Cetera Financial Group selling stock to its advisers

New stock and business loan plans are part of a broader outreach to 8,000 advisers

Oct 5, 2018 @ 2:26 pm

By Bruce Kelly

As part of a broad plan to bolster its 8,000 financial advisers, the recently sold Cetera Financial Group is offering its advisers loans to invest in their practices and an opportunity to buy stock in the company.

In a press release Thursday, Cetera said the company had created "two types of attractive, growth-oriented loans" for business purposes, with examples including "lead generation initiatives and succession planning." The company also said that it had "unveiled an equity value participation program for existing, as well as for new, advisers, which is unique to the profession."

Those opportunities were part of Cetera's new Advisor Alignment program, which includes committees of advisers focusing on various aspects of the business, including marketing, technology and service.

Cetera Financial Group, a network of six independent broker-dealers, said in July that Genstar Capital would buy a majority equity stake in the company. At the time, there were no plans to award advisers retention bonuses in the form of forgivable loans, a common practice to get advisers to stay in their seats after an acquisition.

When asked about details of the stock purchase and loan programs, a Cetera Financial Group spokesman, Chris Clemens, said the firm declined to comment beyond its press release.

Some details emerged, however, with an industry recruiter saying the plan included Cetera adding 20 cents to each dollar of Cetera stock an adviser buys.

The minimum an adviser can invest in Cetera's stock is $25,000, and there is a two-month window to purchase the stock, with a potential option to buy more in the future, said Jon Henschen, who based his comments on a conversation with a Cetera adviser.

That means that for every $25,000 in Cetera stock the adviser buys, he receives $30,000.

If an adviser leaves or is terminated, he loses the 20-cents-per-dollar bonus and gets fair market value only, Mr. Henschen said, adding that Cetera is offering forgivable loans if advisers can show a solid marketing plan for future growth. The firm is offering loans that must be paid back over three to five years if the adviser lacks a marketing or growth plan.

When asked about those specific details, Mr. Clemens again declined to comment.

"After hearing Cetera was offering stock instead of retention bonuses, I thought they would award shares based on production rather than requiring advisers to make a capital outlay," Mr. Henschen said. "On the upside, the forgivable notes being offered predicated on the adviser having a solid marketing plan is prudent and forward-thinking. It helps ensure the note money is spent on business growth rather than personal possessions."

The history of Cetera is highly convoluted, including being spun off in 2010 from Dutch insurer ING Groep and acquired in 2014 by the former nontraded real estate investment trust czar Nicholas Schorsch.

Cetera's former parent company, RCS Capital Corp., filed a prearranged Chapter 11 bankruptcy reorganization in 2016. Stockholders, including advisers, were wiped out. Cetera Financial Group was then owned by RCS Capital's former first and second lien holders, including private-equity firms Fortress Investment Group and Carlyle Investment Management, as well as money manager Eaton Vance, before the Genstar purchase.

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