Lincoln deal caps year of change at Osaic

As it wraps up a year of furious change, Osaic Inc., the giant broker-dealer network of 10,500 financial advisors, looks as if it's moving closer to an inevitable initial public offering in the next year or two.

But what will the ultimate asking price be for the firm when it launches an IPO?

There was been a flurry of activity at Osaic in 2023. In December alone, two significant developments occurred for Osaic, which is owned by private equity manager Reverence Capital Partners.

On Dec. 14, Osaic said it was making a huge acquisition, announcing that it had reached an agreement to purchase Lincoln Financial Advisors Corp. and Lincoln Financial Securities Corp. the wealth management firms that make up Lincoln Wealth, from the insurer Lincoln National Corp.

The asking price for Lincoln's wealth management business was $700 million. In return, Osaic gets 1,450 financial advisors who oversee roughly $108 billion in assets.

Meanwhile, just days earlier, Bloomberg reported that Reverence Capital Partners is seeking to sell up to 20% of Osaic, which could be worth as much as $2.5 billion. That translates into the entire company having a value of $12.5 billion, a substantial number. Bloomberg cited sources who asked not to be named and said that deliberations are ongoing.

All that is happening after Osaic changed its name from Advisor Group earlier last year and is currently consolidating its eight broker-dealers, not an easy task.

Lincoln National Corp. is the latest in a long line of insurance companies that no longer want to have a hand in the retail brokerage business, which is expensive and carries risks of product failures and brokers treating their clients badly.

In the 1990s, insurance companies jumped feet first into the retail brokerage market, relying on financial advisors to sell more of their products, like variable annuities.

But those days are over, as a result of the cracks revealed in the system during the 2008 financial crisis and the crackdown by securities regulators that followed. Indeed, when it was Advisor Group, the network was owned by an insurance giant, American International Group, which sold it to one private equity manager in 2016 before Reverence Capital acquired it three years later.

Osaic has become a destination for broker-dealers that can't grow on their own, noted one observer.

"Lincoln Financial selling its broker-dealer to Osaic is a classic example of the market getting tougher on firms," said Alois Pirker, an industry consultant. "Lincoln had a good business there in wealth management, but it was subscale. And consolidation is happening because of those kinds of pressures."

"The Osaic brand and our ‘Journey to One’ have been extremely well received by our advisors and the industry at large," Jen Roche, executive vice president for marketing and communications at the firm, wrote in an email. "Together with our capital partners, we remain committed to our vision of using our scale to invest in the resources, service and technologies that provide financial professionals with a personalized and differentiated experience to grow and thrive."

But does that translate into $12 billion valuation for the brokerage network, if the report by Bloomberg is accurate? History would suggest that price may be difficult to reach for Osaic and its owner, Reverence Capital.

LPL Financial Holdings Inc., the largest broker-dealer network, with 21,000 financial advisors — twice as many as Osaic — near the end of 2023 had a market capitalization of slightly less than $17 billion. And after its IPO in 2010, LPL Financial, with the ticker LPLA, for years had a market cap of between $3 billion to $4 billion.

Brokerage stocks are known for their volatility and swing wildly, often as the broad market swings up or down. Regardless of its ultimate price at IPO, 2024 will be another year of change at Osaic.