One year after pulling products associated with entities founded by Nicholas Schorsch from their shelves for several weeks, both Charles Schwab and Fidelity are restricting products tainted by a second series of troubles with the same alternative investment groups.
“Effective Nov. 19, Fidelity [Clearing and Custody operations] will no longer facilitate new purchase subscriptions for certain Realty Capital Securities (RCS) distributed REIT and BDC products,” according to Fidelity Institutional spokeswoman Nicole Abbott, in a statement.
Schwab says that as of tomorrow it “is suspending purchases of interests in nonlisted American Realty Capital products. Existing positions in these funds will continue to be serviced and maintained by Schwab in accordance with our normal servicing standards,” explained spokeswoman Susan Forman, in a statement.
TD Ameritrade Institutional says it is “monitoring developments.”
(RCS Capital shares traded near $0.42 late Thursday.)
On Monday, AR Capital, one of several companies linked to both RCS Capital and American Realty Capital Properties (now VEREIT), said it would not issue new investment programs next year nor pursue sales of existing products to new investors starting Jan. 1.
“The proposed and pending regulatory changes suggested by the Department of Labor fiduciary standard as well as the valuation measures prescribed by FINRA’s 15-02 directive pertaining to the alternative investment industry remain largely opaque in terms of their implications and consequences for the alternative investment industry,” said William Kahane, founding partner of AR Capital, in a statement. “Until there is greater clarity, we have decided to sit this one out.”
Products sold by AR Capital — Business Development Corp. of America II, ARC Healthcare Trust III, New York City REIT II, ARC Hospitality Trust and ARC Global Trust II — have about $19 billion in assets.
Embattled RCS Capital (RCAP) reported its third-quarter results late Monday and also said its board elected Cetera head Larry Roth as CEO. Former CEO Michael Weil gave up the role but remains on the board of the company, which owns the Cetera Financial Group of independent broker-dealers.
RCAP’s wholesale distribution operations, which have been rocked by a number of issues over the past 12 months, raised $868 million of equity capital in the third quarter vs. $2.3 billion a year ago.
Overall, the company had sales of $589.6 million vs. $511.8 million a year ago. However, losses grew dramatically – by roughly 830% – to -$307 million, or -$3.83 a share, vs. -$37 million, or -$0.59, in Q3’14.
The adjusted profits for its continuing operations were $2.6 million, or $0.03 per share, in Q3’15 vs. $32.1 million, or $0.51, a year ago.
Revenue produced by the firm’s nearly 9,500 independent reps was $503.5 million, “essentially flat compared to the year-ago quarter (which did not include [two recently acquired broker-dealers] VSR and Girard) and down 4.8% compared to the prior quarter,” according to the company.
“We believe Cetera Financial Group remains a strong franchise, and we are confident in our core business as we continue to see opportunities to gain market share and capitalize on the growing need for independent, high-quality retail advice,” said Roth, who is also CEO of Cetera Financial Group. “We have had continued success recruiting and retaining advisors as a result of the size, scale and resources we offer through our platform, and we remain optimistic on recruiting and advisor retention for the balance of 2015 as well as the coming year.”
The firm’s 9,476 independent financial advisors have about $225 billion in assets under administration and $45 million in assets under management, up 6% and 13% respectively from last year.
In Q3, the firm recruited 254 financial advisors with about $23.6 million in trailing 12-month gross fees and commissions. The net recruited production level, which includes the fees and commissions of departing reps, was $6.7 million vs. $21.5 million in the prior quarter.
The production level of advisors recruited in the third quarter was 40% higher than that of the advisors leaving the platform, according to Cetera. Of the unit’s $500-plus million in Q3 sales, nearly 65% was recurring, while 33% was fee-based revenues vs. 63% and 31% in the prior quarter, respectively.