AIG Advisor Group is in talks with a few mid-sized broker/dealers and larger offices of supervisory jurisdiction (OSJs), and hopes to make one or more acquisitions in the near future.
During the firm’s Women’s Conference in Los Angeles this week, Registered Rep. sat down with President and CEO Larry Roth as well as Jeff Auld, president of SagePoint, Art Tambaro, president and CEO of Royal Alliance, and Jerome Murphy, president and CEO of FSC Securities, to hear about the IBDs’ plans.
Roth said he expects to see continued consolidation in the IBD space as margins are squeezed even more and regulatory burdens increase.
“We think that the space is very difficult to operate in, in the sense that you have to be highly efficient and have to have great systems, great compliance and supervision, and it’s really difficult to afford that unless you’re a larger player in the space.”
Most of the smaller firms have already gone belly up or been acquired, he said, and all three principals said they are now seeing mid-sized firms exploring opportunities to sell. There aren’t that many mid-sized firms out there, which Roth defines as having between $25 million to $50 million in annual revenue. But he expects the industry to see about two transactions a year of that size for the next five years or so.
All three of Advisor Group’s b/ds are looking at acquiring another firm, but any deal would likely be a rolled into one of the existing firms, not a “bolt-on” fourth b/d, Roth said.
Auld acquired Spectrum Capital last year, a small b/d with about 30 FAs and $3.5 million in revenue. “Now, I’m getting contacted by people that are owners of firms 10 times that size that are interested in being acquired.”
According to Auld, margin pressures and economies of scale are driving the shopping spree. In addition, there are increased expectations that regulations will become more demanding; legal risks are greater than ever; and advisors are demanding better technology and platforms. Even the mid-sized players can’t keep pace with these evolutions in the industry, he said.
The firm is also looking to recruit six large OSJs, with revenues ranging from $25 million to $50 million, Roth said. The partners of these large firms are looking for ways to exit the business and build succession plans.
For the most part, these large OSJs are with large firms that are or were owned by insurance companies, Roth said. Insurance companies haven’t invested in the platforms, quality staff, and the open architecture to serve these large offices, Roth said. Advisor Group, however, has invested in these things and has the transition support the offices are looking for.