Cetera Financial Group CEO Mike Durbin believes the firm’s recently created RIA channel will attract both internal and external advisors, partly due to its multi-model approach.
In a market shifting toward independent registered investment advisor models, Durbin sees Cetera as uniquely positioned to offer options ranging from fee-only, fiduciary-focused advice to hybrid models with commission-based business, to independent 1099s operating on Cetera’s platform.
“We’ve clustered all those into this new channel because that is this confluence of RIAs [models], and/or going to market and doing the direct provision of advice and guidance to the end household as a Cetera advisor,” he said.
The San Diego-based broker/dealer’s channel combines four existing advisor groups created through years of acquisition. It includes Retirement Planning Group, a fee-only W-2 model; Avantax Planning Partners, a hybrid W-2 model; Cetera Investors, a supported independence model through over 40 branch offices; and Blueprint, a platform offering for affiliate RIAs.
“We have the resources of a 12,000-advisor organization, but [you] still have [your] posse,” Durbin said. “[They] still do trips together, the sales leadership is the same, the service escalation leaders are the same—we think it’s the right way to go about it.”
Durbin said he expects the “rate of growth” to be the largest across the firm’s five advisor channels, but this is due in part to the “law of small numbers.” The RIA channel, which is a conglomeration of four existing models, has just under $35 billion in AUM among over 600 advisors.
He said that growth will come from two areas. One is Cetera’s ability to see advisors in its network through the full cycle of evolution, from a startup 1099 to a larger firm that needs supported services and offerings, to finally selling the firm.
“We can accommodate all of that inside the four walls of Cetera,” he said. “There’s nothing more hurtful—and thankfully there is less and less of it now—than when we hear we’ve lost a team because they left us to take a different form somewhere else. [They] really can stay here.”
The second area is recruiting external firms, which range from independent, hybrid broker/dealer breakaways to existing small RIAs.
“We’re getting growth internally and externally in this RIA channel,” he said. “The real thesis is that this secular trend toward more RIA-centric offerings is sort of undeniable, so we have to be there.”
Tapping In
Some Cetera competitors have been in the market with independent RIA channels, including LPL Financial, Raymond James and Wells Fargo. In the meantime, broker/dealer Osaic recently announced it is acquiring a $13.5 billion RIA, CW Advisors.
“These big, legacy broker/dealers are playing defense because a lot of breakaway broker movement goes from the independent broker/dealers to the RIAs,” said Tim Welsh, president and CEO of consultancy Nexus Strategy. “That’s not always easy to do, particularly if you have some commission-based business. … [Cetera] is saying, ‘don’t leave us, stay here with Cetera because you can tap into these four channels.’”
Welsh said that may work for those in the independent broker/dealer space. But he doesn’t see RIAs making the move as they have already made the transition and have several low-cost custodians to choose from.
“They’ve already cracked the code,” he said. “So [independent broker/dealers] are not going to get inflows from existing RIAs—they’ll come from defecting broker/dealer reps.”
Durbin did note the industry’s move toward fee-only, fiduciary-based advice. However, he also said the most vibrant growth will be in hybrid RIA models that want to retain some commission business and need a friendly broker/dealer for their license.
He also sees Cetera competing with mega-RIAs moving toward more centralized service offerings.
“If you join some of these mega-RIAs, part of how they’re driving value is narrowing the field of play, [having] centralized financial planning, centralized investment management, you’ve got to use [their] models, you have to use [their] vendors,” he said. “Our architecture is wildly open because we need to be credible with 12,000 independent contractors.”
Cetera offers a self-clearing custodial option and third-party choice with Fidelity’s National Financial Services, BNY Pershing and Charles Schwab.
Over the past few months, it has been hiring leaders to drive the new channel.
Cetera recently announced that Jen Hanau, formerly Mariner’s national managing director for independent channels, would lead the RIA channel. Durbin also noted Cetera hired John Lefferts, who came from Equitable Advisors and knows the hybrid, supported-independence model, and Andina Anderson, who had experience at Envestnet’s Tamarac, to run Cetera’s Blueprint platform.
“We’re putting serious investment behind this fifth channel, and we’ve gone to market to bring in specific subject matter, expertise and experience in those activities,” he said.
Advisor Options
Cetera’s other four existing channels are its advisor channel, institutions channel, a large enterprise channel and a tax and accounting channel.
Durbin said the array of options has helped the firm recruit Commonwealth advisors since LPL announced it was acquiring the broker/dealer. He said Cetera has prospects in four recruiting channels and two “signed wins” in two.
“If we’re doing our job right in the consultative selling process, we’re talking to a Commonwealth team, getting to know their business better, and saying, ‘Oh, you have a really high tax orientation, you’d be great for our tax channel,’” he said. “Same for large enterprise, same for bank, same for independent practice.”
Cetera has been aggressively targeting Commonwealth advisors. In April, President Todd Mackay wrote an open letter inviting them to join them. Then, in June, after speaking with those advisors, he followed up, highlighting what Cetera can provide.
Durbin said LPL’s direction in filings about the deal shows that the approach “will be upended,” partly by changing the clearing firm and the technology for its advisors.
LPL leadership, for its part, has said it will keep the Commonwealth brand and ethos, forecasting a 90% retention rate of advisors.
Durbin said Cetera feels the Commonwealth group is a good target because they “go to the market through channels and communities.”
“We’re not a 12,000 advisor company, but one of communities,” he said. “Why is that important? Because what made Commonwealth great was their embrace of community.”
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