Reports that LPL Financial may be shopping around for potential buyers came as an unwelcome shock to some of the leaders of the firm's largest enterprises who collectively make up nearly 20% of its 14,000 advisers.

Defections among these offices of supervisory jurisdiction, or OSJs, could have a destabilizing effect on the country's largest independent broker-dealer, which has been struggling with depressed profits as regulatory pressures suppress its commission income.

LPL's stock was trading at $30.71 midday Friday, down from last year's high of $48. Its second-quarter net profit fell 4.8% from the year-ago quarter. LPL’s commission income for the first six months of this year was $882 million, down from $1.033 billion during the same period last year.

The company is “exploring strategic options,” including a possible sale of itself, according to several reports over the past week. The reports cited citing anonymous sources. LPL declined to comment on the "rumors."


"I wouldn't be surprised if, in fact, different enterprises look for a different partner" due to many pressures facing LPL and OSJs, says John Hyland, managing director of LPL's largest OSJ, Private Advisor Group, with 620 advisers in Morristown, New Jersey.

(Image: Bloomberg News)
(Image: Bloomberg News)

However, Hyland said he believes the right new owner could provide a reason to stay. Hyland says Private Advisor remains committed to LPL and he backs the decision to look for new support during this tough environment for IBDs.

"A lot of people are afraid of change," Hyland says. "I applaud it."

None of the OSJ leaders interviewed said they were prepared to leave LPL, despite the uncertainty a new owner would bring, but most expressed surprise and concern.

Gary Campbell, CEO of LPL super OSJ Financial Advocates of Olympia, Washington, says many of his nearly 200 advisers work out of banks and credit unions. Many of these institutions have been calling him to find out what the news could mean for LPL.


'They need to be concerned," Campbell says. If LPL ends up with a new owner on the board that "could have a material influence" on its business model.

"Speculation [about a possible sale] has been floating around amongst competitors" for a while, says Joseph Russo, CEO of Advantage Financial Group, an OSJ with about 75 advisers based in Cedar Rapids, Iowa. "Once you hear those things, you start to put two and two together and you start to say, 'Oh, that's why this person was dismissed or that's why that department has been changed.'"

Russo's firm left National Planning to join LPL in 2012 after interviewing more than 40 different prospective IBDs. However, the changes that have since occurred at LPL have not always been welcome, he says.

"Of people who were key in us making that decision (to move), very few of them are still there," Russo says, citing the departures of Bill Dwyer and Derek Bruton who both ran the firm's independent adviser services division.

Russo also says that LPL's decision to shutter a consulting arm that helped OSJs increase their business was disappointing.

For years, LPL accorded OSJs a favored-nations status, relying on them to help recruit new advisers who wanted a small-firm experience within its large — and some say unwieldy — national organization.


Over the past few years, that special treatment has changed. Earlier this year it not only closed the OSJ consulting service, it also began paying recruiters more to attract advisers to affiliate with LPL directly rather than placing them into its OSJs.

"The thing about LPL is the next LPL rep over is your competition," says Andrew Ahrens, who ran a 10-adviser OSJ at LPL until last year. Ahrens left LPL in August 2015 to become a full RIA, Ahrens Investment Partners in Baton Rouge, Louisiana. He thinks other OSJs will be making similar choices.

"If I were LPL, I would not want super OSJs because it's a layer between them and their clients," Ahrens says. "That could damage [its] profitability."

Hyland says he and his partners are aware of the pressures that LPL is facing and wants LPL to find a way to address them.


The time-consuming process of repapering clients in changing IBDs can cause practices to lose a substantial percentage of them, even under the best of circumstances.

"We truly, truly try to partner with LPL and take into account how things impact them," Hyland says, adding that his firm both wants and needs LPL to become more profitable.

Knowing LPL's preference for direct affiliation with advisers, he says his firm has been growing rapidly by recruiting advisers from outside, and not from within LPL's existing network.

"LPL has been a great partner and they still are today," Hyland says, "but I think we are a little more self-sufficient. I applaud the fact that they are out there looking for strategic relationships to make this a better firm."

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