Insurance giant The Hartford announced plans Wednesday to sell its life insurance and retirement businesses, as well as Woodbury Financial Services, the firm’s independent broker/dealer. The news leaves Woodbury’s 1,600 reps faced with the tough choice: Find another broker/dealer or stick around and see who the new owners will be.

Because The Hartford is a public company, the firm had to announce its intent to sell before it started to seriously consider offers, said recruiter Jon Henschen, president of Henschen & Associates. That leaves a potentially long lag time before a buyer is announced, and that can have a negative effect on advisor retention, he said.

Putting Woodbury on the block took many by surprise. The firm had been aggressively recruiting, and had hired Gary Bender in May 2011 as new vice president of acquistion and retention. But it has been widely reported that hedge fund manager John Paulson, The Hartford’s largest shareholder, hasbeenpressuringtheinsurancecompany to separate its life insurance business from its property and casualty unit to raise cash.

The longer it takes for The Hartford to find a buyer for Woodbury, the more room it gives for other b/ds and recruiters to swoop in and take the firm’s best advisors, said Jodie Papike, executive vice president at Cross-Search. Woodbury’s advisors are in a state of uncertainty, not knowing who’s going to buy the firm or what’s going to happen. “That question mark makes people feel insecure,” she said.

Papike has heard that some advisors are getting eight to 15 recruiter calls a day following the announcement. Still, Papike doesn’t expect a lot of movement from advisors initially. Most people will likely take a wait-and-see approach.

Who Could Be Woodbury’s New Parent?
Woodbury has some 1,600 reps and $23.7 billion in total AUM. Scott Smith, analyst at Cerulli Associates, said this would put the firm in the same category as Advisor Group’s SagePoint, Transamerica, Cadaret, Grant, or Cetera’s Multi-Financial.

Potential candidates to buy Woodbury include firms that have been on the acquisition trail, such as LPL Financial, AIG Advisor Group, and Ladenburg Thalmann. Analysts also say there are several private equity firms looking to put capital to work in the IBD space, including Lovell Minnick, which bought First Allied; Parthenon; and Lightyear Capital, which owns Cetera.

Chip Roame, managing partner with Tiburon Strategic Advisors, said private equity firms like Warburg Pincus, Texas Pacific and Hellman & Friedman could also be candidates.

“One thing’s for sure, it’s not going to be an insurance company,” because many of them have been shedding their b/d subsidiaries, said Philip Palaveev, president of Fusion Advisor Network.

But Henschen believes Allianz Life Insurance Company could be a strong candidate, given their geographic location. Allianz is based in Minneapolis, Minn., while Woodbury is in Woodbury, Minn. Allianz’s German-based corporate parent is also reportedly looking to bolster the U.S. business, Henschen said.

Whoever ends up buying Woodbury, Henschen expects the firm to sell at about 35 to 40 percent of its trailing 12-month revenue, which was about $250 million for 2011, according the company.

The Decision to Sell
If sold, Woodbury will join the wave of insurance-owned broker/dealers that have been divested by insurance firms the last couple years. Pacific Life sold its broker-dealers to LPL; ING sold to Lightyear; and recently, Genworth sold off its b/d. One reason behind the wave of divestitures is that it’s more difficult to distribute proprietary product and the profit margins haven’t lived up to the insurance firms’ expectations, says Tiburon’s Roame.

But Clark Troy, research director at Aite Group, believes putting Woodbury on the block was simply a byproduct of the The Hartford’s larger strategy to separate its life insurance and property and casualty businesses. There’s no need for the b/d without its annuities and life insurance businesses.

Consultant Tim Welsh of Nexus Strategy in Larkspur, Calif. said many financial companies are eager to reduce risk in this market. Hartford accomplishes this in two ways by exiting the annuities business, where the margins are difficult, and the broader broker/dealer business, where rep misbehavior can end in costly litigation, as was the case with troubled private placements.

"The annuities business has some huge downstream risk if you're promising people 6,7 percent guaranteed returns and the markets right now are giving you less than 1 on fixed income," Welsh says. "They may have looked at the long-term profitability and said, 'We have a bill that's going to come due when these baby boomers all retire and start to annuitize these products.'"

A lot of these insurance firms had their doubts when they bought broker/dealers to begin with, said Fusion’s Palaveev. But margins have fallen and many are afraid of the massive liabilities that have caused problems for other firms, such as SecuritiesAmerica. They might as well get out of the business while they can get a high price and still have no huge liabilities, he said.

At the same time, Woodbury was, by all accounts, a large and profitable operation. “Woodbury was probably the poster child for a great insurance broker/dealer,” Palaveev said.

Senior Editor Jerry Gleeson contributed reporting to this article.