When RCS Capital Corp. in New York acquired El Segundo independent brokerage firm Cetera Financial Holdings Inc. in April for $1.2 billion, it came as a big surprise to many industry observers. After all, Cetera, which provides services to independent investment advisers, plays in an industry that has faced challenges with broker-dealers competing on price and an increased regulatory burden, and RCS swooped in with an offer that was much bigger than almost anyone expected to snag a business that wasn’t even for sale.
Daniel Seivert, chief executive of Manhattan Beach investment bank Echelon Partners, told the Business Journal last month that the acquisition raised questions about what business model RCS had that would allow the company to pay that much for Cetera and still make money.
Turns out, another local company is a big part of it.
RCS agreed in September to buy West L.A.’s Docupace Technologies Inc., and now plans to roll out Docupace’s core product – an electronic document-processing platform called ePACS – to its network of broker-dealers.
RCS believes Docupace’s technology will deliver significant cost savings for its adviser business, including the teams it added in the Cetera deal.
“We are confident that the Docupace platform will continue to provide significant benefits not only to our network of financial advisers and their clients, but also to our wholesale distribution business and the broader financial services industry,” RCS President Michael Weil said last year.
Docupace’s technology allows advisers to process investment transactions for their clients on one platform: generating the necessary forms, electronically completing and signing them – even ensuring everything is in compliance with regulations from the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
Docupace Chief Executive Michael Pinsker said alternative investments such as commodities and exchange-traded funds represent a particular opportunity for ePACS to save advisers time and money.
“The alternative space is very attractive to advisers because of the kind of returns they can bring, but they’re heavily regulated,” he said. “What our system does is it takes those rules into account and simplifies it to the advisers, so they don’t have to worry about all the complexities.”
Pinsker said the system is easy for advisers to use. Troy, Mich., independent broker-dealer Concorde Investment Services recently formally expanded its relationship with Docupace, citing improved efficiency from its use of ePACS.
Pinsker declined to share Docupace’s revenue, but he said it grew by 65 percent last year compared with the previous year, and he’s expecting 100 percent growth this year.
Rate Rise
In Royal Bank of Canada’s Jan. 22 announcement that it had acquired downtown’s City National Bank – L.A.’s largest – for $5.4 billion, the Toronto bank’s chief executive, Dave McKay, said the deal was about picking up a bank with high-level customers in a desirable geographic area. But for City National, it might also have been about interest rates.
Matthew Clark, an analyst who covers City National for the New York office of Birmingham, Ala., investment bank Sterne Agee & Leach Inc., said that one possible motive behind City National’s decision to sell to the Toronto finance giant might have been rock-bottom interest rates that haven’t risen despite the predictions of plenty of economic commentators.
“I think what this says is, one, the board must not have believed that rates were going up any time soon,” Clark said. “And two, the recent flattening of the yield curve has probably only reaffirmed that view.”
The yield curve flattens when short- and long-term bond yields move closer to each other – and today, closer to zero. In this case, as with most American finance stories, the relevant bond is the U.S. Treasury.
Economists use the yield curve to divine many things, including the likelihood of a recession, but the recent flattening can be interpreted as bond investors betting rates will not rise soon. That’s problematic for City National, which has lots of variable-rate loans. As long as short-term yields remain low, the rates on those loans will also stay low.
City National’s management might have opted to cash out now rather than waiting out the low rates.
Wealthy Dropping Oil
A recent poll of high-net-worth investors in the L.A. commissioned by Morgan Stanley revealed that 84 percent believe the national economy will be the same or improve this year. And while they’re expecting good times ahead, the same can’t be said for energy stocks. Nearly three in 10 said climate change has impacted their investment portfolio, and 35 percent plan to divest from fossil fuels over the next three years.
C-Suite News
Century City investment bank Houlihan Lokey has opened an office in Sydney. It will be led by veteran Australia executives Nicholas Rowe, Oscar Ludwigson and David Tozer. … Glendora accounting firm Vicenti Lloyd & Stutzman has named Danielle Witten partner. She has been with the firm for 14 years. … Pacific City Financial Corp. in Koreatown, the holding company for Pacific City Bank, has named Kwang Jin Chung its new chairman. He replaces Suk Won Youn, who stepped down for personal reasons but remains on the board.
Staff reporter Matt Pressberg can be reached at [email protected] or (323) 549-5225, ext. 230.
