The shutdown season for broker-dealers continues to roll along, with a small firm in Dallas that is part of a wider asset management business about to exit the business.
Argentus Securities soon will file a "broker-dealer withdraw," or Form BDW, with the
Financial Industry Regulatory Authority Inc., said the firm's chief executive, Douglas Gill.
Argentus Securities operates under the holding company Argentus Partners, which will continue to run a turnkey asset management program that many of its representatives and financial advisers use, Mr. Gill said.
In the past, Argentus Securities had as many as 90 registered reps, but that has dwindled to about 30, he said.
“You'll see more and more broker-dealers like Argentus opting out,” Mr. Gill said. “There's no joy in the business.”
Some Argentus reps have been expecting such a move by the firm, one recruiter said.
“I worked with three Argentus producer groups this past November, and at that time they told me they had a sense that something like this was going to happen,” said Brad Fay, president of recruiting firm IBDSearch. “This is the time of year that you'll see smaller firms submitting their withdrawal from Finra membership, prior to paying and conducting their independent audit and other beginning-of-the-year expenses and commitments.”
Mr. Gill gave no fixed date for the firm's close.
The firm operates two registered investment advisers, Argentus Advisors and Argentus Capital Management, which have a combined $1.23 billion in assets under management, according to filings with the Securities and Exchange Commission.
Unlike large independent broker-dealer networks such as Cetera Financial Group and
LPL Financial, small broker-dealers such as Argentus don't command six- and seven-figure payments from product companies such as variable annuities issuers, Mr. Gill said.
Along with the tight profit margin faced by all broker-dealers, rising costs for technology and compliance were among the factors that led to Argentus' downfall, he said.
“A broker-dealer of 30, 50 or even 200 reps can't effectively operate on a 10% margin after payout to the brokers,” Mr. Gill said. “The broker-dealer business is a scale business, and we're never going to have the scale to run it profitably.”
The end of a year and beginning of a new one is when broker-dealers on the bubble typically assess whether they will remain open. Finra assesses annual fees in the first quarter, and firms close to avoid paying the self-regulator those charges.
This is the second notable broker-dealer shutdown tracked by
InvestmentNews in the past few weeks.
In December, Wells Investment Securities Inc. filed its termination request with Finra. That marked the end of legendary real estate investor Leo Wells' time in the securities business.
In 2008, Finra counted 4,895 broker-dealer members under its regulatory watch.
As of November, there were 4,180 registered broker-dealers, according to Finra's website.
Over the past five years, the number of broker-dealers has dropped almost 15%.
Mr. Gill expects the bulk of the reps to move to another broker-dealer, Purshe Kaplan Sterling Investments, which specializes in serving reps who are also RIAs.
Despite its relatively small number of brokers, Argentus Securities generated a respectable amount of revenue for a broker-dealer of its size.
The firm in 2012 had revenue of $9.7 million and net income of $21,060, according to a filing with the Securities and Exchange Commission.
Argentus Securities has had problems with securities regulators.
Finra in September alleged that the firm had “systemic failures in its supervisory and antimoney laundering procedures” from 2008 to 2011, according to its profile on BrokerCheck.
The firm agreed to pay a fine of $150,000 and didn't admit to or deny Finra's findings.
Mr. Gill called the Finra matter “ancient history” and said that the firm had fired and replaced compliance staff to address the issues of supervision.
It has another pending Finra matter related to the same supervision issues, according to BrokerCheck.
