CUSO Financial Services and sister company Sorrento Pacific Financial, two of the smaller broker-dealers serving banks and credit unions, may be on the brink of getting much bigger now that they have a new owner.

The twin broker-dealers recently sold themselves to Atria Wealth Solutions, an ambitious new wealth management services holding company founded by two former Morgan Stanley wealth executives eager to grow the businesses.

"We wanted to partner with someone who could take us to the next level," said Valorie Seyfert, one of the two co-founders of the companies.

Seyfert noted that while they posted strong organic growth over the years, it wasn't nearly enough to survive in an increasingly competitive marketplace. They needed to grow in a more meaningful way through acquisitions, something that Atria, a private equity-backed company, had the resources to do.

"They probably want to grow the business to be two, three, four times as big as it is now and someday sell it or take it public – and make a lot of money that way," Ken Kehrer, principal of consulting firm Kehrer Bielan Research and Consulting, said of Atria.

Seyfert and co-founder Amy Beatty continue to run the two businesses and hold an equity stake in Atria. Their former partners, the executives of the credit unions they served, sold their stakes to the new company.

Valorie Seyfert (left) and Amy Beattie, co-founders of CUSO Financial and Sorrento Pacific, will maintain an equity interest in Atria Wealth Solutions.
Valorie Seyfert (left) and Amy Beattie, co-founders of CUSO and Sorrento Pacific, are looking to Atria to take the companies to the next level.

Under the former ownership structure, the two broker-dealers paid some of the profits to the owners as partnership distributions, which stymied their expansion, according to Kehrer.

As a financial investor, Atria is "going to be much more interested in plowing profits back into the company to grow it rather than giving it out as dividends," Kehrer said.

CUSO and Sorrento Pacific will need the capital resources given the immense changes sweeping the industry. Seyfert conceded that the firms were facing an "uphill battle" keeping pace with regulatory and technology changes and the accelerating shift to advisory services.

The firms needed to get bigger and achieve scale due to the "lower revenue percentage of fees coming in for the same work advisors used to do," she said.

Indeed, the companies posted a 4.6% year-over-year revenue drop in 2016, according to the latest Kehrer Bielan data.

In addition to helping the broker-dealers grow through acquisitions, Atria will invest heavily in technology, a crucial factor in winning business, Seyfert said. The firms are already at work on a digital advice platform that has been released to a beta test group and is expected to launch this quarter. It is also developing a text messaging tool that will allow advisors to text with their clients, a move geared at attracting Millennials.

The firms are automating the surveillance of the texting tool before releasing it broadly to their advisors, according to Seyfert.

"It's a technology arms race," said Kehrer, explaining that firms with the best technology have the greatest shot at persuading financial institutions to join their platforms.

Seyfert said that Atria is already exploring a "number of opportunities in the market," but declined to provide details of the potential candidates they might acquire. In general, they would consider firms that aligned with their goals, vision and focus, including hybrid RIA firms that provide both advisory and brokerage services.

"We're not isolating ourselves to just advisory only or just online or just one product or another," she said.

Other potential acquisition targets might include insurance agencies, broker-dealers and financial planners that operate small local shops catering to a handful of banks or even just one financial institution, said Kehrer.

And doing a big deal is not entirely out of the question, according to Kehrer. LPL last year acquired INVEST, one of the four broker-dealers that was part of National Planning Holdings, while Ameriprise acquired IPI, another broker-dealer that served banks and credit unions.

While the two acquisitions involved large firms buying smaller ones, it's not unusual for smaller firms to pursue bigger firms when financial investors are involved, Kehrer said.

They often manage to do the deal with debt, he said.

"It's not impossible, but I wouldn't bet your next paycheck on it," Kehrer said.

Register or login for access to this item and much more

All Bank Investment Consultant content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access