Nicholas Schorsch, head of RCS Capital Corp. (RCAP), just announced two acquisitions in two days—the purchase advisor network Cetera for $1.15 billion in cash and J.P. Turner for $27 million. The deals bring his advisor headcount to 9,225 and assets to about $195 billion. WealthManagement.com spoke with Schorsch about his consolidation plans and whether self-clearing is on the table.
WealthManagement.com: What are your integration plans with these b/ds?
Nick Schorsch: Some of them are already consolidated. All the Cetera companies are one company—run by Valerie Brown. They have all the infrastructure and back office. Then we have First Allied which is also the Legend Group, and that’s all consolidated. The more complicated consolidations are done. But everybody is on Pershing, so there’s no repapering.
The most important aspect to any consolidation is the culture, and particularly in a business like this, where we’ll have 10,000 employees in our advice business. If you look at the history trend in the M&A business in the independent channel, almost every M&A transaction was driven by a large company who was looking to jettison an asset—so it’s being driven by a seller, like Woodbury, like Ameriprise with Securities America. Or it’s being driven by a small company who had financial distress who needed recapitalization. That’s not what we’re doing. This is a very acute and well-orchestrated, or deliberate, consolidation, which is different than anything that’s occurred in this industry heretofore.
WM.com: Are you going to consolidate all these b/ds together into one entity?
NS: Certainly back office because that’s just efficient. And most of them are already consolidated either into First Allied or Cetera.
WM.com: Will ICH, Summit and J.P. Turner be part of Cetera?
NS: We have not made that determination, but it looks like they’re all going to be centrally managed by the same management team. But they’ll have their own identities, their own cultures. The details of all that will be disclosed in the next coming months as we go through this whole process.
WM.com: Do you have any plans to go self clearing?
NS: We have definitely thought about it, but we’ve made no plans at the moment.
LPL does dual clearing—they have self clearing and they have Pershing, which is a great idea. That could save us a lot of money, but we have to talk to our product sponsors and maybe there’s some evaluation. Maybe there’s some room with our current suppliers. But that’s only a possibility.
WM.com: Some say Cetera sold at a high price for an independent broker/dealer. What justified the high valuation to you?
NS: If you look at it on an asset basis, it’s less than 1 percent of AUM. If you talk to Don Marron or anybody who’s been in this business for years, most of the time they trade at 2 to 3 percent assets. So we’re buying it for less than 1 percent of assets.
WM.com: Some say revenue is a good metric.
NS: LPL is trading at two times revenue. We bought this at less than one times revenue. You can’t compare the price of this company to the price of a $45 million b/d or an $80 million b/d like MetLife or ICH. They’re not the same thing. We’re bigger than Ameriprise combined, and Ameriprise is trading at multiples of its revenue. This isn’t a broken company. Do you comp it to when they bought it at Cetera when the economy was collapsing and ING was looking for a quick sale? I don’t think anybody thinks we overpaid.
