Cetera goes more RIA-ish by hiring Durbin from Fidelity

Michael Durbin, CEO of Cetera Holdings

It's in the best interest of Cetera's owner, Genstar Capital, to make the broker-dealer network look as much like a registered investment advisor as possible.

The hiring of Fidelity Investments senior executive Michael Durbin by Cetera Holdings, the parent company to the giant broker-dealer and registered investment advisor network Cetera Financial Group, shows, yet again, that the independent broker-dealer industry wants to be perceived more as RIAs and less as B-Ds.

Why? RIAs are fiduciaries and charge fees on assets, a more fair and overall better business model for consumers. Broker-dealers, while now working under the industry rule known as Reg BI, aren’t fully fiduciaries and can charge clients fees as well as commissions, which have a history of being abused by registered reps that is as old as the hills.

But is that the only reason why broker-dealer networks like Cetera Financial Group, with 8,000 financial advisors and $365 billion in client assets, want to look more like RIAs?

Of course not. It’s also about cold, hard cash. RIAs command much higher valuations from buyers than broker-dealers do right now. More money is to be made in the wealth management industry selling RIAs than broker-dealers.

That means it’s in the best interest of Cetera Financial Group’s owner, private equity manager Genstar Capital, to make the broker-dealer network appear as RIA-ish as possible. Independent broker-dealers typically have profit margins in the mid-single digits to low double digits, while RIAs may kick off two, three or even four times more in annual net income.

That’s Genstar’s responsibility to its investors, after all: boosting Cetera’s value for a potential sale or initial public offering down the road. At Fidelity Investments, Durbin had been president through the end of last year of Fidelity Institutional, the division of Fidelity Investments that works with financial advisors and institutions, providing custody and clearing, third-party product and asset management services. Durbin was front and center for RIAs at Fidelity.

A Cetera spokesperson did not return phone calls on Thursday for this column.

Durbin is well situated to push Cetera further down the RIA-ish road, one senior industry executive noted.

“Mike Durbin is an exceptional talent,” said Shirl Penney, CEO and founder of Dynasty Financial Partners, a technology and service platform for financial advisors opening their own RIAs, particularly those who had previously worked at wirehouses. “When we were starting Dynasty back in 2010, Mike had just moved from Morgan Stanley to Fidelity, and he instantly got what we were doing.”

“Mike is very much an advisor-focused guy, and that’s important for Cetera,” Penney said. “He’s comfortable on and off the stage at the big industry meetings. He’ll rally the troops over at Cetera and help the evolution of a larger scale independent broker-dealer to look, act and feel like an RIA.”

“The RIA industry is growing in assets and revenue because that’s what the consumer wants,” Penney said. “They want more of a fiduciary-based advice model. And larger broker-dealers are dealing with the problem of advisors graduating off the platform and going independent to an RIA. They can address that issue by hiring senior leaders from RIA world.”

Cetera has been busy. In addition to hiring Durbin, the company earlier this year said it was buying the wealth business of insurer Securian Financial Group, which includes more than 1,000 advisors who oversee $24.8 billion in assets under management and $47.4 billion in assets under administration. A few dozen or so of those advisors have walked and left for competitors, but that’s to be expected during such a sale.

How RIA-ish will the Cetera Financial Group broker-dealer network end up looking? Can a group of broker-dealers appear and act, and be valued, like an RIA?

The market will eventually decide.