FOCUS Report Wells Fargo Advisors Financial Network, Llc

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

Published: 2006-05-18 16:57:57
Submitted: 2006-02-28
Period Ending In: 2005-12-31
scanned.pdf Scanned paper document


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                            )                                           Information Required of Brokers and DealersFEB 2 87Mn        a                    1
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        REPORT FOR THE PERIOD BEGINNING                            ____   01/01/05                    AND ENDING   —==e—. ... 12/31/05 ___
I                                                                         MM/DD/YY                                                        MM/DDYY



                                                                   A. REGISTRANT IDENTIFICATION
l NAME OF BROKER—DEALER:


          Wachovia Securities Financial Network, LLC

    ADDRESS OF PRINCIPAL PLACE OF BUSINESS:
    (Do not use P.O. Box No.)

    901 East Byrd Street 14th Floor
                                                                                              (No. and Street)


    Richmond                                                                                        VA                                          23219
I                                         (City)                                                   (State)                                     (Zip Code)



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



L
                                                                                                                           (Area Code —— Telephone No.



                                                                          ACCOUNTANT IDENTIFICATION


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


    KPMG, LLP

llOZl East Cary Street                                               Richmond                            VA                          l l   23219
  (ADDRESS)    Number and Street                                       City                             State                        Hffii&@i&‘i‘bfi@
                                                                                                                                     [
    CHECK ONE:                                                                                                                             a                      ¢
r                                     X     Certified Public Accountant                                                                  E&jAY % g Zflflfi
                                          | Public Accountant                                                                             THOMS ON


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                                           Accountant not resident in United States or any of its possessions.                            FQNANC AL
                                                                                                                                                    id




I
I     *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



I
      statement offacts and circumstances relied on as the basis for the exemption. See section 240.17a—5(?(2)




I                                                                                                       \N\\%\
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                                                                             —3..


                                                          OATH OR AFFIRMATION
     I, Jeffrey Wall%ce, 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, 2005, 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:

     None




                                                                    NaW'Wallace
                                                                    Tit ief Financial Officer _




MM\   Notary Public




                                               This report ** contains (check all applicable boxes):
UX 0 0 0 000D LIHE




                     (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
                     (h)   Computation for Determination of Reserve Requirement Pursuant to Rule 15¢3—3
                     (i)   Information Relating to the Possession or Control Requirements Under Rule _
                             15e3—3
                     (J)   A Reconciliation, including appropriate explanation, of the computation of Net
                             Capital Under Rule 15¢3—1 and the Computation for Determination of the Reserve Requirements
                             Under Exhibit A Rule 15¢c3—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)


                                KPMG LLP
                                Suite 2000
                                1021 East Cary Street
                                Richmond, VA 23219—4023




                                         Independent Auditors‘ Report



Board of Directors
Wachovia Securities Financial Network, LLC:

                                                                                                  y       .
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, 2005, that you are filing pursuant to Rule 17a—5 under the
Securities Exchange Act of 1934 and Regulanon 1.10 under the Commodity Exchange Act This
statement of financial condition is the responsibility of the Company‘s management. Our responsxblhtyis
to express an opinion on this statement of financial condition based on our audit.
                                                                                                  |


We conducted 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 assura nce 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 op nion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosur s in the
statement of financial condition, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of financial condition presentatxon We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statement of financial condition referred to above presents fairly, in al]\ material
respects, the financial position of Wachovia Securities Financial Network, LLC as of December 31 2005,
in conformity with accounting principles generally accepted in the United States of America.   Ti


                                                 KPMGC LLP
February 23, 2006




                                 KPMG LLP, a U.S. limitedliability 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
                              Wachovia Securities Financial Holdings, LLC)

                                    Statement of Financial Condition

                                          December 31, 2005
                                             (In thousands)


                                                Assets

Receivable from brokers, dealers and clearing organizations                  $   26987
Securities owned, at fair value                                                   21783
Loans to independent financial advisors, net                                     33081
Receivable from affiliates, net                                                     367
Other assets                                                                      1,767
               Total assets                                                  $   ealoss
                                                                                    I
                                                                                    |
                                   Liabilities and Member‘s Equity
Commussions payable                                                          $    9,“3 73
Securities sold, not yet purchased, at fair value                                    115
Accrued compensation and benefits                                                 1,399
Accrued expenses and other liabilities                                            1,787
               Total liabilities                                                 12,674
Member‘s equity                                                                  52311
               Total liabilities and member‘s equity                         $   64,085

See accompanying notes to statement of financial condition.


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

                                            December 31, 2005

                                           (Dollars in thousands)

(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 majority—owned
      consolidated subsidiary of Wachovia Corporation (Wachovia). WSFH serves as the holding
      company for the retail brokerage and clearing businesses contributed by Wachovia and Prudential
      Financial, Inc. (Prudential) and is headquartered in Richmond, Virginia. Wachovia and Prudéential
      own 62% and 38%, respectively, of WSFH. WSFH‘s principal operating subsidiaries are Wachovia
      Securities, LLC (WSLLC), First Clearing, LLC (FCLLC), and the Company.
                                                5>



      The Company is registered as a broker—dealer with the Securities and Exchange Commission
      (SEC), a futures commission merchant with the Commodity Futures Exchange Commission
      (CFTC), and is a member of the National Association of Securities Dealers, Inc. and the Nati‘onal
      Futures Association. 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
      provisions of SEC Rule 15c3—3 under the Securities Exchange Act of 1934. At December 31,]2005,
      no cash or securities were required to be segregated under the Commodity Exchange Act (CEA) as
      there were no funds deposited by customers held by the Company or funds accruing to customers
      owned by the Company as a result of trades or contracts.

      The principal business of the Company is to provide brokerage services to independent financial
      advisors who effect financial transactions on a wide array of financial instruments.

      The preparation of the Statement of Financial Condition in conformity with accounting principles
      generally accepted in the United Sates of America requires management to make estimates ar”;d
      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
      Securities owned and securities sold, not yet purchased are carried at fair value.

      Receivable from brokers, dealers, and clearing organizations, loans to independent financial
      advisors, receivable from affiliates, net, and commissions payable 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 and/or the variable interest rates of man)‘j of
      these instruments.


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

                                             December 31, 2005

                                            (Dollars in thousands)

      Income Taxes

      The Company is a single member limited liability company and is treated as a disregarded en tity
      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 for income taxes under Statement of Financial Accountir&g
      Standards (SFAS) No. 109, Accountingfor Income Taxes. The Company‘s taxable income
      primarily becomes taxable to the respective members of WSFH due to the treatment of WSF H as a
      non—taxable flow—through partnership entity for federal income tax purposes.

(3)   Securities Owned and Securities Sold, Not Yet Purchased
      At December 31, 2005, securities owned and securities sold, not yet purchased consist of the
      following, at fair value:
                                                                                                  Securities
                                                                            Securities           sold, :not yet
                                                                              owned               purchased
      U.S. government and agency obligations                          $             221      $              —
      State and municipal government obligations                                    —                        62
      Corporate obligations                                                         161                     —
      Equity securities                                                           2,401                      53
                    Total                                              $          2,783      $            115


(4)   Loans to Independent Financial Advisors
      The Company provides loans to certain independent financial advisors which are forgiven or repaid
      either as a percentage of the independent 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 deemed
      uncollectible from independent financial advisors. Loans to independent financial advisors are
      reported net of the allowance for doubtful accounts of $1,532 at December 31, 2005.

(5)   Note Payable to Affiliate
      The Company has entered into a variable rate revolving unsecured line of credit agreement (the
      LOC Agreement) with Wachovia Bank, N.A. Under the terms of the LOC Agreement, the
      Company may, from time to time, borrow funds for general operating purposes provided that
      aggregate borrowings under the LOC Agreement do not exceed $15,000 at any one time. Th ho
      principal amount of the LOC Agreement is due on demand. The interest rate on borrowings under
      this line of credit is based on the prior month‘s average federal funds rate. At December 31, 2005,
      the Company had no balance outstanding on the above line of credit.


                    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, 2005

                                           (Dollars in thousands)

(6)   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 15¢c3—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. The
      Company is also subject to the CFTC‘s minimum financial requirements set forth in Regulat1 on
      1.17 of the CEA. At December 31, 2005, the Company had net capital of $16,513 which was‘
      $15,676 in excess of its required minimum net capital of $837. At December 31, 2005, the |
      Company‘s ratio of aggregate indebtedness to net capital was 0.76 to 1.

      The Company‘s ability to make capital and certain other distributions is subject to the rules and
      regulations of the SEC and various other regulatory agencies and exchanges.

(7)   —Retirement Plans
      Substantially all employees with one year of service are eligible for participation in the matcl aed
      savings plan of Wachovia. Annually, on approval of the Wachovia Board of Directors, empl oyee
      contributions to the matched savings plan may be matched up to 6% of the employee‘s eligib ‘le
      compensation, as defined. A 6% matching level was in place as of December 31, 2005.

      In addition, Wachovia provides postretirement benefits, principally health care and long term
      disability, to employees of the Company and their beneficiaries and dependents. The actuana 1 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.

(8)    Transactions with Affiliated Parties

      Clearing Services
      The Company has entered into a fully—disclosed clearing agreement with FCLLC, an affiliate‘ d
                                                                                                      |
      broker—dealer, to clear its securities transactions. Receivable from brokers, dealers and clearing
      organizations represents amounts due from FCLLC in connection with the fully—disclosed cle aring
      arrangement at December 31, 2005.

      Other                                                                                          |
                                                                               .        .      |
      At December 31, 2005, the Company has a net receivable from Wachovia and its affiliates t otaling
      $367.

      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.


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

                                           December 31, 2005

                                          (Dollars in thousands)

(9)   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 an
      settlement of various securities transactions. These activities may expose the Company to off
      balance—sheet risk in the event the custorner 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 Comig»any‘s
      customers to satisfy their obligations in connection with their securities transactions. At
      December 31, 2005, substantially all customer obligations were collateralized by securities w ith a
      market value in excess of the obligations.



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