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LPL eyes employee channel to become ‘next generation’ IBD

LPL Financial is marching into the employee broker-dealer sector as it seeks to create what its CEO calls “the next generation of the independent model.”

The No. 1 independent broker-dealer agreed on May 17 to buy a small firm named Allen & Company in a deal that would make the selling BD's 30 advisors LPL employees under the Allen brand. LPL would gain custody of $3 billion in client assets from Wells Fargo Clearing Services.

Allen & Co. acquisition

The deal followed LPL recruiting seven new financial advisors with $1.6 billion in combined client assets in moves by four teams over a six-week span. In its first-quarter earnings, LPL said it had amassed a record $30.8 billion in recruited assets over 12 months.

The day after the Allen deal was announced, LPL CEO Dan Arnold described the acquisition in his remarks at an investors day event as an “extension” and “a different version” of independence The deal also demonstrates LPL's foray into a market it estimates is about one-third of the $11-trillion employee segment of wealth management, he said.

“Advisors continue to prefer using the independent model to deliver their craft. And so we expect this ongoing structural trend from the employee model to the independent model to continue,” Arnold said. “We actually now see opportunity across that entire independent space, as well as certain components of the employee-based model.”

Acquiring the 86-year-old brokerage and RIA, Arnold added, shows how LPL aims to “wrap some employee services” around an independent offering while continuing to innovate “around our core platform.” He says Allen’s advisors will also receive higher payouts under LPL.

The parties didn’t disclose the terms of the deal, which they expect to close by the end of the year and estimate will cost about 7 times Allen’s EBITDA after the deal. LPL agreed to pay an initial price tag plus contingency based on retention of assets.

Planners ranging from sole practitioners to the largest OSJ enterprises welcomed the CEO’s comment that the firm's culture was not aligned with its strategy.
September 4

Lakeland, Florida-based Allen will maintain its current operations and brand at its three Central Florida offices with nearly 70 employees after the deal. The setup will allow Allen to “take our business to the next level,” according to Chairman Ralph Allen, whose father founded the firm in 1932.

The deal provides “enhanced investment and technology platforms so that we can continue to focus on serving our clients,” Allen said in a statement, citing LPL’s “advisory and centrally managed platforms, open-architecture product offering, and integrated clearing capabilities.”

GUNNING FOR GROWTH
LPL’s headcount expanded by a net 122 advisors year-over-year in the first quarter to 16,189 representatives. The new teams came from the Atria Wealth Solutions-owned firms CUSO Financial Services and Cadaret, Grant, as well as Advisor Group’s FSC Securities. LPL also retained a major team from an office of supervisory jurisdiction that launched its own IBD.

  • Financial advisors Gina Bayer and Sam Solgan of Capitola, California-based Bay Federal Credit Union joined LPL’s bank and credit union channel on March 29, according to FINRA BrokerCheck. The program manages $215 million in client assets.
  • On the same day, Graham Nelson of Clinton, New York-based Mohawk Valley Capital Management also affiliated with LPL. Nelson’s team has $130 million in client assets.
  • Sherman Oaks, California-based Trace Wealth Advisors — a fee-only firm with $1.1 billion in AUM — came to LPL’s corporate RIA on April 22, SEC records show. Founder Peter Heilbron had tenures with Northern Trust, RBC Capital Markets and Citigroup.
  • On May 8, LPL hybrid RIA Integrated Partners announced it recruited Jeremy Commeret of Visalia, California-based Hermès Wealth Strategies. Commeret's practice — which has $170 million in client assets — is staying with LPL rather than going to its prior OSJ’s new IBD.
  • Michigan Retirement Advisors President Steve Case and advisors Evan Pawloski and Adam Weiner brought the Bloomfield Hills-based team to LPL on May 9. The practice has $140 million in client assets.

The firm used the May 22 investors day in New York to show off its significant clout and growing ambition. LPL now plans to spend $150 million on technology upgrades in 2019 — up from its previous expected expense of $135 million — according to Chief Investment Officer Burt White.

Spending that much on tech would represent a 50% bump from two years ago. It also constitutes a higher sum than the total annual revenue of many mid-size IBDs.

LPL also seeks to provide services to advisors that currently spend $1 billion a year to buy from third parties, Arnold told analysts. The ideas in what he calls LPL’s “innovation sandbox” include a virtual c-suite, training for new advisors, lead generation services, succession planning and marketing tools.

Enhanced independent advisory offerings for RIAs and the new push into the employee channel will enable LPL to compete on 60% of the estimated $20-trillion wealth management industry, compared to 20% currently, according to Arnold.

“We see the pace and the magnitude of change only accelerating as we go forward, which is having a big impact on the needs of our advisors and clients,” Arnold said. “We’re spotting more and more places to stretch that vertical integration and create more layers of value.”

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