Clock is ticking for Cetera IPO

With Cetera Holdings potentially eyeing an initial public offering and stock listing in the next five years, the giant network of at least five broker-dealers, 12,000 financial professionals, and combined assets of $665 billion has some heavy lifting to accomplish to please Wall Street investors and bankers.

Cetera Financial Group is the official home of the broker-dealers under its roof, and it has accomplished plenty in a little more than a year. In January 2023, Cetera said it was buying the wealth business of insurance company Securian Financial Group, and in September it followed that deal with the acquisition of Avantax, a tax specialist. Combined, the two firms worked with roughly 4,000 financial advisors.

Add in the appointment of a new CEO of Cetera Holdings in May, Fidelity Investments veteran Mike Durbin, and a reinvestment by its private equity owner Genstar Capital, and it was a busy year for the broker-dealer network.

That’s nothing new for Cetera, which has been a work in progress since getting out of bankruptcy in 2016.

Genstar made its initial investment in the firm in 2018. While the terms of the deal were not released, market speculation put Cetera’s value at $1.5 billion at the time.

Since then, it has added 5,000 advisors and more than doubled its employee head count to 2,800, with assets under administration growing from $242 billion in 2018 to $475 billion in 2023.

But there’s more work to be done if an IPO is on the horizon, which two senior brokerage industry executives who asked not to be named said is currently being discussed internally at the firm.

“Cetera management is floating the idea of five years for an IPO, but some people are doubting if they can do it in time,” one executive said. “There is a ton of work to do, but they haven’t yet done the hardest parts.

“They’ve done the easy things, the acquisitions of Securian and Avantax, but the hardest stuff is the integration of those firms,” the executive said. “Add in public company reporting, shared services, no duplicative firm presidents. If they can figure it out, it could be a huge IPO. Five years is doable, just, if they start on the hard work now.”

“Cleaning up the shared services across the firm matters; you need to move quickly each quarter to report to the Street when you’re a public company,” the executive added. “And the Street will harshly analyze any duplicative spending.”

The executive pointed to Osaic, which is also widely thought to be heading toward an IPO, and its recent work to integrate its network of broker-dealers under one firm as an example of the work that Cetera will face.

“Just look at Osaic,” the executive said. “They took people from LPL Financial, Greg Cornick and Dimple Shah, and had to clean up duplicative operations where there is extra spending and not meaningful for shareholder value.”

Cornick, who’s president of advice and wealth management at Osaic, worked at LPL for six years before jumping to his current firm, which was called Advisor Group at the time. Likewise, Shah was a five-year veteran of LPL when she started working at Osaic in 2022 as executive vice president and head of corporate strategy.

A spokesperson for Cetera didn’t comment when asked about a five-year timeline for an IPO, nor did he comment on whether the firm had plans to further integrate its broker-dealers.

“2023 was a record year of success and growth for Cetera who is stronger than ever and focused on the business at hand,” the spokesperson wrote in an email. “We look forward to a very bright future for our 12,000-plus financial professionals and all who are affiliated with Cetera.”

Cetera Holdings, which also uses the name Aretec Group, clearly has its supporters. In a research note from October, just weeks after Cetera announced the acquisition of Avantax, S&P Global Ratings affirmed its rating on Aretec, including its “B” issuer credit rating, and removed the brokerage group from “Credit Watch negative.”

“The stable outlook reflects our expectation that Aretec will fairly quickly realize most of its planned expense synergies,” said S&P.

“We believe Aretec’s acquisition of Avantax enhances the company’s scale,” according to the S&P analysis. “The acquisition will supplement Aretec’s existing capabilities in providing tax-focused wealth management services.”

“It also adds Fidelity as a custodial partner for Aretec, opening the door to acquire broker-dealers using Fidelity’s custody platform,” S&P said. “Following the close of the transaction, expected by the end of 2023, Avantax will operate as a stand-alone entity within Aretec Group.”

Cetera Financial Group comprises five broker-dealers and a trio of registered investment advisors. The broker-dealers are Cetera Advisors, Cetera Advisor Networks, Cetera Investment Services, Cetera Financial Specialists, and Avantax. The financial advisors from Securian were moved under Cetera Advisor Networks.

LPL Financial’s 2010 listing on the Nasdaq is widely regarded as the blueprint for a giant brokerage doing an IPO, and LPL spent years reorganizing its internal functions before the IPO.

Most notably, it became a broker-dealer that clears and custodies its own securities transactions, a profit center, while also integrating large acquisitions, like the 2,200 financial advisors it acquired in 2007 when it bought several broker-dealers from insurance company Pacific Life.

In 2010, shares of LPL listed at $30. In February, they hit a 52-week high of $271.11.

“LPL is perceived as gold standard in the industry for an IPO,” the executive said. “But the longer Cetera puts off integrating those firms, the tougher it’s going to be down the road.”