The largest firms that affiliate with LPL Financial have suffered two potentially significant setbacks:

  • The leading IBD eliminated a division that provided customized consulting to the firms, known as super OSJs, large offices of supervisory jurisdiction.
  • The company also set up potential conflict between two camps of its 14,000 advisers – those who affiliate through OSJs and those affiliated directly with LPL – by paying recruiters more to attract the latter.

LPL often pays more for advisers in OSJs, which supervise and provide support and services to other independent advisors, because of those large firms' bargaining strength. The changes appear to be aimed at cost-savings, several CEO of super OSJs said.

(Image: Bloomberg News)
(Image: Bloomberg News)

Neither move represents a rollback of LPL's commitment to its super OSJs, LPL President Dan Arnold said in an interview. The elimination of two members of the firm’s enterprise management consulting team is allowing LPL to shift resources to other consulting activities of higher value to large OSJs, Arnold said.

"We thought, 'Let's redeploy that into other capabilities for the large enterprises,' " he said. "Same net investment. We are just optimizing what we believe is a better investment."
The recruiting change was driven by concerns about the best interests of advisers, as well as profitability, he added.

"It's more about ensuring we do the right, smart thing as a business," Arnold says.

The moves come at a time when LPL is facing financial pressure, from paying millions of dollars in regulatory fines and the influence of an activist shareholder who advocated for a substantial – and costly – stock buyback.

However, any decision that could impact OSJs negatively looks like a departure from previous strategy, given that LPL has historically touted OSJ affiliation due to those firms' small company appeal – small, that is, in comparison with LPL's ranking in the annual FP50 as the largest independent broker-dealer in the country.


As a result of the recent changes, LPL will compete against its own OSJs, says one OSJ leader who asked to remain anonymous so as not to roil his relationship with his BD.

“Now a recruiter that used to assist us with bringing an adviser into our office [is] more inclined to bring an adviser [directly] to LPL," he said.

Another executive of a super OSJ affiliated with LPL, Gary Campbell, CEO of Financial Advocates of Olympia, Wash., with 195 advisers nationwide, said, "It's a first because they have had straight compensation" for recruitment of both adviser categories in the past.

The move creates "extra conflict" among advisers, Campbell acknowledged, but added: “If you are running a business [like LPL], you are going to have conflict."

Jeff Thiesen, co-founder of Fresno, Calif.-based super OSJ Thiesen Dueker Financial Consulting Group, with about 50 advisers, says his firm has taken on risk by opening attractive new office space for recruits; it needs to fill those spots.

"As a big OSJ that depends upon recruiting advisers into multiple branches that we have, I'd be lying if I didn't say it were a frustrating new policy in general," Thiesen says. "However in a corporate perspective, meaning LPL having to answer to shareholders, I understand that the profitability margins are probably higher on people who are individually recruited into home office supervision." He adds that he’s spoken with LPL recruiters and feels confident they will continue to keep his firms' interests a priority.

"It frustrates me, but I do feel that our relationships are going to overcome the difficulty in compensation that's been put in place," he says.

The changes didn't come as a surprise to Campbell, who says that, because of the size of his firm, he was included in discussions with LPL about the issues. With so many new financial pressures on the BD business overall, he says LPL is being forced to reinvent itself.


"I don't feel like it's been an adversarial matter for us," he says. "They are taking a look at policies they made in recent years, so they are saying, 'Maybe we should change this.' … They are very open about where their margins are."

The leader of the smaller OSJ who requested anonymity says he was not included in LPL's discussions about either move. As a result, both caused distress. His OSJ had been awaiting the next phase of input from its consultant in LPL’s business development division, called the enterprise management team. Now that work will go unfinished.

Most of the larger super OSJs, however, found that they no longer required assistance from the team, Arnold said. LPL trumpeted the team's launch in 2013.

Although the business development reps did provide helpful input for his firm, Campbell says he sees why LPL chose to cut it. "Because it was so custom, I don't think there was any way to expand it," he said.

Regarding the other changes, “Realistically, I think it makes sense for LPL to [pay different recruiting fees] because if a contract has a higher payout, it means a lower margin business," Campbell says.

The adviser from the smaller OSJ sees the recruiting change through a darker lens.

"It's a straw," he says. "It's not necessarily the one that's breaking the camel's back, but you couple it with the impact of taking this consulting team away … and it's adding up."

The recruiting pay differential could create new and unexpected costs for LPL, he thinks. For example, he says, one reason recruitment into OSJs has always been popular is because transitions tend to go more smoothly for advisers who aren't left to interact with LPL directly on their own.

Many new recruits "will have to do compliance work with LPL directly, so LPL's call volumes into their service center will increase exponentially," he says. "In my opinion, this hasn't been thought through."

In response to these concerns, Arnold says the changes were considered carefully, and that LPL will continue to heavily promote the importance of the OSJ model.

"We are very committed to trying to help our existing practices by adding additional advisers," Arnold says. "We provide significant capital each and every year in order to do that."