August 17, 2011

Securities America Deal: ‘Huge Gamble’ for Advisors and Ladenburg, Experts Say

Recruiters ask what the acquisition can bring financial advisors in terms of better services and products

With Ladenburg Thalmann’s planned purchase of Securities America for an initial cash payment of $150 million from Ameriprise Financial, some 1,700 independent financial advisors know a bit more about their future—and that’s it, says at least one recruiter.

“They can breathe a tiny sigh of relief, but—and I say that in capital letters—they have no idea what commitment Ladenburg has to this business financially,” said recruiter Rick Peterson of Peterson & Associates in an interview with AdvisorOne.

“The advisors don’t know if they can tell their clients that this is a permanent change involving better products and services, let alone whether or not they can tell themselves this means better technology, practice management and support for their businesses,” explained Peterson.

These issues need to be resolved fairly quickly for advisors, he says, “Otherwise, they could be saying, ‘It looks like this deal satisfies Ameriprise, but it doesn’t do anything for me.’ ”

The combined entity will include about 2,700 advisors in Securities America, Triad Advisors and Investacorp. “This makes Ladenburg a reasonably good-sized player in the independent broker-dealer field by giving them some critical mass,” said Bill McGovern, head of B/D Search, in an interview.

“Whether or not the firm can parlay that into more business development with some substance, like the technology, resources and other tools that allow reps to generally grow their businesses, is a good question.”

jim nagengastIn an interview on Wednesday with AdvisorOne, Ladenburg President and CEO Richard Lampen said his firm was impressed by Securities America’s capabilities, particularly in technology and practice management, which could collectively benefit its other BDs, while Securities America President Jim Nagengast (left) said Securities America reps would be gaining access to Ladenburg’s and its existing BDs’ strengths in advisor-friendly trust services, investment products and asset-management expertise.

Financial Matters

Ladenburg’s purchase of Securities America is being financed by an affiliate of Dr. Phillip Frost, Ladenburg’s principal shareholder and chairman. Frost’s net worth is reported to be about $2.3 billion. He became chairman of Miami-based Ladenburg Thalmann in 2006 and co-chairman of Teva Pharmaceuticals, one of the world’s 15-biggest drug firms, that same year; he is now Teva’s chairman.

“It seems to me that this deal is a huge gamble for Ladenburg Thallmann,” said Peterson. “It’s a rich deal and doesn’t seem to take the real retention and growth potential into account.”

In the second quarter, Ladenburg reported net income of $200,000 on sales of $60.2 million. At the end of 2010, the company had about $7 million in cash and $28 million of notes payable.

In late April, three days after Ameriprise announced plans to sell Securities America (and took an after-tax charge of $77 million related to lawsuits involving private-placement sales by Securities America advisors), Ladenburg Thalmann hired former National Financial CEO Norman Malo and Russell Investments executive Richard Jasper to help it “identify and capitalize on new acquisition opportunities and strategic partnerships” in the independent brokerage field.

To Stay or Go

Given the change in ownership, some advisors might expect to see other changes, like in products, pricing and payouts, says Peterson. “And with so many other IBDs saying ‘Come over here,’ they could decide that they might as well change firms now,” he explained. “It’s up to LPL Financial, Raymond James Financial and the like to step up to the plate and offer them more stable, growth-oriented environments in which to operate.”

The recruiter, who is based in Houston, expects that “special arrangements” that may have been made between some advisors and Securities America could cease. “If it doesn’t fit into the one-size-fits-all arrangements, it may not make sense financially for Ladenburg,” he noted.

And there are a host of other factors at play, Peterson notes, like the tight margins, highly competitive nature of the business, stiff compliance demands on IBDs, the need to update costly IT systems, offer practice-management and other services. “Can Securities America afford to make IT enhancements, for instance? I don’t think so,” he explained. “Can Ladenburg afford to and is it prepared? Does it have the capital to do so?”

Taking this broader context into consideration, advisors may look at other independent platforms and capabilities, which are well known, and see Ladenburg as more of “a gamble” for them, Peterson added.

Jon Henshen, who heads the recruiting firm Henschen & Associates in Marine on Saint Croix, Minn., estimates that about 15-20% of Securities America assets will have left the firm from January to September of 2011, and by year-end, this figure could be as high as 40-50%. Still, he says, the recent volatility in the stock markets is putting a damper on advisors’ willingness to switch firms.

“Landenburg will be a major player in the market, but they, like everyone else, will need to evolve their value proposition to set themselves apart from the crowd,” Henschen said in an interview. “We are experiencing flight to safety in the midst of the alternative-investment blowups, with Ladenburg firms being one of those safe havens of strong financial backing and no adverse press or product history.”

Read about Ladenburg Thalmann's deal to buy Securities America on AdvisorOne.

Read an analysis of the deal for Securities America on AdvisorOne.

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