With LPL Financial trying to woo thousands of National Planning Holdings advisors while fending off the long-term threat posed by RIAs, the firm is offering advisors a better deal on its corporate RIA.
Starting next year, the nation’s largest independent broker-dealer will assess lower and flattened administrative fees for advisory assets on the platform, LPL Managing Director for National Sales and Consulting Andy Kalbaugh announced in a memo to advisors this week.
The new rates follow another recent policy change. Starting Jan. 1, new advisors joining LPL must have more than $50 million in advisory assets to create their own RIA or to join one using only LPL's separate hybrid platform. The two changes go hand in hand, one recruiter says.
“It’s another maneuver by them to get people off the outside custodians and onto the corporate platform,” Louis Diamond of Diamond Consultants says, calling the lowered fees a win for advisors already on the platform and a boon to LPL’s compliance efforts and bottom line.
“They did an analysis and they know it’s much more profitable and safer to have people on the corporate platform. And if they lose people because of it, I think it’s a calculated risk.”
BREAKING DOWN THE CHANGES
The price reduction affects the firm’s Strategic Asset Management platform, but it will apply to all advisory assets within the corporate RIA, according to the firm. LPL will reimburse advisors’ administrative fees to provide the discount, taking existing reimbursements into account.
Advisors with $50 million to $100 million in custodied advisory assets will pay 5 basis points, and those with more than $100 million will pay 3 basis points. The lower, standardized rates come “as a result of the scale we’ve achieved together on our advisory platforms,” Kalbaugh told advisors.
“These changes make the administrative and compliance services LPL provides through our corporate RIA platform more valuable than ever,” he wrote.
“In the future, we will continue to simplify our billing process by directly charging flat basis point amounts on advisor asset levels. For now, we hope you can take advantage of these savings and gain new operating efficiencies in your practice.”
LPL spokesman Jeff Mochal says that because pricing levels vary, it’s not possible to say how much the administrative fees for advisors will go down.
The corporate platform’s advisory assets grew 16% year-over-year to $145 billion in the third quarter, while the hybrid RIA platform’s advisory assets jumped 31% to $105.2 billion. The key question spurred by the rate cut, one hybrid advisor says, is whether it will attract hybrid RIAs to the corporate side.
Eric Aanes’ Larkspur, California-based Titus Wealth Management went to the hybrid platform in part because the corporate platform had higher fees. The changes unveiled by Kalbaugh, along with bulked-up regulation of smaller RIAs, have changed the equation, Aanes says.
“With the new pricing, it’s giving us cause to hit the refresh button and look at the corporate again versus the hybrid,” he says.
Risk management services are also causing LPL’s hybrid platform advisors to consider the corporate platform, CEO Dan Arnold said last month. Compliance and technology play a major role in all IBDs’ efforts to stem the flow of advisors and assets to fully independent RIAs, Cerulli Associates says.
“Given that advisors who are considering the RIA channel are highly concerned about their compliance responsibilities, compliance support can be a positive differentiator for BDs,” according to a report released last week by the consulting firm.
Recruiting and retention remains a paramount concern for LPL. The firm’s headcount has fallen by a net 124 advisors this year to 14,253 ahead of an influx of up to 3,200 NPH advisors from LPL’s recent massive acquisition.
Arnold views the RIA policy changes as a recruiting and retention perk rather than an issue of picking a winner between the hybrid and corporate parts of LPL’s advisory business, he says.
The rate cut and the back-office support make for “a really appealing trade for an advisor,” and LPL made the changes “all in the spirit of helping free up the advisor,” he said in remarks at the firm’s investors day event Wednesday.
“We would expect that platform now to retain more advisors on the corporate RIA than necessarily moving over to the hybrid, even if they qualify,” Arnold said.
LPL and all IBDs face a growing challenge from RIAs, though. New RIA registrations soared 75% over the past five years, Cerulli says. Firms submitting initial filings to the SEC last year brought a combined $55 billion in new assets under management to the industry’s independent RIA channel.
The price cut serves LPL’s purposes as a way to boost its marketability for prospective recruits, according to Bill Butterfield, a senior analyst with consulting firm Aite Group. However, the new rates come after LPL unveiled the policy mandating at least $50 million in advisory assets for new hybrid advisors, he noted in an email.
“That amount could keep going up and up,” Butterfield wrote. “It’s anti-independent in my mind, but apparently the economics of the old model were not good for LPL. There are plenty of other firms out there for hybrids to choose from.”