To boost its retention and recruiting efforts, Wells Fargo is rolling out a succession program that can bring retiring advisors as much as 225% of their trailing 12-month fees and commissions to be paid for over a 10-year period — or earlier if they chose to take payments via a loan.
The program includes a new retirement loyalty award representing 25% of the retiring rep’s yearly production. Advisors taking on the retirees’ client base will be eligible for a new book acquisition award of up to 100% of the retiree’s trailing 12-month fees and commissions.
“This program is a category killer in the space. It’s about investing 100% in the next generation to take on more clients,” said John Alexander, head of advisor-led business for Wells Fargo. “No one else is doing this.”
Starting April 1, the Summit Program will be available to employee advisors in the Private Client Group and Wealth Brokerage Services (which are being merged), but not those in the Financial Network, or FiNet program for independent advisors, or the bank’s new affiliation program for RIAs.
Recruiting, Retention Woes When asked if the program is aimed more at retention or recruiting, Alexander said it is “attractive to all our advisors and to those who are the best in the business who are not yet here.”
In light of negative headlines its parent company continues to make, Wells Fargo Advisors could use a boost. The group had 13,968 advisors, down nearly 600 from a year ago and about 100 from the prior quarter, as of Dec. 31, 2018.
Since the bank’s fake-accounts scandal erupted in fall 2016, when it had 15,086 registered reps, the bank’s wealth unit has lost 1,118 reps.
Total assets for WFA also are declining. They stand at $1.7 trillion, down 10% from last year due to lower market valuations and net outflows, the bank says. Average loan balances of $75 billion, however, rose 3% from last year, mainly thanks to growth in nonconforming mortgage loans.
“It’s really a smart investment in the future. No one could be more excited about this than we are,” Alexander said. “It’s a huge step for us.”
Long Time Coming The Wells Fargo executive says he and others “have been talking about this for years.” He points to Kim Ta, director of Teaming and Succession Planning, as the individual who “figured out how to make it happen.”
Succession planning and retirement issues are serious matters for the industry, Alexander said: “We know the demographics of the next five to 10 years involve a massive transfer of books of business.”
“We have been thinking about … how to invest in where it makes the most sense,” he explained. “This program supports all of our advisors transitioning out of the business over the next few years and those advisors who are still in growth mode. All of them should be a buyer or seller.”
Kestra News Meanwhile, independent broker-dealer Kestra Financial is being bought by the private equity group Warburg Pincus. Its prior owner, Stone Point Capital, will keep a minority stake in it, as will its management and possibly some of Kestra’s roughly 2,000 affiliated advisors.
Warburg Pincus comes with some fairly deep pockets — $43 billion in assets in under management invested in about 180 companies. Stone Point works with $19 billion in assets.
“Warburg is a savvy PE firm in the space, with an investment in Facet Wealth and prior investments in The Mutual Fund Store and Financial Engines,” said Chip Roame, head of the consulting firm Tiburon Strategic Advisors. “This move continues a trend of PE firms acquiring IBDs.”
Plus, given questions over how long stocks can stay at their current level, Kestra’s timing at finding such a partner is quite good, according to recruiter Jon Henschen of Henschen Associates.
“Warburg entering into a purchase at this point of the market cycle is an indicator that they will be a longer-term player, weathering through any market downturn,” he said. “In market downturns, when capital is in short supply, PE firms are your best friend.”
Other industry watchers, like Nexus Strategy’s Tim Welsh, agree. “For Kestra, this is very good news to have a growth buyer in their camp, a firm that will invest in the business, particularly now that the Department of Labor’s [proposed] fiduciary rules are way in the rearview mirror,” he said.
Kestra President & CEO James Poer is pleased, as well. “The transaction came up faster than we anticipated and is the right thing for us to do,” he explained.
Transaction Details The Kestra deal has been estimated at between $600 million and $800 million (or 8-10 times earnings before interest, taxes, depreciation and appreciation). That compares with Genstar Capital’s recent purchase of Cetera Financial — which has over 8,000 affiliated advisors — for $1.7 billion.
“Stone Point more than doubled their investment in three years and are keeping a minority interest, which will most likely be the 20% minority stake that NFP still maintained,” according to Henschen.
“In spite of this being the third majority PE ownership change at Kestra, every change that has occurred has been a nonevent for the advisors, with no re-papering [of accounts], same management, same impressive staffing levels and technology.”
In addition, Henschen says that he’s heard some advisors and employees could be given access to company shares, namely producers of more than $500,000 in yearly fees and commissions. (Kestra will not confirm any details on the announced deal.)
As for what Kestra intends to do with the backing of its new owner, Poer says the firm — which has about $100 billion in assets — will continue to improve its technology platform, build out its investment management research division (including its advice engine), and acquire more wealth management businesses as part of its succession-planning work.
Kestra History The firm started out as Partners Financial and then did business as NFP Securities, with is roots in insurance producers, Roame points out. “It evolved to be NFP Advisory Services Group, showing an early recognition that the IBD model would be challenged as IBD reps moved more to managed accounts, and IBDs needed to add more value,” he explained.
The firm adopted a new brand after its sale to Stone Point in 2016. About three years before, NFP — formerly named National Financial Partners — was bought by the private equity group Madison Dearborn Partners for about $1.3 billion (including NFP’s convertible debt).
As for Poer, who Roame says is a “successful” leader for Kestra, he’s been with the firm throughout these changes. He led NFP Securities’ Advisory and Investments group from 2003 to 2008, then was president of NFP Advisory Services Group until being tapped for his current post.
“Kestra Financial has proven more successful than other IBDs at moving its FAs to managed accounts,” Roame said.
According to Poer, about 60% of the firm’s revenue is tied to its RIA, and about 80% of its revenue is recurring.
M&A Pace The firm announced plans to buy H. Beck from Securian Financial Group in 2017. At the time, H. Beck had about 600 advisors and $2.5 billion of AUM. A year later, Kestra said it would purchase Reliance Trust Co. of Delaware from financial services technology firm FIS. At the time, Reliance had some $7 billion in assets.
Turning to future acquisitions, Poer said Kestra has “a pretty opportunistic tilt.” It aims to expand distribution as it did with the H. Beck purchase, build on its wealth management strategy and advisory-practice businesses, and broaden its capabilities, as was the case with the Reliance Trust deal.
The Reliance purchase, according to Poer, is a good example of how Kestra likes to “deepen its value proposition for its sophisticated advisors and their sophisticated clients.”
Other Developments In March, Cetera Financial Group said CEO Robert “RJ” Moore would step down for health reasons. The news came less than four months after the private-equity firm Genstar Capital acquired a majority stake in Cetera, which has more than 7,000 affiliated independent advisors.
“Who will they bring in?” asked Henschen. “You need a visionary, charismatic leader who is good at building consensus and rallying advisors together.”
According to the IBD, Moore does not have a terminal illness. Chairman Ben Brigeman is taking the reins from Moore on an interim basis, while the executive search firm Heidrick & Struggles helps the independent broker-dealer group permanently fill the position.
The IBD group is not disclosing further details about its CEO search. In an e-mail, Brigeman said Genstar had “full confidence in Cetera’s strategy and the strength of its management team,” citing 2018 performance that exceeded expectations and “record recruiting” in early 2019.
Janet Levaux is editor-in-chief of Investment Advisor. She can be reached at firstname.lastname@example.org.