Advisor retention under spotlight after Advisor Group-Ladenburg deal

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When sealing a deal to buy another firm, independent broker-dealers also acquire a fight: Recruiting and retaining advisors from the purchased firm.

For the 4,400 advisors affiliated with Ladenburg Thalmann’s five independent broker-dealers, the close of Advisor Group’s deal to acquire the Miami-based firm won’t mean a change. But the Ladenburg firms are combining with Phoenix-based Advisor Group’s four companies into a Brady Bunch of a network, with nine different IBDs and 11,500 advisors.

The parties promise it won’t be a rerun of other deals, in which advisors lose their longtime beloved BD partner under a merger into a larger firm. Still, since Advisor Group knows it must somehow form a family after purchasing Ladenburg for $1.3 billion, its IBD rivals will be on the lookout for any advisors left feeling like their older sister Marcia gets all the attention.

Advisor Group and Ladenburg executives are focusing on retaining advisors from IBDs like Securities America and Triad Advisors. The networks were among the prime rivals who recruited some 1,300 advisors out of LPL Financial’s incoming crop after the No. 1 IBD acquired the assets of the four National Planning Holdings IBDs for $325 million in 2017.

LPL added more than 1,800 advisors with $75 billion in client assets under the deal, however. And rivals like the No. 1 IBD, Cetera Financial Group, and Commonwealth Financial Network have been unveiling new recruits and bulked-up services that have enticed prospective advisors. IBD recruiter Jon Henschen says he’s already getting calls from Ladenburg advisors.

He’s advising them to wait but monitor the situation closely. The retention equation hinges on how much of its cash flow Advisor Group will have to devote to debt service payments, recruiting efforts and compliance with the SEC’s Regulation Best Interest, Henschen says.

“You have to ask, what's left over for investing in technology and improved services? Well, not much,” he says. “The reps have been happy at the [Ladenburg] firms. They're hoping things stay the same.”

New corporate policies could boost profits but irk advisors wary of change. The key issues involve how much Advisor Group consolidates back-office services, whether it will merge any of the nine firms and the extent it pushes advisory assets into its proprietary RIAs, Henschen adds.

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The record level of transactions — as well as long-term industry shifts — often prompt advisors and other wealth management professionals to assess their options.

In an email message to advisors in late November, the firms promised to “support all financial advisor business models,” including hybrid RIAs, and to abstain from merging any Ladenburg firms into Advisor Group IBDs. Ladenburg execs say they’re up to the retention challenge.

“Advisors are excited about the new possibilities. I think they see that as a positive,” says Gregg Johnson, Securities America’s executive vice president of branch office development and acquisitions. “There won’t be any repapering impact. If it's not impacting their clients, it makes a big difference.”

The top recruiting executive for Ladenburg’s largest IBD spoke after the firm launched a new office of supervisory jurisdiction under David Pintaric, a former national director of sales and practice management with SA Stone Wealth Management. Johnson also cites a strong pipeline of prospective recruits and high levels of retention historically at Securities America.

On the other hand, a growing LPL enterprise out of the Chicago suburbs named Professional Wealth Advisors recruited ex-Securities America advisors Kenneth Small and Natalie Jump in late October, according to FINRA BrokerCheck. The former National Planning team had moved to Ladenburg two years earlier rather than LPL after the No. 1 IBD acquired NPH’s assets.

The advisors manage roughly $135 million in client assets. Their close relationship with Professional Wealth principal Josh Gerry and the other founders began laying the groundwork for the move “years, if not decades” before they started the enterprise in early 2018, Gerry says.

Professional Wealth uses LPL’s corporate RIA and isn’t a formal OSJ because it’s under home-office supervision, Gerry notes. He praises LPL’s succession team for helping the enterprise acquire practices to reach its footprint of 15 advisors and $1 billion in client assets.

The No. 1 IBD told advisors last month that its latest debt restructuring made $375 million available for growth investments in their practices like acquisitions, marketing and infrastructure upgrades. Professional Wealth will eventually buy Small and Jump’s practice, Gerry says.

“This was a tremendous way for them to affiliate with us now and then fully merge with us in 2020, while still having the ability to maintain their client relationships and their routine,” Gerry says. “They know that it's good to get a group behind them, some more muscle for the future.”

In addition to the No. 1 IBD, another factor in the recruiting fight in the wake of the Ladenburg deal revolves around retention bonuses. Five stockholders plus former primary shareholder Phillip Frost have filed lawsuits seeking to block the deal, according to Ladenburg’s Dec. 26 proxy, but the more pertinent section of the SEC filing mentions potential equity for advisors.

Reverence Capital Partners-backed Advisor Group plans to offer certain employees, executives and advisors equity interests in Advisor Group or an affiliate, the proxy states. They would be able to exchange any Ladenburg stock they hold or cash proceeds upon the closing to buy it.

The acquiring firm hasn’t extended any offers yet, and representatives for Advisor Group didn’t respond to requests for more details of the potential equity interests. Advisor Group has also said the firm hasn’t made any final decision about retention bonuses for Ladenburg advisors.

Equity shares remain a popular form of compensation. For example, Blucora’s Avantax Wealth Management is nearly doubling its advisor equity grants for their production in 2020 to a combined $5.5 million, the firm said on Dec. 18. Some 120 Kestra Financial advisors purchased $23 million worth of company stock after Warburg Pincus acquired the IBD earlier this year.

Advisor Group itself provided stock to some advisors as part of a three-part “advisor appreciation program” after Reverence purchased a 75% stake in the network in August. The private equity-backed network didn’t reveal the details of the program until after the deal closed.

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Independent BDs Recruiting Business development Career moves RIAs Advisor Group Ladenburg Thalmann Financial Services Securities America LPL Financial M&A