Mentioned In This Article

Ameriprise needs to find a buyer for Securities America in a hurry. Many advisors, including large producers, are likely to leave the firm, especially between now and the time a buyer emerges, sources told Registered Rep. As advisors and assets depart, the value of Securities America will clearly decline. Any buyer would have to be at least as big as Ameriprise to absorb SAI and the IBD will probably be sold at a discounted price because of the risks involved, said several industry sources.

The announcement to sell the unit follows an initial $150 million settlement agreement the firm has reached with investors who claim SAI sold allegedly fraudulent private placements from Medical Capital Holdings and Provident Royalties. SAI and Ameriprise (NYSE: AMP) have been dealing with the legal issues for months. Tomorrow, Judge W. Royal Furgeson Jr. of U.S. District Court for the Northern District of Texas will rule on a preliminary approval of the settlement.

“We appreciate the many years Ameriprise has committed to our independent business model,” SAI said in a statement. “Their willingness to provide the financial means for the Medical Capital and Provident Royalties settlement leaves Securities America in a strong financial position to continue operations with no disruptions.”

Potential Buyers

Jonathan Henschen, president of recruiting firm Henschen & Associates, which works mostly with IBDs, said a few potential buyers include a foreign bank such as Allianz; Advanced Equity, a network of broker/dealers and wealth management firms that is in the market looking for opportunities; National Planning Holdings, an affiliate of Jackson National Life Insurance Company, which consists of four b/ds; or MetLife, which is also on the prowl and tends to buy at rock-bottom prices. It could also be a new venture capital firm looking to make in-roads into the independence space, he said, while a wirehouse would be less likely to emerge as a buyer.

The sale of SAI, with its 1,800 advisors and about $26.3 billion in total client assets as of the end of the first quarter, is a large IBD, may represent the largest deal ever seen in terms of a single independent b/d, said Philip Palaveev, president of Fusion Advisor Network. Palaveev said he doesn’t know many IBDs that could absorb a firm of SAI’s size. A private equity firm could emerge as a buyer, however, in the same way that Lightyear Capital acquired the ING b/ds in November of 2009 or Hellman & Friedman LLC and TPG Capital acquired LPL. Insurance firms have also shown an increasing interest in the independent space. Among the insurers, Metlife or Securian might be potential buyers.

One industry recruiter who declined to be named said the buyer would have to at least the size of Ameriprise to absorb Securities America. The recruiter speculated that a private equity firm would be the most likely buyer, and that such a firm would likely try to turn a profit quickly. “Everyone knows the goal of a private equity firm; it’s to flip a profit as soon as possible.” That’s typically two to three years, the source said.

Aite Group analyst Alois Pirker expects the buyer to be a larger firm in the independent space or a “risk capital firm,” as he calls it—a private equity firm with money to invest. These firms typically take on a distressed company, reorganize it for growth over a couple years and then sell it off to make a profit. He doesn’t see a small IBD making the purchase and doesn’t think SAI would be a good fit for a wirehouse.

The Risks Involved
Whoever ends up buying the firm, they want to make sure they do their due diligence and minimize the risks involved, Pirker said. “There is this big white elephant in the room,” he said.

The settlement will not be finalized until at least Friday, but may clear up what if any legal liabilities the new owners might have. “My understanding is this settlement is being funded and taken care of outside of the sale,” said Joseph Peiffer, a partner at New Orleans-based Fishman Haygood Phelps Walmsley Willis & Swanson, which is representing SAI clients in arbitrations.

Pirker said the liabilities will go with the purchaser, so this will likely be factored into the sale price. That said, the deal could include a representations and warranties statement saying that the new owners are not subject to any of the legal liabilities, Palaveev said. The new b/d has to make sure they’re comfortable with the compliance history of the firm and its advisors. “It’s not without risk.” If the buyer can see the profit potential, that will drive the attraction of the deal, Palaveev said.

The unnamed recruiter also expects the acquiring firm to ask to be indemnified on the legal obligations, meaning Ameriprise would be on the hook for anything that comes out of the woodwork for a certain period of time.

Securities America has had its fair share of legal problems over the years, the recruiter said. Also, SAI provides large payouts to its brokers, so it’s not a very profitable b/d. At the same time, there are some really good advisors at SAI and some top producers (see chart), she added. “That’s what they have going for them.”

Advisor Fallout
That is, if the firm can hold onto its best advisors. Henschen and other non-recruiter industry sources say many of the FAs will scatter. The unnamed recruiter said she has already gotten calls from advisors looking to leave, some of whom are over $1 million producers.

Because the firm is not very profitable, the purchaser will probably have to make major changes, such as getting rid of a lot of back-office staff, scaling back services or rolling itself whole hog into another b/d, said the recruiter, who stands to win business if a lot of Securities America advisors do decide to leave and she helps them join a new firm.

While many FAs put their heads down before and stayed loyal to the firm, they are now looking to move, said the unnamed recruiter. The recruiter added that it was a poor decision on Ameriprise’s part to not have a buyer lined up because it gives FAs a lot of time to make a move.

Pirker agreed the firm could lose advisors, as a franchise in transition presents a prime time for recruiting. “I would hope Ameriprise would be close enough to have potential bidders lined up,” he said. It’s a big problem for advisors to be in a transitional state; their books of business could suffer, and this tends to trigger a move, he said.

A lot of advisors will stick with their b/d even if they’re not 100 percent satisfied with it, said Palaveev. But with a seismic shift like this one, many FAs will feel they have to make a move one way or another. The situation is particularly frustrating for independent advisors because as business owners they have a much bigger stake in the outcome. “It’s like building a house in an earthquake,” he said. “The ground is not stable.”

To keep the troops calm and in their seats, SAI executives are pitching a message of stability. In an email sent out to advisors, CEO and President Jim Nagengast wrote:

“Securities America is financially strong and stable. As the Medical Capital and Provident litigation is put behind us, we expect our excess net capital will remain stable or grow. The Executive Leadership Team will be involved in the sale process and will meet with prospective buyers. Ameriprise is committed to finding an appropriate buyer that will assume ownership with the least disruption to Securities America advisors. We know you have been deluged with calls from recruiters during the Medical Capital/Provident settlement process, and we expect that to continue. We encourage you to stay with us, as we anticipate a very positive outcome for you and your firm.”

Some advisors, including Mark Penske, chairman and CEO of United Advisors, an affiliate of SAI, are staying put, waiting to see who will acquire the firm.