After an accounting scandal rocked one of his companies last year, REIT impresario Nicholas Schorsch faced pressure on many fronts.

As it turns out, one of the most powerful voices calling for big changes at RCS Capital -- owner of the independent b-d network that Schorsch had built through a series of rapid-fire acquisitions -- was a group of influential Cetera advisors, who made their feelings known right after problems emerged in October.

"Let's put this behind us; let's distance ourselves from this," the advisors told executives at Cetera parent RCS after another Schorsch firm, REIT manufacturer American Realty Capital Properties revealed it had deliberately concealed accounting errors.

That's according to Dave Hubbard -- one of six members of an advisory committee of regional directors of Cetera Advisor Networks, the largest group of advisors in Schorsch's IBD network. That group's 50 regional directors represent more than 3,000 Cetera advisors nationwide.

By year's end, Schorsch had resigned as executive chairman of his IBD network. Federal authorities are investigating the accounting errors, according to The Wall Street Journal.


"I don't want to give you the impression that [Schorsch's resignation] happened because of us," says Hubbard -- but he and advisory committee chairman Dan May say the committee members are glad that he did.

"We don't want to see distractions like this around our broker-dealer," says May, CEO of AdvisorNet Financial in Dellwood, Minn.

"Until all the investigations are done, we feel that it's probably better for all concerned for him not to be on the board," adds Hubbard, president of Exemplar Financial Network in Crystal Lake, Ill. "The guilt by association ... is very distracting. We've been building this company for 30 years ... He is not needed on a day-to-day basis."

RCS declined to answer specifically whether pressure from the Cetera advisors had spurred Schorsch's resignation. "The transition was a continuation of our best practice governance efforts, which we began implementing in Q2 2014, and is a natural evolution of our business as the company has matured and grown," an RCS spokesman said via email. "Additionally, the changes announced were important for the long-term development of RCS Capital as an institutional business and are consistent with our focus on enhancing shareholder value."


In October, non-traded REIT manufacturer ARCP revealed it had intentionally hidden $23 million in accounting errors from the public. One of Schorsch's former executives has sued and accused him of ordering the falsification, according to The Journal.

The resignation marked a sudden reversal for Schorsch, whose giant REIT firm had been on an IBD buying spree for the last two years. RCS has now become the country's second-largest IBD operation, as measured by number of advisors (following only No. 1 LPL Financial).

Plenty of other issues likely factored into the decision that Schorsch should step down. The price of RCS stock dropped from a high of nearly $25 over the summer to about $10 more recently, displeasing other shareholders and reducing the value of Schorsch's own 19 million shares by $265 million.

The lawsuit also seems likely to serve as an ongoing distraction.

Yet the company may have also felt compelled to placate its advisors, who operate as independent contractors and could walk away at any point.

"There's no doubt in mind," says Cheryl Chiara, an independent advisor consultant who also maintains her registration with Cetera, "that [the regional directors] expressed their minds very quickly and the management took it very seriously because they oversee a big block of business."


Historically, these advisors have played an unusually strong role in determining the fate of their B-D, which has gone through multiple ownership changes over the years.

In past years, the regional director committee helped orchestrate previous sales of their B-D to Aetna in 1997, and then to private equity firm Lightyear Capital in 2010.

To complete the Lightyear sale, they worked closely with Valerie Brown -- at the time an exec with the B-D's then-owner, ING, but who later became the CEO of a newly rebranded Cetera.

Many of the firm's larger advisors were equity owners in Cetera and reaped a share of profits when Lightyear sold Cetera to RCS last year for more than $1 billion.

For now, the advisors are satisfied that their voices were heard and that change has come.

"Time will tell as to what the real effect of Nick's stepping down will be," Hubbard says. "It puts our independent B-D a little bit stronger position taking him out of the equation."

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