By BOB PEPALIS
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.
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:
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?