Merger of Advisor Groups Tests for Financial Advisors

Financial Advisors

Integration of Advisor Groups Consolidation of eight brokerage networks into one Causing challenges associated with moving thousands of financial advisors and billions of dollars in assets.

With more than 10,500 financial advisors and $490 billion in client assets, the Phoenix-based firm will transition all of them into the rebranded new company. new name company According to one source, the private equity-owned company operates with $3.1 billion in debt on its balance sheet and requires about $275 million in annual service payments. Reported by Moody’s Investors Service Early this month. Advisor Group executive vice president of marketing and communications Jen Roche said in an interview that a group of 185 company employees will be working to reduce the He said he’s been working on making the transition easier over the years. .

“It was just, ‘Okay, what do we want to be in the future for our advisors, and how do we best serve them now and in the future,'” Roche said of the firm. Said late last month after its establishment. Officially announced pending pairing One of eight companies: American Portfolios, FSC Securities, Infinex Investments, Royal Alliance Associates, SagePoint Financial, Securities America, Triad Advisors and Woodbury Financial Services.

Roche said it will announce the name of the brokerage firm and the order of changes later this year. She pointed out that the new branding will not include the words “advisor group.” news report In April, it suggested the company would likely change its name to One Advisor Group. Roche said the merger “isn’t about cutting costs in any way,” adding that he has “no plans to close our current offices” in Phoenix and elsewhere.

The company promises to make the transition as smooth as possible for advisors, but advisors may be forced to return if service from headquarters goes awry or is disrupted, or if their strategy appears to be drifting in a competitive marketplace. It is well known for outsourcing middlemen to rivals when it can be seen. industry.

In that sense, this integration could play out with many similarities to an M&A transaction. Competitors often jump at the opportunity when advisors feel in flux.

Jenny Souza, on the other hand, Minority Investor CEO Emigrant Partners, a registered investment advisory firm called Emigrant Partners, declined to say specifically about the advisor group, but he said in an interview last week that the 20 companies in which the group holds stakes are among the largest in the country. “We are identifying attractive advisors and teams of advisors to join,” he said. industry.

“We continue to see opportunities throughout our pipeline as a result of industry consolidation,” Souza said.

This reduction has led to a significant downgrade in the rankings of brokerage firms in recent years. Over the past decade, technology costs, regulatory compliance and other increasingly complex operational needs have increased expenses by more than a third, so the number of broker-dealers worldwide has increased by “approximately four over this period, either through acquisitions or closures.” It has decreased by a factor of one.” According to reports last month It was issued by BNY Mellon, Pershing’s parent company.

“These pressures call for change,” the report said. “Without an understanding of the changes and forces that have created these trends, and the new factors that are currently accelerating them, broker-dealers will face even greater pressure in a rapidly changing and increasingly competitive landscape. It will increase.”

The Advisors Group integration represents a “new operational burden,” in addition to combining 1,500 advisors and $70 billion in client assets from two mid-market companies acquired last year by a firm backed by Liberence Capital Partners. bring. American Portfolio Financial Services and Infinex InvestmentsMoody’s analyst Gabriel Hack. The Advisor Group’s management team, led by CEO Jamie Price, is “very competent in this type of transition,” Huck said, adding that the firm is testing the combination with a pilot group of advisors. pointed out that

In terms of impact on the advisor group’s credit ratings, Hack said the “long-term positives” of the merger of the eight into one outweigh any potential negatives. He said moving to one firm instead of eight makes it easier to manage the company, and the firm is taking steps to reduce potential disruption to advisers and clients. This reclassification may also help the Advisor Group to recruit and retain more Advisors in the future.

“Moving to one frees up our focus strategically to focus on sub-segmented advisors across similarities in how we operate,” Huck said. “This will likely enhance their competitive strategy and market offering.”

Moody’s last month Upgraded Debt Issued Advisor Group’s parent upgraded the company to ‘B2’, below investment grade or junk mark, as a result of the company’s ‘strong scale and profitability and improved debt leverage’. Increased profits and improved credit Cash Sweep Accounts Tied to Higher Interest Rates.

The company’s debt-to-earnings ratio stood at 7.2 at the end of 2022, up only slightly from 7.0 at the end of 2020, despite notable acquisitions, and “significantly improved” from 10.5 at the end of December. 2020, according to the agency’s report. Moody’s expects the ratio to drop to 5.0 by the end of the year, barring more debt.

This forecast reflects the agency leverage ratio forecast. Bonds issued by competitor Cetera Financial Group Much lower than the parent company’s estimate of 7.3 at the end of 2023. Company that owns Kestra Holdings. Prior to Kestra’s spin-off agreement, Moody’s analyzed Kestra’s credit profile. Small Brokers and RIAs, Grove Point Financial.

Public companies have far less debt than their privately-backed rivals. For example, LPL Financial reports a leverage ratio of 1.34 as of December 2016. end of first quarter.

Huck’s team carefully monitors metrics such as earnings, assets, advisors hired and turnover when evaluating debt issued by these companies, he said. The LPL’s low leverage gives it more flexibility in its recruiting efforts, allowing it to offer the best offers to the best talent, but interest rates are also helping adviser groups’ outlook, Hack said.

“The advisor group will generate a lot of cash this year,” he said. “Debt servicing capacity is on the rise and will improve. It is already improving.”

Roche said management knows the merger will bring “frightening voices around the change” from rivals. The advisor group will discuss the rebranding and merger of the eight brands in more detail at the NXT conference in Louisville, Kentucky, May 23-25.

“We are really looking to the future and this change is aimed at creating a place where our advisors can thrive and grow,” Roche said.

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