Can LPL Financial get the adviser recruits it needs to stay competitive as the nation's largest independent broker-dealer?
Bill Morrissey, LPL's chief recruiter, argues that the IBD is well positioned to capitalize from the new Department of Labor fiduciary rule. For one, the rule is expected to accelerate consolidation and push advisers to new homes.
"The DoL rule is going to force advisers to take a really hard look at their broker-dealer and decide if they will be a long-term partner," Morrissey says. LPL's ability to provide the tools, platform and service to comply with the rule will be a major recruiting advantage, he argues.
But it may not be enough, say executive search firm executives.
"Thoughtful advisers have many more options now," says Danny Sarch, president of Leitner Sarch Consultants. "Everyone is considering going independent and there is more competition than ever before. Advisers can play LPL and its competitors against each other to bid for their services, so it's a much more challenging [recruiting] environment."
WHAT ADVISERS ARE LOOKING FOR
And while LPL touts its size and scale as a plus, the company's heft can also work against it, maintains Howard Diamond, managing director for Diamond Consultants.
"I think that LPL will continue to have challenges with their adviser recruiting this upcoming year," Diamond says.
"LPL advisers who we are speaking with are looking for a more independent and entrepreneurial experience. They would be more inclined to look into the RIA space where they would not be as limited and have the overarching oversight that comes with an LPL."
STAGNANT ADVISER GROWTH
Indeed, LPL's adviser growth was stagnant last year.
The IBD had 14,054 advisers at the end of the year, a gain of only 18 advisers over 2014.
Previously, the firm had set — and often achieved — annual goals of adding over 300 net new advisers annually. In a research report earlier this year, UBS analyst Alex Kramm noted last year's sluggish activity: "Underlying growth metrics were unimpressive, as adviser growth and client assets missed expectations and net adviser growth slowed," Kramm wrote.
But 2015 was the firm's third-best recruiting year on record, based on adding advisers that produce greater revenue, Morrissey, an LPL managing director, points out. And there was a recruiting uptick in the first quarter of 2016, as LPL added 39 new advisers.
What's more, a more stable industry environment should result in further adviser recruiting gains for the second half of the year, Morrissey predicts.
Steadier financial markets, decisive signals from the Fed and the release of the DoL rule should serve as a "catalyst" to boost what has to date been tepid adviser movement, Morrissey says.
ASSETS VS. ADVISERS
But Morrissey also contends that net adviser growth is no longer as important a metric as net new assets or net new adviser assets. "We want to tell the story differently," Morrissey says.
Client assets are more important than having a certain number of advisers, says Bill Butterfield, senior analyst for Aite Group. "But the margins are quite thin in the IBD space, and to grow revenues you either need more advisers or the existing advisers need to bring on new client assets," he notes.
"Morrissey is right and wrong," he says. "Yes, a firm is ultimately judged by net new assets. But you can't grow new assets successfully without significant recruiting growth. Are they going to get that kind of asset growth from existing advisers bringing in twice as many assets? Good luck with that."
In a mature, fragmented industry with a shrinking pool of advisers, Morrissey argues that LPL's considerable resources will give the company a significant advantage in a highly competitive market.
"We think we can be the destination of choice by being more efficient and offering the kind of expertise in technology, operations, compliance and training that advisers couldn't get locally," Morrissey says.
Advisers can also be persuaded to join an IBD by cash incentives, especially capital for transition support.
LPL provides advisers and firms with money to cover "fixed and variable costs of financially making a change," Morrissey says, based on the volume of business, the mix of the business, the number of accounts and expenses.
Transition assistance is typically not the focal point for a bidding war among competing IBDs, according to Morrissey. Most firms are within "a couple of hundred basis points of each other" on offers, he maintains.
But transition deals, especially for larger producing advisers, are negotiable, Diamond notes.
"The larger the team and the more the firm wants that team dictates how negotiable the firm will be," he says. "They could also offer other inducements to the adviser such as paying all ACAT fees and paying for firm-wide conference attendance for the first year or so. We have also seen firms offering enhanced 'boots on the ground' transition teams that come to the advisers' office for a certain period of time after they join the new firm."
MERITS OF SIZE
The choice often comes down to LPL's massive size, which can be a double-edged sword, Morrissey and outsiders agree. "We hear about size, absolutely," Morrissey says. "People were saying it was too big when I joined 12 years ago and we had 5,000 advisers. Our job is to shrink the company for the adviser. The paradox is that it's only through size and scale that we can deliver the personal service experience that advisers want."