Capital One advisors to go indie with Advisor Group firm after M&A deal

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More than 50 bank advisors are going independent after Capital One agreed to its third spinoff in the last five months in the wealth management space.

The bank struck a deal to sell its in-branch brokerage unit to Woodbury Financial Services, an independent broker-dealer, the two firms announced on April 10. Woodbury has tapped two bank executives to lead the new crop of indie practices of 51 advisors with $10 billion in client assets.

Some 33 key advisors within the group will run the new Woodbury offices in the New York City area, the mid-Atlantic region, Louisiana and Texas, says Woodbury CEO Rick Fergesen. Jeffery Sills, a vice president of Capital One Investing, will serve as regional vice president of the new territory within Woodbury.

Capital One is retaining a sliver of its wealth management business. However, Woodbury’s recruiting and transition department has started training the advisors with an eye toward getting their offices up-and-running by the time the deal closes, either in the second or third quarter, according to Fergesen.

Attempting to convert employee advisors en masse to a new business model carries risks, and Oakdale, Minnesota-based Woodbury hasn’t made an acquisition for at least a decade. The IBD is betting that the familiar faces of Sills and another Capital One executive, Avi Mizrahi, will ease the advisors’ transition.

Leadership at private equity-backed parent Advisor Group identified the bank brokerage as a possible fit for Woodbury, and the advisors have already become “fairly sophisticated in planning” after focusing on advisory services in recent years, Fergesen says.

“We’re providing a comprehensive transition plan for every advisor. And we’re walking them through it step by step,” he says. “Acquisitions are not our primary growth strategy, but a really good opportunity came along.”

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One of the biggest notable losses came from Merrill Lynch, which lost a team managing $1 billion to the independent space.

Fergesen declines to discuss the amount of transitional assistance or upfront loans the Capital One Investing advisors will receive as part of the process. Woodbury and Capital One also did not disclose the terms of the deal, and Capital One declined to make Sills or another executive available for an interview.

The Woodbury announcement followed two others involving the bank selling off portions of its wealth management business. In January, self-directed brokerage E-Trade Financial unveiled its agreement to acquire one million retail accounts with $18 billion in client assets from Capital One for $170 million.

Mississippi-based Hancock Whitney bank had agreed in December to purchase Capital One’s bank-managed high-net-worth individual and institutional management and trust business, which has about $10 billion in assets under administration and $4 billion in assets under management.

Capital One doesn’t break out the revenue and client assets of its BD subsidiary, Capital One Investing, in its public earnings. The McLean, Virginia-based bank appears to be retreating from wealth management to focus on its core businesses of credit cards and consumer banking, but Capital One didn’t confirm that to be the case.

A spokesman, Sie Soheili, didn’t answer emailed questions about the exact size of the BD or future plans for it.

He did send a prepared statement noting that the investing unit will continue its offerings of 401(k) and IRA services, as well as private banking business and access to digital advice from Capital One Advisors Managed Portfolios. Soheili says the bank is working on other digital tools as well.

“While the decision to exit these businesses was difficult, they were the right long-term decisions for our business and will enable our Investing and Wealth and Asset Management customers to continue to invest and grow their finances within organizations that have well-established and deep expertise in the financial advisory and management fields,” Soheili said.

On the other hand, moving advisors from bank branches to independent practices poses some difficulties, according to consultant Tim Welsh of Nexus Strategy.

Woodbury’s effort strikes Welsh, he says, as a smaller-scale version of current Advisor Group parent Lightyear Capital’s conversion of insurance firm ING’s three BDs into Cetera Financial Group after the private equity firm acquired them in 2010, he says.

It also reminds him of the less successful endeavor by Citigroup in 2009 to convert 600 branch-based advisors to fee-only advisors after selling Smith Barney to Morgan Stanley. Citi scrapped the plan, which also including referring complex clients to outside RIAs, within two years, Reuters reported at the time.

“You can’t just flip a switch and say, ‘Voila! You are now wealth managers,’” Welsh says. “Any cultural change, when you take an existing advisor in their element and you change that overnight, is going to be difficult.”

Woodbury is using a series of webinars to train the incoming advisors on the indie model, and the firm is also helping them locate office space. Woodbury’s structure should allow for a more seamless tie-in of the new advisors as well, Fergesen says.

The more than 1,200 advisors of Woodbury, which is the No. 25 IBD and the smallest of Advisor Group’s four subsidiaries, receive home-office supervision rather than the more common IBD approach of offices of supervisory jurisdiction. Woodbury’s regional vice presidents manage specific territories in the field.

The new advisors will “plug perfectly into the model that we’ve been running for years,” Fergesen says. The IBD plans to add compliance and supervision staff at its Minneapolis-area corporate office, and Sills will lead the new territory with Mizrahi as his direct report, according to the CEO.

“We felt there were a couple of people who were really key in keeping the leadership and esprit de corps of that group,” Fergesen says. “We’re going to keep it all together in one group.”

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Independent BDs Independent advisors M&A Going independent Rick Fergesen Woodbury Financial Services Advisor Group Lightyear Capital Capital One Capital One Investing