The coronavirus pandemic continues to put pressure on the wealth management world. Just one month after completing their $1.3-billion deal to buy Ladenburg Thalmann, Advisor Group is facing a credit downgrade. The news comes as little surprise, judging by the downgrade of Cetera Financial Group just two days prior, both coming after the Fed’s move to cut the federal funds rate.
On March 19, Moody’s Investor Services announced via report that they’ve changed the Independent Broker-Dealer’s outlook to ‘negative’ from ‘stable’ and downgraded its corporate family rating for the $2.7 billion in debt issued by Advisor Group Holdings to “B3” from “B2”.
That “B2” rating had been confirmed back in January, after a review stemming from Advisor Group’s $1.3-billion deal to buy Ladenburg Thalmann.
In the report, Moody’s Assistant Vice President Fadi Abdel Massih said they downgraded Advisor Group to the high-risk issuer category because of the Fed’s move to cut the federal funds rate to between 0 and 0.25 percent. Massih also pointed towards the economic consequences stemming from the coronavirus crisis and the surrounding uncertainty that it has caused as a “fundamental credit challenge to Advisor Group”--words that are certain to resonate throughout the financial advisory industry.
High leverage continues to force pressure on the wealth management industry. Just two days before Moody’s downgraded Advisor Group, they shifted the outlook for Cetera Financial Group to negative from stable.
Adding to Advisor Group’s worries, Massih stated in the report that an upgrade is “unlikely in the near future.”
Wealth management firms the world over are being faced with a new reality as markets tumble for the first time in a decade. A recent report from Arizent noted three-out-of-four wealth managers have seen their revenue dip.
On Monday, Raymond James announced that AUM for its Private Client Group had fallen to $813.9 billion for February, a loss of $40.1 billion compared to January that represents a 5 percent decline.
