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The embattled Omaha IBD did not go down without a fight and it may be effectively slowing further losses with retention bonuses
September 9, 2011 — 3:12 AM UTC by Lisa Shidler
Three advisory teams with assets totaling more than $700 million announced this week that they have left the distressed Securities America for Commonwealth Financial Network.
The firms, Olsen & Associates of Norfolk, Neb.; Economic Concepts, based in Annandale, NJ; and Peterson Wealth Management in Springfield, Mo., are the latest to flee the embattled company despite the fact that it just announced its purchase by private equity firm Ladenburg Thalmann. See: Three advisors tell why they fled Securities America for Commonwealth.
These advisors say they made up their minds to leave before the private equity firm announced its intention to buy Securities America. See: Why exactly private equity firms are dumping money into IBDs at a time when many are going bust.
“The uncertainty was the main reason for leaving,” says Chuck Olsen, 43, founder and managing partner of Olsen & Associates. “Our decision was made before the Ladenburg purchase was even announced.”
Olsen takes with him a firm with $250 million in total assets and a client load of 1,400 households. Olsen & Associates was ranked in the top 2% of advisors at Securities America and his firm generated about $1.7 million in gross dealer concession in 2010.
Economic Concepts, helmed by Brian Fischer, 50, made the move to Commonwealth Financial Network with his firm’s $400 million in assets and 600 clients. Economic Concepts also ranked in Security America’s top 2% of firms. In 2010 it generated $1.7 million in gross dealer concession.
Also joining Commonwealth is Peterson Wealth Management, led by founder Eric Peterson, 59. The firm generated revenues of $550,000 in 2010 and has assets of about $75 million with 400 households. Peterson ranked among the top 100 advisors at Securities America in 2010.
End of a good run
Commonwealth has been a beneficiary of Security America’s woes, signing on a total of nine firms since January whose total assets are about $1.2 billion to join the San Diego- and Waltham, Mass.-based broker-dealer. But now that a buyer has been announced for Securities America, Commonwealth’s run of acquisitions from the firm may slow, or even stop, says Andrew Daniels, Commonwealth’s managing principal for field development.
“Truthfully, it’s slowed down a little bit,” he says. “It’s to be expected because the buyer has been identified. This may be near the end.”
Daniels did say, however, that his firm was approached by a Securities America team just last Friday.
Janine Wertheim, president of Securities America Advisors Inc., says advisors are excited about the new ownership opportunities with the PE firm.
“Their first priority was no disruption to their clients and their business,” she says. “After hearing the Ladenburg story and how they will benefit from their depth of expertise in research, investment banking, and advisor friendly trust services, they are even more enthusiastic.”
Securities America has also offered retention bonuses for advisors to coax them to remain, and Wertheim says that’s helped advisors to stay put for now.
“The retention program helps advisors focus on enhancing client service and reinvigorating growth,” she says. “The majority of our advisors are on track to finish the year strong with us.”
Too far gone
All three firms say that the decision to leave Securities America wasn’t made in haste and that they were frustrated by a scandal in which clients lost around $400 million in an alleged Ponzi scheme involving private placement in Medical Capital Securities.
As a result, they have been shopping around for a new IBD for a year or so. In addition to Commonwealth, Olsen and Peterson considered Cambridge Investment Research and Fischer says his firm weighed the merits of Raymond James Financial Inc..
Fischer, who has been with Securities America since 1999, says that if a buyer had been announced months sooner, he might have waited it out to see what Ladenburg Thalmann had planned for the broker-dealer. But once he had completed the search, it made no sense to wait around.
“After I gave my resignation, we were told the announcement about Ladenburg Thalmann would be made very soon,” Fischer says. “All of that was true, but we’d just gone too far down the line to go back.”
Crisp and clear
Olsen says his firm was impressed by Commonwealth’s technology, which he feels is superior to anything else in the industry. See: Commonwealth’s revamp of technology includes subtracting Advent.
“It’s a click of a button and you can see clients’ investments, performance numbers,” Olsen says. “It’s really the ease of doing business that attracted us to them.”
LPL’s platform, on the other hand, was a bit letdown after all the great things Olsen had heard about it.
Peterson says he, too, was impressed with Commonwealth’s technology and also appreciated how responsive Commonwealth was to the firm’s inquiries.
“They’ve just done a very good job of providing us with a very good first impression,” Peterson says. “Commonwealth was very crisp and clear in regards to charges and expenses as well as the training and transition process.”
For his part, Fisher was swayed when Commonwealth offered to upload Economic Concept’s client transactions dating back from 1999. Most other broker-dealers, he says, wouldn’t have agreed to do that.
Commonwealth put it in writing,” Fischer says. “I had a technology commitment from them.”
Securities America didn’t let these firms go without a fight. Its top executives spent months trying to ease advisors’ fears, rolling out red-carpet treatment to keep them onboard.
Securities America president and CEO James Nagengast even paid a personal call on Olsen’s office from the firm’s Omaha headquarters. Perhaps it had some effect: Olsen says that one advisor in his firm did decide to stay with Securities America and has moved to a different office.
But even such personalized attention could not overcome the effect of worried calls from clients concerned about the various lawsuits they’d read about in the newspapers. It became more and more of a challenge to quash their fears.
“Our clients were calling us after they read stories about Securities America and would say they didn’t think things looked good,” Olson says. “There was definitely concern with clients. We felt it was in clients’ best interest to leave.”
Fischer says he also received worried client phone calls about Securities America. Once Fischer began shopping around he, too, got visits from top brass. Although Fischer knew the top executives well and had gone jogging with Nagengast, nothing the firm leaders could say could change his mind.
“I was very underwhelmed by their response,” Fischer says. “They came and told me they wanted to maintain a relationship. I outlined my major problems and at the end of the day, none of those issues were handled. I can understand they’re running around like chickens with their heads cut off, but we needed to leave.”
Two weeks notice
Clearly, however, all three firms felt some loyalty to their old firm – in an unusual move, the advisors gave longer notice than is usual in the industry. Typically, advisors announce their departure the day they leave. Olsen and Peterson gave 30-days notice and Fischer, two weeks.
Peterson, who just had marked 15 years with the company, respects its leadership and says that top officials, including Nagengast, phoned him numerous times. In the end, however, it wasn’t enough.
“Securities America has been a wonderful organization, but we found much improved technology,” he says.
Mentioned in this article:
Commonwealth Financial Network
RIA-Friendly Broker-Dealer, Tech: Other
Top Executive: Wayne Bloom
Top Executive: Bill Morrissey
Raymond James Financial Inc.
Asset Custodian, RIA-Friendly Broker-Dealer
Top Executive: Bill Van Law
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