As billionaire investor Carl Icahn pressures AIG to break up its different parts, speculation continues as to which firm might purchase the AIG Advisor Group, which includes the independent broker-dealers FSC Securities, Royal Alliance, SagePoint Financial and Woodbury Financial.
“Reps on a recent Woodbury conference call informed me that numerous private equity firms are making very attractive offers to AIG,” said recruiter Jon Henschen in an interview Thursday with ThinkAdvisor. “The Advisor Group should go for the highest price and to the firm offering the best retention [deal] for reps.”
Meanwhile, the Cetera Financial Group of IBDs, which Lightyear Capital sold to now-troubled RCS Capital for $1.15 billion in 2014, appears to be on the auction block as well.
But does buying a group of IBDs make sense in the current economic and regulatory climate? “I think the traditional IBD model is under threat,” said Chip Roame, head of the consultancy Tiburon Strategic Advisors, in an interview.
“There is still a flow of financial advisors to independence and many of them are hybrids, which should bode well for the IBDs,” Roame explained. “But the costs of compliance, technology and recruiting are increasing. Plus the Department of Labor’s [proposed] fiduciary rule and a likely follow-on rule from the SEC add enormous risk to the IBD model, more so even than to the wirehouse model.”
“Most everything seems to be working against broker-dealer profitability, except higher money-market rates,” said Henschen. Money-market investment vehicles historically brought in up to half of profits for independent broker-dealers, he adds. (That percentage is less for wirehouse firms, which have more diverse revenue streams.)