John Pierce: The Benefits of Private Ownership in Times of Volatility
Private ownership is particularly well-suited to financial advice firms who are in growth mode like Cetera. It allows for greater flexibility on both the corporate and affiliate levels. According to industry veteran and longtime broker-dealer recruiter and Masada Consulting CEO, Philip Waxelbaum, private equity ownership can allow organizations to be nimble in a way that public companies often can’t, allowing for capital infusions necessary to support everything from advisor retention bonuses to technology and operational support. And given an expected uptick in M&A activity in the industry this year, privately owned companies may be in a better position to benefit from ongoing consolidation among wealth managers.
The following article, from Cetera’s John Pierce, appeared in Forbes on April 5, 2021:
Markets can turn on a dime, though perhaps after the market’s recent swings, it may be more appropriate to say they turn on a meme. This volatility demonstrated that even the most iconic companies are not immune from the effects of attention-grabbing investment trends. Sometimes it can even feel perilous to be publicly owned.
In reality, there is no one-size-fits-all approach when it comes to the ideal ownership structure. What works for one company may not work for another. Above all, organizations should choose the system that works best for them.
What we have found from our experience in the financial advice industry is that, when supporting a vast network of advisor affiliates who depend on the home office for liquidity and operational support, there are many benefits to private ownership.
Immunity To Market Noise
Did you think GameStop or BlackBerry would be on your mind in 2021? The rush of attention to the latest shiny object or sure-thing investment strategy in previous weeks sent ripples through the markets, with the major indices stumbling. Many companies experienced a loss of confidence in their business model (or in the markets overall) and saw share prices decline. Privately held companies tend to be more insulated from these periods of volatility. Because privately backed companies are not tethered to daily fluctuations in share prices, if the market dips, long-term value usually doesn’t.
Another volatility shield is that private companies are not subject to the turbulence created by quarterly earnings reports to the public. This can be a tremendous benefit when the unexpected hits. For example, as a privately backed company, we had the ability to re-invest in resources to help both our financial professionals and support teams navigating the ripple effects of Covid-19 that hit our industry without the necessity of public reporting requirements.
Stronger Focus On Clients And Customers
When an organization is privately held, one group is at the center of everything: the people it serves. “What’s in it for them?” should be the guiding principle. In our case as a firm in financial advice, shareholders are true stakeholders, and the year-over-year returns they see are continued reinvestments in their technology platforms, business management services and overall experience. With a private structure, a company of any kind can better focus on its customers and clients and be better equipped to seize on new growth opportunities.
Holistic View On Costs
Typically, when thinking of private equity, slashed budgets and paused spending come to mind — whatever must be done to meet the five-year revenue goal. Thankfully, this isn’t always the case. Having a longer-term holding fund gives an organization time to assess its opportunities and make purposeful investments into growth-driving projects. Cutting costs as a quick way to boost bottom-line results can have negative implications on service efficacy, product delivery and the overall customer experience that may lower company value over time. By investing in its offering, an organization can make a commitment to its clients that their success is equally important. Growth matters, but collective growth matters more.
A Path To Bigger Growth Outcomes
Sure, some of the world’s biggest and most well-known companies are publicly traded. But what about the Deloittes, Enterprise Holdings and Meijers of the world? All three appear in the top 20 of Forbes’ 2020 list of America’s largest private companies. Going public is an expensive choice and can be worthwhile when the conditions are right. Taking a company public too early or at the wrong time, however, can be very costly. Some firms choose to remain private because of the many benefits of a private ownership structure and the cost to liquidity. There is no single method for greater growth, but having a private capital structure that allows for continued investments in capabilities that drive outsized results is a positive start.
Greater Flexibility In Hiring And Recruiting
For HR and recruitment professionals specifically, private ownership allows for the creation of bespoke custom offers that are relevant, focused and better targeted to the needs of the candidates. This flexibility, at times not available in public entities, allows companies to maximize an offer and get to candidate closure more effectively.
Private ownership also allows a more frictionless path to hiring a recruit. By having flexibility and creativity with a long-term lens on growth, private companies are not constrained by a one-size-fits-all approach that sometimes prevents public companies from being sufficiently nimble in the marketplace for top-quality talent.
In our financial advising firm’s experience, private ownership has a distinct and successful purpose and has proved to be the best path toward growth for advisors, their clients and the home office. For organizations of all kinds, the nimble capital structure and end-to-end stakeholder alignment afforded by private ownership allows for flexibility and continued innovation in support of clients’, customers’ and employees’ needs.
About Cetera Financial Group®
Cetera Financial Group (Cetera) is a leading financial advice firm. It empowers the delivery of an Advice-Centric Experience® to individuals, families and businesses across the country through independent financial advisors as well as trusted tax professionals and banks and credit unions. It’s headquartered at 200 N. Pacific Coast Highway, Suite 1200 El Segundo, CA 90245-5670.
Comprehensive services include: wealth management solutions, retirement plan solutions, advisory services, practice management support, innovative technology, marketing guidance, regulatory support, and market research.
"Cetera Financial Group" refers to the network of independent retail firms encompassing, among others, Cetera Advisors LLC, Cetera Advisor Networks LLC, Cetera Investment Services LLC (marketed as Cetera Financial Institutions or Cetera Investors), Cetera Financial Specialists LLC, and First Allied Securities, Inc. All firms are members FINRA / SIPC.
Individuals affiliated with Cetera firms are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.
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