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LPL in full court press to comply with DoL rule, execs tell advisers

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SAN DIEGO -- LPL Financial President Dan Arnold likened compliance with the Department of Labor's new fiduciary rule to climbing an "ugly and difficult hill" at the organization’s annual conference.

But once it became clear the rule would be a done deal, LPL rapidly shifted resources from fighting it to figuring out how to adapt quickly to gain a market advantage over rivals, he said.

"In the midst of working and thinking about how to comply with this rule, we realized that every single person in the industry has to make the same climb," Arnold said. By lowering prices and account minimums across its offerings, among other changes, LPL decided it could come into compliance "from a place of strength," he said.

As the country's largest independent broker-dealer has slashed prices on many of its services, some outsiders are predicting a large drop in its bottom line.


Tuesday’s main stage morning presentation focused on the nitty gritty details – those now in the works – of how LPL plans to help its advisers become fiduciaries.

All of the country's advisers and brokers, including largely commission-driven ones, legally become fiduciaries by April 2017 when advising on retirement accounts. As such, they must put their clients' financial interests before their own.

To help them serve clients at this higher standard, Arnold said, LPL has lowered platform fees throughout its offerings and reduced account minimums. Its new robo offering, which LPL is developing in collaboration with BlackRock's FutureAdvisor platform, will require a minimum investment of just $5,000, said Robert Pettman, LPL's executive vice president of product management. The platform’s full rollout is set for the first quarter of next year, he said.


"It's not just about features and benefits and price," he said. "It's also about how you operationalize this process… making it simpler to move assets from brokerage to advisory.” Increasing the ease of that transition is a top priority, he and other executives said.

Over the last five years, net new asset flows into the advisory side of LPL's business (as opposed to the brokerage side) have jumped from 35% to 40% of new funds to 65% to 70%, Arnold said. "That's doubled AUM in [LPL's] advisory to $200 billion," he said. "That's a big number. That's important.”

At the same time, LPL will continue to offer both brokerage and advisory options for its advisers' clients, he said, adding, "We think choice is critical.”

Preserving choice could mean that LPL will shift to requiring a fiduciary standard of client care for all its accounts in the future, some executives suggested.

"To be frank, our expectation is that the regulators, especially the SEC, will be looking at applying a fiduciary standard across retirement and nonretirement accounts," Peggy Ho, LPL's chief of staff for legal and government relations, told the audience.

Pettman added, "It's really untenable to have two different supervisions. If we find ourselves in a litigation scenario, it's very difficult to explain why we handled one account type differently than another account type.”


Ho said that since the Labor Department announced the rule, LPL has held 24 different forums to answer its advisers' questions. The most common question they get: "What are they doing to us?”

By way of response, she replies that the Labor Department, broadly speaking, wants to reduce both adviser conflicts of interest around differential compensation for comparable products and investor confusion.

Actor Will Smith took the stage after Arnold, Ho and Pettman, sounding at one point as if he too was speaking about the fiduciary standard.

"You have to make the shift from product to people," he said, referring to his entertainment career. All along, his motivation has been to make peoples' lives better, Smith said. "You want to hit [quarterly numbers] with the goal of everyone's lives being better.”

Smith’s advice is good, said Knut Rostad, founder of the Institute for the Fiduciary Standard, especially for “LPL advisers who may forget sometimes how much investors crave authenticity."

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