Shuttering of B-D caught analysts, others off guard; ‘philosophical decision’

Some 325 brokers and registered investment advisers are hustling to find new homes in the wake of The Charles Schwab Corp.’s announcement last week that it is closing down brokersXpress LLC, an independent broker-dealer for reps and advisers who trade options.

“This was not a cost cutting effort,” said Schwab spokeswoman Susan Forman. “It was more of a philosophical decision.”

The company will focus on fee-based RIAs who use its custodian group, Schwab Advisor Services, rather than on brokers who charge a commission for trades, Ms. Forman said.

Schwab bought optionsXpress Holdings Inc. last year for about $1 billion; brokersXpress was part of that deal.

Ms. Forman said the purpose of that acquisition was to enhance Schwab’s options and derivatives offering for retail clients. She called brokersXpress “an extra, if you will,” adding that it was not feasible to integrate the brokersXpress model into the custody offering of Schwab Advisor Services.

Barry Metzger, chief executive of brokersXpress, referred calls seeking comment to Ms. Forman. As of Thursday afternoon, Schwab had not confirmed whether Mr. Metzger will be staying with the company.

The reps and advisers with brokersXpress have 90 days to find a new home, Ms. Forman said, adding that the majority of the firm’s employees would be “redeployed” to optionsXpress or Schwab Advisor Services.

Industry observers were surprised that Schwab decided to close down the firm rather than sell it, particularly at a time when private-equity managers are buying broker-dealers of all stripes. Consolidation among independent broker-dealers has been widespread since the 2008 credit crisis and the overall number of broker-dealers registered with the Financial Industry Regulatory Authority Inc. has declined by 11% over the past five years.

Ms. Forman noted that it would have been “complex” to separate brokersXpress from optionsXpress, given how entwined the two businesses are. Closing down brokersXpress “gives advisers the most options to determine their own fate,” she said.

“The Schwab decision to dissolve [brokersXpress] caught the advisers off guard, as we’ve been told that until [last Wednesday], the parent company had been representing to the sales force they were committed to the BX platform,” said Bradley Fay, president of IBDSearch LLC, a recruiting firm.

“We’re also told that the back office will stop opening new accounts this summer,” said Mr. Fay, who added that he had spoken with seven or eight brokersXpress teams that represent 15 producers generating between $150,000 and $600,000 in fees and commissions annually.

Independent broker-dealers catering to brokers who focus on trading and options rather than charging fees based on clients’ assets are few and far between. The firm’s ticket charges for trades were lower than usual, and reps will have difficulty finding a firm that charges similar fees, observers said.

“The reps are not a fit for a lot of independent broker-dealers out there,” said Jonathan Henschen, an industry recruiter. “A lot of firms are not friendly to transactional reps,” said Mr. Henschen, who added that he has spoken to about 10 brokersXpress advisers.

by Danielle Andrus, AdvisorOne, May 7, 2012

Jon Henschen, president of Henschen & Associates, a broker-dealer recruiting firm, likens the torrent of regulatory changes the industry has seen recently to “having a cut on your finger, and they’re cutting your arm off to repair it.”

Henschen has more than 20 years in the industry, and his insights into the independent broker-dealer channel have been published by no less an authority than Bloomberg, The Wall Street Journal and (full disclosure) Investment Advisor.

While the Dodd-Frank Act’s effect was largely felt by wirehouses and big banks, the independent channel hasn’t escaped increased bureaucracy that, Henschen says, is “grinding down the business.” For example, “the ‘know your customer’ rule allows broker-dealers to take a risk-based approach to implementing new suitability factors, but it’s doubtful that broker-dealers and regulators will see eye to eye on how the changes are to be implemented or documented, how firms endeavor to educate their advisors,” he says.

Henschen anticipates an increase in “frivolous lawsuits” as a result of regulatory changes. “I had one chief compliance officer that characterized the new changes as ‘unreasonable, unrealistic and virtually unenforceable,’” he recalls. “Of most concern to the CCO was the added liability the new requirements presented to registered reps and BDs, like when, for example, a customer files a false complaint in an attempt to recoup market losses. This rule will be a boon to claimants’ lawyers and will simplify their jobs tenfold.”

Prior to FINRA, Henschen said, audit exam teams tended to be staffed with individuals who had worked for many years in the industry. “Today, we see exam teams staffed by twenty-somethings who have never seen a back office until their first assignment. They’re hostile, they’re paranoid and they seem eager to take their first industry scalp,” he says.

This new breed, Henschen says, actually seems disappointed if they don’t find the violations they’re expecting. Henschen related a broker-dealer’s experience with an auditor who had no prior securities business experience and had only two weeks’ training before conducting the audit. “The quality of preparation and training given to people conducting broker-dealer audits has fallen off a cliff. It’s a world of difference, and we hear this repeatedly,” he says.

Broker-dealers are afraid to speak up, Henschen says, because if they do “they get their head lopped off, and they become the enemy.” Now, FINRA is being a dictator and threatening. “The firms are supervised in regions; there are six different regions and each region seems to have their own pet peeve,” Henschen says. “I can talk to a few broker-dealers in one region and they’re under the wire for not hiring reps with credit and bankruptcy problems, and if they do they’re basically threatened by FINRA that they’re going to make their life difficult and they’re going to be under the microscope.”

It’s been a change for the worse at many levels, Henschen admits, but he’s quick to point to firms like the Financial Services Institute which are “out there fighting the fight. They’re basically doing now what the wirehouses have been doing for many years, which is spending a lot of money to influence Washington,” Henschen says. “On a macro view, what that really is, is crony capitalism. Instead of the free markets dictating who the winners and losers will be in the industry, those who spend the most money will. The independent channel is joining that team. Without spending, they’re at the mercy of regulators.”

Being with a broker-dealer that’ll dodge the continuing problems with alternative investments will be a challenge advisors have to contend with in the near term. “We continue to see things coming out,” Henschen says, referring to problems with various types of alternative investments. “Decaying REITs and other problematic alternative investments could come out of the woodwork. That’s been a problem for the past couple of years and apparently isn’t going to stop.”

Another difficulty advisors can expect to face is adapting to new regulations and how fiduciary rules affect them. Henschen believes the fiduciary issue will affect wirehouses more than the independent channel, but altogether, it’s about surviving regulators. “One of the worst damages of increased regulations is they’re driving smaller firms out of business,” he says. “The emphasis more and more is on compliance supervision. Big firms can afford to do that. Smaller firms can’t afford it as much, especially firms under 100 reps. They hurt the little guy.”

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Find out who was named on the 2012 IA 25 in Investment Advisor’s May issue.

Check out more extended interviews of the 2012 IA 25 at AdvisorOne.

It could be a coincidence that Walter White has become CEO of Allianz Life Insurance Co. of North America while Woodbury Financial Services Inc., the securities broker/dealer he helped build, looks for a new owner.

Or it could be fate.

Industry observers see Golden Valley-based Allianz as a likely buyer of Woodbury Financial. However, in his first interview as Allianz’s chief executive, White carefully considered his words when asked whether his firm should — or would — acquire the Twin Cities’ third-largest broker/dealer by revenue.

“I obviously have an affinity for Woodbury. It’s a quality firm. I have no doubt they will find a buyer,” he said.

He also discussed his time at Woodbury Financial, the challenges now before him, and the future of Allianz, which sells annuities and life insurance.

“In the long-term view, things have never been more promising,” White said.

White at Woodbury Financial

Originally an East Coaster, White came to Minnesota in 1998 to work for Fortis Investors Inc. That firm became Woodbury Financial after its current owner, The Hartford Financial Services Group, acquired Fortis’ parent company in 2001.

In 2007, White became president of Woodbury Financial, then the second-largest broker/dealer headquartered in the Twin Cities. He learned there to appreciate and build ties with the representatives who sold his firm’s products.

“They’re right at the front line. Sometimes at the home office you have a limited understanding of what happens,” White said. “It’s a totally different experience when you’re in the field working directly with clients.”

White was “instrumental in helping Woodbury become a major force in the broker/dealer community,” Woodbury Financial Chairman Brian Murphy said in a statement. “Walter helped establish a relationship-based culture that continues to this day.”

Still headquartered in Woodbury, the 216-employee firm had 75 metro-area financial advisers and revenue of $254 million at the end of 2011, according to Minneapolis/St. Paul Business Journal research.

It would make sense for Allianz to buy Woodbury Financial for more reasons than just the geographic and executive connection, said Jon Henschen, a broker/dealer recruiter in Marine on St. Croix.

Woodbury Financial doesn’t have compliance issues that could cost a buyer down the road, and it’s a strong seller of the kind of proprietary products that Allianz offers and big enough to add some market muscle.

“If they don’t get more scale, it’s going to be tough for [Allianz] to compete,” Henschen said.

Private-equity firms and other insurers also are likely eyeing Woodbury Financial. A spokesman for The Hartford declined to comment, as did Woodbury Financial President and CEO Pat McEvoy.

White at Allianz

Allianz’s last CEO, Gary Bhojwani, hired White in 2009 to oversee operations, compliance, suitability and information technology as chief administrative officer. It was a test of his ability to lead the company, Bhojwani said.

“I have every faith that he will not only do a good job; I believe he will ultimately be a better CEO than I was,” Bhojwani said in an e-mail.

White succeeded Bhojwani, now chairman of Allianz’s U.S. insurance business, as president and CEO on Jan. 1, and promoted ex-Woodbury colleague Gretchen Cepek to general counsel in February.

Allianz’s products are less profitable and its investment returns subdued in times of depressed interest rates, which makes today’s extraordinarily low rates the firm’s top challenge, White said, adding that profitability and capital management are more important for success than top-line growth while interest rates are low.

“I wouldn’t say, until we are in a more stable economic environment, that we’ve focused a lot of energy to try to drive our premium volume to higher levels,” he said.

Still, there’s room for targeted expansion. White believes Allianz can grow aggressively in the life insurance business and expects double-digit growth in the line, which last year brought in $40 million in premiums, compared to more than $10 billion in annuity premiums.

Total premium income for 2011 remained stable from the prior year at $10.8 billion, while assets under management grew by 9 percent to $95.3 billion, according to publicly reported financials. The company reported a $428 million operating profit, down 9 percent from $472 million in 2010.

The long-term outlook is positive for Allianz as retirement-bound baby boomers consider annuities as an alternative to Social Security or pensions, White said.

“No one is oblivious to the baby boomer opportunity. There are going to be winners and also-rans, and it’s going to be critical for us to be positioned effectively in a very competitive environment,” he said.

Proposed changes include not only unifying BrokerCheck and the SEC’s IAPD system, but also divulging broker/advisor test scores

Brokers and advisors take note: the Financial Industry Regulatory Authority (FINRA) plans to revamp BrokerCheck to not only make it easier for investors to track down information about their broker—including “unifying” the search capabilities for BrokerCheck and the SEC’s Investment Adviser Public Disclosure database—but to also expand the types of information investors can get about their broker.

Until recently, FINRA noted that BrokerCheck was the only regulator that provided a comprehensive, online tool that enabled investors to check the backgrounds of financial service industry professionals. In 2010, the SEC expanded the IAPD database—which had previously only included information on investment advisor firms—to include information on investment advisor representatives. Although BrokerCheck and IAPD have many similarities, there are differences in the information available, FINRA explains, which includes the presentation format and the manner in which individuals may obtain information from the systems.

In January 2011, SEC staff released a study and recommendations on improving investor access to investment advisor and broker-dealer registration information, as required by Section 919B of Dodd-Frank.

The SEC staff recommended the following three near-term recommendations to improve investor access to registration information through BrokerCheck:

unify search returns for BrokerCheck and the IAPD databases;
add the ability to search BrokerCheck by ZIP Code or other indicator of location; and
add educational content to BrokerCheck, including links and definitions of terms that may be unfamiliar to investors.
Dodd-Frank mandates that these recommendations be implemented within 18 months after completion of the study, and FINRA will put them into effect before the July 2012 deadline.

FINRA is also asking the public to weigh in with comments on how to facilitate more use of BrokerCheck by April 6.

Nancy Lininger (left), a compliance consultant with The Consortium in Camarillo, Calif., says that adding search capabilities by location, for instance, “will make the BrokerCheck database a go-to source for locating and determining background of the investor’s financial advisor.”

A big problem now, she says, is that to find information on a financial advisor, the investor may not know if the professional is in the IAPD database or FINRA BrokerCheck for BD firms and registered reps. “Studies have proven that investors don’t even know the difference between an RIA and BD. So merging of the two databases (one search engine) is important.”

What’s more, Lininger says, “if a FINRA rep leaves the commission world and goes to the fee-only advisory side, and the investor is checking the BrokerCheck system, there will be a disconnect.”

In addition to the near-term recommendations mentioned above, the study includes an intermediate-term recommendation to be addressed after the 18-month implementation period.

Specifically, SEC staff recommends that FINRA continue to analyze the feasibility and advisability of expanding BrokerCheck to include additional information available in the Central Registration Depository (CRD) system (e.g., the reason for and comments related to a broker’s termination, scores on industry qualification exams, formerly reportable information), as well as the method and format of publishing BrokerCheck content.

Jonathan Henschen, president of the consulting firm Henschen & Associates, says that while having greater transparency is a positive step in “an industry that does things wrong on both a rep and broker-dealer level, and pays fines but rarely admits to wrong doing,” greater disclosure can become “over the top” when considering disclosing advisors test scores, for example, on such securities tests as Series 7, 63, 66 and 24.9

Greater access to information, he says, can spark “greater misuse.” Says Henschen: “With firms like BrightScope having advisor-rating systems you have to question objectivity and balance in their approach and be cautious of data being used to black ball advisors inappropriately.”

Expanding the amount of data available about brokers/advisors could induce private vendors to “rate” them. “Are private vendors going to be like Weiss Research and use the data to rate reps on an A-F scale based off of the data?” Henschen says. “Will reps use a rep rating service as a marketing tool as they boast of their ‘A’ rating?” he wonders.

Overall, however, Henschen says that greater public disclosure “will help motivate reps to keep out of trouble for the sake of their client base and livelihood.”

Living in the world of Google, “clients now do their own research on reps and broker-dealers looking for disparaging articles online as part of their own due diligence, so if FINRA doesn’t bring things to the surface, others will.”

A battle is in store for the 1,600 affiliated representatives and financial advisers at Woodbury Financial Services Inc., the independent broker-dealer that is one of the businesses that The Hartford Financial Services Group Inc. last week said it plans to sell as part of a wholesale restructuring of the company.

On one side, The Hartford and Woodbury’s management will be imploring its reps to stay put and thus preserve its asking price. On the other, rival broker-dealer firms in dire need of growth will be trying to lure them away.

A DISTRACTION TO ADVISERS

The Hartford’s announcement that it is selling the broker-dealer is “unfortunate for those [advisers] who just want to do business,” said Ernest Sampson, a former Woodbury adviser who left the firm in 2009 to launch his own broker-dealer, Private Client Services LLC.

A pending sale of a rep’s broker-dealer can be a day-to-day distraction for advisers, he and others said.

“I suspect there will be a lot of people to leave, if the phone calls we’re getting are any indication,” Mr. Sampson said. “We’ve been getting calls from some of their reps.”

Woodbury should fetch a fair sum. The Woodbury, Minn.-based firm, which traces its roots back to the founding of Montana Life in 1910, has 1,600 affiliated reps, according to data compiled by InvestmentNews. The brokerage firm produced $238.7 million in revenue in 2010.

A Hartford spokesman, Tom Hambrick, didn’t respond last week to questions about how the Woodbury reps were informed of the decision to sell the firm.

Insurance company-owned broker-dealers have struggled in recent years with record low interest rates that made many of the insurance products that they offer, such as variable annuities, difficult to sell at a healthy profit level.

ATTRACTIVE QUALITIES

In 2010, Woodbury posted a loss of $40,222, according to a filing with the Securities and Exchange Commission. In the same filing, however, it reported $49.6 million in cash.

The firm at the end of 2010 also had $24.8 million in net capital, far in excess of its requirement, according to the SEC filing. As of last Thursday, the SEC hadn’t posted the firm’s 2011 annual filing of audited financials, or its Focus report, in a readable form.

Indeed, Woodbury has many attractive qualities, one recruiter said.

“This will be a sought-after firm, and not a fire sale like we have seen over the past few years,” said Brad Fay, chief executive of IBDSearch LLC.

According to his firm’s database, Woodbury’s advisers include a large number that do recurring fee-based business: 20% are certified financial planners, more than 60% are registered to do fee-based and insurance business, and less than 10% have any reportable disclosures.

And according to Woodbury’s audited filings with the SEC, about half its revenue is recurring, which shows a strong fee-based business with commission trails, Mr. Fay said.

“That is the type of balance most independent broker-dealers strive for,” he said.

SECURITIES AMERICA

The Hartford’s announcement last Wednesday that it would jettison Woodbury and other business lines reminded industry recruiters of Ameriprise Financial Inc.’s an-nouncement last April that it would sell Securities America Inc.

Securities America was caught up in tens of millions of dollars of litigation, which it eventually settled. The legal claims were brought by investors who bought allegedly fraudulent private placement investments from the firm’s brokers.

Unlike Securities America, Woodbury didn’t sell the kinds of toxic private investments that have caused dozens of independent broker-dealers to shutter in the last couple of years. However, the waiting game that Woodbury reps will likely face could be very similar to the uncomfortable months that Securities America experienced before Ladenburg Thalmann & Co. Inc. said that it was buying the firm last August.

“Sixteen-hundred advisers woke up today and said, “I thought I was stable and solid, but I’m not,’” said Larry Papike, president of Cross-Search, a recruiting firm for independent reps and executives.

Woodbury advisers likely will be inundated with cold calls from headhunters, he said.

Some Securities America reps got eight to 15 such calls a day, a huge distraction to their business, Mr. Papike said.

There probably will be no shortage of potential buyers for Woodbury, given the recent mergers-and-acquisitions binge in the brokerage business.

Last month, insurer Western & Southern Financial Group said that it was selling the assets of its independent broker-dealer, Capital Analysts Inc., to Lincoln Investment Planning Inc.

SALE TO CETERA

And in January, insurer Genworth Financial Inc. sold its independent-broker-dealer subsidiary to Cetera Financial Group for $78.5 million, plus an earn-out provision.

As a number of insurance companies have moved to sell their independent-broker-dealer subsidiaries, private-equity funds have shown keen interest and have been active buyers, betting that size and scale will lead to greater profitability.

In this case, a potential suitor could be another insurance company that shares geographic and executive links with Woodbury, said Jonathan Henschen, president of recruiting firm Henschen & Associates LLC.

“Besides the private-equity firms’ being likely suitors, Allianz [Life Financial Services LLC], which is based in St. Louis Park, Minn., and is headed by former Woodbury president Walter White, is also a likely contender for Woodbury Financial,” Mr. Henschen said.

That could be due to “Allianz’s desire to expand in the U.S. and Woodbury having geographical advantages on both a rep and staff level,” he said.

Sara Rollin, a spokeswoman for Allianz, declined to comment.

By Diana Britton as published in Registered Rep, March 23, 2012

Insurance giant The Hartford announced plans Wednesday to sell its life insurance and retirement businesses, as well as Woodbury Financial Services, the firm’s independent broker/dealer. The news leaves Woodbury’s 1,600 reps faced with the tough choice: Find another broker/dealer or stick around and see who the new owners will be.

Because The Hartford is a public company, the firm had to announce its intent to sell before it started to seriously consider offers, said recruiter Jon Henschen, president of Henschen & Associates. That leaves a potentially long lag time before a buyer is announced, and that can have a negative effect on advisor retention, he said.

Putting Woodbury on the block took many by surprise. The firm had been aggressively recruiting, and had hired Gary Bender in May 2011 as new vice president of acquistion and retention. But it has been widely reported that hedge fund manager John Paulson, The Hartford’s largest shareholder, has been pressuring the insurance company to separate its life insurance business from its property and casualty unit to raise cash.

The longer it takes for The Hartford to find a buyer for Woodbury, the more room it gives for other b/ds and recruiters to swoop in and take the firm’s best advisors, said Jodie Papike, executive vice president at Cross-Search. Woodbury’s advisors are in a state of uncertainty, not knowing who’s going to buy the firm or what’s going to happen. “That question mark makes people feel insecure,” she said.

Papike has heard that some advisors are getting eight to 15 recruiter calls a day following the announcement. Still, Papike doesn’t expect a lot of movement from advisors initially. Most people will likely take a wait-and-see approach.

Who Could Be Woodbury’s New Parent?
Woodbury has some 1,600 reps and $23.7 billion in total AUM. Scott Smith, analyst at Cerulli Associates, said this would put the firm in the same category as Advisor Group’s SagePoint, Transamerica, Cadaret, Grant, or Cetera’s Multi-Financial.

Potential candidates to buy Woodbury include firms that have been on the acquisition trail, such as LPL Financial, AIG Advisor Group, and Ladenburg Thalmann. Analysts also say there are several private equity firms looking to put capital to work in the IBD space, including Lovell Minnick, which bought First Allied; Parthenon; and Lightyear Capital, which owns Cetera.

Chip Roame, managing partner with Tiburon Strategic Advisors, said private equity firms like Warburg Pincus, Texas Pacific and Hellman & Friedman could also be candidates.

“One thing’s for sure, it’s not going to be an insurance company,” because many of them have been shedding their b/d subsidiaries, said Philip Palaveev, president of Fusion Advisor Network.

But Henschen believes Allianz Life Insurance Company could be a strong candidate, given their geographic location. Allianz is based in Minneapolis, Minn., while Woodbury is in Woodbury, Minn. Allianz’s German-based corporate parent is also reportedly looking to bolster the U.S. business, Henschen said.

Whoever ends up buying Woodbury, Henschen expects the firm to sell at about 35 to 40 percent of its trailing 12-month revenue, which was about $250 million for 2011, according to the company.

The Decision to Sell
If sold, Woodbury will join the wave of insurance-owned broker/dealers that have been divested by insurance firms the last couple years. Pacific Life sold its broker-dealers to LPL; ING sold to Lightyear; and recently,Genworth sold off its b/d. One reason behind the wave of divestitures is that it’s more difficult to distribute proprietary product and the profit margins haven’t lived up to the insurance firms’ expectations, says Tiburon’s Roame.

But Clark Troy, research director at Aite Group, believes putting Woodbury on the block was simply a byproduct of the The Hartford’s larger strategy to separate its life insurance and property and casualty businesses. There’s no need for the b/d without its annuities and life insurance businesses.

Consultant Tim Welsh of Nexus Strategy in Larkspur, Calif. said many financial companies are eager to reduce risk in this market. Hartford accomplishes this in two ways by exiting the annuities business, where the margins are difficult, and the broader broker/dealer business, where rep misbehavior can end in costly litigation, as was the case with troubled private placements.

“The annuities business has some huge downstream risk if you’re promising people 6,7 percent guaranteed returns and the markets right now are giving you less than 1 on fixed income,” Welsh says. “They may have looked at the long-term profitability and said, ‘We have a bill that’s going to come due when these baby boomers all retire and start to annuitize these products.’”

A lot of these insurance firms had their doubts when they bought broker/dealers to begin with, said Fusion’s Palaveev. But margins have fallen and many are afraid of the massive liabilities that have caused problems for other firms, such as Securities America. They might as well get out of the business while they can get a high price and still have no huge liabilities, he said.

At the same time, Woodbury was, by all accounts, a large and profitable operation. “Woodbury was probably the poster child for a great insurance broker/dealer,” Palaveev said.

“It’s part of a trend of large insurance companies parting ways with their broker-dealers,” a research director with FA Insight said

One day after announcing its exit from the life insurance and annuity businesses and the potential sale of Woodbury Financial Services, The Hartford remains mostly mum on the details moving forward.

Industry recruiters and watchers, however, have plenty to say about what they believe to be the reasons behind the move and its potential impact on the advisor space.

“It’s part of a trend of large insurance companies parting ways with their broker-dealers,” said Dan Inveen, director of research with Tacoma, Wash.-based FA Insight. “It’s tougher to earn money off of annuity-based products, primarily due to lower interest rates. But regardless of the interest rate environment, it’s no longer as easy or acceptable to have manufacturers control distribution.”

A more educated public that understands potential conflicts of interest and the value of “independence” is driving the mood, Inveen says.

A second reason was noted in a response to a question during Wednesday’s presentation by the company to analysts and the media. Christopher Swift, executive vice president and CFO of The Hartford, characterized Woodbury’s earnings as “modest,” noting that its $250 million in revenues “are essentially offset by commissions and operating expenses.”

“Of course, everyone is more cost-conscious today than in the past,” Inveen added. “The Hartford was getting pressure from investors on this front. It used to be that a company could run a BD at a loss and make up for it on the product side, but no longer. Investors want them to be profit centers, not cost centers.”

If Woodbury were to be sold, private equity firms would be the most likely suitors, said Jon Henschen, president of the independent recruiting firm Henschen & Associates in Marine on St Croix, Minn. Allianz, which is based in St. Louis Park, Minn., close to Woodbury’s headquarters, is also a likely suitor, as the insurance giant is looking to expand further into U.S. markets.

“The rep and staff geography of Woodbury would be a good fit for Allianz,” Henschen says. “Ironically, Allianz U.S. operations are headed up by Walter White, who is the former president of Woodbury.”

The Hartford’s announcement of an intended sale before contacting potential buyers is problematic for Woodbury, as it gives competing firms ample time to aggressively go after Woodbury reps and make offers to lure them away.

“As time drags on with no offer in place, the troops grow restless and start to scatter,” Henschen notes. “The best retention scenarios typically happen when the sale is negotiated in private and an announcement is made after a sale has been negotiated.”

The reason publicly traded companies like Hartford (as well as Ameriprise, in the case last year of Securities America) make announcements like these early is to appeal to shareholders and reap the benefit of increased stock prices.

“Woodbury is unique in having a regional vice president arrangement,” Henschen said. “Office of Supervisory Jurisdiction (OSJ) managers can get overrides on their reps’ production, but the supervision on the reps was done by regional vice presidents. This gave OSJs the best of both worlds; overrides on reps under them, but no supervision duties or liabilities. It is unlikely this structure would continue under a new owner.”

One other reason makes the timing problematic for Woodbury. The firm had recently started to ramp up recruiting efforts by contacting third-party recruiters with which to contract. They also brought in the former head of business development from Royal Alliance. With the announcement of the sale, “any recruiting efforts will be dead in the water,” Henschen says.

Lincoln Investment Planning Inc., a fast growing independent broker-dealer, is hitting its reps and advisers who run their own RIAs with a new, annual supervision and compliance fee of up to $20,000.

The supervisory fee will range from $5,000 to $20,000 and is based on the number of advisers at each practice, the assets managed – and Lincoln Investment’s opinion of the risk, according to Ed Forst, the firm’s CEO.

The fee hike, which is scheduled to take effect on July 1, will affect about a dozen offices of Lincoln Investment Planning reps and advisers, said Mr. Forst. Advisers will pay the fee quarterly.

The fee increase affects advisers Lincoln Investment Planning acquired in 2010 when it purchased Great American Advisors, Mr. Forst said.

“We have a handful, maybe a dozen or two [independent] RIAs that came to us in the transaction with Great American Advisors,” he said.

“We felt that the supervision needed to change from what they had previously,” he added. “We felt we needed to do things differently and institute different policies. One thing is a third-party audit that we are paying for.”

“There was a lot of conversation with advisers” about the fee increase, Mr. Forst added.

Industry observers noted, however, that such a significant charge for supervision and compliance of an RIA is highly uncommon.

“If I was a rep with my own RIA and [the broker-dealer] imposed a $20,000 fee for supervision—that would be my signal to leave,” said Jonathan Henschen, an industry recruiter. “If this fee is in addition to some sort of payout grid [for the fee-based, advisory business] like 90% or 95%, I’d say it is way out of balance with the rest of the industry.”

Some firms have recently pulled back on allowing their reps to run their own RIAs, due to regulators’ concerns over outside business activity, Mr. Henschen added.

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