Genstar Capital reportedly is seeking a tough cost-cutter who can make a cold, dispassionate evaluation of Cetera Financial Group’s operations and increase its return on investment as it seeks a new CEO. The search for outside candidates follows the abrupt resignation of CEO Robert Moore last week.

Genstar, which paid $1.75 billion to purchase Cetera in October, announced last week it has asked executive search firm Heidrick & Struggles to find an outside CEO at Cetera with strong operational and expense-control skills.

Investment bankers close to Genstar said the private equity firm now believes that Cetera was only worth between $1.3 billion and $1.5 billion. That would be in line with the bids LPL Financial and Lightyear were contemplating for Cetera last summer. It also may explain why they dropped out of the bidding.

The private equity firm reportedly is frustrated with Cetera's inability to cut costs and its heavy spending on futuristic technology projects that have yet to pay off. Genstar wants someone to consolidate operations, slash expenses and quickly determine whether the technology investments are viable or if they should be abandoned. It believes an outsider with a fresh perspective can best evaluate these issues.

Genstar views itself as a growth equity investor so it is looking for candidates who can grow the top line, not simply cut costs. That would require a CEO who can recruit advisors with substantial businesses to the right firms within its six broker-dealers. In particular, that means Cetera Advisors, which is among the most profitable of the six units.

Earlier this year, Cetera disclosed that it had recruited 800 advisors in 2018 with slightly more than $5 billion in assets.

While those numbers sound respectable, one recruiter noted that LPL, which is nearly double Cetera in size, recruited a smaller number of advisors with about $24 billion in assets. This recruiter said the difference could be explained by the fact that many new Cetera reps came out of banks and credit unions, “which traditionally are low-producing, commission-heavy advisors” who typically aren’t seen as having major growth potential.

As Genstar has analyzed Cetera’s six IBDs, it has uncovered several areas for margin improvement. For example, Cetera Advisor Networks operates under a super-OSJ structure, although Cetera calls them “regional directors” or RDs. Because of the multi-tier structure, this unit has the highest revenues of any Cetera IBD, but very low margins and hasn’t exhibited as much growth as one might expect. That’s because nearly 20 to 25 percent are classified as non-producing RDs, meaning these super-OSJs have recruited virtually no new reps over the last five years.