Cetera acquiring two B-Ds from MetLife

Apr 7, 2013 @ 12:01 am

By Bruce Kelly

Cetera Financial Group is continuing its aggressive expansion, announcing last Friday that it had agreed to acquire two independent broker-dealers from MetLife Inc. for an undisclosed sum.

The two MetLife broker-dealers, Tower Square Securities Inc. and Walnut Street Securities Inc., have 800 financial advisers and registered reps between them.

Cetera chief executive Valerie Brown said the firm is laying the groundwork for a “smooth as silk” transition of the advisers. The company this week will begin a road show to introduce executives to the Walnut Street and Tower Square advisers.

Ms. Brown didn't mention specific details of a retention package for the advisers, but said, “Like any deal, we'll help [advisers] with transition” costs. We think this is an easy transition [for the advisers] and they can benefit from the tools we have.”

INSURERS WANT OUT

Many large insurance companies are getting out of the independent-broker-dealer business because of the high risk and tight margins prevalent in the industry today.

Spreads on sales of variable annuities, once a huge money maker, have tightened in the wake of record-low interest rates. This has caused insurers to re-evaluate whether they want to remain in the risky business of product distribution.

InvestmentNews first reported Cetera's imminent acquisition of the two MetLife broker-dealers March 1.

MetLife is not completely exiting the independent-broker-dealer industry. It continues to own two other independent broker-dealers, MetLife Securities Inc. and New England Securities Inc., but advisers at those firms operate much more as captive insurance agents, meaning they work more closely with the insurance company and less as independent financial advisers.

Tower Square and Walnut Street, which both have been steadily losing representatives and advisers in recent years, will be folded into the largest Cetera broker-dealer, Cetera Advisor Networks LLC, which has more than 2,000 financial professionals. The firm last year generated $360.5 million in total revenue.

"SUPER OSJs'

Cetera Advisor Network operates via large branches or “super OSJs,” short for office of supervisory jurisdiction, in the nomenclature of independent broker-dealers. That is a similar structure to Tower Square and Walnut Street.

Most of those branches are located in the Midwest and Northeast.

Craig Markham, president of Tower Square and Walnut Street, will join Cetera Advisor Networks as a senior vice president, according to a statement. He will oversee the transition of the two firms.

After the deal's close, the timing of which wasn't included in the statement, Cetera Financial Group will have more than 7,000 reps and advisers under its umbrella, and $130 billion in client assets.

Cetera recently has been one of the most active buyers of independent broker-dealers — last year, it acquired Genworth Financial Investment Services and later re-christened it Cetera Financial Specialists LLC.

The independent-contractor broker-dealer industry is likely to continue to see mergers and acquisitions, Ms. Brown said.

“It's not my perspective that the industry is through with consolidation,” she said.

Cetera's network of independent broker-dealers was born in 2010 when private-equity firm Lightyear Capital LLC, run by former Paine Webber Group Inc. chairman and chief executive Donald Marron, bought three broker-dealers from Dutch insurer ING Groep NV.

bkelly@investmentnews.com Twitter: @bdnewsguy

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