Cetera Cuts Recruiting, Operations Execs Amid Pandemic

Cetera Financial Group has cut at least three senior managers with recruiting and operational responsibilities, reflecting challenges that revenue-sensitive independent brokerage firms are facing amid market declines and interest rates.

Michael Murray, who joined Cetera last year after 16 years with LPL to head “business development” for its five underlying brokerage firms, has left, as has Jeffrey A. Bottorff, a divisional manager under Murray, according to sources and to Bottorff’s BrokerCheck Record. (Bottorff, whose last day was Monday, joined Cetera from Kestra Investment Services in 2017, and also had worked for almost 15 years at LPL.)

Loren Morris, chief operating officer of the “traditional” broker-dealers Cetera operates, exited last month. He oversaw the large First Allied Securities and Cetera Advisors units. (Cetera also operates “specialty” brokerages servicing bank-based brokers and super-sized teams.)

The managers did not respond to requests for comment on Thursday.

Adriana Senior, a company spokeswoman, declined to comment on specific individuals or numbers of positions that have been eliminated or are unfilled. But she said Cetera has been
“shifting” as part of an “ongoing effort to optimize our organizational alignment behind our commitment to growth and service.”

“We know that some firms are already taking action because they need to get their operating expenses down,” Richard Steinmeier, LPL Financial’s head of business development, said in an interview on Wednesday, declining to name specific companies.

Moody’s Investor Services cut its credit outlook on Aretec Group, Cetera’s parent company, to negative from stable on March 17. Aretec has been controlled by private equity firm Genstar since 2018.

Cetera, which sells investment products through about 8,000 independent advisors, is particularly sensitive to revenue declines because it has high fixed-rate debt as rates are tumbling and has been growing asset-based fee revenue amid volatile markets, according to Moody’s. Aretec’s debt levels are elevated by its spree of acquisitions under former owner Nicholas Schorsch, the real estate investment trust mogul who gave up control in a scandal.

Genstar likely has a short-term horizon typical of private equity firms, Moody’s warned, which could lead to higher leverage and capital distributions and increase deterioration of Aretec’s debt servicing capacity amid low rates and markets.

Moody’s did not change its junk-level BBB “corporate family” rating on Aretec or on its separately rated tranches of $1.2 billon of debt. But Standard & Poor’s on April 4 lowered its issuer credit rating on Aretec to B-minus from B, and also lowered the company’s first- and second-lien debt rating half a notch.

Moody’s also has downgraded the corporate family rating of Advisor Group Holdings, an independent brokerage with 11,300 brokers, by a full notch to BBB. The rating agency also changed its outlook on Advisor Group, which is owned by private equity firm Reverence Capital Partners, to negative from stable.

Advisor Group’s February acquisition of Ladenburg Thalmann “substantially worsened its debt leverage,” the rating company said, adding that planned synergies with Ladenburg will be more difficult to achieve on schedule because of the pandemic environment.

LPL Financial, the biggest independent broker-dealer, suffered a credit outlook downgrade from Moody’s to stable from positive on March 23.

LPL’s debt levels are stronger than many of its peers, the rating agency said, but noted that its aggressive push to replace commissions with advisory fees and to sweep client cash into fixed-rate contracts could hinder its revenue disproportionately in a severe market downturn amid rock-bottom interest rates.

Moody’s affirmed its current LPL corporate family and debt ratings.