Moves by LPL and Cetera branches highlight their pivotal growth roles

With independent branch offices expanding into major wealth management firms whose recruiting fuels the channel's growth, Private Advisor Group is changing CEOs at a critical time.

The Morristown, New Jersey-based firm has more than 750 financial advisors with $29 billion in client assets, making it one of the largest branches of LPL Financial, which it uses as its brokerage. As part of a succession plan, Private Advisor CEO Robert "RJ" Moore will step down in January to give way to President Frank Smith, the firm said on Oct. 20. Private Advisor has been growing more quickly through acquisitions since Merchant Investment Management, a financial services operating firm, purchased a minority stake in the firm last December.

Private Advisor isn't seeking to "grow for growth's sake," Smith said in an interview. "We want to make decisions around the growth of our business that are not disruptive to our existing business."

Independent advisory firms that use a large national brokerage operate as the bigger firms' "branches" in the field using their own brand. In a sign of the importance of independent branches to giant wealth management firms like LPL and its rivals, Cetera Financial Group acquired a minority interest in a major advisory firm that's been affiliated with one of its brokerages for more than 20 years. The Oct. 24 deal of an undisclosed price will enable Boston-area CCR Wealth Management to enlarge its footprint of 35 advisors and employees with $2.5 billion in client assets. When managing partner David Borden launched the firm in 2000, he and his original business partner were the only employees.

Cetera aims to be a "catalyst for growth" and "nothing else" to CCR, Cetera CEO Adam Antoniades said in an interview. 

"David retains control of the strategy and the operations of his business," Antoniades added. "It's his business. The last thing we want to do is come in and change anything."

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Flexibility for advisors powered by increasingly complex financing through investors like private equity firms has emerged as a key driver of the continuing record deal flow across wealth management. After 84 more M&A deals in the third quarter, the volume has tapered off from the first half of the year but is still six transactions above the same period a year earlier, according to investment bank and consulting firm Echelon Partners. The pace of deals suggests that 2022 will be the 10th straight year for record volume, despite concerns about a recession in the larger economy and contributing factors like inflation, the war in Ukraine and rising interest rates.

"The supply of willing buyers and sellers remains more than ample as entrepreneurs continue to look to M&A as a key component of their long term succession plans and as prominent strategic acquirers remain eager to complete deals despite broader economic volatility," according to Echelon.

The independent branches that made the two respective announcements over the past week vary primarily by their size. They also differ by the supervision of their financial advisors and setup with respect to registered investment advisors. 

So-called hybrid RIAs like Private Advisor usually adopt a compliance role called an office of supervisory jurisdiction, or OSJ. The OSJs retain a portion of each practice's revenue in exchange for services specific to Private Advisor like compliance oversight, technology and other infrastructure. The OSJs earn additional FINRA licenses on top of the basic Series 7 and take on compliance responsibility for the practices and for the giant brokerages in some cases. 

Branches like CCR send a larger share of their business to the national wealth managers by using the Cetera Advisors brokerage and RIA under "home-office" supervision at the corporate level from Cetera rather than acting as an OSJ. Using Form BR, such firms disclose to FINRA that they're a non-OSJ branch. Other than those distinctions, Private Advisor and CCR are both poised to add advisors and assets through their ample financing for recruiting and M&A deals.

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Private Advisor has already added two billion-dollar teams since securing the capital from Merchant last year. Moore, a longtime wealth management executive who once served as president of LPL and CEO of Cetera, joined Private Advisor as its chief in November 2020. 

Early next year, he and Private Advisor co-founder Pat Sullivan are taking on new roles as executive chairs while Smith manages the day-to-day operations of the firm. Smith came to know all of them, as well as Private Advisor's other co-founder, John Hyland, when Smith had a 13-year tenure with LPL in business development and consulting positions. Moore hired Smith in January 2021 from CUNA Mutual Group and promoted him to president in April with the plan of handing over the reins in 2023.

"We've really put an emphasis around the continuity and sustainability of what's been built here over the past 25 years and keeping advisors at the center of everything we do," Moore said. "We have a great steward at the helm of Private Advisor Group."

Borden, the managing partner of CCR, joined at least three other branches or practices that have received investments from Genstar Capital-backed Cetera since the beginning of last year. With 11 current advisors, CCR can now pursue its own M&A deals for tuck-in recruits and consider any possible alternative structures for a business that includes teams devoted to planning, investment management and corporate retirement. 

"We can choose how we want to build our business moving forward," Borden said. "We remain an independent firm."