Cambridge’s partnership program for advisers undergoes an overhaul

Cambridge Investment Research Inc. is in the middle of radically overhauling a partnership program designed to provide advisers with capital for succession planning and acquisitions, but some advisers who pulled out of the partnership prior to the announced changes feel shortchanged.

A sister firm to Cambridge, Continuity Partners Group, in the past has exchanged units of the partnership to an adviser who contributes or assigns to Continuity Partners certain assets, including the right to a percentage of the adviser’s assets.

As of last June, there were 167 adviser-owners in the partnership.

The terms of the program are changing. Advisers will no longer be partners in the program. Instead, by joining the program, they will be given access to loans, according to Cindy Schaus, a Cambridge spokeswoman. As part of the transition, advisers are being bought out of the old partnership program.

“In keeping with the build-out of a program based on lending only, a buyout offer has been made to current owner-advisers,” Ms. Schaus wrote in an email.

“Following the buyout offer, to better meet the needs of independent financial professionals we are converting Continuity Partners into a lending program that is based on typical lending and qualification parameters with no form of ownership” for advisers “focused on succession and acquisition planning,” Ms. Schaus wrote.

The buyout offer is designed to redeem advisers’ partnership interests in Continuity Partners and end ownership of portions of advisers’ respective businesses, she wrote. She declined to disclose details of the buyout.

The acquisition program was designed for top advisers at Cambridge.

One adviser who withdrew from the partnership earlier this year feels shortchanged. The adviser, Rick Watson, said he joined Continuity Partners when it launched in 2010, had invested about $600,000 into the partnership’s equity but received only $211,000 when he left the partnership in February. He decided to leave because his contribution of $10,000 per month was too much of a financial drain from his practice, Eagle West Group.

“It’s ridiculous. It’s the worst investment I have ever made, by four-fold,” Mr. Watson said. “There have been some assurances that (Continuity Partners) may review people who left early, but there have been no assurances they are going to fix it.”

Puzzling to Mr. Watson was losing money in the partnership over time when its value was apparently increasing. According to a summary of the annual owners meeting from last September, the valuation of Continuity Partner Group’s unit price was $2.59 by the middle of 2016. When the partnership launched in January 2010, the valuation of the unit price was 91 cents.

Continuity Partners has underwritten 150 loans with a dollar amount of more than $24 million. About $18 million of loans are expected to remain in place with Cambridge advisers after the buyout, Ms. Schaus noted.

Mike Clarke, a partner of Mr. Watson, said he joined and left the partnership over the same period, invested roughly $230,000 and recently received $190,000 when he left. When he joined in 2010, he said he believed the partnership to be both a deferred compensation plan as well as a program for advisers to fund acquisitions.

“Did I read the fine print the way I should have,” Mr. Clarke asked. “No.”

Mr. Watson was candid about potentially leaving Cambridge.

“I’m so frustrated with broker-dealers I don’t know if I trust them anymore,” Mr. Watson said. “We have to determine who we want to be,” he said, adding that the firm may wind up as a stand alone registered investment adviser.

“Mr. Watson joined Continuity Partners in 2010 and Continuity Partners purchased an interest in Mr. Watson’s business and revenue, and that revenue obligation resulted in payments of nearly $600,000,” wrote Cambridge spokeswoman Ms. Schaus in the email. “Mr. Watson chose to relinquish his ownership prematurely thus reducing his overall outcome.”

Continuity Partners Group has drawn criticism from Cambridge advisers before. InvestmentNews reported last August that 14 top advisers at Cambridge Investment Research had left the firm in the prior year in a dispute with management over the partnership program.

Continuity Partners Group in June 2016 filed an arbitration claim against five of the advisers, claiming that their actions have contributed to a loss of more than $16 million. The advisers then followed by filing a counterclaim in U.S. District Court in Idaho, alleging the partnership owes them close to $2.5 million in damages, plus interest and attorney’s fees.

Related Topics: Practice Management