Despite all of its recent troubles lately, Securities America pulled off a feat almost unheard of in recent industry memory. Loyal advisors circulated a letter of support containing three important statements: They are confident management can steer the firm amid its challenges and opportunities; they believe the bosses will assist parent firm Ameriprise Financial in selecting a buyer with the advisors' and clients' interests in mind; and they intend to stay to see what opportunities arise from the sale process. The question is: Will this work? When advisors discuss the letter, they are equal parts astonished, impressed and skeptical.

As one industry observer sees it, for advisors to voice support so openly for Securities America, or any other broker-dealer, is irresponsible because it pushes clients' interests into the background. "The client should be coming first, not the firm," says Scott Smith, associate director of intermediary practices at Cerulli Associates. "That is the part that strikes me as troubling. At no point should the firm's relationship to the advisor come before the advisor's relationship to the client."

Omaha, Neb.-based Securities America is one of Ameriprise's five broker-dealer subsidiaries. That Ameriprise, based in Minneapolis, announced its intention in March to sell the independent broker-dealer without a buyer lined up is also unusual. Ameriprise also just agreed to $80 million in settlements on class-action lawsuits brought by investors against the subsidiary.

Such timing gave advisors lots of lead time to leave, potentially draining the firm of precious top producers before a sale is finalized, Smith says. Securities America had about $46 billion in assets under supervision at the end of 2010, according to company officials. Assuming that a dozen or so top advisors broke away and took $2 billion of business with them, that could slice at least 4% off the firm's book, Smith says.

The consultant sees the letter as a misguided attempt to preserve the value of the firm. "In that light, that seems like a Band-Aid on a bullet wound," Smith says. "I don't think a few hundred signatures will increase the firm's multiple."

Weak Hand

Many believe Securities America is in a weaker bargaining position without a core advisory force firmly in place, says Paul Lofties, vice president of wealth management services and product distribution at the firm. Advisors, however, are well aware of the hassles involved with changing broker-dealers, he says. Even if another firm offers 20% of trailing 12-month revenues to move, advisors know how hard it is to transfer client accounts to a new system. Further, they understand that business is likely to drop in the year they move, potentially offsetting gains from a recruiting bonus.

"I have never seen anything like this before," says Larry Papike, founder of Cross Search, which specializes in placing advisors with independent broker-dealers. From the perspective of buyers, he doesn't find the letter very persuasive. "There is nothing locking advisors in."

Advisors are not receiving any incentive for signing the letter. They would only receive retention bonuses from a buyer, Lofties says.

Reasons to Stay

Ever since Ameriprise's announcement, recruiters have been calling Jack Connealy, president of JFC Financial Services in Lincoln, Neb. "We've been approached by just about every independent in the space," he says. The practice has $1.5 billion in assets under management and a staff of about 100, including about 35 advisors. It's a tempting target for savvy recruiters.

Although big practices have broken away, Connealy is not tempted. He tightened ties with Securities America when he signed the letter in late spring. "Those of us in the trenches understand that dragging our clients through an unnecessary broker-dealer change is irresponsible, expensive and poor business."

JFC Financial affiliated with Securities America about nine years ago, Connealy says, because of an advisory chassis that he describes as centralized and efficient. He knows and likes the system. Client assets are held in custody at the firm that clears the trades. Securities America clears through National Financial and Pershing. He says the firm has a strong menu of third-party money managers. There are also competitively priced advisor-directed options for those who want to build clients' investment portfolios themselves.

Securities America negotiated the class-action settlement in May. Clients had alleged the firm sold them hundreds of millions of dollars' worth of fraudulent securities. A hearing before a federal judge to finalize the deal was pending.

In Connealy's eyes, the fact that Ameriprise stepped in to help negotiate a settlement is a positive. "It took away any imminent threat of failure of the broker-dealer," he says. "It puts us in a position of strength. There is nothing that would require us to make a hasty move."

Reasons to leave

Yet some of the firm's top advisors are leaving. Sue Ricker, founder of Ricker Retirement Specialists in Garland, Texas, took her $250 million practice and headed for LPL Financial. Marc Silverman, a Miami, Fla.-based advisor whose practice manages more than $275 million, left for Geneos Wealth Management.

Silverman says he left because he did not want to risk losing more than $1 million in deferred compensation earned over 14 years with the firm. "My main concern was that if they went out of business, I would lose it," he said. Silverman says he inked his deal with Geneos because he wanted to go with a smaller firm. "I did not want to be part of a 12,000-person organization."

The Letter

Securities America insists the letter is a grassroots effort by advisors who want to boost morale, not an initiative from management. Lofties denies it's a ploy to shore up confidence among potential buyers.

But the campaign also says a lot about how advisors view the management team, according to Chip Roame, a managing partner at Tiburon Strategic Advisors. Under CEO Jim Nagengast, Securities America has a solid reputation, Roame says. "Many of the reps want to stay there and support the firm." Roame acknowledges the wariness of other industry pros, who believe Securities America's involvement in circulating the letter undermines the effort.

As for likely buyers, it all comes down to how well the acquirer can integrate Securities America's clearing and custody arrangements, industry professionals say. LPL Financial is an unlikely candidate because it self-clears, Roame says. The firm has been working long hours to integrate other acquisitions, Roame says, and might put a lower premium on a deal that would involve moving all of Securities America's advisors from other custody and clearing platforms to its own. Joseph Kuo, a senior vice president at LPL, would not comment on speculation.

Roame predicts Ladenburg Thalmann will buy Securities America largely intact, adding the firm to its existing pair of broker-dealer subsidiaries, Triad Advisors and Investacorp. Ladenburg Thalmann officials did not return a call seeking comment.

Whatever the outcome, Securities America has remained in good stead with some advisors who've moved on. Silverman says the company always treated him well, and he simply wanted surer footing at a smaller, leaner broker-dealer.

"There is no bad blood," Silverman says. "It was an amicable split. I just wanted to make sure I got what I rightfully earned."

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