For the second time in as many months, an insurance company has bailed out of the independent-contractor broker-dealer business.
Western & Southern Financial Group yesterday said it had sold the assets of its independent broker-dealer, Capital Analysts Inc., to Lincoln Investment Planning Inc.
The assets in such deals are namely the firm's affiliated registered representatives. Capital Analysts of Cincinnati has about 280 affiliated reps, and the firm produced close to $61 million in gross revenue last year. Lincoln Investment Planning, which has about 700 reps and is based in Wyncote, Pa., produced $106 million in gross revenue in 2011.
That makes the combined firms, on paper at least, a firm with gross revenue of $167 million, or one of the 30 largest independent broker-dealers in the industry.
Related Item: Biggest Independent Broker-Dealers »
Lincoln is currently the
43rd largest independent broker-dealer in the business, ranked by total number of reps, according to the
InvestmentNews B-D Data Center.
With the cost of compliance and technology continuing to rise, firms need to bulk up and gain scale to remain viable, said Ed Forst, president and chief executive of Lincoln Investment Planning. “You've got to get to $200 million in gross revenue,” he said. “The plan we have in place led us to Capital Analysts. We remain privately owned and truly independent. That's very appealing to Capital Analysts' advisers.”
Lincoln Investment Planning clearly has benefited recently from the decision by some insurance companies to exit the retail-broker-dealer business. In May 2010, insurance company Great American Financial Resources Inc. said its 500 or so reps affiliated with its broker-dealer, Great American Advisors Inc., would move to Lincoln Investment Planning. It is not clear how many actually made the move.
Lincoln Investment Planning's reps and advisers control more than $11.1 billion in client assets.
(See full details of Lincoln's total rep count, production stats and payout grid here.) Capital Analysts' reps and advisers have about $8 billion in assets under advisement.
The terms of the deal, which is expected to close by June, were not disclosed.
The global economic downturn has pushed large financial institutions, including insurance carriers, to reassess their business strategies and consider retrenchment of their broker-dealer operations. The volatile stock market and the prolonged depression in interest rates have made it difficult and expensive for insurance carriers to hedge variable annuities with living benefits, an extremely popular product for independent reps and advisers to sell.
Insurance companies have been exiting the retail-securities business. In January, insurer Genworth Financial Inc. sold its independent-broker-dealer subsidiary to Cetera Financial Group for $78.5 million, plus an earn-out provision, according to Genworth's website.
The subsidiary,
Genworth Financial Investment Services Inc., had nearly 2,000 independent reps and advisers, most of whom are tax and accounting professionals.
Matt Lynch, CEO of Capital Analysts, said he intends to remain at the firm after the merger and continue to focus on services for advisers such as practice management, coaching and succession. He will work as a consultant at the new venture, and not hold an executive position.
The firm will have two payout models for advisers, Mr. Forst said. A few years ago, Capital Analysts created a flat-fee model for its reps. That model will continue to be offered, along with the traditional payout Lincoln Investment Planning employs that splits the commission between a rep and a firm, Mr. Forst said.
He added that the two firms have a certain amount of overlap geographically and that employees will have the opportunity to move or remain in place accordingly.
