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Broker’s New Owner Seeks to Calm Conflict Fears

February 18, 2014

RCS Capital, the new owner of Cetera Financial Group, is rushing to assure the network’s nearly 7,000 advisors they won’t “be pressed to sell certain real estate investment trusts” and to keep them from jumping ship, The Wall Street Journal reports.

RCS, whose principals are big players in non-traded REITs, last month agreed to pay $1.15 billion in cash for Cetera. Within days of publicizing that deal, RCS Capital said it would buy J.P. Turner, another brokerage. In deals involving still other securities firms, RCS last year bought First Allied Securities and announced plans to purchase Investors Capital Holdings and Summit Financial Services.

Finra, the securities-business self-regulator, issued this warning about non-traded REITs, updated in August 2012. In recent years, non-traded REITs came under fire “for locking up investors’ capital for years and offering no clear exit strategy,” InvestmentNews wrote in December 2013. After a spate of broker-dealer collapses linked to successful investor lawsuits over non-traded REITs, some securities firms have banned them.

Over the past few weeks, RCS has held “more than half a dozen” meetings with Cetera advisors and several more are in store, says the Journal. The three-hour meetings, which include long Q&A sessions, have made “some brokers” feel they won’t be asked to force-feed REITs to their clients. At these meetings, RCS tells Cetera brokers that the REIT activities of its board chairman Nicholas Schorsch and CEO William Kahane are housed in a separate and privately held company called American Realty Capital. “It’s a point of clarification people have to understand,” Schorsch tells the Journal. “American Realty Capital does not own and is not a part of RCS.”

Cetera advisors already sell American Realty Capital products. The network, the second biggest independent brokerage group by advisor head count, accounts for “about 3% of American Realty Capital’s revenue,” according to the newspaper.

At its meetings with Cetera advisors, RCS talks up the money to be made from “mass affluent” clients. It says “the brand-name places” have turned away from middle-market customers in favor of millionaires, according to a broker who spoke with the Journal on condition of anonymity.

Cetera’s incoming owner says it will launch “a stock-ownership plan for Cetera brokers, who will be eligible for grants of options or stock that will vest over a period of time,” the Journal says. In a filing with the SEC, RCS says this program is meant “to encourage financial advisers to remain on our retail-advice platform,” according to the Journal.

By Thomas Coyle
  • To read the Wall Street Journal article cited in this story, click here if you have a paid subscription.