RCS Capital Corp. is cutting expenses and showing the door to the due diligence team at Cetera Financial Group, its retail brokerage unit.
The Cetera due diligence team, which focuses on mainstream and alternative investments such as non-traded real estate investment trusts, is led by David Fred, whose title is head of due diligence. Mr. Fred has been with the firm or its previous incarnations since 1998.
By the beginning of next year, SK Research will replace Mr. Fred's due diligence team. It was not clear how many Cetera due diligence staff are affected as part of the change.
“As part of our ongoing efforts to provide industry-leading resources to our advisers, we have restructured our due diligence capabilities to fully leverage our highly regarded sister firm, SK research,” wrote a Cetera spokesman, Joseph Kuo, in an email. “Starting in 2016, SK will assume responsibility for due diligence of alternative investments, mutual funds and advisory programs.”
Mr. Fred did not return calls for comment.
RCS Capital, known by its ticker symbol RCAP,
last year hired Todd Snyder and John Kearney, at the time widely considered the top due diligence analysts for the alternative investments and nontraded REITs sold by independent broker-dealers. The two then launched SK Research.
SHAKEN UP
With a faltering stock price and a heavy debt load, RCAP has been shaken up of late. From the start of the year through Thursday afternoon, shares are down 91% trading at $1.12. RCAP in June modified its debt covenants and currently has $804.3 million of long-term debt.
(More: How Nick Schorsch lost his mojo)
Shares of the company have been falling since October 2014 when a formerly related company, American Realty Capital Properties Inc., now Vereit Inc., revealed a $23 million accounting error over the first half of the year that was intentionally not corrected. Nicholas Schorsch, the largest shareholder of RCAP and its former executive chairman, was the chairman of ARCP at the time the accounting error was revealed. He later resigned from both RCAP and ARCP.
During the company's quarterly earnings call with analysts in August, RCAP executives
said cost cutting was in order. During the same call, the company discussed the
sale of its wholesaling group to Apollo Asset Management for $25 million.
“Over the coming quarters, the special committee will continue to take the appropriate actions to create value for our advisers and their clients, the broker dealers on our platform and our shareholders,” said its chief executive, Michael Weil. “This includes identifying and implementing enhanced cost control and cost reduction initiatives.”
“We'll be presenting to the board in the very near future an expense reduction strategy,” Mr. Weil said.
