CEO Larry Roth says new Cetera owners will be in it for the 'long haul'

CEO Larry Roth says new Cetera owners will be in it for the 'long haul'
Claims institutional investors are committed to the independent broker-dealer business.
MAY 25, 2016
The institutional investors that will eventually own the new Cetera Financial Group after it emerges from bankruptcy have indicated they will be in the business for the “long haul,” according to Cetera Financial Group CEO Larry Roth. Cetera's parent company, RCS Capital Corp., at the end of January filed for a pre-arranged, Chapter 11 bankruptcy reorganization, in which its debt would be converted to equity in Cetera, a network of 10 independent broker-dealers with close to 9,000 registered reps and advisers. RCAP's first and second lien holders include large financial institutions such as Fortress Investment Group, Carlyle Investment Management and Eaton Vance Management. Those institutions are pleased with the direction of Cetera, which could emerge from bankruptcy by the end of May, Mr. Roth said in an interview Tuesday. “They know the business well and they like it very much,” said Mr. Roth, noting the bondholders' pledge to Cetera of $150 million in capital, a large chunk of which is earmarked for retention bonuses, as an indication of their commitment. “They're telling us they intend to hold the firm for the long haul. “They believe in the independent broker-dealer model,” he said. “They are telling us they are going to be long-term investors,” he said. Some Cetera advisers and observers in the independent broker-dealer marketplace expected Cetera's new owners to strike a different posture regarding owning the broker-dealers. Indeed, they expected RCAP's first and second lien holders to exit the business as quickly as possible. The issue of the ownership of Cetera affects advisers, who crave stability in their businesses, because each change presents a potential set of problems. Cetera will have had four owners since the credit crisis. In 2010, the ING Groep sold it to Lightyear Capital. Four years later, RCAP, at the time controlled by former nontraded real estate investment trust czar Nicholas Schorsch, bought it for $1.15 billion from Lightyear. Now, after the bankruptcy, RCAP's bondholders will own the brokerage network. Mr. Roth's comments seemed to conflict with what he told advisers in January when RCAP first announced the pre-arranged bankruptcy, according to one Cetera adviser who asked to speak anonymously. “It's contrary to what has been said on calls,” he said, adding that the intention of the institutions was to own Cetera for three to five years. A Cetera spokesman, Joseph Kuo, said he could not clarify the potential length of time Cetera's new owners could hang onto the business. “We're very encouraged by the support and enthusiasm shown by our prospective new owners in our business,” Mr. Kuo wrote in an email. “Beyond that, it would be premature at this time to speculate on exactly how many years their period of ownership will ultimately extend." In the interview, Mr. Roth said Cetera advisers have been loyal, patient and focused on their clients throughout the bankruptcy. He also said the company was in the process of identifying new board members.

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