In the midst of a punishing business environment for small and mid-sized broker-dealers, National Holdings Corp. said on Monday it was acquiring select assets of Williams Financial Group of Dallas, including its independent broker-dealer, WFG Investments.
Williams Financial Group has approximately 230 financial professionals nationwide with approximately $6.5 billion in client assets under management. Under the terms of the transaction, National will pay $2.3 million in initial consideration at the closing, which is subject to the approval of the Financial Industry Regulatory Authority Inc. There is potential for additional cash and/or stock payments if certain performance targets are met within three years following the deal's closing.
Industry executives and consultants widely believe more consolidation is coming to the IBD industry. Independent brokers have seen margins compress steadily since the credit crisis as record low interest rates ate into their bottom lines. New regulations, including the pending Department of Labor fiduciary rule, have hampered the sale of high-commission products such as nontraded real estate investment trusts and variable annuities, increasing the pressure on firm finances.
National Holdings controls two independent broker-dealers, National Securities Corp. and vFinance Investments Inc., and is home to more than 1,100 independent advisers, reps, sales associates and staff.
"In the past, WFG relied heavily on revenues from alternative investments, like nontraded real estate investment trusts and business development companies," said Jonathan Henschen, an industry recruiter. "The sales of those products have fallen off a cliff, and WFG also paid some big fines over the past couple of years," he said, noting that Finra fined WFG $700,000 in 2014 for failing to commit the time, attention and resources to a range of critical obligations in its supervision of registered reps.
"Unless something changes with the DOL rule to take the heat off alternative investments, firms reliant on revenues from REITs and BDCs are going to be in an earnings pinch going forward," Mr. Henschen said.
For its fiscal year ending June 2016, WFG Investments posted revenues of $37.4 million, a decline of 6.5% from a year earlier when it reported close to $40 million in revenues. It also reported a loss of $641,000 in fiscal 2017, according to a filing with the Securities and Exchange Commission.
"Of significant importance to us is the fact that [WFG's] adviser network covers parts of the United States where we have no current footprint," said Michael Mullen, CEO of National Holdings, which has large operations in New York and Florida. "We believe this transaction will help broaden our nationwide reach and scale and truly aid in continuing to build our business into a leadership position in the industry."
Wilson Williams, the owner, chairman and CEO of Williams Financial Group, did not immediately return a call for comment.