Advisor Group’s second acquisition of the year carries the potential to make it bigger than any other independent broker-dealer network, while pushing its largest subsidiary into the top 10 firms in the space.
Some major questions loom over the success of the deal, though.
The private equity-backed network
“We’ve spent a great deal of time building our company internally,” Advisor Group CEO Jamie Price says. “Acquisitions come along when they come along, and we pass on more than we, quite frankly, accept. They saw us as a really good fit for their business.”
Signator's business, as well as that of Advisor Group and its subsidiary IBD, has changed a great deal over the last few years. Less than three years ago,
Advisor Group, which is based in Phoenix and is now owned by Lightyear Capital and Canadian pension manager PSP Investments, faces the challenge of retaining Signator’s 2,000 advisors. Another Advisor Group IBD, Woodbury Financial Services,
The Advisor Group-Signator deal comes amid
Whereas banks once served as the most frequent acquirers of the large wealth management firms (those with $1 billion or more in assets under management), private equity firms now lead that charge.
PE firms accounted for $217 billion, or 42% of the AUM moved in those acquisitions over the last two years,
Meanwhile, new technology and new regulation — from the
“We haven’t seen the final stages of this transformation yet,” he says. “It’s still the early innings. All of those things have huge potential to transform the industry. The kind of deals we see here are a huge part of it.”
The scale of the two firms slated for a merger display the stakes of the deal for Advisor Group. Combining the 1,580 producing representatives of Royal Alliance, which is based in Jersey City, New Jersey, with Signator, which is based in Boston, would create a firm with nearly 3,600 advisors and more than $900 million in revenue, a higher total than all but six IBDs in 2017.
The deal for Signator, the No. 16 IBD, would push Royal Alliance (the current No. 12) above the largest firms in its two rival networks — Ladenburg Thalmann’s Securities America (No. 10) and Cetera Financial Group’s Cetera Advisor Networks (No. 11) — in Financial Planning’s
In fact, adding the $423.3 million in revenue produced by Signator last year to Advisor Group’s $1.4 billion across its four IBDs would allow Advisor Group to supplant Cetera as the largest IBD network.
But there’s also the possibility Advisor Group and Cetera could eventually be combined under the same parent companies, creating one gigantic network. The two networks already have links around ownership and executive moves.
Take for example Advisor Group’s parent, Lightyear, which once owned Cetera. The PE firm
Cetera is now in the middle of a
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Royal Alliance Associates will absorb the firm following the deal, which would push the network’s headcount above 6,800 advisors.
June 21 -
The bank’s latest retreat from wealth management will move 51 advisors to the independent space under Woodbury Financial.
April 19 -
Backed by the considerable resources of Manulife Financial, Hancock wants to be a player in an altered IBD marketplace.
July 6
Thirteen of the top 25 companies generated double-digit growth in 2017 as rivals close in on the perennial No. 1 firm.
Neither Lightyear nor Cetera has spoken publicly about any potential sale since Cetera announced the review in late February. Advisor Group could grow well above 10,000 advisors if Lightyear buys the firm, recruiter Jon Henschen points out. He says he’ll be watching Royal Alliance’s Signator retention closely.
“It will be an interesting mix because you don’t see independent broker-dealers buying captive insurance BDs very often. We’ll see how that cultural fit plays out,” Henschen says. “I’m seeing Advisor Group being pretty well teed up for going public in the next few years if they buy Cetera.”
Both Henschen and fellow recruiter Louis Diamond of Diamond Consultants count Signator and Royal Alliance’s identical clearing firms of Pershing and Fidelity’s National Financial Services as a major advantage. The two IBDs also use the office of supervisory jurisdiction structure, Diamond notes.
“Culturally, it might be a good fit. Signator has a lot of large OSJ groups. They could probably slide in relatively easily to the model,” says Diamond, describing Signator as a respected but stuck-in-the-middle firm. “They were too small to truly compete against Raymond James and LPL and other like firms.”
On the other hand, Diamond cautions that Lightyear may seek return on its investment in Advisor Group and sell the firm itself. Henschen also warns that some Signator advisors may receive fewer group insurance benefits with the acquiring firm.
Price and Royal Alliance CEO Dmitry Goldin acknowledge that Advisor Group will need to win over Signator’s advisors. The purchasing firm plans to move Signator’s advisors and $53.3 billion in client assets into Royal Alliance, which has more than $66.6 billion, when the deal closes later this year.
To help with the transition, Advisor Group has prepared to offer onboarding assistance to the Signator advisors, Price says. Royal Allliance’s customized Royal Court program for top producers will work well with Signator’s large enterprises, and the tape-to-tape asset conversion will aid in the process, Goldin says.
“We’re perfectly well scaled and in a position to support their needs,” Goldin says. “I think that’s a winning combination. Why would they go anywhere else if they have everything they need here and it’s an easy transition?”
At the corporate level, Advisor Group will keep “a number” of Signator’s direct staff of 237 employees, according to Price, who says bringing over staff to support the business was part of the agreement. However, some of the staff may move to Jersey City or Phoenix or work remotely.
It’s not immediately clear whether Signator Investors President Christopher Maryanopolis and other executives will also join Royal Alliance. Advisor Group spokeswoman Olivia Gagnon said in an email that the firm “will continue to refine the structural details” as it works through the transition.
“Acquisitions come along when they come along, and we pass on more than we, quite frankly, accept," Advisor Group CEO Jamie Price says. "They saw us as a really good fit for their business.”
Maryanopolis
In
“In five years, the IBD space will look totally different than it does today, and we want to be part of that opportunity," Heapps said at the time, pointing to the resources of John Hancock’s parent firm, global insurance and asset management firm Manulife, as an advantage with prospective recruits.
The next year, Signator
Hancock’s parent
“While the two announcements today are unrelated, both are part of our global strategy to support our strategic priorities, specifically expense efficiency and portfolio optimization,” John Hancock spokeswoman Melissa Berczuk said in an emailed statement.
Signator did not make any executives available for an interview, but Berczuk also said that the capital from the Advisor Group deal would “help us execute on our growth priorities and will provide Signator’s firms and advisors with significant growth opportunities of their own.”
Insurance brokerages and issuers face a decision whether to abandon the IBD space or double down on their investments, Pirker, of Aite Group, says. They’re pulling out of the space as proprietary distribution setups give way to open architecture, recruiters Diamond and Henschen point out.
“The synergies around being a product manufacturer and a broker-dealer are becoming less and less important,” Price agrees. “I do think it’s a continuing trend, and it’s going to continue over the course of the next several years.”
