It’s been a busy 2011 so far for AIG, which received a $182.3 billion bailout from the U.S. government during the financial crisis and is the parent company of the Advisor Group, which is led by Larry Roth.
In mid-January , AIG said it repaid a $21 billion outstanding balance to the Federal Reserve Bank of New York and is helping the government convert its preferred shares in the company into common shares. The Treasury Department now owns about 92% of AIG's common shares, but AIG expects that over time the Treasury will sell its stake in AIG subject to market conditions.
And in late January came news that AIG President and CEO Robert Benmosche, despite receiving treatment for cancer, can continue in his position. He plans to retire in 2012. Meanwhile former Chairman Harvey Golub says it’s time to break up AIG into two separate entities.
Advisor Group's Roth took an hour on Tuesday for a phone interview to explain how these AIG developments and the efforts of the Advisor Group are affecting the 4,663 independent financial advisors doing business through its three broker-dealers, FSC Securities, Royal Alliance Associates and SagePoint Financial.
Q: Can you update us on the developments at AIG and their impact the AIG Advisor Group?
A: The Advisor Group is part of SunAmerica Financial – one of AIG’s two main operating units. The other unit is Chartis, the global property and casualty insurance firm.
SunAmerica is a strictly domestic financial-services firm specializing in investment products for individuals and institutions, and though we are part of Sun, our operations are autonomous from AIG.
AIG has made amazing progress in repaying taxpayers and the federal government, and the Treasury is converting its preferred shares to common stock.
It’s absolutely a non-issue for financial advisors compared with back in ‘08 with the global market troubles and AIG in the paper so much. Back then and in early ‘09, some of our advisors had some explaining to do. But even at the height of the storm, our customers did not have any issues with us. And over the past six months, it’s really been a non-issue for me, which is a good sign.
Q: How are the three broker-dealers doing?
A: All three, FSC, Royal Alliance and SagePoint are quite healthy. At the end of 2010, Royal Alliance had 1,841 advisors, FSC had 1,139 and SagePoint had 1,683 – for a total of about 4,700 advisors.
We support them through the efforts of 650 employees in the back office. And we have a capital base of over $200 million, which is considerably larger than that of most of our rivals.
The three broker-dealers are healthy and experiencing positive net recruiting. We have a targeted attrition rate of 95% of revenue and are operating above that target for the second half of 2010.
Q. How was their performance in 2010 vs. 2009, when there were about 4,800 advisors in the group?
All three have stabilized and their retention levels are above target. Recruiting was up significantly in 2010, at $43 million in trailing 12-months revenue, from 2009, when it was $20 million in trailing 12-months revenue.
The published target for 2011 is $70 million, and we expect to exceed that because we’re off to a really great start in the first quarter.
Their total assets under management were $103 billion at the end of 2010, up from about $97 billion at the end of 2009.
Q. Where do you see recruiting going this year?
A. Royal Alliance recruited Rehmann Financial in 2010, and that shop has about $2.5 million in assets and $14 million in revenues. This year we should be adding offices, including some that are north of $20 million in [yearly] production [of fees and commissions], in Michigan, Ohio and southeast Florida.
This year, we are also in discussions about folding in a two smaller broker-dealers and maybe some RIAs, who are in contact with Art Tambaro, head of Royal Alliance in New York.
SagePoint, led by Jeff Auld in Phoenix, had a good recruiting year in 2010 and is super teed-up for 2011. He’s signed a letter of understanding with some advisors with a small Midwest broker-dealer who plan to come over in April. He’s also talking to a large number of $1 million to $2 million [revenue] shops and recruiting OSJs.
Mark Schlafly, head of FSC in Atlanta, also had a strong recruiting year in 2010 and is bringing over a large CPA firm, RIAs and a commission-based shop that’s agreed to join.
Some advisor groups came over in the fourth quarter of 2010, and most joining in the first quarter of 2011 are coming in with $15 million in [yearly] production and more than $2.5 billion of assets.
Q. How do you see the independent broker-dealer marketplace in 2011?
A. I am in discussions with about a half a dozen smaller broker-dealers contemplating sale. I expect lots of sell-side activity in 2011, as firms get ready to throw in the towel, and we can accommodate those advisors who would find it too painful to stay in business alone.
We are thus looking forward to the rest of 2011.
Q. Why are firms more likely to throw in the towel today?
A number of small firms are operating through the efforts of some smart people and really great advisors. But due to their size, they cannot afford to invest in technology, wealth-management platforms, regulation, compliance and supervision. There’s really no one who can afford to invest in all this and build their own business.
They may be healthy on the one hand, but on the other, they are not making money. So as they are looking in the mirror and seeing that the business is not as much fun as they’d hoped, they are looking to affiliate with a larger firm.
This way, they can take some money and pressure off the table and focus on making their FAs happy as a large OSJ. They can then move on to make more money, stay in business and stay engaged – which is not a bad thing.
Q. What else is different now about the broker-dealer space?
There are fewer advisors moving between firms, because the markets have stabilized and advisors in general are concentrating more on their business.
Some of the biggest shops are growing faster on a percentage basis than the smaller shops. It’s a great time to be good advisor who can grow the heck out of a business.
Q. What’s your opinion of the SEC's study on extending the fiduciary standard to all advice givers?
I don’t view this as a hurdle but as a good thing, though nothing has been codified yet, of course. I’m on the board of the Financial Services Institute (FSI) and engaged with other industry organizations. We at FSI believe that good oversight is important. As with our tax laws, we just need clarity.
As is the case with rivals, we have internal standards for broker-dealers that exceed the regulatory requirements placed on us. To adjust our policies and procedures to the new standards as it looks now shouldn’t be hard for us.
We don’t see incremental risk from the new standards. We see financial advisors as responsible for their own recommendations, and we are, too.
Really, it’s going to be fine, we believe, and most of our rivals are fine with the new standards.
Q. What’s the greatest challenge facing the Advisor Group?
Competitively, we have to explain how we are different from the big firms out there. This means we are going to be doing more communicating and are launching an advertising campaign to explain our platform.
All the firms say they have open architecture for their back offices. But many of the largest firms define this more narrowly than we do. Like Henry Ford said, ‘You can have any color as long as it’s black.’ And it’s the same for some of our competitors, who say, ‘We’re open architecture, but you must use our wealth-management platform, or you must use this clearing firm.’
If this is what open architecture means, I’d hate to see what closed means.
Our competitive advantage is that we are clearly open and give advisors access to Pershing, Fidelity and multiple custodians. This makes sense, since large shops with successful businesses do not want to be limited in how they service clients.
Most advisors have not taken the time to see LPL vs. Raymond James or Commonwealth and how we compare. They haven’t asked the question about how open the architecture [of the platform] is, so we need to re-define open architecture.
We’ll be starting a campaign in the next 60 days focusing on open architecture and how we’re redefining it. It will show our three brands, and as we get the word out, the campaign will shift to three separate campaigns in the first half of the year.
To differentiate ourselves from our competitors, we are going to focus on the platform – it’s a bit like ‘Intel Inside.’