payable to Affiliate
      The Company has entered into a variablerate revolving unsecured line of credit (the Agreement)
      with Wachovia. Under the terms of the Agreement, the Company may, from time to time, borrow
      funds for general operating purposes provided that aggregate borrowings under the Agreement do
      not exceed $15,000 at any one time. The principal amount of the Agreement is due on demand. At
      December 31, 2004, the Company had $10,997 outstanding related to the Agreement.

(6)   Subordinated Borrowing
      The Company is indebted to Wachovia for a subordinated note due December 29, 2005. The
      principal and accrued interest outstanding on this subordinated note were $2,725 and $819 at


                     WACHOVIA SECURITIES FINANCIAL NETWORK, LLC
                             (A Wholly Owned Limited Liability Company of
                              Wachovia Securities Financial Holdings, LLC)
                                Notes to Statement of Financial Condition

                                            December 31, 2004

                                    (In thousands, except where noted)

       December 31, 2004, respectively. The note carries a fixed interest rate of 6.59%. Interest on the
       principal is accrued quarterly and will be paid when the principal on the note is due.

       This subordinated borrowing and accrued interest is available to the Company in computing net
       capital under the SEC‘s Uniform Net Capital Rule. To the extent that this borrowing is required for
       the Company‘s continued compliance with minimum net capital requirements, it may not be repaid. _

(7)    Net Capital
      The Company is subject to the SEC‘s Uniform Net Capital Rule (Rule 15c3—1), which requires the
      maintenance of minimum net capital, as defined. The Company has elected to use the aggregate
      indebtedness method, permitted by Rule 15c3—1, which requires that the Company‘s ratio of
      aggregate indebtedness to net capital, as defined, shall not exceed 15 to 1 of net capital. At
      December 31, 2004, the Company had net capital of $18,326 which was $16,891 in excess of its
      required minimum net capital of $1,435. At December 31, 2004, the Company‘s ratio of aggregate
      indebtedness to net capital was 1.17 to 1.
      The Company‘s ability to make capital and certain other distributions is subject to the rules and
      regulations of various exchanges, clearing organizations and other regulatory agencies.

(8)   Retirement Plans

      ‘ Substantially all employees with one year of service are eligible for participation in the matching
      savings plan of Wachovia. Annually, on approval of the Wachovia Board of Directors, employee
      contributions to the matched savings plan may be matched up to 6% of the employee‘s eligible
      compensation, as defined. A 6% matching level was in place as of December 31, 2004.

      In addition, Wathovia provides postretirement benefits, principally health care and long term
      disability, to employees of the Company and their beneficiaries and dependents. The actuarial and
      plan asset information pertaining to the employees of the Company is not segregated in Wachovia‘s
      postretirement plan calculation and is therefore not available.

      In December 2003, Congress enacted into law the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003 (the Act), which introduces a prescription drug benefit under Medicare
      as well as a federal subsidy to sponsors of retiree health care plans. Statement of Financial
      Accounting Standards No. 106, Employers‘ Accounting for Postretirement Benefits Other Than
      Pensions, requires currently enacted changes in relevant laws to be considered in the current period
      measurement of postretirement benefit cost and the accumulated benefit obligation. However, the
      Financial Accounting Standards Board (FASB) issued guidance that permitted companies to defer
      recognition of the impact of the Act until certain accounting issues are resolved by the FASB. In
      May 2004, the FASB issued FASB Staff Position (FSP) 106—2, Accounting and Disclosure
      Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of
      2003, which provides guidance on accounting for the impact of the Act. Wachovia adopted the


                      WACHOVIA SECURITIES FINANCIAL NETWORK, LLC
                              (A Wholly Owned Limited Liability Company of
                               Wachovia Securities Financial Holdings, LLC)
                                  Notes to Statement of Financial Condition
                                              December 31, 2004

                                      (In thousands, except where noted)

       provisions of FSP 106—2 in 2004. The adoption of FSP 106—2 did not have a material impact on the
       Company‘s Statement of Financial Condition.

(9)    Transactions with Affiliated Parties
       Services Provided by Affiliates
       Wachovia provides the Company with certain centralized administrative services, staff support, '
       facilities, equipment and systems support. At December 31, 2004, the Company had receivables
       from affiliates of $793 and payables to affiliates of $11 for these services.

       Clearing Services

       The Company has entered into a fully disclosed clearing agreement with FCLLC, an affiliated
       broker—dealer, to clear its retail securities transactions. In the accompanying Statement of Financial
       Condition, cash and cash equivalents of $30,757 represents funds held at FCLLC. Additionally
       receivable from brokers, dealers and clearing organizations includes $7,596 due from FCLLC in
       connection with the fully disclosed clearing arrangement at December 31, 2004.

       Other

       The transactions with affiliates described above and the effect thereof on the accompanying
       Statement of Financial Condition may not necessarily be indicative of the effect that might have
       resulted from dealing with non—affiliated parties.                                               —

(10)   Commitments and Contingent Liabilities
       Litigation

       The Company has been named as a defendant in various legal actions arising from its normal
       business activities in which damages in various amounts are claimed. Although the amount of any
       ultimate liability with respect to such matters cannot be determined, in the opinion of management,
       based on the opinions of counsel, any such liability will not have a material impact on the
       Company‘s Statement of Financial Condition.

       Other contingencies

       In the normal course of business, the Company‘s customer activities involve the execution and
       settlement of various securities transactions. These activities may expose the Company to off—
       balance—sheet risk in the event the customer is unable to fulfill its contractual obligations.

       The Company introduces its customer transactions to an affiliated clearing broker, FCLLC, with
       whom it has a correspondent relationship for clearance and depository services in accordance with
       the terms of the clearance agreement. In connection with this agreement, the Company has agreed
       to indemnify FCLLC for losses that FCLLC may sustain as a result of the failure of the Company‘s


              WACHOVIA SECURITIES FINANCIAL NETWORK, LLC
    t3            —(A Wholly Owned Limited Liability Company of
                    Wachovia Securities Financial Holdings, LLC)
                         Notes to Statement of Financial Condition
                                    December 31, 2004

                            {In thousands, except where noted)

customers to satisfy their obligations in connection with their securities transactions. At
December 31, 2004, substantially all customer obligations were collateralized by securities with a
market value in excess of the obligations.



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