Advisors Question RCAP’s Stability Amid Stumbles

Advisors Question RCAP’s Stability Amid Stumbles

With the recent troubles surrounding RCS Capital (RCAP) and its sister company American Realty Capital Properties, many advisors at RCAP broker/dealers are questioning the stability of their parent company. Just this week, RCAP Chairman Nicholas Schorsch, who built up the independent b/d network over the past year and a half, stepped down from his role following a lawsuit by former ARCP Chief Accounting Officer Lisa McAlister. McAlister claims Schorsch ordered her to manipulate ARCP’s quarterly financial results.

In a flash survey conducted by this week, 46 percent of advisors at b/ds owned by RCAP say recent events have caused them to question the stability of their parent company. And about a third (29 percent) say the events are having a negative impact on their business. Spokesmen from RCS Capital and Cetera did not respond to requests for comment by press time. 

“The confidence is broken,” one advisor wrote in. “Independence meant being free from headlines yet we have to still keep explaining executive mishaps. Perception is the reality we advisors have to deal with in our client relationships and it effects us.”

“I have definite worries for my broker/dealer,” another advisor wrote. “We were recently acquired by RCS and they have pledged to put considerable cash into much needed technology. If they are suffering financially, it is bound to trickle down.”

That said, most of their advisors (71 percent) say the events have not caused them to rethink staying with their current firm, and many said the recent events will have little impact on the future of their b/d and their own business.

“It should not impact too much,” one advisor wrote. “The bad press really should not have an immediate impact on clients or service capacity.” sent the survey to about 2,500 producing advisors at RCAP-owned broker/dealers on Dec. 30 and 31, following Schorsch’s departure, and received 41 responses. RCAP firms have strict media policies, in which advisors are prohibited from participating in interviews without speaking with their compliance department. So advisors were invited to respond to the survey anonymously.

The events leading to Schorsch’s resignation started in late October, when RCAP’s sister company American Realty Capital Properties (ARCP) announced a $23 million accounting error. Of the 31 investment products that RCAP distributes through its wholesale broker/dealer, 14 of them are affiliated with American Realty.

Fifty-one percent of advisors said they would not currently recommend ARCP or RCAP products to their clients. Twenty-nine percent said they would recommend their products, and 20 percent said they were unsure. 

Schorsch, long been known as a non-traded REIT guru who built up American Realty Capital, made waves in the advisor industry when he announced in June 2013 that he and his partners would acquire independent broker/dealer First Allied from private equity firm Lovell Minnick.

He’s been on an acquisition tear ever since. In fall 2013, he announced plans to buy Investors Capital Holding and Summit Financial Group.

Early this year, he bought Cetera Financial Group from private equity firm Lightyear Capital, and J.P. Turner. And in August, the firm announced deals to buy VSR Financial and Girard Securities, bringing the network to a total of 9,139 advisors and 11 b/ds.

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