Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
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
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
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
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.