# CETERA ADVISOR NETWORKS LLC X-17A-5 (2021-02-26) — Broker-dealer annual report - Company: CETERA ADVISOR NETWORKS LLC - Form: X-17A-5 - Filed: 2021-02-26 - Period: 2020-12-31 - Accession: 0000356437-21-000002 - CIK: 718856 - File #: 8-29577 - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: Los Angeles, CA - Contact: Theodore Horwith - Phone: 3102577782 - Signed by: Theodore Horwith (Principal Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/718856/000035643721000002/CA2020PUB.pdf --- {0}------------------------------------------------ CETERA ADVISORS LLC AND SUBSIDIARY (SEC I.D. No. 8-26892) CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2020 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Filed pursuant to Rule 17a-5(d) under the Securities Exchange Act of 1934 as a Public Document {1}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | OMB APPROVAL | | | | | |---------------------------|------------------|--|--|--| | OMB Number: 3235-0123 | | | | | | Expires: October 31, 2023 | | | | | | Estimated average burden | | | | | | hours per response 12.00 | | | | | | | SFC FII F NUMBER | | | | | | 8-26892 | | | | | | | | | | ## ANNUAL AUDITED REPORT FORM X-17A-5 PART III FACING PAGE ## Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder | REPORT FOR THE PERIOD BEGINNING | 01/01/20
MM/DD/YY | AND ENDING | 12/31/20
MM/DD/YY | |---------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|--------------------------------------------------------|-----------------------------------------------| | | A, REGISTRANT IDENTIFICATION | | | | NAME OF BROKER-DEALER:
Cetera Advisors LLC | | | OFFICIAL USE ONLY
FIRM I.D. NO. | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | | | 400 First Street South, Suite 300
(No. and Street) | | | | | St. Cloud
(City) | MN
(State) | | 56301
(Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Theodore Horwith | B. ACCOUNTANT IDENTIFICATION | | (310) 257-7782
(Area Code - Telephone No.) | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*
Deloitte & Touche LLP | | (Name - if individual, state last, first, middle name) | | | 555 W 5th Street, Suite 2700 | Los Angeles | California | 90013 | | (Address)
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Certified Public Accountant
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Accountant not resident in United States or any of its possessions. | (City)
FOR OFFICIAL USE ONLY | (State) | (Zip Code) | | * Taima for ayamation from the ranywamant that the anyong by the aninion of an indonomant within | | | | \*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis for the exemption. See Section 240.17a-5(e)(2).SEC 1410 (06-02 {2}------------------------------------------------ ![](_page_2_Picture_0.jpeg) #### Deloitte & Touche LLP 555 W. 5th Street, Suite 2700 Los Angeles, CA 90013-1010 USA Tel: +1 213 688 0800 Fax: +1 213-688 0100 www.deloitte.com ### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Member of Cetera Advisors LLC ### Opinion on the Financial Statement We have audited the accompanying consolidated statement of financial condition of Cetera Advisors LLC and Subsidiary (the "Company") as of December 31, 2020, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. #### Basis for Opinion The financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit of the financial statement provides a reasonable basis for our opinion. February 25, 2021 We have served as the Company's auditor since 2016. {3}------------------------------------------------ ### CETERA ADVISORS LLC AND SUBSIDIARY #### CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2020 | ASSETS | | | |---------------------------------------------|---|------------| | Cash and cash equivalents | | 19,176,312 | | Fees and commissions receivable | | 17,203,625 | | Receivable from clearing broker | | 481,333 | | Related party receivables | | 2,220,314 | | Other receivables | | 2,166,659 | | Deferred charges | | 4,434,642 | | Other assets, net of allowance of \$230,112 | | 1,356,187 | | Total assets | S | 47,039,072 | | | | | | LIABILITIES AND MEMBER'S EQUITY | | | | LIABILITIES | | | | Commissions and fees payable | ക | 16,610,707 | | Related party payable | | 227,008 | | Accrued expenses and accounts payable | | 556,526 | | Accrued compensation | | 639,098 | | Deferred revenue | | 1,035,134 | | Deferred credit | | 2,083,140 | | Regulatory and litigation reserves | | 2,083,250 | | Other liabilities | | 1,037,419 | | Total liabilities | | 24,272,282 | | COMMITMENTS AND CONTINGENCIES (NOTE 8) | | | | MEMBER'S EQUITY | | 22.766.790 | \$ Total liabilities and member's equity The accompanying notes are an integral part of the Consolidated Statement of Financial Condition. {4}------------------------------------------------ ## CETERA ADVISORS LLC AND SUBSIDIARY ## NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2020 ## NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE COMPANY Cetera Advisors LLC (the "Company") is an introducing broker-dealer registered under the Securities Exchange Act of 1934, a registered investment advisor, and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). The Company and its subsidiary, Cetera Advisors Insurance Services LLC, provide brokerage, investment advisory and planning, and insurance services to individuals nationally through independent financial advisors. The Company is a wholly owned subsidiary of Cetera Financial Group, Inc. ("Cetera Financial") which is a wholly owned subsidiary of Cetera Financial Holdings, Inc. ("Cetera Holdings is a wholly owned subsidiary of Aretec Group, Inc. ("Aretec"). Aretec is a direct wholly owned subsidiary of GC Two Intermediate Holdings, Inc. which is a wholly owned subsidiary of GC Two Holdings, Inc. ### NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ### Basis of Presentation The Consolidated Statement of Financial Condition was prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). ### Use of Estimates The preparation of the Consolidated Statement of Financial Condition in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Statement of Financial Condition and reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, and these differences could be material. ### Reportable Seqment The Company operates exclusively in the United States as one operating segment as it only reports financial information on an aggregate basis to its chief operating decision makers. ### Cash and Cash Equivalents Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash and that are so near their maturity that they present insignificant risk of changes of changes in interest rates. ### Fees and Commissions Receivable and Payable Fees and commissions receivable includes commissions from mutual funds, insurance product purchases transacted directly with the product sponsors, and mutual fund and annuity trailers. Fees and commissions payable related to these transactions are recorded based on estimated payout ratios for each product as commission revenue is accrued. ### Receivable from Clearing Broker Receivable from clearing broker represents commissions and collected by the Company's clearing broker, but not yet remitted to the Company. {5}------------------------------------------------ ### Other Receivables Other receivables primarily consist of accrued receivables from the Company's clearing broker related to fees charged to client accounts. ## Securities Owned Securities owned are recorded on a trade date basis and are stated at fair value. As of December 31, 2020, securities owned of \$135,437 are included in other assets. See Note 3 - Fair Value Measurements for more information. ## Deferred Charges Deferred charges primarily consist of unamortized conversion and recruiting allowances provided to the Company's financial institution investment programs. The recruiting allowances are amortized over the advisor's estimated useful life of approximately 20 years while transition allowances are typically amortized over the estimated customer useful life of 5 years. As of December 31, 2020, the Company had unamortized deferred charges of \$4,434,642. See Contract Acquisition Costs below. ## Deferred Credits Deferred credits primarily consist of rebates received on the Company's clearing services contract with Pershing LLC. The contract rebates are accreted over the 5.25-year remaining term of the contract at the time of signing. The unaccreted deferred credits of \$2,083,140 are included in Deferred credit in the Statement of Financial Condition. ## Other Assets Other assets include financial advisor notes receivable and advances. The Company has loans outstanding to certain of its financial advisors under two types of promissory note agreements, which bear interest at various rates and have various maturities. Such agreements include notes and payback notes. The Company amortizes the principal balance of the forgivable notes along with accrued interest as commission expense ratably over the contractual term of the notes. In the event the financial advisor does not meet the specified production level, the scheduled principal and interest are due. If an advisor terminates their arrangement with the Company prior to the forgivable loan term date or repayment of another loan, an allowance for uncollectible amounts is recorded using an analysis that takes into account the advisors' registration status and the specific type of receivable. The aging thresholds and specific percentages used represent management's best estimates of probable losses. Management monitors the adequacy of these estimates through periodic evaluation against actual trends experienced. Outstanding advances due from advisors was \$751,008 net of allowance \$148,893 at December 31,2020. ## Deferred Revenue The Company records unearned income when cash payments are received or due in advance of its performance obligation, including amounts which are refundable. ## Contract Acquisition Costs The Company identifies all significant costs to obtain or fulfill a customer. These costs generally fall within referral costs, financial advisor related costs incurred by underlying customers of the acquired financial advisor. Transfer costs related to customers are recognized as assets and are amortized over the estimated customer relationship life on a straight-line basis. Referral costs and other financial advisor related costs are recognized as assets and are amortized over the estimated financial advisor relationship life on a straight-line basis. These assets are presented as deferred charges on the Company's Consolidated Statement of Financial Condition. To the extent that these costs are initially estimated and accrued for, adjustments are made based on actual costs incurred. See Deferred Charges above. {6}------------------------------------------------ ### Recently Adopted Accounting Pronouncements In June 2016, the FASB" issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will use forward-looking information to better form their credit loss estimates. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. The Company adopted the provisions of this guidance on January 1, 2020. The adoption did not have a material impact on the Company's financial statement. In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 removes or modifies certain current disclosures and adds additional disclosures. The changes are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity's performance and cash flows. The Company adopted the provisions of this quidance on January 1, 2020. The adoption did not have a material impact on the Company's financial statement. ### Recently Issued Accounting Pronouncements There are no recently issued accounting pronouncements that would materially impact the Company's Financial Statement and related disclosures. ## NOTE 3 - FAIR VALUE MEASUREMENTS The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. U.S. GAAP defines three levels of inputs that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. Level 3 - Unobservable inputs that reflect the entity's own assumptions about the data inputs that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is the most significant to the fair value measurement in its entirety. A review of the fair value hierarchy classification is conducted on an annual basis. Changes in the type of inputs used in determining fair value may result in a reclassification for certain assets. The Company assumes all transfers occur at the beginning of the reporting period in which they occur. For the year ended December 31, 2020 there were no transfers between Levels 1, 2 and 3. {7}------------------------------------------------ The Company's fair value hierarchy for those assets measured at fair value on a recurring basis by product category as of December 31, 2020 is as follows: | | Level 1 | | Level 2 | | Level 3 | | Total | | |----------------------------------------------|---------|-------------|---------|-----|---------|--|-------|---------| | Assets: | | | | | | | | | | Cash equivalents - money market funds | સ્ત્ર | 64,069 | ಕ್ಕೆ | | ക | | 49 | 64.069 | | Securities owned - recorded in other assets: | | | | | | | | | | Equity securities | | 135,114 | | | | | | 135,114 | | Corporate bonds | | | | 323 | | | | 323 | | Total securities owned | | 135,114 | | 323 | | | | 135,437 | | Total | ક | 199,183 - 1 | ಕೆ | 323 | \$ | | မာ | 199.506 | Cash equivalents include money market mutual fund instruments, which are short term in nature with readily determinable values derived from active markets. Equity securities with sufficient trading volume are fair valued by management using quoted prices for identical instruments in active markets. Accordingly, these securities are classified within Level 1. Corporate bonds are fair valued by management using third-party pricing services and are classified within Level 2. ## NOTE 4 - EMPLOYEE BENEFIT PLANS The employees of the Company are covered by an Internal Revenue Code Section 401(k) defined contribution plan and a health and welfare plan that are administered by Cetera Financial. Subject to eligibility requirements, all employees are eligible to participate. The 401(k) plan features an employer-matching program. The health and welfare plan is a self-insured plan sponsored by Cetera Financial. Costs of the plans are allocated to the Company based on rates determined by Cetera Financial. The Company had no separate employee benefit plan in 2020 and relied on Cetera Financial to cover all eligible employees. All benefits that were paid by Cetera Financial were charged back to the Company for reimbursement. ### NOTE 5 - RELATED PARTY TRANSACTIONS Cetera Financial allocates a portion of its general administrative expenses to the Company based upon factors including assets under management, sales volume, number of personnel, and producing advisors. Such expenses include overhead services related to finance and administration, operations, information technology, strategic integration, and risk management. Because these transactions and agreements are with affiliates, they may not be the same as those recorded if the Company was not a wholly owned subsidiary of Cetera Financial. The related party receivable of \$2,220,314 included on the Statement of Financial Condition includes \$2,184,729 related party receivable from Cetera Financial primarily due to Strategic partnership revenue received by Cetera Financial on behalf of the Company. Cetera Financial is also the maker on certain notes issued to the Company's advisors. Those notes typically require the payback of principal and interest to Cetera Financial over periods of three to four years. The issuance of these notes by Cetera Financial is typically accompanied by the execution of a bonus agreement, between the financial advisor and the Company, providing for the payment based on the attainment of certain production targets. Cetera Investment Services LLC, an affiliate, provides custodial services for certain customer retirement accounts of the Company. Given the credit agreements Aretec has with its lenders, in the event of a default the Company's assets could be used to satisfy Aretec's obligations. ### NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents in bank deposit and other accounts, the balances of which, at times, may exceed federally insured limits. Exposure to {8}------------------------------------------------ credit risk is reduced by maintaining the Company's banking relationships with high credit quality financial institutions. ## NOTE 7 - COMMITMENTS AND CONTINGENCIES Legal and regulatory proceedings related to business operations - The Company is involved in legal proceedings from time to time arising out of business operations, including arbitrations and lawsuits involving private claimants, subpoenas, investigations and other actions by government authorities and self-regulatory organizations. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in which claimants seek indeterminate damages, the Company cannot estimate what the possible loss or range of loss related to such matters will be. The Company recognizes a loss with regard to a legal proceeding when it believes it is probable a loss has occurred and the amount can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount. When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount in the range. The Company maintains insurance coverage, including general liability, directors and officers, errors and omissions, excess entity errors and omissions and fidelity bond insurance. The Company is a registered broker-dealer and, as such, is subject to the continual scrutiny of those who regulate its industry, including FINRA, the United States Securities and Exchange Commission ("SEC"), and the various securities commissions of the states and jurisdictions in which it operates. As part of the regulatory process, the Company is subject to routine examinations, the purpose of which is to determine the Company's compliance with rules and regulations promulgated by the examining regulatory authority. It is not uncommon for the regulators to assert, upon completion of an examination, that the Company has violated certain of these rules and regulations. Where possible, the Company endeavors to correct such asserted violations. In certain circumstances, and depending on the nature and extent of the Company may be subject to disciplinary action, including fines. The Company is being investigated by the SEC regarding whether the Company breached its fiduciary duties or other obligations by receiving SEC Rule 12b-1 fees from mutual funds and other fees in investment advisory accounts, including but not limited to revenue sharing payments and "markups" on expenses from its clearing firm. The Company has recognized a liability as it believes it is probable a liability has occurred and disgorgement costs related to remediating the claims asserted have been estimated to be \$1.7 million, inclusive of any applicable interest or civil penalties. Defense costs related to legal and regulatory proceedings are expensed as incurred. When there is indemnification or insurance, the Company may engage in defense or settlement and subsequently seek reimbursement for such matters. We have identified certain other pending matters for which a loss is probable and estimable as well as others that are reasonably possible but not currently feasible to reasonably estimate the amount or a range of reasonably possible loss. However, management does not believe, based on currently available information, that the outcomes of any such matters will have a material adverse effect on the Company's financial condition. Clearing broker - Under the clearing arrangement with the clearing broker, the Company is required to maintain certain minimum levels of net capital. As of December 31, 2020 the Company complied with such requirement. ### NOTE 8 - NET CAPITAL REQUIREMENTS The Company is subject to the SEC Uniform Net Capital Rule 15c3-1. The Company computes its net capital pursuant to the alternative method provided for in the Rule, which requires the maintenance of minimum net capital of the greater of \$250,000 or 2% of aggregate debit items. At December 31, 2020, the Company had net capital of \$8,726,647 which was \$8,476,647 in excess of required net capital of \$250,000. {9}------------------------------------------------ ## NOTE 9 - RESERVE REQUIREMENTS AND INFORMATION RELATING TO THE POSSESSION OR CONTROL REQUIREMENTS FOR BROKERS AND DEALERS The Company claims an exemption from the provisions of Rule 15c3-3 of the Securities Exchange Act of 1934, pursuant to paragraph k(2)(ii) for all other transactions cleared on a fully disclosed basis with a clearing broker and that our other business activities met the requirements specified in Footnote 74 of the SEC Release No. 34-70073 adopting amendments to 17 C.F.R. § 240.17a-5 ("Footnote 74"). The Company carries no customers' accounts, promptly transmits customer funds and customer securities to the issuer or the clearing broker and does not otherwise hold funds or securities of customers. Because the Company claims an exemption, the Company is not required to prepare a determination of reserve requirements for brokers and dealers or provide information relating to possession or control requirements for brokers and dealers. # NOTE 10 - CONSOLIDATED SUBSIDIARY The following is a summary of certain consolidating financial information of the Company's consolidated subsidiary, Cetera Advisors Insurance Services LLC, including eliminations, as of December 31, 2020. | Total assets | 31.164 | |--------------------|----------| | l otal liabilities | 53.278 | | Member's deficit | (22,114) | # NOTE 11 - SUBSEQUENT EVENTS The Company has evaluated activity through the date the Consolidated Statement of Financial Condition was issued and concluded that no subsequent events have occurred that would require recognition or disclosure in the Consolidated Statement of Financial Condition, except as noted below. On December 31, 2020, the Company and Magis Financial Partners, Inc. ("Magis") entered into a stock purchase agreement under which the Company will acquire Magis' Registered Investment Advisory business. The closing date of the agreement is expected to be March 1st, 2021. 4 4 4 4 4 4 4 Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.