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Industry Spotlight > Broker Dealers

B. Riley Boca Brokers Exit Ahead of Firm’s Effort to Raise Cash

By David Voreacos

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What You Need to Know

  • At least two dozen brokers moved this week to Kestra Advisory Services, according to FINRA records.
  • Other defections last month involved a group in Memphis, which included Philip Wunderlich and went to Prospera Financial Services.
  • The office was known to be a top producer for the $25 billion wealth firm.

Some of B. Riley Financial Inc.’s brokers aren’t sticking around to see if the company’s effort to raise cash by selling some of its core assets will include their segment of the money-losing investment firm.

At least two dozen brokers, almost half the roster at B. Riley Wealth’s branch office in Boca Raton, Florida, moved this week to Kestra Advisory Services, according to records from the Financial Industry Regulatory Authority, or FINRA.

Those exits plus a spate of other departures in recent weeks would represent about 8% of B. Riley’s brokerage force at the end of last year.

Other defections last month involved a group in Memphis that included Philip Wunderlich that went to Prospera Financial Services Inc. with $650 million in client assets, Prospera said in a Friday statement.

Wunderlich’s brother, Gary, founded the self-named securities firm that B. Riley bought in 2017 for about $70 million, a deal that added about $10 billion in assets to the wealth unit.

Separately, Wedbush Securities last month said it added three brokers from B. Riley who ran MJB Wealth Management Group in suburban Philadelphia.

The recent departures could complicate B. Riley’s efforts to attract buyers for the wealth unit as it seeks to cope with a $2 billion debt load, write-offs on soured investments and a U.S. Securities and Exchange Commission investigation into its business.

In one sign of stress, B. Riley renegotiated some of its loans last month and a credit line was terminated. The company said last month it had non-binding bids for some of its other crown jewels, but so far, no formal offers have been announced.

“B. Riley Wealth Management has a robust and talented team of financial advisers that continue to serve our clients,” said a spokesman for the Los Angeles-based firm. “We wish the very best to a small group of advisers who recently left for personal reasons.”

The company counted about 400 registered financial advisors as of last December, with the wealth unit contributing almost 12% of revenue from services and fees, according to a regulatory filing.

Sale Effort

People familiar with the matter said the office in affluent Boca Raton was one of the firm’s top producers for B. Riley Wealth, which managed about $25 billion at the end of last year. Their exit threatens to set back a unit that almost tripled in size with B. Riley’s 2021 purchase of National Holdings Corp., and then rebuilt “from the ground up,” in the words of its leader.

Issues at National that pre-dated B. Riley’s ownership led to a series of costly fines and settlements. The division “deliberately cut our headcount almost in half” and “significantly de-risked our business by closing out almost all the legacy National matters,” Michael Mullen, the former CEO of National who now runs B. Riley Wealth, said in a presentation last December.

B. Riley “has received interest from external parties in this business,” the company said in a statement, without elaborating. One rival, Stifel Financial Corp., has looked into a potential deal, but only for pieces of the wealth unit rather than the whole operation, according to a person with knowledge of the matter.

A bidder would focus on the most desirable parts of the wealth business or picking off top brokers who have valuable client rosters, the person said, asking not to be identified discussing private information. This could let a buyer avoid taking on any liabilities stemming from current or past disputes with customers and regulators, the person said.

Broker Choice

“An advisor wants to make his or her own choices to seek the right fit in the marketplace,” said Craig Pirtle, senior vice president at Wedbush in charge of business development. “If there is a potential acquisition on the horizon, they want to seek the right firm, the right culture, and the right capabilities to service their clients at the highest levels.”

Pirtle, whose career included nearly six years at B. Riley, said the three advisers hired by Wedbush brought about $300 million in client assets. Calls to Kestra and Prospera seeking comment weren’t returned.

B. Riley raises debt and provides analyst coverage and investment conferences for hundreds of middle-market companies that might otherwise be overlooked by big investment banks. The wealth unit includes a retail brokerage, investment management, insurance and tax services for individuals, as well as families and small businesses, among others.

The segment has grown over the years through acquisitions. In addition to buying Wunderlich in 2017, B. Riley expanded its operation by purchasing FBR & Co., with a stable of analysts and investment bankers. In 2019, B. Riley took a 45% stake in National Holdings Inc., and bought the rest in 2021, boosting its assets under management to about $30 billion.

Past Complaints

Dozens of National’s customers had complained about brokers in the years before the sale to B. Riley, leading to millions of dollars in settlements through arbitration, Finra records and B. Riley filings show.

Finra signed off on B. Riley’s purchase but later ordered National to pay $9 million for a range of missteps.

The industry’s self-regulator said this included underwriting 10 public offerings and trying to artificially influence the market for those securities and omitting information to customers in 2018 about securities involving GPB Capital Holdings LLC.  Those episodes occurred before B. Riley took ownership of National.

National consented to Finra’s findings without admitting or denying the charges. Prosecutors have said GPB was a Ponzi-like fraud that put at risk more than $1.8 billion raised by broker-dealers from thousands of investors. GPB’s founder was found guilty of securities fraud in August.

“Mullen began to clean up these issues in 2017 when he took on the role as CEO,” B. Riley said in a statement. “He terminated brokers with compliance or other issues. B. Riley acquired National in 2021 and from that point accelerated efforts to strengthen the firm, which included resolving outstanding litigation.”

(Credit: Adobe Stock)

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