A group led by real-estate investor Nicholas Schorsch said early Wednesday that it planned to buy independent broker-dealer First Allied Securities from its private-equity owner Lovell Minnick Partners, which has owned a majority stake in the IBD for less than two years.
“This brings a whole new dynamic to the broker-dealer world,” said Jonathan Henschen (right), president of the recruiting firm Henschen & Associates, in an interview with AdvisorOne. “It’s like in the ’80s when insurance firms were buying broker-dealers, but now maybe its real-estate conglomerates flush with money that will be buying BDs.”
First Allied’s buyer is RCAP Holdings, which owns Realty Capital Securities, a wholesale broker-dealer and affiliate of American Realty Capital Properties (ARCP) and several other entities.
It is led by Schorsch, William Kahane, Michael Weil, Peter Budko and Brian Block. “In 2007, my partners and I perceived an opportunity to build an open architected, wholesale broker-dealer to distribute best-in-class investment solutions,” Schorsch said in a press release.
“Today, RCAP Holdings takes another step forward,” he said. “We believe that the challenges and opportunities we witnessed in the wholesale distribution channel exist in the broader retail network as well, and we see value and opportunity for growth in a paradigm shift toward a sustainable direct relationship between the mass affluent investor and their independent financial advisor.”
San Diego-based First Allied, which acquired the Legend Group in late 2012, includes a network of about 1,500 independent financial advisors with more than 300,000 clients and over $32 billion in assets. In 2012, its revenue totaled about $233 million, with the average fees and commissions per advisor at $293,000 and average assets per rep at $29 million, according to Investment Advisor’s 2013 Broker-Dealer Reference Guide.
“Lovell Minnick was a great owner for First Allied,” said Chip Roame (right), managing principal of Tiburon Strategic Advisors, in an interview. “First Allied, with Lovell Minnick capital, was able to make several tuck-in acquisitions and also expand through the acquisition of clearing firm Legend … RCAP in some ways is just a new capital partner, replacing Lovell Minnick.”
“I’m surprised,” Henschen said. “Lovell Minnick has only owned First Allied for a year or so.” Private-equity firms usually hold onto BDs for four or five years and then sell them at a profit or build them up to scale and go public, he says.
This was the case with LPL Financial (LPLA), for instance, which was owned by TPG Capital and Hellman & Friedman from 2005 to late 2010, when LPL had its IPO.
“Lovell Minnick was probably offered a pretty good price for First Allied,” Henschen said. “This is something I’ve never seen before. I’ve seen insurance companies buy BDs to distribute products, but this seems like a first for a REIT-focused firm.”
“Speaking as a recruiter, this is good news. It means good financing for broker-dealers,” Henschen said.
Roame agrees. “I like that [First Allied's] management invested $10 million in the deal,” he said. “It’s a sign of confidence.”
Insurance companies have been squeezed by low interest rates, which were high in the ‘80s when they went on their BD buying spree. Today, REITs have been benefitting from interest-rate levels, as investors seeking yield have piled in.