Link to RIAs is most compelling angle of the KWAC SPAC deal

Last week's announcement that an aggregator of small to midsize broker-dealers, Wentworth Management Services, intends to go public by merging with a special purpose acquisition company raised more questions than it provided answers.

The details released about the new venture were pretty thin, to say the least. The SPAC, Kingswood Acquisition Corp., will merge by the end of the year with Wentworth and operate under the new umbrella of Binah Capital Group. The ticker symbol is KWAC, which sounds more like a duck than a broker-dealer venture.

Questions abound. Who's on the management team of the new entity, other than its reported president, Greg Gould, currently at Wentworth? What are the financial statements of the four broker-dealers Wentworth currently owns? Are those firms — Purshe Kaplan Sterling Investments Inc., Cabot Lodge Securities, World Equity Group Inc. and Broadstone Securities — managing to turn any profit as broker-dealers continue to struggle with razor-thin margins? Those broker-dealers have 1,900 affiliated brokers and financial advisers with close to $25 billion in assets under management.

And what's the long-term strategy of Wentworth/Binah, other than to pursue further purchases of small to midsize broker-dealers, which are still commanding pricey valuations of one times gross revenue, according to market sources? Can it really compete with LPL Financial and Advisor Group, which are dominating the market right now for buying broker-dealers?

"We believe that the public market is the best way to take advantage of the consolidation trend in this industry," a spokesperson for Kingswood Acquisition Corp. wrote in an email. "As a public company, we cannot provide forward-looking statements. We will release additional information about Binah Capital Group through the proper fillings and look forward to talking to you about it then."

As I understand it, Wentworth has 30 days to file more details about the new venture with the Securities and Exchange Commission. Let's hope those provide some answers to the above questions.

Wentworth Management Services is owned by Alexander Chiam Markowits, who also owns a string of nursing homes. He created the broker-dealer aggregator in 2016, buying Purshe Kaplan Sterling Investments at the end of 2017. It was his first deal and may have been his most fortuitous.

That's because Purshe Kaplan Sterling has a unique place in the financial advice market. Yes, it's had its problems. Since 2017, the firm has been on the hook for $16 million in legal settlements and restitution to clients, with the lion's share stemming from one broker's sale of alternative investments to a Native American tribe in Michigan.

But Purshe Kaplan Sterling's selling point is that it works with breakaway financial advisers — big teams leaving Wall Street to open registered investment advisers — often through other large firms like Dynasty Financial Partners. That's where the action is in wealth management right now.

So while Wentworth/Binah may look like a broker-dealer and have a ticker symbol — KWAC — that sounds like a duck's cry, its real business in the future could very well be working with RIAs who need a place to park their brokerage assets, such as variable annuity contracts and municipal bonds, commission products that can't easily be placed in an RIA, fee-based account.

As brokers continue to fly away from Wall Street, they will need firms like Purshe Kaplan to land their brokerage and non-RIA assets.