Industry observers say the spinoff could make Cetera more attractive to buyers down the road
Some 9,000 independent advisors affiliated with the Cetera Financial Group, along with plenty of industry watchers, are digesting the news that the firm is being separated from its troubled parent company, RCS Capital (RCAP) – which on Monday announced plans to file for bankruptcy and restructure its operations.
“For sure, some of the Cetera advisors must be stunned,” said Mark Elzweig, a New York-based executive search consultant, in an interview with ThinkAdvisor. “I have to believe that many of these advisors were expecting a private-equity group … waiting in the wings, based on the latest industry rumors.”
RCAP said Monday, however, that it is set to receive a $150 million capital infusion. Plus, Cetera intends to keep its deferred-compensation plans in place and offer reps a retention package.;
“The advisors probably know that Cetera is too big for another independent broker-dealer to purchase,” explained Elzweig. Still, many of them were hearing gossip about potential buyers.
“Now, they have to face the reality that no white knight is taking over the company,” added the recruiter, who is reaching out to some Cetera advisors regarding other options.
(RCAP shares traded at $0.02 on Tuesday; last year, they hit a high of $13.30.)
A future sale is possible, others point out.
“The RCAP ties could have been a hindrance, and this will free them up and could make them attractive,” said Jon Henschen, head of the recruiting firm Henschen & Associates in Marine on St. Croix, Minnesota, in an interview.
By splitting Cetera away from RCS Capital, “This shields the group of independent broker-dealers from RCAP’s bad press and makes them more attractive to buyers,” Henschen said.
Though he was expecting to hear news about a buyer, the recruiter says the moves announced Monday by RCS Capital make sense.
“Timing is of the essence. They needed to shield [Cetera] quickly vs. what they did last year, when they spent all year talking about the bad news,” he stated. “It’s good to nip this in the bud. I see it all as a … stopgap – [Cetera] should get bought.”
“Yes. They will still be sold someday,” said Chip Roame, head of Tiburon Strategic Advisors in Tiburon, California, in an interview.