LPL recruiting ‘closer to normal’ after launching new breakaway channel

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Faced with the economic fallout from the coronavirus and heightened competition for breakaway advisors going independent, LPL Financial isn’t resting on its laurels as the No. 1 IBD.

“We've seen a significant increase in activity,” says Rich Steinmeier, LPL’s divisional president for business development. “We've seen April come back to an engagement level that looks much closer to normal.”

So far this year, LPL has recruited more than double the advisors and $1 billion in client assets above its nearest independent broker-dealer rival, Raymond James, according to public recruiting announcements by the firms. The strong first quarter follows a record recruiting year for LPL.

On the other hand, rivals have shown more success with breakaways. LPL has disclosed only one new breakaway advisor from an employee BD in 2020. The Raymond James IBD channel has unveiled four new teams from wirehouses and regional firms, while Kestra Financial and Wells Fargo Advisors Financial Network have announced two breakaway teams apiece this year.

Steinmeier cites a slowdown that is starting to lift, with incoming ex-employee advisors slated to be publicly announced next week. LPL is ramping up its own W-2 advisor model after purchasing an employee BD for $34.9 million in 2019. On April 22, LPL also launched a new channel aimed at ex-wirehouse and employee BD teams called Strategic Wealth Services.

“They can be the lead advisor and the CEO, but they don't have to be the COO — a lot of that work gets done for them,” Steinmeier says of the program, which LPL calls a new affiliation even though incoming advisors won’t be employees or use a different RIA structure.

LPL and Raymond James lead in recruiting as M&A deals and new appointments show coronavirus impact
The firms have grabbed some three-fourths of the announced incoming advisors, as the pandemic cuts into valuations and casts uncertainty.

One pilot team is already using the package of transition and ongoing services, Steinmeier adds. He describes the target group of advisors as “the folks who really want to run their own practice, but they need the support to get there and they need the professional support to run it.”

Still, LPL’s adjusted earnings per share could tumble by 42% from their expected level in 2020 due to the sharp drops in equity values and interest rates affecting every wealth management firm, according to an April 7 note by analyst Chris Shutler of William Blair. The RIA movement also carries “mixed implications” because of LPL’s other rivals in the channel, he notes.

Shutler predicts lighter recruiting over the next three to six months due to the coronavirus pandemic. However, LPL’s recruiting and M&A opportunities will “improve relative to other broker-dealers” with higher debt from private equity deals, lower margins and less independence, he says.

LPL aims to press its advantage by connecting breakaway teams with relationship managers and teams who perform functions like real estate, payroll, technology, marketing and other operations. It also offers outsourced business solutions à la carte to all its 16,500 advisors.

The new expanded suite comes with a service fee out of a 100% payout. The level will vary based on the breakaway advisor’s practice, but the “economic performance of the firm will accrue to them much more significantly” than with an employee BD, according to Steinmeier.

“They just need to tell us what they want to be and how they want the practice to come together,” he says. The resources amount to a “relationship management structure that reflects the complexity of their businesses and the unique nuances,” he adds.

Steinmeier declined to state any specific timeline for rolling out LPL’s W-2 model. In LPL’s fourth-quarter earnings call, CEO Dan Arnold referred to Strategic Wealth Services as LPL’s “new premium offering” under its efforts to expand affiliation models for advisors.

“Our whole mantra is, we have to meet them where they are in the evolution of their practices and the flexibility of our solutions and alternatives should be available to them,” Arnold said. “They can decide which one is best for them.”

LPL added a net 355 advisors in 2019 with a record $35 billion in recruited client assets. Its momentum only let up after the first two weeks of March and is beginning to pick back up, according to Steinmeier. The fact that more clients are available to speak with advisors during the coronavirus crisis is reducing three-month transition processes to one month, he says.

Many advisors are taking this time to reflect on where they'd ultimately like to land, Steinmeier says. Still, he adds, “It takes some fortitude to make a move at this point.”

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