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Industry Spotlight > Broker Dealers

RCAP-ARCP Settle Cole Issue; Cetera Rolls Out 2 Advisor Programs

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[Editor's Note: This article was written in early December and went to print in mid-December; it appears in the January 2015 print publication of "Research" and does not reflect the latest news associated with RCS Capital and American Realty Capital Properties.]

RCS Capital and American Realty Capital Properties said in early December that they have settled their differences regarding the sale of certain Cole Capital assets. As a result, RCAP is set to pay its sister firm a “negotiated break-up fee” that includes a cash payment of $32.7 million and two-year promissory note worth $15.3 million.

RCAP had agreed to a $700 million deal with ARCP in late October that included Cole Capital’s private-capital management operations, as well as sub-advisory agreements and wholesale arrangements related to five Cole Capital non-traded real estate investment trusts. However, after ARCP revealed accounting errors of $23 million later in the month and came under regulatory scrutiny, RCAP said the deal was over, and ARCP sued its sister firm in the Delaware Court of Chancery.

In addition, ARCP will keep a $10 million payment made by RCS Capital associated with the first closing, and RCS Capital will no longer ask ARCP to pay $2 million for structuring services tied to ARCP’s May 2014 equity offering.

“We believe the negotiation of a fixed-cost settlement clearly outweighs the potential expense and distraction of a drawn-out litigation process, enabling us to focus on the execution of our proven business strategy,” said RCS Capital CEO Michael Weil, in a statement.

“We continue to see progress across our entire industry-leading platform, including the reinstatement of a numbe.r of selling agreements within our wholesale business,” Weil added. “We look forward to continuing to expand our high-quality, diverse suite of investment solutions designed to address the needs of our advisors and the demands of their clients.”

After news of ARCP’s accounting errors, Charles Schwab and Fidelity said they had stopped sales of some products associated with Nicholas Schorsch’s real estate operations. Multiple independent broker-dealers—including Cetera Financial, along with LPL Financial, Advisor Group, National Planning Holdings, Cambridge Investment Research and Securities America—also suspended sales of Cole and AR Capital non-traded REITs.

In late November, RCAP said certain broker-dealers resumed sales of products distributed by its wholesale distributor Realty Capital Securities, which were tied to “51 recently reinstated selling agreements.” RCS Capital adds that it has 1,020 active selling agreements and works with more than 250 firms to distribute alternative investments.

“We have consistently communicated to the market our belief that the suspensions of certain of our ongoing selling agreements were of a temporary nature. The reinstatement of these agreements and this initial resumption of sales are confirmation of this belief,” said Bill Dwyer, CEO of Realty Capital Securities, in a statement.

Cetera Developments

In other news, the head of Cetera Financial Group says the firm isn’t likely to be sold or spun off any time soon by RCAP and is focusing on its day-to-day operations.

“There’s been no conversation around selling [Cetera],” said Cetera President Larry Roth, in an interview. Roth adds that he and other executives spoke with affiliated advisors earlier this month and that “regular communications will continue.”

“It’s business as usual,” he said. “We are making technology upgrades and other investments, including one [about the Business Plan Challenge]. There’s not a lot of concern, to be honest.”

Cetera said recently that it had picked 61 affiliated advisors to receive a total of $6.7 million as part of its Business Plan Challenge program. The awards aim to help the winning advisors move aggressively to implement growth plans in its 11 broker-dealers.

“The broker-dealers are very well capitalized and have been so for a long time,” Roth said. “Retention through the third quarter and into last month was north of 97%, based on revenue, and recruiting has picked up in the past 90 days … business remains very strong.”

Independent advisors and advisor groups submitted close to 400 applications for the challenge grants, according to Cetera.

In addition, Cetera launched the Advanced Planning Group for some top-producing advisors in late-2014, says Steve Dunlap, executive vice president of wealth management for Cetera. The full rollout should be wrapped up within about 12 months. (Some 10% of FAs are getting immediate access to the consultants.)

“There are often more complex issues involving legal matters, taxation, accounting and other issues that [advisors] face—like how to handle a charitable-remainder trust, an estate-planning issue or employee stock options. And these are [topics on which] experts in legal issues, accounting and insurance can be there for them as knowledge resources,” Dunlap explained in an interview.


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