How Cetera is preparing for downturn ‘disruption’
Perhaps no firm knows better about disruption than Cetera Financial Group. Now it seeks to gain a leg up on rivals by helping financial advisors prepare for potential economic upheaval.
The network of six independent broker-dealers with 7,500 advisors went through bankruptcy protection and a subsequent restructuring in 2016. Institutional investors sold a majority stake in the firm to Genstar Capital in 2018. And CEO Robert Moore stepped down in March due to health reasons.
Los Angeles-based Cetera has clearly “checked the box relative to resiliency,” according to its president, Adam Antoniades. Its new aim is to ensure advisors and prospective IBD acquisitions can deal with the “disruption that the business will face” in a stock downturn, he says.
“The rising tide has hidden a lot of sins,” Antoniades said in an interview late last month. “A major decline in the market and a correction for sustained period will really challenge a lot of advisors and a lot of firms. Our sense is, we’ve got our entire platform oriented towards navigating that disruption.”
Antoniades also says he hopes Cetera is known in the marketplace for organic growth and cutting down friction areas between the firm, advisors and clients.
He declines to discuss reports that Cetera sought to purchase Advisor Group to combine the two major IBD networks and says he has no updates on the firm’s CEO search. Finding the right person is “really important” for realizing the firm’s potential, he adds.
The six-IBD network lost advisors during a capital structure change, but its new majority owner says the predicted expansion is still on track.
The 7,500-advisor network agreed to buy certain assets of Foresters Financial’s U.S. BD and RIA.
The 12-advisor practice serves clients in a group often neglected by the industry, its managing directors say.
Antoniades instead revealed aspects of the firm’s thinking about the future of the sector in the event of a downturn. Offerings like subscription billing, sophisticated planning tools and a client portal displaying their specific needs and priorities will help Cetera advisors through any downturn, according to Antoniades.
“Having capabilities to better align the value that advisors deliver to the way they get paid is really critical,” he says.
The rainy day pitch — along with the resources of private equity firm parent Genstar — appears to be paying off: Foresters Financial agreed in April to sell select assets of its U.S. brokerage and RIA to Cetera in a deal that could add some 500 advisors to its bank and credit union channel.
In the first quarter alone, Cetera recruited advisors managing $7.5 billion in client assets and producing $48 million in gross dealer concessions, according to Antoniades.
The recruited client assets outpaced even No. 1 IBD LPL Financial’s impressive $7.1 billion haul in the period. However, LPL’s recruited client assets for the past 12 months topped $30 billion, according to the firm.
Cetera’s large IBD rivals all say they’re investing resources in recruiting, M&A, technology and organic growth, often with the help of PE backers.
“Private equity and smart money are very interested in the backdrop of this industry,” Advisor Group CEO Jamie Price said after Reverence Capital Partners agreed to buy a 75% stake in the firm last week. “Our job is to help our advisors take advantage of that in ways that others can’t.”
Ironically, in 2018, Advisor Group parent Lightyear Capital emerged as a potential suitor to purchase Cetera, according to reports at the time. Antoniades has acknowledged Cetera didn’t recruit as well as executives had hoped during its capital structure review and sale last year.
But Antoniades described 2016 as “a great year for reinventing ourselves” which “served its purpose.” Cetera saw less than 10% attrition of advisors during the five months of the restructuring, with 3% of the share from terminations of advisors who weren’t a cultural fit, he says.
In early May, Cetera announced the launch of a program to enable advisors’ practices to sell in the event of “an unforeseen and often tragic exit.” Practices can lose up to 75% of their value within two months of the unplanned loss of an advisor, according to the firm.
An online valuation platform by powered by Truelytics, the business intelligence software, serves as the core of what Cetera is calling its Legacy Builder Program. The firm consulted with advisors as well as continuity and succession experts in building the service.
After announcing that Genstar would be its new majority owner last year, Cetera unveiled offerings of loans to support advisors’ growth plans and an expanded recruiting team. Genstar — also the parent of RIA consolidator Mercer Advisors — has a record of driving growth, Antoniades says.
“The scale story is still very much at the center at the theme at Genstar’s investment in Cetera,” he says, noting the cost of increased regulation and tech spending. “They believe it will become increasingly more difficult for firms to stay in business and compete.”