LPL beats retention expectations in $300M Waddell & Reed deal

The nation’s largest independent broker-dealer is learning how to get bigger better.

LPL Financial secured commitments from advisors serving 95% of Waddell & Reed’s wealth management client assets, compared to retention of just 70% from itslast acquisition of a comparable size nearly four years earlier, National Planning Holdings. Australian firm Macquarie Asset Management completed its $1.7-billion acquisition of Waddell & Reed’s asset management business on April 30,spinning off the wealth unit to LPL for $300 million in the process.

More than 900 Waddell & Reed financial advisors will add to LPL’s rising headcount of 17,672 representatives in coming months, along with another 170 as part of the second of two massive incoming bank-channel recruiting deals this year. In an earnings call after the firm’s first-quarter earnings, analyst Steven Chubak of Wolfe Research asked CEO Dan Arnold to reflect on the firm’s plans for M&A, in light of its latest deal and the $325-million acquisition of NPH in 2017.

“If you look at the drivers of the difference in these two transactions, I think most of it [was] activities that we control or drive — where we maybe didn't do them as well back in 2017, ‘18 and we did them much better today — things like being able to automate and streamline the transition of assets and advisors moving from one place to the next,” Arnold said, according to a transcript by Seeking Alpha.

“Our ability to take a strategy,” he continued, “and go deliver it in a simple articulate manner to help advisors understand what that experience would be like — what their structure, what their economics will be like on the other side of that transaction — and do it at pace and clear, you begin to create the right dialogues very quickly that lead to good outcomes.”

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In light of the lessons from the two deals, he added that, with respect to whether the firm will make more deals, “based on our strategy, the absolute answer would be yes.”

LPL also disclosed other metrics from its acquisition of the Overland Park, Kansas-based wealth manager that prompted CFO Matt Audette to update the company’s forecasts after the first quarter. The company now expects to spend $110 million worth of onboarding costs including transition assistance on top of the price tag. Its first estimate was $85 million. Due to the 95% retention, though, the annual EBITDA from the deal is $80 million — up from $50 million.

The “better-than-expected” retention and growing use of LPL’s portfolio management technology and services among advisors led analyst Pauline Bell of CFRA Research to boost the firm’s 12-month price target by $10 to $175 per share, Bell said in a note.

LPL’s last onboarding after a big acquisition didn’t go quite as smoothly: the firm retained 1,841 advisors out of an estimated 3,200 at the four NPH firms whose assets LPL acquired from Jackson National Life Insurance. LPL held on to a higher share of the assets, but rivals swooped in to recruit teams out of the incoming group in droves. The firm appointed Rich Steinmeier its head of business development the following year.

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The 95% retention from Waddell and Reed matches the level of production that rival Advisor Group kept in its fold when its largest IBD, Royal Alliance Associates, acquired Signator Investors from John Hancock in 2018. Advisor Group added 1,860 advisors and 93% of the incoming wealth manager’s assets. The firm hasn’t released its exact retention in last year’s Ladenburg Thalmann acquisition, but Moody’s Investors Service said in January that the private equity-backed rival “exceeded its advisor retention targets” for the $1.3-billion deal.

LPL competitors like Advisor Group and Ameriprise have notched a few recruiting wins among former Waddell & Reed teams, though nothing like the blitz LPL encountered after the NPH deal. In its last monthly assets under management statement, the incoming firm reported that it had 1,298 advisors and licensed associates as on March 31. Based on the numbers released by LPL, it expects the incoming group of advisors to bring more than $67 billion in client assets.

“Waddell & Reed advisors are seasoned and well-regarded throughout the industry and are a strong cultural and strategic fit with us,” Arnold said in a statement after the close of the deal. “Waddell & Reed and Macquarie have been strong partners throughout the process, and we look forward to our ongoing collaboration.”