Crafting a Comeback
Nearly two years after the federal government bailed out an ailing American International Group Inc. with a $170 billion cash infusion, its broker-dealer group is inching its way slowly back to health. Indeed, thankfully for all concerned, the perception of AIG as the “evil empire” has since faded somewhat.
Credit the arrival of Robert Benmosche in August 2009 as AIG’s new CEO and president for this positive augury. Within days, the 66-year-old former MetLife chieftain announced that the three venerable broker-dealerships that had operated as the AIG Advisor Group for years--Royal Alliance Associates in New York, SagePoint Financial in Phoenix and FSC Securities of Atlanta—would not be sold, as he recognized them as “core businesses,” along with Chartis, a global property and casualty business. He felt the B-Ds were good businesses worth saving, and decided they would remain a vital part of the organization after the federal government was paid off.
Current Structure
The AIG Advisor Group has been part of SunAmerica Financial Group for over 20 years, and up to three years ago its B-Ds had been run top to bottom as separate independent contractor B-Ds. SunAmerica purchased Royal Alliance in 1990, FSC in 1997 and SagePoint in 1998. Today, each B-D remains a separate entity with its own net capital and operating capital and is operated as a separate affiliate of SunAmerica Financial Group, which was acquired by AIG in 1999.
In the public lexicon, insurance giant AIG is still identified with the credit market squeeze and subsequent economic meltdown. AIG nearly collapsed in 2008 but the federal government stepped in with approximately $182 billion to bail it out. According to sources, 95% of AIG’s business units were profitable and 50% were enjoying record revenues in 2008 when its financial products unit forced it to seek a bailout that September, thanks largely to losses on credit default swaps.
On September 30, 2010, AIG outlined a recapitalization plan that would allow it to repay the government. In early November, it raised nearly $37 billion through its sale of an insurance subsidiary, American Life Insurance Company, and the initial public offering of a second, AIA Group Limited. AIG expected to use the cash proceeds from the ALICO and AIA transactions to repay the credit facility extended to AIG by the Federal Reserve Bank of New York and to make payments on other interests owned by the government.
Not surprisingly, the Advisor Group is doing everything it can today to separate itself from the monolithic AIG. The toxicity of the AIG name was one of the biggest hurdles the Advisor Group faced when it set about rebuilding itself early last year. Its rebranding effort since has been intrinsic to its rebirth. Dispensing with the “AIG” preface during the past several months, the three B-Ds, in fact, have been referring to themselves simply as the “Advisor Group.”
Up to several years ago, SagePoint Financial was known as SunAmerica Securities and later AIG Financial Advisors, but has since been rechristened SagePoint Financial. Royal Alliance and FSC have had the same name many years.
At the beginning of the rebirth, there was a six- to nine-month period of indecision when many advisors in the group were left in a quandary about whether the B-Ds would be sold to one of several private-equity firms clamoring for a deal.
To jump or not to jump. That was the question at that time. It boiled down to that.
“AIG at that time thought it would be best for the businesses to divest [themselves from AIG] because of the stresses of the financial markets and the AIG brand,” recalls Larry Roth, president and CEO of the Advisor Group in an interview at One World Financial Center in Manhattan, the group’s headquarters. “But after Bob came in, he told us he was willing to commit and support the business, and we immediately decided to stay in the business, and from that point on we’ve been investing heavily in the B-Ds.”
The announcement immediately dispelled a cloud hanging over the advisors, giving them the confidence there would be no disruption in their business and they could continue to service their clients. Benmosche put out a series of communications to the troops and spoke at a number of national education conferences and top producer meetings, further bolstering confidence among the rank and file.
Roth credits Benmosche in large part for stabilizing the situation that had left the advisor group, its broker-dealers and reps in limbo for nearly a year.
Whether Benmosche will continue, however, and finish his commitment to stay on through 2012—in late October he began undergoing “aggressive” chemotherapy for recently diagnosed cancer—is an open question at this moment. If he should become incapacitated, AIG’s board has tapped its chairman Robert S. “Steve” Miller to take over as interim CEO.
Regardless of the outcome, and Roth doesn’t dismiss the possible consequences, he feels the Advisor Group is on its way to recovery. “Were Bob to retire or have to take significant time off, we’ll miss him but we’re going to be just fine. He’s done most of the heavy lifting already.”
Recruiting
The Advisor Group’s biggest challenge from the outset has been rebuilding its depleted ranks. Retaining top-level reps is the key goal of Roth and his team in growing business going forward. Re-energizing recruiting and marketing efforts, along with improvements in technology, are central to the plan.
From the beginning of the financial crisis to the end of the first quarter in 2010, the group lost 20% of its trailing-12-month production, or GDC, with the biggest hit coming in the first six months when AIG found itself in the news almost daily.
The recession and the bad karma of the AIG parent were largely to blame, of course. But there was attrition even before the crisis struck, as the Advisor Group had begun trimming smaller-producing advisors and adding large-producing ones, according to Roth.
“Fortunately, for us,” he says, “most of the fallout was in the small and mid-sized producing advisors because they were affected more than anybody by those difficult markets. So we’ve been growing from there.”
“Since then, we have been retaining our advisors back at our normal levels several years up to 2008. Through 2007, our average retention was a little more than 95% of trailing-12-month production. We would like to grow our production over time. We’d like to grow the number of advisors, too, but we’re much more focused on quality than we are on numbers.”
Today, the Advisor Group is recruiting, as it has traditionally done, from other independent B-Ds and, in some instances, wirehouse reps who have exhibited an entrepreneurial spirit. The total number of advisors in the group today is approximately 5,400. The group’s peak year was 2007, when the advisor count stood at 6,800 just before the meltdown began.
Mindy Diamond, president of Diamond Consultants, a search firm that specializes in financial advisors, says most of the advisors who departed “couldn’t get past the bad press of the AIG name,” despite a fairly substantial retention package. “The other 80% who stayed,” she says, “were not unhappy with the service level from the B-Ds. They liked AIG, largely it had a good payout, was a good place to work, and most of them didn’t lose a single client. When you’re independent, the clients are more yours; it’s less about the name of the firm.
“Because they did a pretty good job of distancing the names of the B-Ds, they were able to insulate a lot of the advisors and their clients from the debacle surrounding the AIG name. A client of Royal Alliance, for example, was probably unaware of any association with AIG. It was AIG Financial Advisors that they since renamed SagePoint Financial. So they’re not losing any brand identity with AIG. That’s what insulates them.”
Nowhere, in fact, does the Advisor Group retain any vestige of AIG today. Roth quips he’s the only person at the Advisor Group who has AIG on his card. “At some point, I’ll take it off,” he says, “but I still feel we have been protected and supported by the parent.”
Retention of Advisors
All three B-Ds are currently doing their own recruiting. Each has its own recruiting team. For example, SagePoint Financial has three in-house recruiters working full time.
“Some advisors contact us for more information directly, but many are referred to SagePoint and their recruiters either by our existing advisors or third-party recruiting firms,” says Jeffrey Auld, president and CEO of SagePoint. “Our recruiters are not just sitting in chairs; they move across the country.”
“Throughout the financial crisis and challenges at AIG, over 80% of our advisors maintained their affiliation with SagePoint Financial,” continues Auld, adding that the advisors who stayed “represent our most talented, successful advisors.”
Shortly after joining the firm in the fall of 2008, Auld changed the name of AIG Financial Advisors to SagePoint Financial after considering over 100 possibilities. “It had become too much of a distraction,” he says.
“Our goal is to help our advisors grow their practice and help their clients succeed. Investing in their business and their brands are important factors,” Auld says. “I think our brand has also helped our recruiting efforts. While the vast majority of our recruits can be attributed to referrals from current advisors—over 50%—SagePoint Financial is a powerful brand, and we’re talking to advisors across the country who are considering us as their broker-dealer.”
For its part, Royal Alliance, the largest of the B-Ds in terms of GDC with a branch-type operating system, has steadily increased its recruiting efforts and currently has 2,000 advisors, down from a peak of 2,500-2,600 before the financial crisis, according to Art M. Tambaro, president and CEO, who attributes the broker-dealer’s fairly consistent retention levels to a long culture of personal relationships formed among advisors at the firm. The majority of them have logged at least 15 years with Royal Alliance and many 25 years or more, notes Tambaro.
“Our normal retention of GDC is about 97%,” says Tambaro. “In 2008-2009, our worst period ever, our retention went down to 89%, or 8%, and today we’re back to our 97% retention levels. We recruited in first Q 2010 more GDC than in all of 2008 and 2009 combined.”
In March 2010, for example, Michigan-based Rehmann Financial, a large CPA and wealth management firm with $2 billion AUM, made the decision to join Royal. “In the six to eight months prior, we had been looking for an investment management platform through a B-D that would allow us to custody assets at Pershing, Fidelity and Schwab, as it was important not to be tied down to one custodian,” says Fred Schaard, president of Rehmann Financial. “The landscape was limited in choices, and the Advisor network surfaced as the leading B-D choice, and Royal as the best fit within the network.”
Of the three B-Ds, FSC has the highest average production per advisor and has lost the least number during the crisis, according to Mark J. Schlafly, president and CEO. “For us, more than half did less than $50,000 in production,” he says. “They probably would have struggled to make it regardless. We expect fourth quarter 2010 will be the best quarter at FSC in many years.”
Updates In Technology
One very visible sign of the group’s rebirth has been improvements in its technology platform, back-office systems and products, cited by several recruits we interviewed as a primary reason for joining the Advisor Group.
“We’ve tripled our investment in these tools over the last 24 months,” says Roth. “That includes rolling out a wealth management platform, a new single-entry advisor portal that allows access to all our systems, home office Web sites, customer Web sites, as well as office automation.”
“Altogether, we’ve made over 700 enhancements to our technology platform in the last year and a half. In 2009 alone, we spent almost three times the amount we had invested in each of the prior three years. There are now 600 people in our back-office operation, which is really the engine or support system for the individual B-Ds.”
John Nori, president and CEO of Midwest Financial Advisors, Sterling Heights, Mich., says the Advisor Group’s technology contributed hugely to his decision to join up in March 2010. “We interviewed with several independent B-Ds and wirehouses,” Nori said. “The technology at SagePoint made it an easy decision. We have the best of all worlds, the flexibility of an open architecture platform, great payouts, and all the technology we would ever need to run our business.”
Meeting Schedule
The Advisor Group—minus the AIG name—is more fully engaging their advisors not only through more technological enhancements, but in additional investments in training and education with more face-to-face meetings for advisors.
Traditionally, all three B-Ds have each held a national education conference, three conferences of top producers and for several years a women’s advisor conference. To this schedule, recently they added four regional advisor meetings—an expansion from prior years. Twenty other meetings include training and courses in education.
Staying Positive
For now at least, it appears that the Advisor Group, under Roth and his team, has stanched the exodus of advisors and is on the path to recovery. Recruiter Diamond doesn’t expect many more producers to leave, aside from normal attrition, but by summer 2011 speculates the advisor group could be at risk when its retention package forgives. They could lose some larger producers who will be free agents again, she says.
Roth, however, chooses to look at the positive and points to the 80% of advisors who have chosen to stay regardless of the climate. “Money for them wasn’t the main reason for staying,” he says. “They were committed to us, and we’re definitely committed to them.”
Credit the arrival of Robert Benmosche in August 2009 as AIG’s new CEO and president for this positive augury. Within days, the 66-year-old former MetLife chieftain announced that the three venerable broker-dealerships that had operated as the AIG Advisor Group for years--Royal Alliance Associates in New York, SagePoint Financial in Phoenix and FSC Securities of Atlanta—would not be sold, as he recognized them as “core businesses,” along with Chartis, a global property and casualty business. He felt the B-Ds were good businesses worth saving, and decided they would remain a vital part of the organization after the federal government was paid off.
Current Structure
The AIG Advisor Group has been part of SunAmerica Financial Group for over 20 years, and up to three years ago its B-Ds had been run top to bottom as separate independent contractor B-Ds. SunAmerica purchased Royal Alliance in 1990, FSC in 1997 and SagePoint in 1998. Today, each B-D remains a separate entity with its own net capital and operating capital and is operated as a separate affiliate of SunAmerica Financial Group, which was acquired by AIG in 1999.
In the public lexicon, insurance giant AIG is still identified with the credit market squeeze and subsequent economic meltdown. AIG nearly collapsed in 2008 but the federal government stepped in with approximately $182 billion to bail it out. According to sources, 95% of AIG’s business units were profitable and 50% were enjoying record revenues in 2008 when its financial products unit forced it to seek a bailout that September, thanks largely to losses on credit default swaps.
On September 30, 2010, AIG outlined a recapitalization plan that would allow it to repay the government. In early November, it raised nearly $37 billion through its sale of an insurance subsidiary, American Life Insurance Company, and the initial public offering of a second, AIA Group Limited. AIG expected to use the cash proceeds from the ALICO and AIA transactions to repay the credit facility extended to AIG by the Federal Reserve Bank of New York and to make payments on other interests owned by the government.
Not surprisingly, the Advisor Group is doing everything it can today to separate itself from the monolithic AIG. The toxicity of the AIG name was one of the biggest hurdles the Advisor Group faced when it set about rebuilding itself early last year. Its rebranding effort since has been intrinsic to its rebirth. Dispensing with the “AIG” preface during the past several months, the three B-Ds, in fact, have been referring to themselves simply as the “Advisor Group.”
Up to several years ago, SagePoint Financial was known as SunAmerica Securities and later AIG Financial Advisors, but has since been rechristened SagePoint Financial. Royal Alliance and FSC have had the same name many years.
At the beginning of the rebirth, there was a six- to nine-month period of indecision when many advisors in the group were left in a quandary about whether the B-Ds would be sold to one of several private-equity firms clamoring for a deal.
To jump or not to jump. That was the question at that time. It boiled down to that.
“AIG at that time thought it would be best for the businesses to divest [themselves from AIG] because of the stresses of the financial markets and the AIG brand,” recalls Larry Roth, president and CEO of the Advisor Group in an interview at One World Financial Center in Manhattan, the group’s headquarters. “But after Bob came in, he told us he was willing to commit and support the business, and we immediately decided to stay in the business, and from that point on we’ve been investing heavily in the B-Ds.”
The announcement immediately dispelled a cloud hanging over the advisors, giving them the confidence there would be no disruption in their business and they could continue to service their clients. Benmosche put out a series of communications to the troops and spoke at a number of national education conferences and top producer meetings, further bolstering confidence among the rank and file.
Roth credits Benmosche in large part for stabilizing the situation that had left the advisor group, its broker-dealers and reps in limbo for nearly a year.
Whether Benmosche will continue, however, and finish his commitment to stay on through 2012—in late October he began undergoing “aggressive” chemotherapy for recently diagnosed cancer—is an open question at this moment. If he should become incapacitated, AIG’s board has tapped its chairman Robert S. “Steve” Miller to take over as interim CEO.
Regardless of the outcome, and Roth doesn’t dismiss the possible consequences, he feels the Advisor Group is on its way to recovery. “Were Bob to retire or have to take significant time off, we’ll miss him but we’re going to be just fine. He’s done most of the heavy lifting already.”
Recruiting
The Advisor Group’s biggest challenge from the outset has been rebuilding its depleted ranks. Retaining top-level reps is the key goal of Roth and his team in growing business going forward. Re-energizing recruiting and marketing efforts, along with improvements in technology, are central to the plan.
From the beginning of the financial crisis to the end of the first quarter in 2010, the group lost 20% of its trailing-12-month production, or GDC, with the biggest hit coming in the first six months when AIG found itself in the news almost daily.
The recession and the bad karma of the AIG parent were largely to blame, of course. But there was attrition even before the crisis struck, as the Advisor Group had begun trimming smaller-producing advisors and adding large-producing ones, according to Roth.
“Fortunately, for us,” he says, “most of the fallout was in the small and mid-sized producing advisors because they were affected more than anybody by those difficult markets. So we’ve been growing from there.”
“Since then, we have been retaining our advisors back at our normal levels several years up to 2008. Through 2007, our average retention was a little more than 95% of trailing-12-month production. We would like to grow our production over time. We’d like to grow the number of advisors, too, but we’re much more focused on quality than we are on numbers.”
Today, the Advisor Group is recruiting, as it has traditionally done, from other independent B-Ds and, in some instances, wirehouse reps who have exhibited an entrepreneurial spirit. The total number of advisors in the group today is approximately 5,400. The group’s peak year was 2007, when the advisor count stood at 6,800 just before the meltdown began.
Mindy Diamond, president of Diamond Consultants, a search firm that specializes in financial advisors, says most of the advisors who departed “couldn’t get past the bad press of the AIG name,” despite a fairly substantial retention package. “The other 80% who stayed,” she says, “were not unhappy with the service level from the B-Ds. They liked AIG, largely it had a good payout, was a good place to work, and most of them didn’t lose a single client. When you’re independent, the clients are more yours; it’s less about the name of the firm.
“Because they did a pretty good job of distancing the names of the B-Ds, they were able to insulate a lot of the advisors and their clients from the debacle surrounding the AIG name. A client of Royal Alliance, for example, was probably unaware of any association with AIG. It was AIG Financial Advisors that they since renamed SagePoint Financial. So they’re not losing any brand identity with AIG. That’s what insulates them.”
Nowhere, in fact, does the Advisor Group retain any vestige of AIG today. Roth quips he’s the only person at the Advisor Group who has AIG on his card. “At some point, I’ll take it off,” he says, “but I still feel we have been protected and supported by the parent.”
Retention of Advisors
All three B-Ds are currently doing their own recruiting. Each has its own recruiting team. For example, SagePoint Financial has three in-house recruiters working full time.
“Some advisors contact us for more information directly, but many are referred to SagePoint and their recruiters either by our existing advisors or third-party recruiting firms,” says Jeffrey Auld, president and CEO of SagePoint. “Our recruiters are not just sitting in chairs; they move across the country.”
“Throughout the financial crisis and challenges at AIG, over 80% of our advisors maintained their affiliation with SagePoint Financial,” continues Auld, adding that the advisors who stayed “represent our most talented, successful advisors.”
Shortly after joining the firm in the fall of 2008, Auld changed the name of AIG Financial Advisors to SagePoint Financial after considering over 100 possibilities. “It had become too much of a distraction,” he says.
“Our goal is to help our advisors grow their practice and help their clients succeed. Investing in their business and their brands are important factors,” Auld says. “I think our brand has also helped our recruiting efforts. While the vast majority of our recruits can be attributed to referrals from current advisors—over 50%—SagePoint Financial is a powerful brand, and we’re talking to advisors across the country who are considering us as their broker-dealer.”
For its part, Royal Alliance, the largest of the B-Ds in terms of GDC with a branch-type operating system, has steadily increased its recruiting efforts and currently has 2,000 advisors, down from a peak of 2,500-2,600 before the financial crisis, according to Art M. Tambaro, president and CEO, who attributes the broker-dealer’s fairly consistent retention levels to a long culture of personal relationships formed among advisors at the firm. The majority of them have logged at least 15 years with Royal Alliance and many 25 years or more, notes Tambaro.
“Our normal retention of GDC is about 97%,” says Tambaro. “In 2008-2009, our worst period ever, our retention went down to 89%, or 8%, and today we’re back to our 97% retention levels. We recruited in first Q 2010 more GDC than in all of 2008 and 2009 combined.”
In March 2010, for example, Michigan-based Rehmann Financial, a large CPA and wealth management firm with $2 billion AUM, made the decision to join Royal. “In the six to eight months prior, we had been looking for an investment management platform through a B-D that would allow us to custody assets at Pershing, Fidelity and Schwab, as it was important not to be tied down to one custodian,” says Fred Schaard, president of Rehmann Financial. “The landscape was limited in choices, and the Advisor network surfaced as the leading B-D choice, and Royal as the best fit within the network.”
Of the three B-Ds, FSC has the highest average production per advisor and has lost the least number during the crisis, according to Mark J. Schlafly, president and CEO. “For us, more than half did less than $50,000 in production,” he says. “They probably would have struggled to make it regardless. We expect fourth quarter 2010 will be the best quarter at FSC in many years.”
Updates In Technology
One very visible sign of the group’s rebirth has been improvements in its technology platform, back-office systems and products, cited by several recruits we interviewed as a primary reason for joining the Advisor Group.
“We’ve tripled our investment in these tools over the last 24 months,” says Roth. “That includes rolling out a wealth management platform, a new single-entry advisor portal that allows access to all our systems, home office Web sites, customer Web sites, as well as office automation.”
“Altogether, we’ve made over 700 enhancements to our technology platform in the last year and a half. In 2009 alone, we spent almost three times the amount we had invested in each of the prior three years. There are now 600 people in our back-office operation, which is really the engine or support system for the individual B-Ds.”
John Nori, president and CEO of Midwest Financial Advisors, Sterling Heights, Mich., says the Advisor Group’s technology contributed hugely to his decision to join up in March 2010. “We interviewed with several independent B-Ds and wirehouses,” Nori said. “The technology at SagePoint made it an easy decision. We have the best of all worlds, the flexibility of an open architecture platform, great payouts, and all the technology we would ever need to run our business.”
Meeting Schedule
The Advisor Group—minus the AIG name—is more fully engaging their advisors not only through more technological enhancements, but in additional investments in training and education with more face-to-face meetings for advisors.
Traditionally, all three B-Ds have each held a national education conference, three conferences of top producers and for several years a women’s advisor conference. To this schedule, recently they added four regional advisor meetings—an expansion from prior years. Twenty other meetings include training and courses in education.
Staying Positive
For now at least, it appears that the Advisor Group, under Roth and his team, has stanched the exodus of advisors and is on the path to recovery. Recruiter Diamond doesn’t expect many more producers to leave, aside from normal attrition, but by summer 2011 speculates the advisor group could be at risk when its retention package forgives. They could lose some larger producers who will be free agents again, she says.
Roth, however, chooses to look at the positive and points to the 80% of advisors who have chosen to stay regardless of the climate. “Money for them wasn’t the main reason for staying,” he says. “They were committed to us, and we’re definitely committed to them.”
See the article at fa-mag.com/component/content/article/6590.html.