# CETERA FINANCIAL SPECIALISTS LLC X-17A-5 (2020-03-02) — Broker-dealer annual report - Company: CETERA FINANCIAL SPECIALISTS LLC - Form: X-17A-5 - Filed: 2020-03-02 - Period: 2019-12-31 - Accession: 0000700380-20-000001 - CIK: 700380 - File #: 8-27082 - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: Los Angeles, CA - Contact: Mark Shelson - Phone: 320-229-3191 - Website: deloitte.com - Signed by: Mark Paul Shelson (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/700380/000070038020000001/CFSPUBL2019.pdf --- {0}------------------------------------------------ CETERA FINANCIAL SPECIALISTS LLC (SEC I.D. No. 8-27082) STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2019 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: August 31, 2020 Estimated average burden hours per response… 12.00 **ANNUAL AUDITED REPORT** SEC FILE NUMBER **FORM X-17A-5** 8-27082 I I # **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 | 01/01/19 | AND ENDING | 12/31/19 | | |--------------------------------------------------------------------------|--------------------------------------------------------|------------|-----------------------------|--| | | MM/DD/YY | | | | | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF BROKER-DEALER: | | | | | | Cetera Financial Specialists LLC | | | OFFICIAL USE | | | | | | ONLY
__________________ | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM I.D. NO. | | | 200 North Martingale Road | | | | | | | (No. and Street) | | | | | Schaumburg | IL | | 60173 | | | (City) | (State) | | (Zip Code) | | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT | | | | | | Mark Paul Shelson | | | (320) 229-3191 | | | | | | (Area Code - Telephone No.) | | | | B. ACCOUNTANT IDENTIFICATION | | | | | | | | | | | 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, #2700
Los Angeles | | California | 90013 | | | (Address)
(City) | | (State) | (Zip Code) | | | CHECK ONE: | | | | | | •
X
Certified Public Accountant | | | | | | •
Public Accountant | | | | | | •
Accountant not resident in United States or any of its possessions. | | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | | | | | | \**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}------------------------------------------------ # **OATH OR AFFIRMATION** I, Mark Paul Shelson, affirm that, to the best of my knowledge and belief, the accompanying financial statements and supplemental schedules pertaining to Cetera Financial Specialists LLC (the "Company") as of and for the year ended December 31 , 2019, are true and correct. I further affirm that neither the Company nor any officer or director has an . o ri t interest in any account classified solely as that of a customer. ![](_page_2_Picture_2.jpeg) January **31, .2025** *);-.P4.-1'~.,..,* ignature 02.28.20 Date Chief Financial Officer Title This report\*\* contains (check all applicable boxes): - (x) Report of Independent Registered Public Accounting Firm - (x) (a) Facing Page - (x) (b) Statement of Financial Condition - ( ) (c) Statement of Income - () (d) Statement of Cash Flows - ( ) (e) Statement of Changes in Member's Equity - ( ) (x) (f) Statement of Changes in Liabilities Subordinated to Claims of General Creditors (Not Applicable) Notes to Financial Statements - ( ) (g) Computation of Net Capital for Brokers and Dealers Pursuant to Rule 15c3-1 under the Securities Exchange Act of 1934. - ( ) (h) Computation for Determination of Reserve Requirement for Brokers and Dealers Pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. - ( ) (i) Information Relating to the Possession or Control Requirements for Brokers and Dealers Pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. - ( ) U) A Reconciliation, including Appropriate Explanations of the Computation of Net Capital under Rule 15c3-1 (included in item g) and the Computation for Determination of the Reserve Requirements under Exhibit A of Rule 15c3-3 (Not Required). - () (k) A Reconciliation Between the Audited and Unaudited Statements of Financial Condition with Respect to Methods of Consolidation (Not Applicable). - (x) (I) An Oath or Affirmation. - (x) (m) A Report describing the Broker-Dealer's Compliance with the Exemption Provisions of Section k of SEC Rule 15c3-3 (the "Exemption Report") and Report of Independent Registered Public Accounting Firm Thereon. \*\* For conditions of confidential treatment of certain portions of this filing, see Section 240.17a-5(e)(3) {3}------------------------------------------------ # **Deloitte.** **Deloitte & Touche LLP** 555 West 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, 2019, 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, 2019, 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 28, 2020 We have served as the Company's auditor since 2016. {4}------------------------------------------------ #### **CETERA FINANCIAL SPECIALISTS LLC** # **STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2019** | ASSETS | | |--------------------------------------------|---------------| | Cash and cash equivalents | \$ 6,264,108 | | Fees and commissions receivable | 8,194,162 | | Receivable from clearing broker | 248,480 | | Other receivables | 940,583 | | Other assets, net of allowance of \$37,776 | 539,710 | | Total assets | \$ 16,187,043 | #### **LIABILITIES AND MEMBER'S EQUITY** | LIABILITIES | | |---------------------------------------|--------------| | Commissions payable | \$ 5,386,739 | | Related party payables | 746,694 | | Deferred revenue | 356,713 | | Accrued expenses and accounts payable | 302,339 | | Other liabilities | 293,089 | | Total liabilities | 7,085,574 | #### **COMMITMENTS AND CONTINGENCIES (NOTE 7)** | MEMBER'S EQUITY | 9,101,469 | |---------------------------------------|---------------| | Total liabilities and member's equity | \$ 16,187,043 | The accompanying notes are an integral part of this Statement of Financial Condition. {5}------------------------------------------------ # **CETERA FINANCIAL SPECIALISTS LLC** #### **NOTES TO STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2019** # **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. # **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 financial statement. 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 all highly liquid instruments purchased with original maturities of 90 days or less. # **Commissions Receivable and Payable** Commissions 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. # **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. {6}------------------------------------------------ # **Other Receivables** Other receivables primarily consist of accrued receivables from the Company's clearing broker related to fees charged to client accounts and accrued reimbursements. # **Securities Owned, and Securities Sold, Not Yet Purchased** Securities owned, and securities sold, not yet purchased are recorded on trade date basis, and are stated at fair value. As of December 31, 2019, securities owned of \$7,034 are included in other assets. Securities sold, not yet purchased of \$6,102 are included in other liabilities as of December 31, 2019. See Note 3- Fair Value Measurements for more information. # **Other Assets** As of December 31, 2019, other assets include prepaid expenses and advisor advances of \$152,156 net of an allowance for bad debt of \$37,776. Management establishes an allowance that it believes is sufficient to cover any probable losses. When establishing this allowance, management considers a number of factors, including its ability to collect from the financial advisor and the Company's historical experience in collecting on such transactions. #### **Recently Adopted Accounting Pronouncements** In December 2019, the FASB issued ASU 2019-12, "Simplifying Accounting for Income Taxes", which modifies ASC 740, Income Taxes, as part of its simplification initiative. ASU 2019-12 eliminates certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The Company early adopted ASU 2019-12 for the year ended December 31, 2019 and, therefore has not included deferred tax assets and liabilities within the Statement of Financial Condition as it is a single member LLC that is disregarded by the taxing authority and not subject to income tax on a stand-alone basis. The adoption did not have a material impact on this Statement of Financial Condition. 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 Statement of Financial Condition. 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. ASU 2018-13 becomes effective beginning after December 15, 2019. The Company adopted the provisions of this guidance on January 1, 2020. The adoption did not have a material impact on the Company's 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: {7}------------------------------------------------ *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, 2019, there were no transfers between Levels 1, 2 and 3. The Company's fair value hierarchy for those assets measured at fair value on a recurring basis by product category as of December 31, 2019 is as follows: | | Level 1 | Level 2 | Level 3 | Total | |----------------------------------------------------------------------------------------|--------------|----------------------|--------------|----------------------| | Assets: | | | | | | Cash equivalents - money market funds | \$ 5,755,296 | \$
- | \$
- | \$ 5,755,296 | | Securities owned - recorded in Other Assets: | | | | | | Equity securities | 7,034 | - | - | 7,034 | | Total securities owned | 7,034 | - | - | 7,034 | | Total | \$ 5,762,330 | \$
- | \$
- | \$ 5,762,330 | | | | | | | | | | | | | | | Level 1 | Level 2 | Level 3 | Total | | Liabilities: | | | | | | | | | | | | Securities sold, not yet purchased - recorded in Other Liabilities:
Corporate bonds | | | | | | Municipal bonds | \$
-
- | \$
1,004
5,098 | \$
-
- | \$
1,004
5,098 | 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. Municipal bonds and corporate bonds are fair valued by management using third-party pricing services and are also classified within Level 2. #### **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 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 2019 and relied on Cetera Financial to cover all eligible employees. All benefits that were paid by Cetera Financial {8}------------------------------------------------ were charged back to the Company for reimbursement. See Note 5 – Related Party Transactions for more information. # **NOTE 5 – RELATED PARTY TRANSACTIONS** Specialists Services allocates a portion of its general administrative expenses to the Company based on number of registered financial advisors. Such expenses include compensation and benefits, overhead services related to marketing and communication, IT, finance and administration, operations and risk management, office space, and other expenses. 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. As of December 31, 2019, the Company had an outstanding liability balance from Specialists Services of \$50,076. The Company had an outstanding related party payable of \$746,694 net of a \$16,661 related party receivable from other affiliates, reflected in the Statement of Financial Condition. Related party payable of \$763,355 consists of \$713,279 outstanding liability to Cetera Investment Advisers LLC ("CIA") and \$50,076 outstanding liability balance to Specialists Services as of December 31, 2019. 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 3 to 12 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. ## **NOTE 6 – OFF BALANCE SHEET 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-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 violations, the Company may be subject to disciplinary action, including fines. {9}------------------------------------------------ Defense costs related to legal and regulatory proceedings are expensed as incurred and classified as professional services within the Statement of Income. When there is indemnification or insurance, the Company may engage in defense or settlement and subsequently seek reimbursement for such matters. The Company 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 and comply with other financial ratio requirements. At December 31, 2019 the Company complied with all such requirements. ### **NOTE 8 – NET CAPITAL REQUIREMENTS** The Company is subject to the Securities and Exchange Commission 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, 2019, the Company had net capital of \$4,073,998, which was \$3,823,998 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)(ii) for all other transactions cleared on a fully disclosed basis with a clearing broker. 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. \* \* \* \* \* \* Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.