Brooke’s note: In preparing this article, I tried to understand the context in which Cetera is making such aggressive moves for RIA business in the often sleepy world of IBDs. Chip Roame of Tiburon Strategic Advisors said this: “The IBD market appears to be bifurcating, with the strong getting stronger and the weak falling away — note that 4-5 IBDs have failed in the past couple of months.” This article shows clearly that Celera is working to put itself in the winning camp.

In just its fourth month of owning a collection of old ING broker-dealers, Cetera Financial Group has taken another step forward in its quest to position itself as a place that can win the business of high-end hybrid breakaways.

The Los Angeles-based umbrella for Financial Network Investment Corp., Multi Financial Securities Corp., and PrimeVest Financial Services, Inc. is now making Advent Portfolio Exchange available to advisors at Financial Network and Multi FinanciaI. It allows them to generate reports faster and better than they could with Advent Axys, which was previously in use.

It’s one of the early signs of how the company plans to use new talent, new investment and a niche approach to breathe life into ING’s traditional IBD and position it to take business from industry leaders – including LPL Financial.

The company hired Barnaby Grist to guide its recruiting effort right out of the gate in February and later that month hired another Schwab veteran, Jay Quinn. See: Jay Quinn joins Cetera subsidiary to help Barnaby Grist pave way for more hybrid RIAs. These executives have made it clear that they believe they can create a haven for breakaway hybrids where technology is truly integrated and where there is a nurturing environment for building a practice.

Cetera faces much the same challenge as a number of other broker-dealers that are substantial in size but have fallen way behind the industry leader — LPL Financial of San Diego and Boston, which is preparing for its initial public offering.

LPL has distanced itself in size in a crowded field over recent years,” says Charles “Chip” Roame, managing principal of Tiburon Strategic Advisors. “Traditional competitors like Raymond James, AIG’s broker/dealers, ING’s former broker/dealers (now Cetera), Pac Life’s former broker/dealers (now part of LPL), Securities America, Commonwealth, and others have had their priorities elsewhere.”

LPL’s ability to put itself ahead of the field is based on a broad strategy, he adds.

Broadest success

“LPL’s streamlined model, like is true in other markets, has led to the broadest success and in this case, it has led to LPL’s substantial size and an IPO,” he says.

Yet Grist believes that his company will offer a good alternative for hybrid RIAs that are looking for a broker-dealer that handles advisors on a more personal basis.

“We think LPL is a great firm, but we think the market is big enough” for multiple players, says Barnaby Grist, Cetera’s executive vice president of wealth management. “If you fit into the LPL box, that’s a great place to be, but if you like to do things your own way, you probably want to go to an environment that’s more customized to your needs.” LPL declined to respond to a request for comment for this article.

Cetera’s renewed will to compete with LPL and other rivals got a lift in November when Lightyear Fund II, part of private equity investment firm Lightyear, reached a deal to purchase the ING IBDs. It collectively renamed them as “Cetera.”

The combined IBDs serve about 4,800 advisors and over 800 financial institutions throughout the United States. Cetera had about $75 billion of assets under administration as of Dec. 31, 2009, according to the Lightyear website.

Financial Network serves both independent advisors and financial institutions from El Segundo, Calif. Multi-Financial of Denver, Colo., serves independents exclusively and PrimeVest of St. Cloud, Minn., is dedicated to financial institution.

Hiring Grist away from Schwab Advisor Services back in early February was an early sign that Cetera would be going aggressively after big breakaway brokers. In his years at the San Francisco-based Schwab, Grist was the face of that effort for it. See: Barnaby Grist is leaving Schwab and Jon Beatty is stepping up.

Grist has his work cut out for him to make Cetera look significantly different from competitors, according to Bob Ellis, principal of FastTrack Advisors LLC, a wealth management industry consultancy.

Poorly defined value propositions

“(This is) a major issue with wealth management across the board – poorly defined value propositions,” he says. “Clients don’t understand the differences between advisors, let alone custodians.

“This problem is compounded by wirehouses, RIAs and others all chasing the high-net-worth — $2 million to $10 million — space. If you are going after a fairly limited client pool of a couple of million households with an undifferentiated offering, how do you plan to succeed? That is why wirehouses, and RIAs, to a lesser extent, spend so much of their resources on recruiting producers with a substantial book. They know that new producers, a weak brand and an undifferentiated offering are unlikely to bring in much new businesses.”

Grist’s strategic thinking in making APX available to Cetera reps is to differentiate his company’s offering to prospective breakaways at wirehouses. Making APX part of the Cetera platforms solves multiple issues for them. They get the reports that they were accustomed to at their former employers without having to go through a complex decision-making process, an expensive set-up or extensive learning.

“The people it really resonates with are the wirehouse guys who are used to getting some reporting,” says Grist. “This is a better tool and they don’t have to decide on a tool and learn it. There are a lot of decisions, and they don’t feel qualified to [make them].”

The other group of advisors that Cetera is appealing to are the ones at smaller IBDs that haven’t invested in top technology.

“If you’re a smaller IBD, you can’t do that,” Grist says. Besides investing in the software itself, Cetera has 15 to 20 full-time people supporting the software on behalf of advisors.

Fidelity Investment also invested heavily in integrating APX with its advisory platform, WealthCentral, according to the company. Cetera’s implementation of was on a similar scale of complexity to what other companies have done, according to Advent.

Advent: Cetera on 'upper end’ of complexity

“Cetera’s implementation was certainly on the upper end of our complex projects,” said Mike Madigan, Director Product Management, Advent Software.

The cost to advisors will be in the “low single basis points”, he adds. The pricing is particularly helpful to smaller advisors. Cetera declined to say whether advisors currently using Axys will have to pay more to use APX.

“The sweet spot is with the small to medium-sized advisors – up to $200 million,” Grist says. Of the approximately 4,000 advisors with Multi Financial and Financial Network, there are about 1,200 hybrid RIAs with $50 million to $200 million who are best suited for this offer.

“As for what works well for hybrid RIA’s: the flexibility of the system, combined with the integrated CRM, flexible reporting, robust security, and audit trails certainly make APX a good fit for Hybrid RIAs,” Madigan says.

The industry’s largest IBD, LPL Financial, created a big hybrid RIA platform in 2008 that took off in 2009 and now has about $9 billion of assets.

Competitors say that the $600 million or so that it could raise would be offset by the more than $1 billion of debt it has on its balance sheet.

Capital aside, Grist believes that his smaller company has an edge over LPL when it comes to winning elite hybrid RIAs.

“Our DNA is about choice [for hybrid RIAs],” he says. “We allow people to choose their own custodian – unlike many of our competitors that want to close that down and consolidate assets on their corporate RIA. We embrace outside RIAs and outside custodians.”