Cetera Holdings CEO Mike Durbin says he "voted with his feet" when he left Fidelity Investments last year to join one of the many firms drawing on private equity backing to drive industry consolidation.
Durbin saw that large wealth managers had a distinct advantage in being able to offer clients the latest technological support and investment opportunities. And the firms best positioned to achieve the size needed to keep pace with industry trends were often those backed by private equity.
"This is a great time to be in this industry, in a private company, because it's a consolidating market and because there is an advantage to those that can move quickly and decisively," Durbin said. "Whether that's through the organic growth of practices or through inorganic M&A transactions, it's a really good time to be private."
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Cetera, an independent broker-dealer with 12,000 advisors and $235 billion in assets under management, has been majority owned by San Francisco-based private equity firm
Durbin said Cetera's priority remains supporting growth from its current advisors and existing lines of business. But like many wealth management firms, it has used mergers and acquisitions in recent years to secure its position in an industry coming ever more under the sway of large firms. In Financial Planning's latest ranking of the biggest independent broker-dealers by revenue, Cetera came in at the
Cetera has found a particular niche in acquiring wealth management practices from insurance firms. The latest of those came in October with the purchase of Concourse Financial Group Securities from Protective Life Corporation, a deal that's bringing in roughly 375 advisors and $4 billion in assets under management.
Cetera has also used acquisitions to extend its expertise in other directions. Most notably, it paid roughly $1.2 billion in
Durbin recently sat down with Financial Planning to discuss his plans for future growth at Cetera, the advantages of acquiring firms with insurance ties and other areas of expertise, and more.
This conversation has been lightly edited for clarity and brevity.
Financial Planning: What is Cetera's general growth strategy? What part do M&A deals play?
Mike Durbin: Our focus continues to be on driving organic growth. But M&A tends to dominate the headlines. There's no doubt about that. And Cetera has been active in picking our spots in a consolidating market to use M&A when it can accelerate.
We do two kinds of M&A transactions. One is what we internally call scale transactions. So, over the last couple of years, there was the transaction to acquire the wealth management business of
We also use M&A to pick up adjacent capabilities or step into adjacent markets. For example, when we purchased the wealth management business of Securian, we also purchased the Securian Trust Company, which is now being positioned as a personal trust solution.
And, again, I mentioned Concourse Financial. That reasonably small network of 375 advisors is just a very natural fit. They will be joining a like-minded and like-modeled set of advisors that have come out of a prior insurance-ownership base and really embrace an insurance-led or a risk product-led approach to financial planning.
FP: What is the appeal of wealth management practices with insurance ties?
MD: If you look at any study, any data, out of a large provider, more often than not, the first investment or saving vehicle that a U.S. household or individual engages in their life is either their workplace retirement account, a 401(k), or they get insurance. And we are firmly, at Cetera, a mass affluent to high net worth-focused firm.
I love that focus, because there's a vast and growing addressable market of mass affluent households in this country that are seeking the advice and guidance of a technology-enabled human advisor.
FP: Cetera is technically a hybrid firm with a broker-dealer arm. Is that an advantage when you're seeking to help clients with insurance?
MD: It's 100% an advantage for us. It offers the widest range of solutions for that relationship between advisors and clients and households to get the right outcome. What do I mean?
There are very strategic instances when being in a brokerage context is actually better for the client than an advisory context. Maybe you want to tap into private market investments that are better served with a placement fee rather than an advisory fee sort of wrapped on top.
And insurance-based products would also be a really good example of that, because these are one-time sale transactions where you secure the policy that you want and it's just the right solution for the household. It might not be appropriate to put an advisory fee sort of on top of that.
FP: Besides M&A deals, recruiting is another way firms drive growth. What's Cetera's approach to recruiting?
MD: Recruiting is a threshold part of our organic growth plan, much like our major competitors. It's fiercely competitive. It can be expensive. It will accrue to the benefit of the scale players.
And so as the continued premium being placed on scale emerges, we will be competing with fewer over time, because the scale required to do it successfully just continues to trade at an increasing premium. Again, much like M&A, we pick our spots.
And we do see it continuing. Why is that?
To me, the secular trends in the wealth management business in this country are outstanding. There are more and more households that want the services of a constrained number of advisors in this country. There are, plus or minus, 350,000 advisors in this country. It's been that number for over a decade.
So there is a secular tailwind to being a technology-fueled human advisor. Combine that with my prior point, that scale matters because the expectations of these households are always accelerating. I should have really good technology. I should have immediately responsive service. I should, for instance, be able to see all of my households' personal balance sheet, whether that's asset side or liability side.
FP: With its roughly 12,000-person headcount, how does Cetera live up to its goal of making "the big feel small" for advisors?
MD: I have not met many advisors that want to be recruited to join a massive standing army of financial advisors. They expect, and they enjoy, a very focused and dedicated relationship as we cover them as their growth partner.
And so the fundamental way in which we make the big feel small is that our 12,000 advisors are organized across a range of dedicated channels and those architected around the business model and affinity that those advisors have to each other.
So we have a tax channel. We have a financial institutions channel. We have a large-enterprise channel. And we have the ability to recruit an individual team and say: You're joining a dedicated community of 500 advisors that go to market very similarly to you.
And we make sure that those advisors, in my example, have time together. They also have a service team that's quite familiar with serving books of business or practices like theirs.
We think there's really terrific upside there, because that's very differentiated. Our major competitors do not go to market in that way.
FP: What do your recruiting deals look like these days?
MD: I'm not going to quote numbers, only because there are so many nuances in a recruiting transaction. But our portion of the industry, firms like Cetera and our immediate peer group, we don't pay anywhere near what a wirehouse pays.
We are paying towards the top quartile in our peer set. But there are other models that certainly pay more, and there are models that pay less. It's really hard to distill down to a number. We're effectively underwriting individual practices and books of business, one at a time, to fit the right deal with the practice that we're trying to bring on board.
FP: With you taking on the dual CEO role, what are your long-term plans for Cetera?
MD: Cetera continues to step deeper into our embrace of the clear RIA-isation that is happening across the industry. We will continue to have a wide set of affiliation models that an advisor and advisor team can take on when they come to Cetera.
And if their business model evolves through time, and they want to evolve their affiliation model, we want them to be able to evolve with us. We use the expression at Cetera that we want to be the forever home. So the RIA affiliation model is another element in that range of affiliation models.
We're deploying it along two vectors. One would be for our existing Cetera advisors who are working through their career arc with us and come to the conclusion that they want to step more fully into an RIA model. They can do that with us. We have a self-clearing and self-custody capability in addition to our relationships with Pershing and Fidelity and Schwab.
The second vector is we're in the outside market either recruiting and or acquiring existing independent RIA practices. We call it
Our embrace of the RIA-ization of the industry is not a wholesale shift. It's just a recognition that for us to continue to act in the way of being that forever home for a Cetera advisor practice, we have to make sure that we're continuing to build out the range of affiliation models that an individual advisor or team of ours might take.
