RCS Capital Corp.’s bankruptcy filing sounds like a bad development, but it may actually provide some relief to its embattled advisors.
The $150 million capital infusion and reorganization plan, announced at the beginning of January, provides some light at the end of what has been a long, dark tunnel for the 9,500 reps who’ve been remarkably loyal since RCS Capital (RCAP) began unraveling in 2014 after an accounting scandal surfaced at an affiliated firm.
The new money will allow the struggling holding company to restructure its debt while it goes private, as well as fund a retention deal for advisors.
Cetera Financial Group, the large network of independent broker-dealers strung together by RCAP, will become the primary focus of the new entity.
That’s good news. But the troops remain uncertain about the soon-to-be new owners and how much commitment those shareholders will have to the reconstituted firm.
For advisors at the Cetera firms, the bankruptcy filing is “a bit of a sigh of relief, but they’re also skeptical” about what the new owners will do, said Jodie Papike, executive vice president of Cross-Search, a recruiting firm.
Fortress Investment Group, Eaton Vance Management and Carlyle Investment Management have been identified as three of RCAP’s debt holders. The lenders will receive equity in lieu of debt repayment as part of the bankruptcy process.
“Bondholders are like banks -- they lend not because they want to own the asset,” said one Cetera advisor who asked not to be named. The consensus among his colleagues is that the Cetera B-Ds will eventually be sold, he said.
Another problem: bankruptcy does not sound good to clients.
“We just had … three Cetera recruits visiting today,” said Arthur Cooper, co-founder of Cooper McManus, a hybrid firm in Irvine, Calif., and one of the biggest offices of Securities America.
“They’re definitely looking and being proactive about it, talking to multiple B-Ds,” Cooper said in mid-January after the bankruptcy announcement. “The number one thing they mention is they’re tired of having to create excuses about what’s going on at RCS Capital.”
“Their big concern is the uncertainty,” echoed Mike Bendix, chief executive of South Jordan, Utah-based DFPG Investments Inc. “That’s the first thing [Cetera reps] talk about.”