On Advice

Is AIG Advisor Group the next big fish Schorsch wants to land?

There are a lot of reasons why RCAP might be trolling for Larry Roth's old firm

May 23, 2014 @ 12:31 pm

By Bruce Kelly

To build a network of 20,000 advisers, RCS Capital Corp. and Larry Roth, the newly anointed chief executive of its retail brokerage umbrella unit, Cetera Financial Group, are undoubtedly considering another big and bold move.

Cetera will have about 9,800 registered reps and advisers under the roofs of its far-flung network, once a few pending deals close by the end of June.

That rep headcount would put the Cetera network second in the industry, behind only LPL Financial, with 13,600 reps and advisers.

Second place, however, isn't good enough for RCS Capital, known by its ticker RCAP, and its executive chairman, the hard-charging, nontraded real estate investment trust czar Nicholas Schorsch.

Indeed, RCAP and Mr. Roth want more.

As Mr. Roth told InvestmentNews this month, “We want to more than double where we are now.” RCAP's goal is to have “20,000 or more advisers in three to five years,” he said.

To get there, Mr. Roth will most likely try to land a big fish. He also likely has orders to act fast. After all, it has taken Mr. Schorsch only 12 months to buy nine broker-dealers in five separate acquisitions, stunning the independent broker-dealer industry.

And what better target than Mr. Roth's old firm, the AIG Advisor Group, with close to 5,600 reps and advisers affiliated with four separate broker-dealers?

Mr. Roth was the CEO of the AIG Advisor Group for more than seven years before Mr. Schorsch tapped Mr. Roth last summer to be CEO of his wholesaling broker-dealer, Realty Capital Securities, and moved him two weeks ago into his current role.

Mr. Roth knows the Advisor Group's four broker-dealers, Royal Alliance Associates Inc., FSC Securities Corp., SagePoint Financial Inc., and Woodbury Financial Services, as well as anybody. Prior to joining AIG Advisor Group, he was the head of ING's broker-dealer network in the nineties and then worked in investment banking in the 2000s.

Adding the AIG Adviser Group to Cetera would create a network of about 15,400 reps and advisers that produced revenue $2.9 billion last year. It would put Cetera/RCAP ahead of LPL in terms of headcount, though behind both LPL and Ameriprise Financial Services Inc. in total revenue.

The stars seem aligned for RCAP to land the AIG Advisor Group.

First off, it's got heft, and Mr. Roth and Mr. Schorsch will need to pull off a large transaction to get to 20,000 reps and advisers quickly.

American International Group Inc.'s CEO, Robert Benmosche, who internally has supported the Advisor Group, reportedly will soon step down.

He is a big fan of retail brokerage and stopped a sale of the AIG Advisor Group in the summer of 2009 when AIG was selling assets in order to pay back the tens of billions it received from the federal government during the 2008 bailout.

Will AIG's next CEO have such affection for retail brokerage, a high risk and volatile line of business that large insurance companies have been abandoning for the past several years?

An RCAP deal for the AIG Advisor Group would make sense, particularly as AIG earlier this year said it was launching the AIG Financial Network, home to 1,400 insurance agents who would get training and licenses to sell securities, said Jonathan Henschen, an industry recruiter.

AIG moving to build a separate sales force to potentially sell variable annuities was a “strong tell” that it was contemplating exiting the wider retail financial advice business, Mr. Henschen said. Mr. Benmosche, who also is the former CEO of MetLife Inc., may be taking a page out of that insurers' playbook, he said.

MetLife last year sold two of its independent broker-dealers to Cetera. “AIG may be doing a MetLife and selling their independent broker-dealers, where they have less control over product sales” than they do at a captive insurance group, he said.

“The trend for insurance companies is more proprietary products, like annuities, and selling off the independent broker-dealers,” he said.

Mr. Henschen acknowledged that other large broker-dealer targets for RCAP exist. Ladenburg Thalmann Financial Services Inc. has three independent broker-dealers and 2,719 affiliated reps and advisers. And the four independent broker-dealers owned by insurer Jackson National Life Insurance Co. — National Planning Corp., INVEST Financial Corp., SII Investments Inc. and Investment Centers of America Inc. — have 3,395 affiliated reps.

But the AIG Advisor Group makes the most sense for RCAP, he said.

RCAP had no comment for this column, said spokesman Matt Goldstein.

Linda Malamut, a spokeswoman for AIG, said: “AIG is committed to the independent broker-dealer space, to AIG Advisor Group and to its four broker-dealers. We believe there are tremendous opportunities for independent advisers today, especially for those affiliated with AIG Advisor Group.”

After announcing a deal to buy a wholesaler broker-dealer, SC Distributors, Mr. Schorsch told me last week that RCAP had no immediate plans to buy a retail broker-dealer. A determined dealmaker, Mr. Schorsch is not about to tip his hand to a reporter, regardless of how close or far he is to putting the finishing touches on an acquisition.

With a background in investment banking and building broker-dealer networks, Mr. Roth is in the perfect place to make the transaction that would create the super-sized broker-dealer network Mr. Schorsch so dearly wants. The Advisor Group, which dropped the AIG from its name in 2009 but added it back just this month, may be in for another name change.

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