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Ladenburg IBDs boost head count by 17%, rake in doubled profits

Ladenburg Thalmann’s five independent broker-dealers are reaping pretax profit growth in the triple digits on the strength of record client assets, higher interest rates and rising product sales.

The Miami-based firm’s IBD segment generated revenue of $300 million — more than 85% of Ladenburg’s third-quarter revenue of $348.9 million and 5% above the year-ago period, according to the firm’s earnings filing with the SEC. Pretax income for the IBDs has soared by 120% to $18.5 million.

Ladenburg is investing back into the IBD network, which includes No. 10 IBD Securities America and the No. 28 firm, Triad Advisors. Its head count has expanded 17% year-over-year to 4,300 advisors, pushing up compensation expenses by $3.9 million. The firm also made three acquisitions in the insurance distribution space for nearly $11 million.

Ladenburg Q3 2018 earnings

On the other hand, the company reported its earnings for the first time since the SEC charged its ex-chairman, billionaire pharmaceutical entrepreneur Phillip Frost, with involvement in a pump-and-dump scheme. Ladenburg CEO Dick Lampen replaced Frost atop the firm’s board following his retirement.

The firm’s 10-Q filing did not reveal any new information about the company’s principal shareholder, but it did disclose client arbitration cases involving a former registered representative with Securities America. A total of 14 clients claim the ex-advisor defrauded them out of a combined $21.9 million.

Still, sales of annuities, insurance, mutual funds and other equities, along with an accounting change, boosted the parent firm’s commission revenue by 31% year-over-year to $172.1 million. Client assets of $175.5 billion and advisory assets of $80.1 billion set records for at least the second straight quarter.

“Solid execution by our management team, together with stable equity markets and the increasing interest rate environment, contributed to our strong performance,” Lampen said in a press release.

The continuing growth in the IBD network also stems from Ladenburg’s “successful recruiting efforts of talented advisors over the past two years,” COO Adam Malamed added.

Firms’ head counts show how they’re responding to a challenging time in which experts predict the number of advisors to fall in coming years.
September 17

Representatives for Ladenburg, which only breaks out revenue, EBITDA and pretax income for the four segments of its business in its 10-Q filings, declined to comment on additional recruiting metrics and the pending arbitration claims.

“As a matter of policy, Ladenburg does not provide information on our operations or financial results beyond what is contained in our public filings,” spokesman Chris Clemens said in an emailed statement.

The firm did, however, provide additional detail about insurance-related acquisitions by subsidiaries in the past quarter. The M&A deals could help bolster the IBD segment’s commission revenue, which grew by $23.6 million in the quarter, while allowing Ladenburg to tap into the recovering annuity market.

Ladenburg’s annuity distribution unit purchased certain assets of Kestler Financial Group for $7.9 million in August, and Securities America bought assets related to the 3,000-advisor distribution network’s brokerage business for $1.3 million in October.

In the same month, Ladenburg’s Highland Capital Brokerage subsidiary acquired the assets of wholesale insurance distributor firm Four Seasons Financial Group for $1.7 million, plus potential yearly payments over the next five years based on the resulting revenue of the business.

Marlton, New Jersey-based Four Seasons brings selling agreements with 200 banks, IBDs and other firms representing more than 5,000 advisors, according to Ladenburg.

“In addition to its network and trusted relationships with institutions across the country, FSFG has also positioned itself as an innovator in streamlining the insurance and annuity sale process in the wholesale space,” Highland Capital CEO Jim Gelder said in a statement.

Legal expenses for the client arbitration claims, which followed five separate settlements by Ladenburg in the second quarter of more than $5.4 million, appear more difficult to predict. Securities America faces at least two claims, plus a third one yet to be filed, according to Ladenburg’s quarterly SEC filing.

The ex-advisor, who wasn’t identified in the filing, made improper wire transfers and used fake account documents, the clients allege in their claims. They seek compensatory damages of $21.9 million, accusing the rep and firm of fraud, negligence, failure to supervise, breach of fiduciary duty and other harmful conduct.

“Securities America is reviewing the circumstances as it seeks to resolve the matters,” the filing states.

In March, the firm had fired New City, New York-based advisor Hector May a day after the U.S. Justice Department disclosed his involvement in a felony criminal investigation, according to FINRA BrokerCheck. He faces two pending client arbitration cases totaling nearly $3.9 million on claims of fraud and misappropriation.

May has not been charged with any crimes, but he and his wife Sonia agreed to freeze their assets with possible forfeiture under a restraining order filed by the U.S. Attorney’s Office for the Southern District of New York. Neither May nor his lawyer have commented publicly on the allegations.

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