News of the possible sale of yet another large group of independent broker-dealers emerged Tuesday, when AIG disclosed that it had been contacted by parties with interest in its Advisor Group.
“AIG is conducting a strategic review of all its priorities as part of its stated goal of focusing on its core services and reducing the complexity of its business. This effort includes a review of the benefits associated with its ongoing ownership of a network of broker-dealers, and we have received several inquiries regarding its Advisor Group business,” according to an AIG statement shared with ThinkAdvisor on Tuesday.
“AIG values the Advisor Group franchise, and any possible actions taken will be considerate of positioning of the organization for continued growth and success,” the company added.
This development comes less than a month after news circulated that RCS Capital was looking to sell its IBD operations — Cetera Financial Group, which is led by Larry Roth, who used to run the AIG Advisor Group.
The reports of a possible sale by AIG also emerged less than two months after the Advisor Group hosted its national conference in San Antonio. At the event, Jeff Auld, who leads SagePoint Financial, remarked that the firm and its owner were “an island of stability” compared with the “cloud of uncertainty” associated with some rivals regarding their future plans and ownership.
Buyers for Advisor Group, Cetera?
Cetera Financial includes about 9,500 affiliated advisors, while the AIG Advisor Group – now headed by Erica McGinnis – has roughly 5,000 FAs. A combined group – under the leadership of Roth, perhaps — could challenge LPL Financial (LPLA), the biggest IBD, in terms of advisor headcount.
“The only company with the chutzpah and creativity to do that is probably someone in a private equity firm,” said Rick Peterson, an industry recruiter based in Houston, in an interview. He doesn’t see a broker-dealer or brokerage firm making such a move.
While it’s possible that an investor or entity could come in and merge the two groups, Peterson says, it’s more likely that a large broker-dealer would try and grab one of the groups.
“I wouldn’t be surprised if LPL could be a bidder, especially of AIG Advisor Group,” he explained.
The Advisor Group could be getting pushed out of the fold because AIG leadership “maybe doesn’t see the synergies [i.e., sales] it had in the past between the insurance and IBD operations,” said Jon Henschen, an IBD recruiter in Marine on St. Croix, Minnesota, in an interview. There also may be an issue that the IBDs “are too much of a liability and not enough reward in terms of prospective sales,” Henschen explained. “So the owner thinks it makes sense to shed them and focus on the core business.”
As for RCS Capital’s Cetera Financial Group, “It would be ideal [for Roth] to get a sale on a 49% stake and keep the management intact,” the recruiter said. “In other words, get a private equity firm to take a minority interest, so management can keep some control.”
Would LPL be interested in Cetera and/or a fused entity of Cetera and the Advisor Group? “It’s possible, but [LPL] wants to gain more profitability [itself] and get its own operations [more] together,” said Henschen.
“There’s always a chance that a wirehouse could be looking to go into the IBD business … or a foreign buyer could be interested,” he said.
The bigger the broker-dealer group is, the fewer options it has in terms of buyers, Henschen says, adding that he thinks Sterne Agee should be sold soon to Ladenburg Thalmann, which owns Securities America.
With the pressure IBDs face from robo-advisors and the proposed Department of Labor fiduciary standard, it seems clear that more M&As and other “creative arrangements” will likely affect the industry in the year ahead, experts believe.
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