# CETERA FINANCIAL SPECIALISTS LLC X-17A-5 (2024-02-26) — Broker-dealer annual report - Company: CETERA FINANCIAL SPECIALISTS LLC - Form: X-17A-5 - Filed: 2024-02-26 - Period: 2023-12-31 - Accession: 0000356437-24-000005 - CIK: 700380 - File #: 8-27082 - Type: Broker-dealer - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: Los Angeles, CA - Contact: Rodney Dowell - Phone: 310-341-1853 - Email: rodney.dowell@cetera.com - Website: cetera.com - Signed by: Rodney Dowell (Principal Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/700380/000035643724000005/cfspub.pdf --- {0}------------------------------------------------ CETERA FINANCIAL SPECIALISTS LLC STATEMENT OF FINANCIAL CONDITION AND REPORT OF FINANCIAL CONDITION 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}------------------------------------------------ | | Public | | | | |-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------|--| | | UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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hours per response: 12 | | | | ANNUAL REPORTS | | SEC FILE NUMBER | | | | FORM X-17A-5 | | 8-27082 | | | | PART III | | | | | FILING FOR THE PERIOD BEGINNING | FACING PAGE
Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934
01/01/2023 | | AND ENDING 12/31/2023 | | | | MM/DD/YY | | MM/DD/YY | | | | A. REGISTRANT IDENTIFICATION | | | | | | NAME OF FIRM: Cetera Financial Specialists LLC | | | | | TYPE OF REGISTRANT (check all applicable boxes):
▪ Broker-dealer
_ Check here if respondent is also an OTC derivatives dealer | ് | | ‍ _ Major security-based swap participant | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) | | | | | | 1450 American Lane, 6th Floor, Suite #650 | | | | | | (No. and Street) | | | | | Schaumburg | | | 60173 | | | (City) | (State) | | (Zip Code) | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | Rodney Dowell | (310) 341-1853 | | rodney.dowell@cetera.com | | | (Name) | (Area Code - Telephone Number) | | (Email Address) | | | | B. ACCOUNTANT IDENTIFICATION | | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing* | | | | | Deloitte & Touche LLP | | | | | | | (Name - if individual, state last, first, and middle name) | | | | | | 555 W. 5th Street, Floor 27 - Los Angeles | CA | 90013 | | | (Address) | (City) | (State) | (Zip Code) | | | October 20, 2003 | | 34 | | | | (Date of Registration with PCAOB)(if applicable) | | | (PCAOB Registration Number, if applicable) | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | " Laims for exemption from that the annual reports be covered by the reports of an indepent public {2}------------------------------------------------ ## OATH OR AFFIRMATION ![](_page_2_Picture_1.jpeg) - (q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.17a-12, or 17 CFR 240.18a-7, as applicable. - [ (r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - □ (s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - @ (t) Independent public accountant's report based on an examination of the statement of financial condition. - □ (u) Independent public accountant's report based on an examination of the financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable. - □ (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - □ (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - ロ (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.15c3-1e or 17 CFR 240.17a-12, as applicable. - □ (y) Report describing any material inadequacies found to exist or found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). - D (z) Other: \*\* To request confidential treatment of certain portions of this filing, see 17 CFR 240.17a-5(e)(3) or 17 CFR 240.18a-7(d)(2), as applicable. {3}------------------------------------------------ ![](_page_3_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 Financial Specialists LLC # Opinion on the Financial Statement We have audited the accompanying statement of financial condition of Cetera Financial Specialists LLC (the "Company") as of December 31, 2023, 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, 2023, 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 , 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. -1- Delitte = Touche LLP February 26, 2024 We have served as the Company's auditor since 2016. {4}------------------------------------------------ # cetera financial specialists llc STATEMENT OF FINANCIAL CONDITION as of december 31, 2023 | ASSETIS | | | |--------------------------------------------|---|------------| | Cash and cash equivalents | | 18.476.194 | | Commissions and fees receivable | | 7.750.088 | | Receivable from clearing broker | | 173.811 | | Other receivables | | 1.458.902 | | Deferred charges | | 934.825 | | Other assets, net of allowance of \$12,200 | | 572.666 | | Total assets | S | 29.366.486 | # LIABILITIES AND MEMBER'S EQUITY | LIABILITIES AND MEMBER'S EQUITY | | | |----------------------------------------|---|------------| | LIABILITIES | | | | Commissions payable | S | 8.316.837 | | Related party payables | | 4.726.575 | | Deferred revenue | | 620,771 | | Deferred credit | | 162.373 | | Accrued expenses and accounts payable | | 151.057 | | Regulatory and litigation reserves | | 800.000 | | Other liabilities | | 433.703 | | Total liabilities | | 15,211,316 | | | | | | COMMITMENTS AND CONTINGENCIES (NOTE 7) | | | # COMMITMENTS AND CONTINGENCIES (NOTE 7) | MEMBER'S EQUITY | 14.155,170 | |---------------------------------------|------------| | Total liabilities and member's equity | 29.366.486 | -2- The accompanying notes are an integral part of this Statement of Financial Condition. {5}------------------------------------------------ # NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE COMPANY Cetera Financial Specialists LLC (the "Company") is an introducing broker-dealer registered under the Securities Exchange Act of 1934 and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). The Company provides brokerage and insurance services to the public nationally through independent financial advisors. The Company is a wholly owned subsidiary of Cetera Financial Specialists Services LLC ("Specialists Services") which 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"). 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. ("GC Two"). On October 2, 2023, GC Two entered into an Agreement and Plan of Merger with GC Three Holdings, Inc. ("GC Three") and GC Three Holdings Sub I, Inc. ("Merger Sub"). On December 22, 2023, the Merger Sub merged with and into GC Two with GC Two surviving the merger and continuing as a direct wholly owned subsidiary of GC Three. # NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ### Basis of Presentation The 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 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 Statement of Financial Condition. Accordingly, actual results could differ from those estimates, and these differences could be material. ### Reportable Segment 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 in value because of changes in interest rates. # Commissions and Fees Receivable and Commissions Payable Commissions and fees receivable includes commissions from mutual funds, variable annuities, insurance product purchases transacted directly with the product sponsors, and mutual fund and annuity trailers. Commissions payable related to these transactions are recorded based on estimated payout ratios for each product as commission revenue is accrued. -3- {6}------------------------------------------------ ## Receivable from Clearing Broker Receivable from clearing broker represents commissions and fees earned and collected by the Company's clearing broker, but not yet remitted to the Company. #### Other Receivables Other receivables primarily consist of accrued receivables from the Company's clearing broker related to fees charqed to client accounts, accrued receivables related to cash sweep programs, and accrued reimbursements. ### Securities Owned and Securities Sold, Not Yet Purchased Securities owned are recorded on trade-date basis and are stated at fair value. As of December 31, 2023, securities owned of \$4,193 are included in Other assets. Securities sold, not yet purchased are recorded on trade-date basis and are stated at fair value. As of December 31, 2023, securities sold, not yet purchased of \$52.675 are included in Other liabilities in the Statement of Financial Condition. See Note 3-Fair Value Measurements for more information. # Deferred Charges Deferred charges include unamortized deferred charges including recruiting and transition allowances provided to the Company's advisors. The recruiting allowances are amortized over the estimated advisor's 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, 2023, the Company had unamortized deferred charges of \$934,825. As of December 31, 2023, the weighted average remaining useful life was 14.2 years. #### Other Assets As of December 31, 2023, Other assets include prepaid expenses and advisor advances of \$319,027 net of an allowance for bad debt of \$12,200. The Company estimates expected credit losses for advisor advances based on evaluation of several factors related to credit risk, including financial advisors' affiliation status and advance purpose. Additionally, we consider overall macro-economic factors that mav impact estimated expected credit losses. The methodologies and assumptions used in estimating credit losses are regularly evaluated to determine if our estimates are appropriate with adjustments made on a quarterly basis. #### Deferred Credit Deferred credit primarily consists of rebates received on the signing of the Company's clearing services contract with Pershing LLC which is accreted on a straight-line basis. The unaccreted deferred credit of \$162,373 will be accreted over the remaining life of 1.75 years. #### Deferred Revenue The Company records deferred revenue when cash payments are received or due in advance of its performance, including amounts which are refundable #### Recently Issued Accounting Pronouncements In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This ASU also requires that an entity with a single reportable segment, such as the Company, provide all of the disclosures required as part of the updates and all existing disclosures required by Topic 280. This update is effective for fiscal -4- {7}------------------------------------------------ years beginning after December 15, 2023, with early adoption permitted. The Company does not expect this update to have an impact on its Statement of Financial Condition. # 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, 2023, there were no transfers between Levels 1, 2, and 3. The Company's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis by product category as of December 31, 2023, is as follows: | | | Level 1
Level 2 | | Level 3 | | Total | | | |-------------------------------------------------------------------------|---------|--------------------|---------|---------|---------|-------|-------|---------------| | Assets: | | | | | | | | | | Cash equivalents - money market funds
Securities owned - recorded in | | \$ 17,604,370 | ક | - | સ્ક્ર | | | \$ 17,604,370 | | Other assets: | | | | | | | | | | Mutual funds | | 4,193 | | | | | | 4,193 | | Total securities owned | | 4,193 | | | | | | 4,193 | | Total | | \$ 17,608,563 | S | | નેન | | | \$ 17,608,563 | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | | | Liabilities: | | | | | | | | | | Securities sold, not yet purchased -
recorded in Other liabilities: | | | | | | | | | | Equity securities | S | 20,675 | ತಿ | | S | | ತಿ | 20,675 | | Certificate of deposits | | | | 32.000 | | | | 32,000 | | Total | S | 20,675 | ક | 32,000 | કે | | S | 52,675 | | | | | | | | | | | -5 {8}------------------------------------------------ Cash equivalents include money market mutual fund instruments, which are short term in nature with readily determinable values derived from active markets. Publicly traded 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. Certificate of deposits are fair valued by management using third-party pricing services and are classified within Level 2. #### Fair Value of Financial Instruments not Measured at Fair Value The fair value of cash and cash equivalents was estimated to approximate the carrying value and are classified as Level 1 of the fair value hierarchy The fair value of commissions and fees receivable from clearing broker, other receivables, commissions payable, related party payables, accrued expenses and accounts payable, and other liabilities were estimated to approximate carrying value and classified as Level 2 of the fair value hierarchy due to their short-term nature. ## NOTE 4 - EMPLOYEE BENEFIT PLANS The employees of the Company are covered by a 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 emplover-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 2023 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. See Note 5 - Related Party Transactions for more information. ## NOTE 5 - RELATED PARTY TRANSACTIONS Cetera Financial allocates a portion of its general administrative expenses to the Company based upon factors including total revenues, assets under management, sales volume, number of personnel, and producing advisors. Additionally, Specialists Services allocates a portion of its general administrative expenses to the Company based on number of registered financial advisors. Cetera Investment Services LLC ("CIS"), an affiliate, provides custodial services for certain customer retirement accounts of the Company. 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 Specialists Services and not an affiliate of these other entities. A majority of the Company's advisors hold both securities and advisory licenses. The Company is not a Registered Investment Advisor (RIA), and as such, any advisory business generated by these advisors is recorded at Cetera Investment Advisors LLC ("CIA"), an affiliated RIA. As of December 31, 2023, the Company had total outstanding Related party payables of \$4,726,575 reflected in the Statement of Financial Condition, including an outstanding liability of \$1,611,813 to Cetera Financial and \$777,126 to Specialists Services. Further, Related party payables include a \$2,329,255 outstanding liability to CIA and \$8,346 outstanding liabilities to other affiliates as of December 31, 2023 Cetera Financial may fund note receivables as part of the recruitment effort to the Company's advisors. Those notes typically require the payback of principal and interest to Cetera Financial over periods of three to five 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 passage of time or attainment of certain production targets. -6- {9}------------------------------------------------ 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 temporary cash investments in bank deposit and other accounts, the balances of which, at times, may exceed federally insured limits. Exposure to credit risk is reduced by maintaining the Company's banking relationships with high credit quality financial institutions. ### NOTE 7 - COMMITMENTS AND CONTINGENCIES Legal 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-requlatory 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 on 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. At December 31, 2023, the Company had Regulatory and litigation reserves of \$800,000. 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 requlate 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 requlations. Where possible, the Company endeavors to correct such asserted violations. In certain circumstances and depending on the nature and extent of the violations, the Company may be subject to disciplinary action, including fines. The Company has self-reported to the SEC regarding possible violations of the recordkeeping requirements of the federal securities laws in connection with business-related off-channel communications. During the vear ended December 31, 2023, the Company recognized a liability as it is probable that a liability has occurred and potential civil penalties attributable to the matter have been estimated to be \$625,000, which is included in Regulatory and litigation reserves in the Statement of Financial Condition. When there is indemnification or insurance, the Company may engage in defense or settlement and subsequently seek reimbursement for such matters. Clearing broker - Under the clearing arrangement with the clearing broker, the Company is required to maintain certain minimum levels of net capital and comply with other financial ratio requirements. At December 31, 2023, the Company complied with all such requirements. -7- {10}------------------------------------------------ # 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 15c3-1, which requires the maintenance of minimum net capital of the greater of \$250,000 or 2% of aggregate debit items. At December 31, 2023, the Company had net capital of \$7,991,853, which was \$7,741,853 in excess of required net capital of \$250,000. ### 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 paragraphs k(2)(i) for customer transactions processed directly with the issuer and k(2)(i) 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 - SUBSEQUENT EVENTS The Company has evaluated activity through the date the Statement of Financial Condition was issued and concluded that no subsequent events have occurred that would require recognition or disclosure in the Statement of Financial Condition. -8- \*\*\*\*\*\*\* Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.