More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
One day after Ameriprise Financial said it was looking to sell Securities America, experts were asking which firm was likely to buy the troubled broker-dealer and at what price.
Ameriprise said Monday that it took an after-tax charge of $77 million, or $0.30 a share, for a previously disclosed legal matter at Securities America. It also said it “has decided to identify an appropriate buyer for [Securities America]. A sale would allow SA to focus on growth opportunities in the independent channel and would allow Ameriprise to devote its resources to the Ameriprise branded-advisor business.”
“This is not a surprise,” said Danny Sarch (left) of Leitner Sarch Consultants, a recruiting firm in White Plains, N.Y., in a phone interview with AdvisorOne on Tuesday. “Ameriprise never brought Securities America fully into the fold. It’s always been run separately, so a spin-off seemed inevitable.”
Ameriprise -- which has 9,653 advisors -- bought Securities America -- with 1,846 reps today -- in 1998, about 14 years after the IBD was founded in Omaha, Neb. Total assets for Securities America were $26.3 billion as of March 31, and the broker-dealer had net client inflows of $63 million in the most recent period.
“Ameriprise is a large company, primarily involved in the manufacture of annuities and insurance products, the manufacture of investment-management products and the sale of these products to consumers by captive and semi-captive advisors,” said Chip Roame (left), head of Tiburon Strategic Advisors, in a phone interview on Monday. These operations, he adds, produce higher margins than those of an independent broker-dealer.
Plus, Sarch points out, Ameriprise – by electing to keep its operations separate from Securities America, has not allowed the IBD to benefit from economies of scale. “It’s had separate branding, advertising, oversight, compliance and wholesaling,” he said.
As for specific firms that might be interested in buying Securities America, “The obvious industry buyers include LPL Financial, Cetera, Jackson National Life, Ladenburg & Thalman and Advanced Equities,” Roame said. Some private equity firms could bid on the IBD, the consultant said.
Clearing, however, could be a sticking point. “Securities America, I believe, clears through National Financial [and Pershing], which might impact the list,” said Roame.
LPL Financial, which reported earnings on Monday, is a self-clearing IBD. “We do not comment on speculation regarding acquisition strategy,” said Joseph Kuo, a spokesperson for the company, on Tuesday.
Plus, LPL just converted all of its acquisitions to its self-clearing platform “at a large time and expense cost,” Roame said. “My guess is that another firm will want such a third-party clearing relationship, and since LPL will not, the other firm will bid higher.”
For the 1,800-plus advisors with Securities America, Ameriprise’s decision to spin off the IBD puts them in a quandary: Do they wait to see which firm they are sold to, or do they strike out on their own before such a deal takes place?
“They must be frustrated at being sold,” said Roame. “Ameriprise was a deep-pocketed parent company. The buyer could have different traits.”
Since the advisors will be moving on to a different firm anyway, experts suggest that the FAs begin looking at other options proactively.
“They should make an effort to move on by doing their due diligence and looking at their choices, so they don’t end up in a shotgun marriage,” said Patrick Burns (left), a Los Angeles-based attorney who specializes in broker-dealer matters, during a phone interview Tuesday.
“Absolutely, they should move on now,” Sarch agreed. “Based on the current turmoil, if they haven’t already considered their options, many [more] are today. And as the clock ticks, more and more will decide to stay -- or not.”
Still, some may want "to hang on and hope for good buyer that could come in and do tape-to-tape transfers and re-papering work," said Henschen. "That is ideal. It's really preferable to avoid all this account-transfer work."
However, if advisors have to "repaper, they may as well go to their own choice – for either the direct business (held at a mutual fund or annuity company, for instance) or for brokerage-based accounts," the recruiter explains.
While most Securities America reps did not sell the Provident Royalties and Medical Capital private placements that have led to a series of lawsuits, those that did “will have a tougher time than others,” as prospective broker-dealers look over their books of business and compliance records, Sarch says. “It is an issue.”
For those that never did, or may have had an issue with one client, finding a new home should be easier, according to the recruiter.
For Securities America, however, there is the broader matter of when the legal matters will come to an end. “Though I have not seen the exact terms of the settlement [in Texas] or whether or not the working [settlement] extinguishes future cases in other states, it might be that the legal issues associated with the private placements are not over yet,” Burns said.
“If some other party that has not settled decides to bring another lawsuit, perhaps in another state, this could be of concern,” he explained, for both Securities America and its potential suitors.
Such matters could also complicate the valuation of the company, experts point out. Private placements have tripped up other broker-dealers engaged in M&As in the past, like Prudential, and are likely to do so again in the future, they add.