Beyond Commonwealth: Inside LPL's plans to maintain its growth course

For LPL Financial, it's the big deals like its purchase of Commonwealth Financial Network that often grab the most attention.

But its position as the largest independent broker-dealer by almost any meaningful measure has instead been built mainly through regular recruiting deals with the wealth management arms of banks and other financial institutions. Overseeing that "organic" growth in recent years has been Scott Posner, a managing director and the head of the firm's business development team.

"I think back to when I got here. I joined at the end of 2018," Posner said in a recent interview. "I can't even take credit for this, but the team that year recruited about $27 billion of new assets onto the platform. And that was a pretty big number. Last year, we recruited over $140 billion."

Much of those net new assets have come from the addition of advisors and teams picked up from industry rivals. Speaking on an earrings call last week, CEO Rich Steinmeier said LPL has "the No. 1 capture of advisors in movement and in motion in the marketplace." Recent big recruiting wins include a 10-member team called Tennant Financial, which had previously managed $1.3 billion at Northwestern Mutual; and Golden State Wealth Management, a group with roughly $1.6 billion in assets under management at UBS.

But LPL's headcount has also been pushed over 32,000, with 2,775 net added in its latest quarter, with deals to provide various types of wealth management support to big financial firms. In April, for instance, LPL announced its institutional unit had been chosen to provide advisory and brokerage services for $16 billion in client assets managed by 110 advisors in First Horizon Bank's wealth business.

Before joining LPL, Posner worked in IBM's business consulting practice helping large financial institutions adopt technological innovations. That experience made him recognize exactly what he wanted from the next stop on his career journey.

"I made a living at IBM supporting large global banks who had the money to pick the right technology. But they were so bureaucratic, they couldn't figure out how to get the execution to go. And they would have to pay us to go do that."

LPL, Posner said, has satisfied his desire to be a firm that has not only the free cash flow and organizational nimbleness needed to invest in new technology but also the ambition to keep growing. He recently sat down with Financial Planning to discuss LPL's future M&A prospects, its recent push to become more of a household name and his general thoughts on industry recruiting.

This conversation has been lightly edited for brevity and clarity.

Financial Planning: You're fresh off your purchase of Commonwealth Financial Network in August. I know your specialty is organic growth and mergers and acquisitions are technically "inorganic" deals. But do you see any other big M&A opportunities in the near future?

Scott Posner: This is a consolidated space right now on the 1099 side [firms that mostly have independent contractor advisors]. And I think there's some more consolidation to happen here. 

I think what you're going to see is they're going to be a few very large firms, and then some very small boutique firms. And the middle is going to be a difficult space to be in, because of the cost of regulation, the cost of technology, the cost of reinvestment.

You're seeing that in the asset management space, and you're seeing that across other industries, as well. We've been very fortunate that we have been on the side of being able to acquire some really great firms.

Of course, you may want to buy something. But you need someone who wants to sell, and they need to want to sell to you. And so I think we'll continue to see what comes up in the future, but I think we're very focused on delivering for advisors that are part of LPL today.

FP: One of LPL's big campaigns lately has been to give itself more of a household name. In May, you announced you'd start running ads featuring the acting and singing star Anna Kendrick. How has that been going?

SP: When I first got here seven years ago, there was a little buzz from advisors saying, 'Hey, it would be helpful for LPL to have more brand awareness in the marketplace.' But there were also some advisors that were saying, 'No, no, no. I think we want our own independent brand to be really front and center.'

Then over this time period of the last five or six years, there's been a big demand from our advisors for us to be more forward with our brand, because they feel that is something they can then draft behind. 

They can take their independent brand and be tethered to us and get an even bigger reach and exposure. And so we were very fortunate. I have to give a shoutout to our marketing and brand team for pulling all this together to connect with Anna Kendrick and put together what I thought was a very creative, very differentiated approach in the marketplace.

It doesn't look like other wealth management ads. It's not a retired couple walking down the beach and reminiscing about their grandchildren. 

The feedback has been overwhelmingly positive, and not just from our existing advisors, but from our prospects that we're talking to all the time. 

FP: LPL is primarily known as a firm for advisors who want to work as independent contractors rather than as employees. But you started your Linsco channel for direct-employee, or W2, advisors in 2019. What was the idea there?

SP: If you look at the W2 channel, and you look at advisors changing firms, what you see is that the vast majority — something like 55% to 60% — that are leaving the wirehouses, leaving the W2 channels, want to go independent. We are naturally a great fit for them.

But then we have existing clients who have said, 'Hey, I've been an independent advisor. But I'm getting to that last point in my career, and I don't want to deal with being an independent owner, and we'd love to just be an employee, and you all handle all of that stuff like ordering paper clips.' 

So we launched our Linsco W2 model. Now we have this whole new offering in the marketplace that attracts advisors that are leaving the wires that want to still be an employee, but they want to be independent.

We view all of our advisors as independent. You can be independent W2, or you could be independent 1099. But you're an independent advisor. The clients you bring over are your clients. The clients that you build into your business are your clients.

If at some point in the future, you decide to do something different and you want to leave, we make sure you have a nice, easy transition on the way out. 

And so tying that back to the ad campaign, I think that further helps support advisors that are used to being with a big brand to now have the confidence to be able to talk to their end clients and say, 'Here's LPL, and here's why LPL is a great fit for my business and my practice in supporting you as my client.'

FP: What are you seeing in general with industry recruiting?

SP:  I've seen a variety of different recruiting environments in my short tenure here, and then obviously we have a team that's seen it in a much longer tenure. We're used to the ebbs and flows. 

Maybe just to throw a few stats out here, I find it very interesting when you look at advisor movement, and if you go back to 2018 and before, the 1099 advisors changing firms looked something like 6.5% to 7% of advisors every year. Today, that independent space looks more like 4.2% or 4.3%. So a significant decrease. 

Part of it is there's been consolidation, and we've got more advisors, and so there's less impetus to change firms. You also get a little bit of an aging population, so there's probably a little bit of a less impetus to change firms at that point as well.

But it's nevertheless a significant decline. We'll see if it goes back to the mean. 

Yet during that whole time, our capture of advisors joining LPL has just been increasing. Now 1 out of 4 advisors in the 1099 space that change firms comes to LPL. And now we're having a lot of success as we have added the Linsco model and are attracting those advisors that are moving in the W2 channels. And so now a little over 10% of those advisors are coming to LPL, whereas, if I look back just six years ago, it was probably 5%. 

FP: How are things going with bringing Commonwealth aboard, and what work have you been doing to retain Commonwealth advisors?

SP: Look, we couldn't be happier with how this has been going. I have had the privilege to speak to hundreds of Commonwealth advisors. 

They are going to be an unbelievable partner for LPL. We're doing things to preserve their culture, preserve their community, preserve their brand. 

And is a very unique approach that we've taken. I mean, I can't even think in the wealth management space where a firm would have gone through an acquisition partnership and kept everything intact. We're keeping their service intact. We're keeping their conferences intact. We're keeping their operations intact. Everything is remaining as one because we feel that strongly and committed. 

And there's going to be some great learnings for us that we're going to be able to bring back into LPL. If you think about some of their scores, where they have some outstanding rankings from their advisors, there are things for us to learn as well. And that's another reason we're very pleased with how this is progressing. 

FP: The wealth management industry is becoming increasingly dominated by companies with financial backing from private equity firms. LPL is a bit of an outlier in that its stock is publicly traded. Do you see that as an advantage? 

SP: As a publicly traded company, we are focused on the long-term outlook for our clients. When you're looking at PE and other types of ownership structures, they have a short-term horizon, usually three to five years. So the focus is on building equity for the business over the short term. 

That doesn't always produce the best outcomes for clients. We are able to be completely and consistently focused on the success of our advisors both now and long into the future. Our success is determined by strategic long-term growth rather than short-term gains.