Cetera Plans Big Changes to Retention Bonuses

“Genstar is a better match than LPL or Advisor Group,” Henschen said. A deal with LPL would have led to “culture issues,” and Advisor Group likely would have plugged all the Cetera advisors into their consolidated back-office services.

While it’s “encouraging” that Genstar has financial-services experience with an RIA (Mercer Advisors) and AssetMark, “owning a broker-dealer is a new experience [for Genstar], so we have no track record to reference,” Henschen explained.

Still, the preliminary signs seem positive, the recruiter points out.

“We’ve seen some private equity firms implement major cost cutting early in the relationship, but contrary to that, we see Genstar wanting to invest in Cetera’s technology and focus on organic growth,” he said.

Private Equity Plans

Another unknown for Cetera, of course, is how long the PE firm will hold onto it.

“Like most PE firms, do they have a 10-year timetable to bring a return to their institutional investors? Are they going to grow the firms for two to five years and sell? Or grow it for four to nine years and go public?” Henschen asked.

There’s value in looking at some recent history, too. “As we experienced with Lightyear [which now owns Advisor Group], when they owned Cetera BDs [from 2010 to 2014], the narrative was for longer-term ownership and going public,” the recruiter said.

But Nicholas Schorsch and RCS Capital “came along with a very attractive price, and Lightyear took the bait,” he added. “Ultimately, private equity is opportunistic and is about risk transfer, as its involvement is temporary.”

For Cetera and its advisors, “who have been through a lot of turmoil resulting from the Schorsch accounting scandal and resulting press,” Henschen said, “stability and predictability would be a welcome relief.”

(RCS, then led by Schorsch, bought Cetera for $1.15 billion from Lightyear Capital in 2014. Later that year, an entity in the nontraded REIT space that Schorsch was involved with became embroiled in an accounting scandal and related troubles, which spilled over onto RCS Capital and bankrupted the company.)

Advisor Feedback

According to Moore, advisors have been involved with the company’s review of its capital structure and future since February via meetings between the Advisor Engagement Council and management.

“Their voice was heard during this process, …. and we’ve been engaging their interest around [issues] and alternatives amid lots of media speculation,” he said.

As for the sale to Genstar, advisors were told about it before the official announcement was made, and they “got reassurance that this [deal] would not be intruding on their businesses,” the executive explained.

Further involvement with the advisor council is planned as part of Cetera’s aim to provide them with “a very differentiated approach” to the business.

This includes a commitment to helping advisors with succession planning and providing financial support to new advisors who are women, members of an ethnic minority group, retired military, building a second career and so on.

“This is tied to how we look at advisors — as independent business owners who need ways to bring on staff and grow their businesses, including with a fresh infusion of entrants,” Moore added.