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Industry Spotlight > Broker Dealers

Cetera’s Roth: RCAP Filing Is ‘Fresh Start,’ With Money for Rep Retention

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RCS Capital Corp. (RCAPQ) announced Monday that some of the holding companies of its broker-dealers, and other debt holders, filed a prepackaged plan of reorganization under Chapter 11 with the U.S. Bankruptcy Court for the District of Delaware. 

Larry Roth, CEO of the IBD network Cetera Financial Group, which RCAP purchased in January 2014 and includes 10 broker-dealers, said in a statement that the filing “puts us in the home stretch to complete our transformation into a Cetera-only organization that is independent, well-capitalized and privately owned.” He said the reorganization, now scheduled for completion by May 2016 (pending bankruptcy court, regulatory and other approvals) “will truly be a fresh start for Cetera that will include significant additional capital for us.”

That capital will help fund a retention program for eligible Cetera-affiliated advisors in the new Cetera-only company. Moreover, the secured debtholders have “agreed that the reorganization will not affect the current advisor deferred compensation arrangements,” according to an RCAP press release, which said Friday’s action “is expected to be the final Chapter 11 filing needed to successfully conclude the company’s restructuring process.”

Once the restructuring is complete, RCAP said that Cetera “will operate as a wholly owned, privately held business of RCS Capital, which will be owned by a group of institutional investors experienced in the financial services industry.”

Roth said, “We’re grateful to our advisors and institutions who have remained extremely loyal throughout this process, which validates the strong value proposition of Cetera.”

RCAP said that the prepackaged plan has been accepted by 78.7% of the holders of its outstanding first lien debt and 90.3% of the second lien debtholders. It said that Cetera’s payroll and benefits, vendor payables and “all other liabilities at these entities, including the deferred compensation plans, will continue as is and will not be impaired or modified.”

When RCAP filed for bankruptcy protection in Delaware on Jan. 31 as expected, court filings said Cetera planned to spend some $50 million on programs to retain some of the roughly 9,000 independent advisors affiliated with its network of broker-dealers. In its release Friday, RCAP said “a group of the existing lenders have fully committed to invest $150 million in new capital” which will include “continued significant investments in technology, advisor growth and service enhancements.”

More on Retention Plan

Joseph Kuo, a spokesman for Cetera, said Cetera has “worked closely with the leadership of our network’s member firms to develop a methodology for participation in our advisor retention program, encompassing a range of qualitative and quantitative factors.  Our firms have commenced the process of communicating further details to eligible advisors on an individual basis, and given the size of our advisor base, this will take some time.”

Broker-dealer recruiter Jonathan Henschen says it is his understanding that the retention deals will represent 2% to 11% of one year’s trailing 12-month commissions.

Kathy Moss, president of Minneapolis-based JRA Financial, a Cetera Advisor Networks-affiliated independent wealth management firm, said that “no matter what Cetera does, they are not going to please everyone.  We believe Cetera has provided us with clarity moving forward, and we appreciate the value of the retention bonus and what it represents.”

— For prior coverage of RCAP’s bankruptcy and Cetera’s plans, please see:


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