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Advisor Group gears up for acquisitions ahead of DoL rule

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Advisor Group is gearing up for an acquisition spree, looking to snap up smaller independent broker-dealers as the Department of Labor fiduciary rule begins to phase in, starting in April.

While some have speculated that the election of Donald Trump could delay or even halt the rule’s implementation, Advisor Group and other firms say they are proceeding as if the shift to fiduciary client service were inevitable.

To that end, it has hired former midsized IBD CEO Steve Chipman into the newly created role of senior vice president for strategic acquisitions. Advisor Group is the second-largest network of independent broker-dealers after Cetera Financial Group, comprising Royal Alliance Associates, SagePoint Financial, FSC Securities and Woodbury Financial Services.

"I love the term 'having the adviser's back' and it's very difficult for a small to midsize IBD firms to actually have the adviser's back," says Chipman, former CEO and president of Silicon Valley-based Foothill Securities, which Securities America acquired last year.

By joining Advisor Group, which has about 5,000 affiliated advisers, smaller firms can offload some of the headache and expense of instituting changes necessary to comply with the new fiduciary rule, he thinks.

"I think there is a tremendous opportunity for Advisor Group to step in and partner with these organizations," Chipman says.

While Trump, who takes office on January 20, has said he wants to generally reduce regulation, he has not publicly addressed the fiduciary rule. Several groups, including the U.S. Chamber of Commerce and SIFMA, are challenging the rule in federal court. A ruling is expected soon, though fiduciary opponents lost two other cases in which they sought to reverse the regulation.

Despite the uncertainty, many firms have not been holding back on their preparations. Earlier in January, Advisor Group Executive Chairwoman Valerie Brown said the firm will roll ahead with plans to cut fees, reorganize its platform and roll out new educational resources for advisers.

At the same time, other IBDs are facing margin pressure as they struggle to comply with the rule’s mandates. Experts have said they expect many firms to sell themselves or convert to offices of supervisory jurisdiction for their bigger competitors.

Given that Chipman recently went through the process of seeing the firm he ran for more than a decade sold to new owners, Chipman will be able to talk to prospective Advisor Group acquisition targets from personal experience, Advisor Group President and CEO Jamie Price says.

"Steve is well known in the industry," Price says. "He kind of knows what it feels like on the other end."

This year Advisor Group expects to derive about half its growth from acquisitions and half from organic growth, Price says. He declined to estimate how many firms his company might bring on or to say how many prospects it is examining at the moment.

"There is a lot of interest," Chipman says. "People understand that the fiduciary era is an inflection point for the industry. Most of the people who run small BDs and midsized IBDs, they are upstanding folks. They want to do what they have to do and be close to their clients …. I actually think it's a tremendous opportunity for these small- to-midsized firms to actually get back to the core of what they do best."

Although many in the IBD space are unhappy about the fiduciary rule and fighting to undo it before it can be implemented, Price says an evolution to a fiduciary environment is yet another sea change within the industry that is likely inevitable and, in many ways, for the best.

"If you go all the way back to 1975, on May Day, when fixed commissions went away, the discount brokerage business and Charles Schwab was launched," Price says. "In the last five to seven years, robo advisers have come online. In all these inflection points, there are people who fade away, who survive and who thrive.

"The people who seize this opportunity as an opportunity," he says, "I think, will make huge headway gains."

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