Genstar Capital Re-Ups to Keep Driving Cetera M&A Plans

Having originally invested in Cetera in 2018, Genstar will continue to be the majority investor and lead partner.


Cetera Financial Group, owned by Cetera Financial Group Inc., announced a reinvestment by Genstar Capital LLC, a private equity firm focused on investments in targeted segments of the financial services, software, industrial and health care industries. The firms did not disclose the amount of funding.

Genstar’s latest investment will continue to drive growth for Cetera that has so far included the acquisition of registered investment advisories to build its footprint. In August, Cetera Financial Group retained more than 91% of the 1,0000 financial professionals from Securian Financial Group’s retail wealth and trust businesses, sealing a deal announced at the start of the year.

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The new investment is led by Genstar’s newest fund, Fund XI, with additional capital from Fund X, according to an announcement on Wednesday. Genstar originally invested in Cetera in 2018 and will remain as majority investor and lead partner.

“This reinvestment from Genstar affirms Cetera’s proven ability to create value,” Cetera Holdings CEO Mike Durbin said in a statement. “Secular tailwinds and continued economic growth underpin confidence in Cetera’s future.”

Durbin joined Cetera in May after holding a senior leadership role at Fidelity Investments as head of its institutional investing division. Durbin took a seat on Cetera’s board, while Cetera Financial Group CEO Adam Antoniades remained in his role and his board seat.

“The management team has high conviction in its strategy and vision for Cetera as a wealth hub going forward and appreciates Genstar’s partnership in pursuit of long-term success,” Antoniades said in a statement.

Since 2018, Cetera has grown from approximately 7,000 advisers and 1,300 employees supporting $242 billion of assets under administration to approximately 9,000 advisers and 2,000 employees supporting $374 billion of AUA, according to Antoniades.

In June, Cetera Holdings announced the purchase of $1.4 billion registered investment advisory the Retirement Planning Group LLC, which advises individual clients on retirement and wealth management.

Genstar has been active in retirement investing and solutions, including an investment in AmeriLife Group LLC in June 2022. Mergers and acquisitions activity among RIAs in the year’s third quarter has already outpaced the same period in 2022, according DeVoe & Co. The deals are mostly focused on RIA acquisitions, either by wealth management advisories or employee benefit aggregators. There has also been further consolidation among workplace retirement plan advisories after years of aggregation.

Moelis & Co. LLC and Morgan Stanley & Co. LLC served as financial advisers on the transaction, while Willkie Farr & Gallagher LLP served as legal counsel to Cetera and Genstar. The transaction is expected to close in the fourth quarter of 2023.

Understanding Plan Fees, With Help from NAGDCA

A recently published fee guide can help plan sponsors navigate different recordkeeping, advisory and asset management options.


The National Association of Government Defined Contribution Administrators published a fee guide for public sector defined contribution plans Tuesday. Understanding and negotiating reasonable fees is a fiduciary duty to participants in a retirement plan, according to the guide.

The guide lays out all the services and related fees a DC plan might encounter and explains the pros and cons of the various services and fee structures available to sponsors. The guide breaks fee structures into three main service categories: recordkeeping, asset management and advising.

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Recordkeeping

To reduce recordkeeping expenses, the NAGDCA guide recommended providing turnover estimates to the recordkeeper so it can make estimates of their own about new enrollees, thereby helping to reduce fees and increase fee predictability. The guide also recommended that sponsors consider including in their investment menus proprietary funds provided by the recordkeeper, if offered, since this can also drive fees down.

The guide cautioned, however, that most plans offer open investment menus to avoid the appearance of a conflict of interest, and any fund chosen for inclusion in an investment menu must be a prudent choice, whether offered by the recordkeeper or not. Additionally, a recordkeeper may terminate a fund as part of its business strategy, which can complicate the budgeting of a sponsor that was relying on that fund to keep fee costs down.

Recordkeeping fees can be structured in different ways. The guide explained that an asset-based structure, one tied to the value of the assets in an account, is the most common and can be beneficial for smaller plans. Plans can also negotiate “break points,” where the fee-to-asset ratio declines as the plan grows.

Other fee models can be based on average participant balance or an explicit direct dollar fee from participant accounts. An explicit fee can be helpful due to its transparent and easy-to-communicate nature, according to the guide.

Asset Management

Asset management fees “are added to mutual fund share classes intended to offset marketing and distribution related expenses,” according to the guide.

Asset management fees can also cover annuitization options, changes in asset allocation, management or a self-directed brokerage option.

Asset-based and revenue-sharing are the most common fee structures for asset management. Asset-based fees are charged as a percent of assets under management. Revenue-sharing fees are paid by a mutual fund company to a recordkeeper for assuming some of the administrative burden.

Advising

Advising fees can be assessed for investment advice, participant education and outreach, and other consulting services.

The guide recommended asset-based fee structures for smaller plans but noted that this can create fee volatility if the sponsor has high turnover or if market conditions are volatile. Sponsors using an asset-based model should budget accordingly. A “flat dollar” model in which a set price is paid for particular services may be more beneficial for sponsors who are larger or less risk tolerant.

NAGDCA noted that advisers providing educational services to participants may also be licensed to sell investment products such as annuities. The guide recommended that sponsors closely monitor this and require advisers to disclose these activities with the plan: “Plan fiduciaries should discuss cross-selling policies and seek to implement restrictions to cross-selling, when appropriate.”

Across all fee classes, the guide noted that customization will increase fees. Managers, consultants and recordkeepers often make use of templates and other standard models, and deviations from these models to satisfy specific plan needs can make fees increase and may not be in the best interest of the plan. According to the guide, “Plan characteristics can lead to vastly different fees and structures for plans with similar baseline demographics, such as the same asset level and number of participants.”

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