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Retiring? A Bank Might Buy Your Advice Practice

February 6, 2017

Financial advisors looking to ensure succession or get out of the business may soon be selling their practices to banks and credit unions, InvestmentNews writes.

Salem Five Bank may have set up a blueprint when it acquired Stumm Financial Services in September, and other banks may follow suit, according to the publication. The bank acquired Stumm, an independent practice on LPL Financial’s network, and transformed it into a “non-bank-branch” financial planning office that runs under the Salem Five Financial name, InvestmentNews writes.

For Hans Stumm, owner of Stumm Financial which manages more than $180 million for more than 100 clients, the deal meant giving up the lucrative payout he made as an independent producer under LPL, according to the publication. But earning closer to the 50% most wirehouse advisors are used to also sets up a succession plan for Stumm’s practice when he does decide to leave the business, InvestmentNews writes.

And the bank will take on technology and office expenses associated with running the practice, while Stumm gets access to the bank’s services and products, according to the publication.

Advisors might be more attracted if they don’t have to sell bank products to meet a quota under such an arrangement, InvestmentNews writes.

Banks and credit unions buying up practices is also good for the network provider – in this case, LPL, the publication writes -- as the company benefits from a wider distribution of investments and services.

For Salem, meanwhile, buying practices is a means to grow its $766 million financial advice business, InvestmentNews writes. Sean Tesoro, president of Salem, tells the publication that all banks are looking for ways to generate non-interest income, and buying advice practices doesn’t require having a bank branch in order to grow. Stumm is Salem’s second acquisition, after it acquired a $20 million book whose advisor wanted to get out of the business, InvestmentNews writes.

David Canter

Winston-Salem, N.C.-based Allegacy Federal Credit Union is also shopping around for practices, according to the publication.

The DOL rule – which requires retirement brokers to put clients’ interests first and is scheduled to go into effect in April – will cause many advisors to leave the business, Steven Franke, Allegacy’s program manager tells InvestmentNews. That means more opportunities for banks to acquire books of business, he says.

But the rule’s fate remains unknown, with many experts predicting a delay or an outright repeal under the administration of President Donald Trump while Trump himself continues to remain mum on the issue, as reported previously.

Regardless, banks and credit unions may fill a growing gap.

Advice firms buying other RIAs are increasingly more selective, according to a Fidelity Clearing & Custody report cited by ThinkAdvisor. Larger firms are looking at more firms, conducting deeper analysis of the demographics of a practice’s book of business and looking for firms with proven talent, David Canter, executive vice president for practice management and consulting at Fidelity Clearing & Custody, tells the publication.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.
  • To read the ThinkAdvisor article cited in this story, click here.