New FSC Securities chief’s challenges include robos, fiduciary rule

Fresh off a shakeup at the top, FSC Securities is poised to reverse its downward trend and enter “growth mode,” the company’s new CEO says.

“We’re very much focused on helping our advisors grow their business,” says Derek Burke, speaking in a phone interview last week after taking over the Atlanta-based firm, the 23rd largest independent broker-dealer by revenue. “We are looking to grow topline revenue in a meaningful way in coming years.”

Revenue at FSC — the third-largest of Advisor Group’s four BDs — dropped for the second year in a row last year to $274 million, FSC’s lowest total since 2012. The IBD space is suffering from contraction linked to increased adoption of robo advisors and thinning sales of commission-based products under the fiduciary rule. Advisor Group itself changed leadership and ownership in 2016; a private equity-backed partnership acquired it from AIG.

Burke, who last served as president of Waddell & Reed, assumed the new post after Jerry Murphy stepped down to become partner at one of FSC’s largest offices of supervisory jurisdiction. The new CEO discussed an upcoming digital strategy for smaller accounts, as well as the challenges facing IBDs.

“We’ve seen the change as opportunity,” says Burke. “It’s exciting that the firm is embracing the change and looking to exploit those opportunities rather than playing defense, which I don’t think is a long-term solution.”

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BY THE NUMBERS
Roughly 1,000 of Advisor Group’s 5,500 brokers work for FSC, which reported 620 branches and 128 OSJs at the end of 2016. Representatives for FSC said Murphy, who had been CEO since 2011, was not available for an interview to discuss his resignation.

Murphy will remain in Atlanta and work remotely as a partner for FSC’s Houston-based OSJ, The Legacy One Group, according to managing partner Lea Goodman. The OSJ manages 63 advisors and 42 branches with $1.76 billion in assets under management, and Murphy will ensure an orderly succession, she says.

“Jerry will spend the next year or so recruiting, learning how we do business, and getting better acquainted with our advisors,” Goodman says an email. “It will make for a smoother transition when the time comes for me to waltz into the sunset. He will be perfectly ready to assume that role.”

CHALLENGING TIME FOR IBDs
FSC and firms like it have faced difficulty in shifting to advisory services from commission-based products, according to consultant Tim Welsh of Nexus Strategy. The fiduciary rule and the influx of robo advisors made for a “double whammy” on IBDs, but Burke’s expansion pledge is realistic, Welsh says.

“They’ve done all the retrofitting and re-engineering, so it makes sense that they could go to growth mode,” he says. He notes Advisor Group’s adjustments to its product lineup to comply with the rule and other recent shifts, along with the growing retirement of baby boomers and the aging of Generation X.

Jamie Price, the onetime head of UBS wealth management Americas, became Advisor Group’s CEO last November, months after PE firm Lightyear Capital and Canadian pension fund manager PSP Investments bought the firm. Chairwoman Valerie Brown took her post right after the announcement of the deal.

Lightyear’s previous ownership of Brown’s former firm, Cetera Financial Group, gives some advisors doubts about Advisor Group, says recruiter Jon Henschen. The PE firm sold Cetera in April 2014 to RCS Capital, whose accounting scandal under Nicholas Schorsch later plunged the firm into bankruptcy.

“I kind of have a hard time trusting private equity, they’ll say one thing and do another,” Henschen says. “They’re not in there for the long haul.”

On the other hand, Henschen says firms with insurance company ownership face a similar long-term issue, and he praises PE firm Stone Point Capital’s stewardship of Kestra Financial. The hiring of Burke could help FSC kickstart recruiting momentum not seen since before the financial crisis, he says.

Representatives for Lightyear said no one was available to discuss FSC’s appointment of Burke.

CEO COURTSHIP
Burke, 54, who declines to discuss his reasons for leaving Waddell & Reed earlier this year, worked with Price at UBS and knew Brown before taking the job at FSC as well. The two sides went through a “fairly short courtship” before the appointment, he says.

The new chief will unveil the company’s tech offering at Advisor Group’s conference next month in Orlando. While Burke describes it more as a digital strategy than a robo advisor, the tool will provide an easier way for FSC advisors to take clients with as little as $5,500 to invest, he says.

For now, establishing a relationship with the firm’s advisors represents Burke’s top priority, he says.

“I want to get out there with the people who I believe are my clients,” Burke says. Doing so, he adds, will allow him to “communicate some of the good work going on here and help them understand how we can build their practices.”