A sizable independent broker-dealer with about 290 affiliated reps and advisers is shutting down due to thin margins and high costs of doing business, with the reps moving to a broker-dealer in Cetera Financial Group.
Pacific West Securities Inc. generated $46 million in fees and commission last year and is on track to see $54 million in gross revenue in 2011. The B-D will inform its brokers this afternoon of the closing, according to Tony Pizelo, CEO.
Meanwhile, Multi-Financial Securities Corp. has struck a recruitment deal with Pacific West, Mr. Pizelo said.
The two firms are collaborating on how best to move the brokers, he said. “We anticipate a very enthusiastic response, and expect well over 50% to move,” he said.
The high cost of business is pushing firms like Pacific West to the exit, he said. “The margins we are up against are getting thinner and thinner,” he said. “I'm in agreement with Ric Edelman, the model is broken.”
In October, Mr. Edelman, co-chief executive of the Edelman Financial Group, said the independent broker-dealer channel was “severely flawed” and that independent broker-dealers faced steep economic challenges.
“This is a tough industry right now” for all but the big players, Mr. Pizelo said.
Indeed, the exit of Pacific West is the latest in a number of B-Ds that have shuttered since early 2010. To see a list of other major B-D exits in the last two years, please
click here.
It will be business as usual at the firm for the next couple of months as the brokers move, Mr. Pizelo said, with an anticipated shut down date of March 1.
In a news release, Multi-Financial Securities, a subsidiary of Cetera Financial Group, said it had entered an agreement with Pacific West Financial Group, the broker-dealer's holding company, to bring over select advisors from Pacific West. The agreement is subject to approval by the
Financial Industry Regulatory Authority Inc.
Dozens of thinly capitalized independent broker-dealers have gone out of business or been sold over the past few years due to the rising tide of litigation costs stemming from investor lawsuits. Most of those complaints stemmed from sales of three products: Medical Capital Holdings Inc. notes, Provident Royalties LLC preferred stock, and real estate deals by DBSI Inc.
Mr. Pizelo said Pacific West did not sell any of those products.
Still, Pacific West has been facing increasing legal costs due to customer arbitrations. Over the last two years, the firm has lost Finra arbitration awards totaling $969,000, according to the firm's profile on Finra BrokerCheck.
