Another Year, Another Operating Expense for Independent Brokers
(Corrects purchase price of Summit by RCS Capital to “about $49 million” in ninth paragraph.)
Summit Brokerage Services, a Boca Raton, Florida-based unit of independent broker-dealer network Cetera Financial Group, has begun 2017 by imposing a $125 monthly “affiliation fee” on its brokers.
The new fee, which Cetera executives say is commonplace in the independent brokerage model, was couched to some Summit brokers as an attempt to help the small firm deal with rising regulatory costs, or at least lower revenue expectations.
Summit President and Chief Executive Marshall Leeds did not return a request for comment, and three other executives at the firm that as its spokesman declined to comment. Two officials confirmed that the new fee has been imposed but said they were not authorized to be quoted.
To allay outrage among its independent contractors over the additional $1,500 annual cost of affiliation, Summit reassured them it has not raised any of the other myriad fees they are assessed for things like errors-and-omissions insurance and Securities Investor Protection Corp (SIPC) insurance for client accounts. In return for paying most of their business and operational costs, independent brokers pocket a much higher percentage of the revenue they produce than do full-time brokerage firm employees who receive W-2 taxable wages.
A Cetera spokesman said the Summit assessment was initiated to make the firm’s fee structures consistent with the six other .
“All of the member firms in the Cetera network, with the sole exception of Summit, have previously charged advisor affiliation fees,” he wrote in an e-mailed statement. “This is part of an ongoing process initiated earlier this year to drive a greater level of consistency in fee structures across the Cetera network while we continue to roll out enhanced services and resources available to all of our firms and their advisors. Further, the vast majority of firms have some sort of affiliation fee, and ours are among the most competitive.”
He declined to discuss how many brokers work at Summit and throughout Cetera. “As a matter of policy and out of respect to the advisors and institutions we support, we do not comment on rumors and speculation with regards to our fee structure,” he wrote.
Summit became part of what is now Cetera Financial in 2014, when the small brokerage that was founded in 1993 was by Nicholas Schorsch’s RCS Capital Corp. It had about 300 advisors in 230 offices when RCS bought it, but its advisor force has grown to “over 600 strong, operating from over 450 branch offices throughout the United States,” according to a Summit recruiting website as of January 4.
As is common in the independent brokerage model, many Summit brokers are insurance agents.
RCS bought Summit during a two-year acquisition spree Schorsch initiated as he was building a national salesforce to sell privately traded real estate investment trusts and other illiquid investments created by other firms he owned.
RCS declared Chapter 11 bankruptcy last January, while Cetera’s holding company re-emerged from a separate bankruptcy in May as a privately held firm that has been renamed Aretec Capital (Cetera spelled backward) and that has undergone several rounds of executive management shifts. The Cetera firms in total employ about 8,500 brokers.