Last month, LPL Financial decided it was fed up with certain rivals poaching reps at firms affiliated with its new acquisition, NPH. Last August, LPL, the nation's largest independent B-D, announced it had bought four NPH firms from insurance company Jackson National. Many rivals sought to capitalize on the free-for-all set off by the acquisition and independent B-Ds, almost on a daily basis, were announcing new NPH recruits—some with great glee.
According to third-party recruiters, LPL evidently singled out three firms for retaliation—Securities America, Cetera Financial Group and Kestra—and instructed its internal recruiters to target more than 5,000 “high value” reps at these firms with very attractive terms and payouts.
It was little surprise that LPL went after Securities America. The Omaha firm was by far the most successful at luring away NPH reps who didn’t want to move to LPL. The reps that Securities America recruited generated between $100 million and $125 million in annual fees and commissions, according to estimates. That translated into more than 11 percent of NPH’s total revenue, so LPL’s decision to strike back was understandable.
But in its retaliatory moves, LPL omitted several prominent firms. Conspicuously absent was Advisor Group, which had finished second in the LPL-NPH derby. Advisor Group managed to recruit NPH reps with between $50 million and $75 million in annual revenues.
Cetera Financial Group, which was targeted, finished close behind Advisor Group and walked away in third place with reps producing an estimated $35 million to $45 million a year.
This is where things get curious, to say the least. LPL and Advisor Group are considered to be the leading contenders to acquire Cetera, which announced last month it had retained Goldman Sachs to “explore strategic options.” Some private equity firms, many of which were spooked on the industry when the DOL rule looked like it would squeeze B-D margins, reportedly are suddenly showing renewed interest, so the situation remains fluid.
Of course, Cetera might not be sold or it could decide to sell or spin off one or two of the six B-Ds within its network, an option some investment bankers think is increasingly likely.
Despite losing hundreds of NPH reps to rivals, the acquisition is considered a huge victory for LPL’s new CEO, Dan Arnold, as evidenced by his company’s surging stock price. Arnold has indicated that LPL plans to continue to acquire independent B-Ds in what many view as a consolidating space.
For its part, Lightyear Capital’s CEO Don Marron now owns Advisor Group and once owned Cetera, which he sold to American Realty Capital’s Nick Schorsch in early 2014 for $1.1 billion. Schorsch, who became a billionaire for a few months, continued his debt-financed acquisition spree for another year before his empire crumbled in 2015, landing Cetera and many other related entities in bankruptcy.
Many Cetera reps have fond memories of Marron and his management team led by Valerie Brown, now executive chairman of Advisor Group. Not only did they enjoy stability, which they came to appreciate in Schorsch’s wake; some also received options and participated in the sale of the firm when Schorsch made his kamikaze acquisition. Marron and Brown, who was CEO of Cetera, probably know Cetera’s operations as well as anyone.