Securities America asks reps to pledge allegiance

Securities America Inc. last week took the unusual step of asking its 1,800 reps and advisers to sign a “letter of support” to indicate their intention to remain at the firm — a development that some observers took to mean that a sale of the troubled broker-dealer could be imminent.
JUN 12, 2011
Securities America Inc. last week took the unusual step of asking its 1,800 reps and advisers to sign a “letter of support” to indicate their intention to remain at the firm — a development that some observers took to mean that a sale of the troubled broker-dealer could be imminent. Securities America's parent company, Ameriprise Financial Inc., said in April it would look for a buyer for the firm. The request to sign the loyalty letter comes as many of the firm's reps and advisers are shaping contingency exit plans. The letter makes no mention of a retention bonus for the brokers, a common practice to get reps to stick with a broker-dealer after another firm buys it. But some inside and outside the firm took the letter as a sign that negotiations with a potential buyer are progressing. “I would suspect they've got a short list” of potential buyers, said one Securities America rep, who asked not to be identified. The rep said he has no direct knowledge of specific firms with interest in buying Securities America. The rep also said that the firm is in the process of “rounding up” some of the highest-producing brokers and will give them access to private information about the sale of the firm in order to win their loyalty. The three-paragraph note for reps to sign is addressed to “To Whom It May Concern,” and states, in part:

SETTING A COURSE

“We are confident in the abilities of Securities America's senior management team to navigate the company through these challenges and opportunities. “We believe they will assist [parent company] Ameriprise in the selection of a new owner with the interests of the advisors and our clients firmly in mind.” It then concludes: “We intend to stay with Securities America to see what opportunities will come from this process.” The firm was expected to post the letter with the signatures on an internal company website. Reps could send an electronic scan of their signature or sign a blank sheet of paper and fax it to the firm. The compensation of management in transactions such as the sale of a broker-dealer is commonly tied to the retention of brokers, experts noted. The larger the number of brokers who stick with a firm after it's acquired, the bigger the payout for management, they said. The ultimate purchase price is also tied to broker retention in such deals, industry observers noted. “It seems like a transparent effort to prop up the value of the franchise by presuming to show a certain level of advisers' loyalty,” said Danny Sarch, an industry recruiter. “The letter can easily backfire. Once it's known the letter is out there, a prospective buyer will ask, "How many did you get back?' It seems a bit desperate.” Securities America has been in turmoil since the Securities and Exchange Commission charged an issuer of private placements, Medical Capital Holdings Inc., with fraud in July 2009. Dozens of independent broker-dealers sold the Medical Capital notes, but Securities America was the product's biggest distributor, selling $700 million worth of the notes to clients. About half that amount is in default.

ON THE BLOCK

After months of bitter litigation over the failed Medical Capital private placements, the firm in April reached a potential $160 million settlement with investors in a class action. A week and a half after that, Ameriprise said it was putting the firm on the block. Securities America has stressed that its brokers aren't leaving, despite the upheaval. In fact, the firm this month said it had re- cruited a team of six advisers in Bismarck, N.D., from Axa Advisors LLC. The firm already has had one high-profile defection, however. In March, one of its top-producing brokers, Sue Ricker, left to join LPL Financial, the leading broker-dealer under the umbrella of LPL Investment Holdings Inc. In an e-mail to advisers last Tuesday, chief marketing officer Janine Wertheim wrote that the idea for the loyalty letter came from advisers in the field, not management. Securities America “can't comment on the sales process” or discuss the number of broker-dealers that have shown interest, Ms. Wertheim told InvestmentNews. The letter is a way to acknowledge the support for the firm from advisers, she said. E-mail Bruce Kelly at [email protected].

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