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As Cetera Splits From RCAP, Will Its Advisors Split, Too?

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Some 9,000 independent advisors affiliated with the Cetera Financial Group, along with plenty of industry watchers, are digesting the news that the firm is being separated from its troubled parent company, RCS Capital (RCAP) – which on Monday announced plans to file for bankruptcy and restructure its operations.

“For sure, some of the Cetera advisors must be stunned,” said Mark Elzweig, a New York-based executive search consultant, in an interview with ThinkAdvisor. “I have to believe that many of these advisors were expecting a private-equity group … waiting in the wings, based on the latest industry rumors.”

RCAP said Monday, however, that it is set to receive a $150 million capital infusion. Plus, Cetera intends to keep its deferred-compensation plans in place and offer reps a retention package.;

“The advisors probably know that Cetera is too big for another independent broker-dealer to purchase,” explained Elzweig. Still, many of them were hearing gossip about potential buyers.

“Now, they have to face the reality that no white knight is taking over the company,” added the recruiter, who is reaching out to some Cetera advisors regarding other options.

(RCAP shares traded at $0.02 on Tuesday; last year, they hit a high of $13.30.)

What’s Next?

A future sale is possible, others point out.

“The RCAP ties could have been a hindrance, and this will free them up and could make them attractive,” said Jon Henschen, head of the recruiting firm Henschen & Associates in Marine on St. Croix, Minnesota, in an interview.

By splitting Cetera away from RCS Capital, “This shields the group of independent broker-dealers from RCAP’s bad press and makes them more attractive to buyers,” Henschen said.

Though he was expecting to hear news about a buyer, the recruiter says the moves announced Monday by RCS Capital make sense.

“Timing is of the essence. They needed to shield [Cetera] quickly vs. what they did last year, when they spent all year talking about the bad news,” he stated. “It’s good to nip this in the bud. I see it all as a … stopgap – [Cetera] should get bought.”

Others agree.

“Yes. They will still be sold someday,” said Chip Roame, head of Tiburon Strategic Advisors in Tiburon, California, in an interview.

Future for Advisors

As for whether reps will stay or go, Roame is upbeat.

“My basic view is that their retention program will keep the majority of the financial advisors [in place],” he said. “Their plan to stay independent will help too, as opposed to selling to an insurance company.”

Recruiters, though, are not so sure.

“Will the reps stay or go is the million-dollar question,” Henschen said. “I’m hearing about some leakage, but not a beating down of the doors yet.”

According to Elzweig, many advisors are likely to leave “as there will inevitably be some changes at the firm over the next few months.”

In general, he says, it’s smart for reps to critically evaluate the firms with which they are affiliated.

“When problems first appear at a firm, it’s prudent for advisors to do their due diligence and set up a put option for their careers,” Elzweig stated. “That way, if the situation deteriorates further, they can pull the trigger. It’s best to do the due diligence in a leisurely, comfortable way, not rushed and not under the duress of negative headlines.”

For its part, Cetera says it is experiencing advisor-retention rates of nearly 97%. 

“Experienced and successful financial advisors select and remain with the Cetera network, because we have a demonstrated long-term track record of serving as a true partner in building their businesses,” said CEO Larry Roth in a statement shared with ThinkAdvisor on Tuesday. 

Accolades for Roth

As Cetera Financial moves into its independent status, Roth appears poised to remain at the helm, and his leadership has earned him praise from recruiters and others.

“Roth somehow got $150 million to save the company, which otherwise could have been shut down,” said Elzweig. “He did a great job given the adverse circumstances.”

The executive led the AIG Advisor Group before joining Realty Capital Securities – the nontraded REIT broker-dealer and wholesaler arm of RCS Capital – in September 2013.  

“He has a history of working through difficult situations and is probably one of the better folks in the industry for weathering storms, like he did at AIG,” Henschen said.

Roth was CEO of the AIG Advisor Group in 2008, when the government bailed American International Group out of bankruptcy to the tune of $85 billion, which it later repaid.

“Larry Roth is a good CEO,” said Roame.

The Cetera chief seems eager for the group of IBDs to move into a new chapter: “Yesterday’s announcement marks a fresh start that will place the issues of the past firmly behind Cetera. We now have a clear path forward for Cetera to be transformed into a private, independently run organization …,” he explained.

— Check out 4 Factors That May Cause a Flood of Broker-Dealer Sales on ThinkAdvisor.


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