Schorsch strikes again

Acquisition of VSR Financial, with $12.3B in assets under administration, 264 advisers, marks return to indie space for RCAP

Aug 7, 2014 @ 8:58 am

By Bruce Kelly

Nicholas Schorsch has returned to wheeling and dealing, with the broker-dealer he controls, RCS Capital Corp., announcing Thursday that it had agreed to buy an independent firm known for selling alternative investments, VSR Financial Services Inc.

VSR, based in Overland Park, Kan., has more than $12.3 billion of assets under administration and 264 producing independent financial advisers with an average production of $380,000 per registered rep/adviser. The firm had $107.3 million in total revenues last year.

Terms of the deal were not disclosed.

Meanwhile, RCS Capital, which is known by its ticker symbol RCAP, will continue to look under the hoods of retail broker-dealers, chief executive William Kahane said on a conference call with analysts Thursday. “We continue to focus on growth opportunities in retail advice segment,” he said.

RCAP had a strong quarter for revenue growth. The company Thursday said pro forma revenue for the second quarter ended June 30 increased 22% from the first quarter to $825.7 million. Quarter over quarter, pro forma net income increased 12% to $42.6 million, or 40 cents per share.

(More: Schorsch: RCS Capital is the next Merrill or Raymond James)

Shares of RCAP were up 3.9% Thursday afternoon in New York, trading at 20.40 a share after reaching 21.35 earlier in the day.

Mr. Schorsch is executive chairman of RCAP, which over the past year has closed on five separate broker-dealer acquisitions and built a network of more than 9,200 independent reps and advisers. RCAP's acquisition of VSR is expected to close by the end of this year or early next.

RCAP has two primary business lines: retail brokerage, which operates under Cetera Financial Group, and the group of wholesalers that distribute nontraded REITs and other alternative investments sponsored by American Realty Capital. Mr. Schorsch is chief executive of ARC.

The retail side of RCAP's brokerage business reported pro forma revenue growth of 7%, quarter over quarter, while the wholesale distribution side reported $2.6 billion in capital raised for the quarter ended June 30, compared with $1.6 billion in the first quarter.

The company posted strong earnings for the quarter due to solid performance in each of its businesses, Mr. Kahane said on the call with analysts. Through July 31, RCAP had raised $5.2 billion nontraded real estate investment trust equity and other alternative investment equity, Mr. Kahane said.

According to an investor presentation, RCAP's individual broker-dealers will continue to operate independently in order to minimize disruption to the advisers. However, certain back-office functions will be centralized to reduce costs and operating risks. Those include compliance processes and due diligence, according to the presentation.

RCAP became a publicly traded company in June 2013 and soon after commenced its buying binge of independent broker-dealers along with a number of other related businesses.

RCAP has not announced the purchase of a broker-dealer focused on independent reps and advisers since January, when RCAP shocked the independent broker-dealer with the purchase of the four broker-dealers under the Cetera Financial Group umbrella. The following day, RCAP said it was buying another independent firm, J.P. Turner.

VSR is notable because it has been owned by Don Beary, one of the veterans of the independent broker-dealer industry whose firm has been known for selling an array of alternative investments.

In May 2013, the Financial Industry Regulatory Authority Inc. signed off on a $550,000 fine against VSR Financial Services Inc. as well as a $10,000 fine and 45-day suspension of Mr. Beary. (More: Alternatives crackdown continues as Finra fines VSR)


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