Larry Roth left his role as the head of Advisor Group, the 6,000-rep independent broker-dealer network owned by AIG, on Thursday to become CEO of Realty Capital Securities, the nontraded REIT broker-dealer and wholesaler arm of RCS Capital led by Nicholas Schorsch.
With parent company RCAP Holdings’ June announcement that it was buying independent broker-dealer First Allied Securities, industry observers wonder exactly what prompted Roth to make his big jump and what he’ll be up to at Realty Capital Securities.
“My move is all about the opportunity at Realty Capital and not at all about the Advisor Group and AIG,” Roth said in an interview with ThinkAdvisor late Monday, when he retired from his role as chair of the board of the Financial Services Institute (hosting its Financial Advisors Summit this week in Washington, D.C.). “Realty Capital has been hugely successful in the last several years in growing alternatives-based products and distribution and its business of nontraded REITs and taking a number of those investments public.”
In his former role as head of Advisor Group and its IBDs — FSC Securities Corp., Royal Alliance Associates, Sagepoint Financial and Woodbury Financial Services — Roth says he had been watching and interacting with Realty Cap.
“I’ve become well acquainted with the firm and its senior management,” he said. “They are building something that has not been in the market, especially in the independent contractor space, in a big way in the past.”
Part of his new job will be to help the firm build an alternatives platform for independent and other advisors that includes some proprietary and third-party products, both in real estate and other areas.
RCS’ operations include the distribution of direct-investment offerings, like public nonlisted real estate investment trusts and business development companies offered by American Realty Capital (ARCP), as well as mutual funds. RCS also serves as an investment bank in the direct-investment channel; it worked as an advisor on $13.7 billion in equity listings and real estate mergers and scquisitions over the past year, according to the company.
“Based on what I’ve done in the past and on the current momentum of the team, I see it as an excellent time to be joining them,” the executive said. “I’m getting in on the ground floor in many ways.”
Roth, who has been in the financial services industry for more than 30 years, says that in many ways, his new post is the perfect fit: “It’s the right time, I have the right business skill set, and it’s super exciting.”
In 1990, Roth took over the ownership of Vestax Securities and expanded the independent broker-dealer to include more than 700 advisors before selling it to ING Group and becoming CEO of ING's U.S. Retail Group.
In 2001, he left ING to become a managing director at the New York-based M&A advisory firm Berkshire Capital Corp., where he worked for five years before joining Royal Alliance as its president and CEO.
Certainly, top managers at RCAP and RCS agree. “His experience and strategic vision will contribute meaningfully to RCS' ability to grow its business and expand its role as the pre-eminent open architecture distribution platform for nontraded publicly registered securities," Schorsch, executive chairman of RCAP, said in a press release.
In terms of Roth’s distribution tasks, he says he’ll be mainly focused on the independent channel. “Our core business is with independent contractors,” he said.
“It’s a three-legged stool, with IBDs, as well as banks/financial services and more recently RIAs,” Roth said. “The wirehouse channel will be the fourth leg, and we are just beginning to build it out … and expect to have some announcements about this in the first half of 2014.”
In the RIA channel, RCS works with Schwab and Fidelity. “We are talking to other clearing firms and expect to do more business with more custodians in the future.”
To complement expansion on the distribution side, “we’re building more products to do this, while adding products managers and wholesalers,” he noted.
Broadly speaking, Roth says, American Realty will continue to offer realty-based products as it adds a full line of other alternative investments, about 60% of which will come from third parties. “Stay tuned over the next 60 days,” he said.
The executive compares RCS’ business model with those of KKR and Blackstone, which take private REITs public. The firms manufacture their own products, and they also work via joint ventures and distribution with third parties, while using their own investment banks to support their own growth and the business momentum of their partners.
“It seems complex, but it’s actually pretty simple and is about providing an opportunity for everyone to do well,” he said. “It looks like a full-scale financial services model in the alternatives space, which is very exciting.”
Some might say the world of REITs, nontraded REITS and other alternatives can get too exciting.
The news of Roth’s new role broke last week, just one day after securities regulators in Massachusetts said Royal Alliance and five other independent broker-dealers had to pay total fines of close to $1.5 million associated with their REIT sales; in addition, Royal Alliance had to pay restitution of $125,000 to investors of these products. In May, Royal Alliance was asked to pay $59,000 in restitution and a $25,000 fine over improper sales of nontraded REITs.
In addition, the group is looking more at “quality product design” and “reasonable pricing” for investors, as well as “identifying places in the market where investors and up can make money in the coming years,” he says.
“It’s also about working with investors to get in and out of products as the market changes rather than investing at the end of a good cycle,” said Roth.
He adds that he’s fully confident that American Realty Capital can successfully define the alternatives space for those in the mass-affluent market and above. “It’s why I’m so exciting about joining this group,” Roth said.
As for the business he leaves behind, “Advisor Group is in excellent shape,” he noted. “It’s having its best year ever in many ways… and will be fine in the future."
Check out Roth’s Exit From Advisor Group: ‘A Big Deal’ on ThinkAdvisor.