As part of its Chapter 11 bankruptcy, RCS Capital Corp. has set aside at least $50 million for retention bonuses slated for some of the 9,000 financial advisers affiliated with the broker-dealers that comprise its Cetera Financial Group, according to the firm's bankruptcy court filing.
RCS Capital, or RCAP, gave no details in the court filings, filed in federal bankruptcy court in Delaware on Sunday evening, as to how that bonus pool would be doled out to its financial advisers.
Cetera advisers, as well as competitors and third-party recruiters, have been wondering since RCAP said it intended to file for bankruptcy at the beginning of January what a retention package would look like.
Cetera advisers should expect to see details of the retention packages over the next few weeks, said Cetera Financial Group CEO Larry Roth in an email.
“We have worked closely with the leadership of each of the firms in our network to develop a methodology for advisers and investment programs of financial institutions to participate in our retention program, encompassing a range of qualitative and quantitative factors,” he said.
CHAPTER 11
RCAP said on Jan. 4 that it planned to file a pre-packaged Chapter 11 bankruptcy reorganization plan that would clean up its balance sheet by eliminating hundreds of millions of dollars in debt. Cetera would operate as a privately held company and focus solely y on retail financial advice.
Eliminated would be its relationship with former nontraded real estate investment
trust czar Nicholas Schorsch, who had a controlling interest in the company. His interest would be eliminated in the bankruptcy.
(More: How Nick Schorsch lost his mojo)
The restructuring agreement “includes an injection of $150 million of incremental liquidity,” in part, to fund “the first $50 million of a critically needed retention program for the independent financial advisers, which is crucial to mitigating attrition risk,” according to an RCAP court filing. RCAP previously had said it would inject $150 million in fresh capital into the business.
Not all Cetera advisers are in line to receive retention pay, which typically comes in the form of a forgivable note or loan over three to five years. “The agreement includes a retention program for eligible Cetera Financial Group-affiliated advisers in the new post-bankruptcy company,”
according to an RCAP press release.
RETENTION PLAN
An RCAP spokesman, Andrew Backman, declined to cite any specific criteria for advisers who would be eligible for the retention plan.
Getting current advisers to stay in their seats could be a test for Cetera Financial Network chief executive Larry Roth and an indication of how successful he will be when the company eventually emerges from bankruptcy. The bankruptcy is expected to be completed by May.
Questions abound about the retention plan. How much more than $50 million will RCAP's creditors allow to be kicked in to a retention plan? Are some advisers' current loans forgivable? How much will be in stock, and will Cetera advisers want that stock? And how much of the bonuses will fall into the lap of the largest producers?
Those questions become more important as Cetera works its way through a
consolidation of its 10 different broker-dealers to reduce expenses, noted Jodie Papike, executive vice president at Cross-Search, a third party recruiting firm.
“Advisers have to be ready to sit through possible changes at Cetera” if they take a forgivable loan for any length of time, she said. “Or, they can take the money, sit on it, and then pay it back if they are unhappy with the direction of the firm. Advisers need to be aware of what they are signing and what they are committing to.”
