B. Riley absorbs National Securities following string of compliance cases

National Securities, a Florida-based brokerage, is no more. 

The 75-year-old firm, acquired by B. Riley Financial last year, has now fully blended its 575 brokers and independent financial advisors into its parent company. As part of the transition, National has formally adopted B. Riley's brand and switched its advisors' registrations to its owner, under whose wealth arm they work. The shift comes after National and many of its brokers ran afoul of regulator FINRA over sales of alternative investment products.

Brands and brokerages often vanish in the wake of M&A deals. B. Riley, which is an investor in surf, skate and swimwear company Hurley, bought National in two transactions in 2018 and 2021 totaling $40.3 million. The parties had planned for the incoming firm to close down, according to B. Riley spokeswoman Jo Anne McCusker.

The number of brokerages has declined by nearly a quarter over the past decade to 3,394 FINRA members, according to the regulator. During that span, the industry's growth has been concentrated among RIAs: advisory firms and assets are at all-time highs.

Most of National's reps are likely to remain through the transition in a "wait-and-see" approach after a number of compliance cases involving alternative product sales and a lot of terminations thinning their ranks, according to recruiter Jodie Papike, the president of Cross-Search.  

"Those advisors did have a lot of things they had to deal with over the last few years," she said. "There were some question marks for advisors about what was going to happen. In some sense, it's better for the advisors because B. Riley is stable. It creates a sense of stability."

Regulation and compliance

FINRA orders National to pay $9M in latest alternative product case

June 28, 2022 10:06 PM

Former National CEO Michael Mullen and B. Riley Wealth co-CEO Charles Hastings will lead the combined companies, and the two firms sought to resolve compliance cases including National's $9 million FINRA settlement in June before completing the integration, they told InvestmentNews last week.

The combined company remains focused on recruiting "top-quality advisors," McCusker said in an email. Incoming brokers can choose whether to be employees under the B. Riley's legacy W-2 advisor model or 1099 independent contractors like most of National's reps.

"With the requisite infrastructure to accommodate either type of advisor, we have the ability to cater to the needs of growth-minded, entrepreneurial advisors — in whatever fashion that suits them best, as a full-time employee or independent," she said.

B. Riley, which encompasses 2,000 employees including those of its portfolio firms, didn't have an immediate answer for the exact numbers of reps of each type. In an investors presentation from May, the company's wealth arm listed 650 reps, $30 billion in client assets and $391.6 million in revenue for the 12 months ending in March. 

B. Riley acquired wealth manager Wunderlich Securities in 2017 for $67 million. Its other past investments include energy firm CalNRG and The Arena Group, the parent firm of Sports Illustrated and personal finance website TheStreet.com.

"There's a sense of urgency and a sense of management that I think Mike has brought to the table that I've been really impressed with," B. Riley Chairman Bryant Riley said in a 2018 interview after the first transaction. Riley served on National's board for just six months in 2012, a time when he has said the company wasn't willing to make some necessary changes.

Independent BDs

New ownership for BD after questions over biotech links

November 30, 2018 5:02 PM

Mullen gave up his former practice as a financial advisor to take the helm of the company in January 2017. After questions about conflicts of interest with National's sale of certain biotech investments, the firm terminated about 300 reps that Mullen said had too many disclosures on their record or didn't fit into the firm's new culture. Despite the two FINRA cases this year relating to complex IPO-tied products, National brings long-term expertise in that area, too.

"B. Riley Wealth advisors are further empowered to serve clients exceptionally well through the ability to leverage the diverse suite of end-to-end services provided by B. Riley affiliated firms," McCusker said. 

To ensure retention of National's reps, B. Riley must deploy the staff and resources to answer advisors' questions quickly and avoid other headaches that could prompt them to leave, according to Papike. The integration's success will determine whether B. Riley's second and larger bet on wealth management pays off down the line.

Problems for advisors "just adding hours in their day for service issues" remain the dominant factor behind most decisions to exit a new parent firm after an M&A deal, she  said. "You add a lot of advisors to a back office, and then the parent company decides to do a lot of layoffs."