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Will Advisers Flee Independent Broker Dealers Acquisitions?

Climate of Consolidation Continues for Investment Industry

Bob Pepalis

Bob Pepalis

Freelance journalist

Consolidations of independent broker dealers have been on the rise for the past few years with many acquisitions, both large and small. Every firm in any industry involved in an acquisition will try to put forth the message that no changes will be seen by the employees or the clients, except for improvements.

However, any adviser who has been involved in a consolidation after a merger or acquisition can tell you the culture will change for the newcomers and even the old hands at the now parent institution. It almost seems like human nature to expect the worst when faced with change. And that’s even when you were pleading for changes from your original IBD.

If there are complaints about inferior technology, advisers will probably be unhappy with the changes made after the acquisitions. The new guys in charge will probably choose the wrong tools for the job, or they’ll take too long to get them to everybody. You can be certain that as the newcomers any improvements will reach you last.

An attempt by those now in charge of creating all of the forms necessary to do the jobs, especially those disclosure forms, will become much too long with dozens of pages when you are sure only five or six pages are necessary. Or if they manage to shorten the forms, it’s a sure thing that some important information will be left out, confusing clients even more.

Will that drive advisers out of the “bigger and better’ firm? The industry warned advisers they will need to perform due diligence to discover what is expected of them in this new environment. It’s not enough to know what you are getting – you need to know what you need and want in the support systems, technology and culture of the acquiring firm.

Whether your firm is kept as a standalone or bundled into the new firm determines how quickly you will perform due diligence. Plan for becoming folded into the new firm as that is likely to happen after some time if not immediately. Advisers will be doing the same thing.

Whatever happens can make you happy with your firm’s acquisition. Or you will have to take advantage of options the acquisition provides. Advisers are in the same boat. Will the acquisition keep the firm stable? Will advisers rush their due diligence because of fears that compensation and fees will drastically change for the worse?

Expect more advisers to be facing these same questions and situations, as most in the industry expect more acquisitions. The temptation to enter into an acquisition is much stronger with multiples so high for broker-dealer owners to sell. Many of the recent acquisitions have closed anywhere between 45-89 percent of the gross dealer concessions produced by the firm.”

See also What Affect Will Schorsch Acquisitions Have on the Industry?

Bob Pepalis is a freelance journalist with experience in business coverage in online, daily and weekly media.

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What Affect Will Schorsch Acquisitions Have on the Broker Dealer Industry?

Bob Pepalis

Bob Pepalis

Freelance journalist

Under Nicholas Schorsch, RSC Capital has completed significant acquisitions of investment firms that have some other companies questioning the numbers. If Eric Schwartz of Cambridge Investment Research RCAP says they are used to putting up 11 percent in up-front money, what does that mean when RCAP has shown it is willing to spend 40-70 percent of gross dealer commission (GDC)?

Schwartz was speaking in an in-person roundtable featuring the leaders of the 24th annual Broker Dealer of the Year by ThinkAdvisor. He couldn’t justify putting too much energy in that kind of acquisition when the firm could bring in an individual rep. The acquisition model didn’t fit in his way of growing, which he said is organic.People and profits

Bruce Kelly, a financial investment columnist who is well known in the broker dealer industry, said back in April in Investment News that RCAP’s buying binge was $1.3 billion, translating into 73.5 cents for each dollar of broker dealer gross revenue. “That’s on the high end of the historic range of prices for IBDs, which have been valued at 25 percent to 75 percent of annual gross revenue,” Kelly wrote.

Back in January, Brooke Southall wrote in RIABizz that what RCAP was doing was akin to “Nabisco buying Whole Foods to sell more Oreos.” Consumers want more Oreos at a better price, but Southall wrote that “it may not be favorable for consumers’ long-term health or an evolving supermarket business.”

These comments came in the wake of the purchase by Schorsch of independent broker-dealers First Allied Holdings Inc. in June 2013 and then Cetera Financial Group and J.P. Turner & Co. in early January 2014. This look at the big picture came long before the latest acquisitions and announcements:

RCS Capital completes acquisition of Strategic Capital – Sept. 2

RSC Capital announces agreement to acquire Girard Securities – Aug. 13

RSC Capital Corp. completes acquisition of Investment Capital Holdings – July 11

About a month ago, RCAP announced its intent to purchase independent broker-dealer Girard Securities, which has more than $10.0 billion of assets under administration and producing financial advisors with an average annual production of approximately $210,000 per advisor, the PRNewswire release said.

Once this acquisition is completed, and counting the recent purchase of VSR Group, RCAP will have more than 9,700 independent retail advisors in its nationwide network.

Now that most of these acquisitions have been completed – but still with Girard Securities in the offing – what does this mean for the independent broker-dealer? Will other firms need to focus on fees for services, which RCAP’s retail advice division, or will that cause the firm regulatory problems as Southall suggests could happen if investors aren’t satisfied?

Have any independent broker-dealers you know felt the effects of the fast growth of RCAP in this industry? What do you think of RCAP’s model for independent broker-dealers?

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Does Your Broker Dealer Leave You Hanging?

Broker Dealer Change, Broker Dealer, Broker Dealers, Selective Placement for Financial AdvisorsBroker Dealer Change understands the unique challenges that face Financial Advisors in today’s ever changing economy.

Broker Dealer Change was founded to provide solutions to financial advisors who are considering a move to another firm. The financial brokerage industry has undergone significant changes in the past few years and there are many advisors who need our services to help them find a firm that meets their practice’s requirements.

We represent regional and independent firms. The process of finding a new firm is time consuming-speaking with firm specific recruiters to understand their respective value propositions, cultures, products, platforms, technology, and transition processes.

To save you time, we act as the advisor’s “agent”, to sift through this information and help the advisor find the “best fit.” We try to determine your requirements and bring firms to you that will benefit your practice.  We create a “market demand” for each advisor we represent, sometimes bringing as many as 5 Broker Dealer firms “to the table.”

Read On . . .

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