Advisor Group's Ladenburg ramp to go on as deliberately as planned

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The coronavirus pandemic hasn’t thrown off Advisor Group’s timeline for folding Ladenburg Thalmann into its structure after the $1.3-billion deal, according to CEO Jamie Price.

The Phoenix-based firm set its business continuity plan into motion — and, just as before the Feb. 14 closing of the deal, Advisor Group is sticking to an 18-month ramp for shared services across the network of nine independent broker-dealers, Price says. He says his heart goes out to the firm’s newly enlarged force of 11,300 advisors, their clients and their communities.

The deliberate schedule will play out as the macroeconomic fallout from the pandemic sharply cuts earnings in the sector — by as much as 25% to 50% this year, according to one estimate. A larger and less indebted rival, LPL Financial, has also recruited at least eight practices from Triad Advisors, SagePoint Financial and other IBDs in Advisor Group’s network so far this year.

In addition, the private equity-backed firm parted ways with 11 Ladenburg directors and executives — including longtime CEO Dick Lampen — after the deal, according to an SEC filing in February. On March 30, the firm tapped former LPL executive Greg Cornick to be president of advice and wealth management as it starts the integration by shaking up its home-office manager ranks.

Advisor Group’s plans revolve around “not the next three-to-six months or a year or two years, but much longer,” Price says.

“Our job is to use our scale and leverage to bring the best capabilities and product sets to advisors at the right price point,” he says. “We seem to be watching our advisors do what they do best, in this kind of environment particularly....It will pass eventually. We're focused on the other side of this, after the business continuity planning that we've done for the short term.”

Management shakeup
Price’s team holds weekly meetings across the company and daily huddles on its response to the pandemic, such as remote work arrangements and other requirements under FINRA guidelines. Still, they’re moving forward with new executive appointments.

In addition to hiring Cornick — LPL’s former head of corporate development and advisor financial solutions — Advisor Group promoted Securities America recruiter Gregg Johnson to be the network’s executive vice president of recruiting and revenue acquisition. The firm also made Advisor Group EVP Cindy Hamel its chief strategy and corporate development officer.

The acquisition also took Ladenburg private — more than 140 years after its investment banking business first became a member of the New York Stock Exchange. Advisor Group has no current plans to drop the legacy names of the Ladenburg investment bank or asset management unit, Price says. The institutional middle-market bank now reports to him directly.

In a further move, Matthew Schlueter, Advisor Group’s former EVP of wealth management solutions, switched to president of products and platforms, with oversight of Ladenburg’s asset manager, trust company and insurance brokerage.

Price says the shakeup is intended “to create more bandwidth” and was expected after the deal. Besides Lampen, COO Adam Malamed and Chief Information Officer Doreen Griffith, eight officers and directors left Ladenburg after Advisor Group closed the acquisition, according to a Feb. 14 SEC filing. Advisor Group didn’t respond to follow-up requests about any other exits.

Employment agreements entitled Lampen, Malamed and three other officers to “golden parachutes” totaling $19.1 million, a Dec. 6 proxy shows. That’s on top of tens of millions of dollars earmarked for Ladenburg’s insider shareholders at close. Based on their shares and the lump sum payments, Lampen earned some $25.8 million and Malamed received $10.3 million.

With Ladenburg marching into the IBD sector by acquiring five firms over their 15-year tenure, the business grew by a factor of 40 to nearly $1.5 billion in revenue last year from $36 million in 2006, Lampen and Malamed wrote in an op-ed for Investment News. Lampen and Malamed praised the Advisor Group deal — without disclosing their compensation stemming from it.

“Our transaction with Advisor Group is more than just one of the largest and most high-profile deals in the history of our industry — it is a culmination of strategy and execution by many individuals, with lessons for our broader industry,” they wrote.

Recruiting implications
The company hasn't said whether advisors got retention bonuses — they typically don’t receive them unless an acquisition obligates them to repaper client assets, which they were not required to do after the Advisor Group deal. In January, the acquiring firm offered a select number of Ladenburg’s roughly 1,500 employees and 4,400 advisors the ability to purchase stock in its parent entity.

Advisor Group set the minimum investment for advisors at $75,000, according to its initial solicitation letters. Representatives for Advisor Group — which has been 75% owned by Reverence Capital Partners since it changed hands from another PE firm last August — haven’t said how many advisors have bought into the entity, AG Artemis Holdings.

With valuations from even mid-February now out of step in the new economic reality caused by the pandemic, it could take many years for Reverence and other PE investors to break even on their investments, according to IBD recruiter Jon Henschen. Citing recent ratings agency actions like Moody’s downgrade of Advisor Group, Henschen says he expects an impact on recruiting.

“We are anticipating a flight to quality which will start growing over the coming months,” he said in an email. “Firms that have high indebtedness to net capital ratios above 5:1 are of concern, as are firms that have little in the way of product that hedges or negatively correlates the market. How this all plays out, of course, rests on how deep and long this correction continues.”

Take the largest IBD, LPL, as an example of firms that aren’t likely to take a break from recruiting. In eight grabs from the Advisor Group network this year announced by LPL, the firm added more than 20 advisors managing about $1.6 billion in client assets. On March 24, Birmingham, Alabama-based Horizons Financial Group dropped Triad Advisors after 13 years.

“We were previously at a firm that was sold twice during our tenure,” CEO Jim Nix said in a statement. “As a publicly traded firm, [LPL] will provide our business and our clients with long-term stability in this ever-changing world.”

For his part, Price says the downgrade of Advisor Group’s credit came as “no surprise whatsoever” in light of lower revenue projections for the sector. Advisor Group has enough scale and capital to stay on track with its plans, he says. Despite its current high leverage, the firm elected not to issue as much debt as some underwriters proposed for it, he adds.

Reverence “didn't take as much debt as they were offered when they bought Advisor Group, either,” Price says. He added that Advisor Group has “more cash on our balance sheet than we've ever had” in the company’s history, though he declined to state the amount.

He conceded, however, that the Ladenburg deal is “much different” from other acquisitions that Advisor Group has made in recent years. In the past, the firm purchased small and midsized IBDs without many other distinct business units. Advisor Group had always planned to take its time in merging Ladenburg’s IBDs into its shared back-office structure over a year and a half.

During the transition, the firm aims to roll out new technology and products while ensuring “service levels remain high” and that each home-office resource ends up in the “right bucket,” Price says. In terms of the number of corporate employees to serve the more than 11,000 advisors, he says it’s too early to tell how big the headcount will be when the integration is complete.

“So much of our business is driven off volume and number of advisors,” Price says. “Until we have a run-rate with our business, it's really hard to even know what you're going to look like from an employee count. We don't measure it that way. We look at it more as, how is this going to change our trajectory as a company over the next several years.”

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Independent BDs M&A Private equity firms Private equity fundraising Advisor Group Ladenburg Thalmann Financial Services Jamie Price Richard Lampen Coronavirus Recruiting