Independent broker/dealer network Advisor Group is talking to a number of small and mid-sized broker/dealers that the company would consider purchasing, said Larry Roth, president and CEO of Advisor Group, which includes IBDs FSC Securities Corp., Royal Alliance Associates and SagePoint Financial. Roth would not say which firms it is in talks with, but he doesn’t expect to close any deals for at least another month.
In an interview with Registered Rep., Roth said he expects continued failures of smaller IBDs going forward. Every week, it seems like another IBD has to close its doors, the latest being Harrison Douglas.
Roth expects smaller firms in the industry to continue to suffer with product liabilities, compliance costs, product due diligence costs, and lack of support from mutual fund and variable annuity sponsors. Many of the smaller and mid-size firms don’t have the excess capital to cover these costs, and in many cases, this is what is driving them out of business, he added.
“The broker/dealer business, if you’re a small private business, is not an easy business,” he said. “Because of that, many of the small and mid-sized firms are going to continue to disappear.”
The dynamic provides larger broker/dealers an opportunity to buy these firms and consolidate, he said. With about 4,800 advisors across the three broker/dealers, Advisor Group has over $200 million in capital in the firm and approximately $100 million in excess capital, Roth said.
“It’s a market where the large, quality broker/dealers are going to be very successful,” he said. “As long as you’re large, well capitalized and smart, in terms of managing risk and what-not, you’re going to be fine.”