Schorsch's Expanding Empire Targets Mass Affluent
The way Nicholas Schorsch sees it, the sweet spot for financial advice is the mass affluent market.
With approximately 30 million households holding $8 trillion in assets, the mass affluent market is ripe for the taking, says Schorsch, the executive chairman of RCS Capital.
"We're directly focused on retail," he explains. "The average investor has been disintermediated away from retail as the financial services industry has moved away [from it]. The mass affluent have no access to the endowment model, which is what has performed the best since the financial crisis."
Translation: Wall Street isn't offering enough service to retail consumers -- and he intends to have RCS fill in the gap.
For RCS advisors and brokers -- whose number is set to surge after a recent spate of dealmaking activity -- the market opportunity centers on individuals and families with $300,000 to $3 million in investable assets, says Schorsch, who sat down with Financial Planning editors in an exclusive interview at his sleek Park Avenue office - right across the street from the city's Ferrari dealership.
Schorsch has been on a buying spree recently, boosting his retail presence by accumulating a string of independent broker-dealers. Just last month RCS agreed to buy industry heavyweight Cetera Financial Group for $1.15 billion as well as much smaller J.P. Turner. RCS also bought First Allied Holdings, Investors Capital Holdings and Summit Financial Services Group to its retail IBD holdings last year.
On his shopping list for the rest of the year: an investment research firm, an RIA, a family office and perhaps some more independent broker dealers, says Schorsch. In his conference room, the logos of his stable of companies appear on a giant video screen in psychedelic swirls.
It's an expensive set of bets -- but if it pays off, it won't be the first time Schorsch has seized what he sees as a slam-dunk market opportunity. He entered the business world at age 23 by selling his family's metals business for $50 million, then made a fortune in commercial real estate and created American Realty Capital, the country's largest sponsor of non-traded REITS.
RCS' main focus this year will be organic growth, Schorsch says: "We want advisors to double their business."
Schorsch argues that a rising economy, a wider range of products and improved productivity and margins -- resulting from newfound scale, smart branding and experienced leadership -- will help advisors hit that goal.
A strong economy and rising interest rates will provide a cornerstone for organic growth in the advisory business, boosting assets under management and profits, he says. The U.S. economy is three years into a deleveraging cycle, he says, claiming that the economy still has 10 years of growth ahead. "Rising interest rates will happen," Schorsch says. "Margins in financial services will get much better, stock markets around the world will improve and values of portfolios will go up."
Meanwhile, he argues, growing RCS integration will improve economies of scale to help lower the cost of capital, free up advisors to have more time to develop business and boost the units' buying power.
"Scale matters," Schorsch says, adding that as the RCS empire grows, "costs for capital needs, products and clearing are much less. We'll also be able to provide advisors with more research, education and technical support."
The company intends to integrate back-office functions and buying, but keep its brokerage brands intact, Schorsch says. Maintaining "multiple faces" is preferable to homogenization, he adds, citing Toyota's different auto brands as an example: "Lexus has a cult following as a luxury brand," he says. "We can share resources, but it's important to maintain different cultures."
Senior management at the various retail units will also remain the same, Schorsch says, although Cetera CEO Valerie Brown will also direct RCS' retail strategy, working closely with Adam Antoniades, president and CEO of First Allied.
He cites leadership continuity as critical for helping RCS retain top advisors from its various IBD units. Schorsch recently embarked on a 25-city "listening tour," and found advisors were particularly concerned about management restructuring -- and reassured when told there would be "no changes."
RETENTION & RECRUITING
Another issue that emerged during the listening tour: Cetera advisors asked if RCS would keep in place a stock ownership and loan program that had been offered by Lightyear Capital, which is selling the IBD.
As a result, all RCS advisors will be offered stock through a warrant program, Schorsch says; an S-1 filing with the SEC is due in the next few weeks. In an SEC filing earlier this month, RCS said advisors will be eligible for options or stock "which will vest over a period of time and will be designed to encourage financial advisors to on our retail advice platform."
The company also said it would establish a loan program for advisors "to help them develop their businesses, which will be forgivable under some circumstances if the financial advisers attain milestones."
RCS's ability to attract and retain productive advisors will be critical for organic growth. While Schorsch says RCS won't get into bidding wars, he says he expect the company's diversified product offering to attract top talent: "There's a lot of profit yet to be had."