LPL adds more ties to $40B branch with deal to buy the firm

LPL Financial is buying one of its largest outposts, in the latest display of the firm's rapidly growing dominance of the bank-based channel and its increased openness to new ideas.

The firm will pay $140 million plus asset-based earnout payments of an undisclosed amount over three years to acquire Financial Resources Group Investment Services early in 2023, both firms said on Nov. 3. At 800 financial advisors with 85 banks and other institutions managing $40 billion in client assets, Fort Mill, South Carolina-based Financial Resources represents LPL's largest deal since it acquired Waddell & Reed last year for $300 million. The acquisition also shows how the firm is getting much more comfortable breaking its traditional approach to M&A deals.

LPL's latest one mimics its move to retain brokerage and custodial ties to another one of its massive outposts, or branches, when it agreed to fold into rival wealth manager Mariner Wealth Advisors. Independent wealth managers' branches usually operate under their own brands while filling a technical compliance role known as an office of supervisory jurisdiction. Just like independent advisors' practices, they are separate entities from LPL that collect portions of the businesses' revenue in exchange for services like technology, compliance and administration. Some branches have their own registered investment advisors, called hybrid RIAs, and use outside custodians. Financial Resources uses LPL as its sole brokerage, RIA and custodian.     

Financial Resources Group Investment Services

"I needed capital to acquire other OSJs," Financial Resources founder Bruce Miller said in an interview about the deal, noting that LPL's financing and consulting resources will fuel the seller's ability to complete more deals like a large one currently "at the last stages" of negotiations. "In this world, every year it gets more complex," he said. "The second part of it was succession planning."

Miller plans to retire at some point after more than 35 years in the industry. But it won't be right away as his firm "deepens" its relationship to LPL, to quote the way Financial Resources described the transaction in its press release for advisors and clients. LPL has a corporate headquarters not far from Financial Resources' location in the Charlotte suburbs, and eight out of its 10 shareholders worked directly for LPL at one time or another. Miller's tenure there involved working in a recruiting and service role with banks and credit unions that use LPL. He launched Financial Resources in 2010 and eventually recruited 13 or 14 institutions to it by the end of its first year after approaching future LPL CEO Dan Arnold with the idea.

"We are excited to embark on this new phase of our relationship with our deeply respected, long-standing partner," Rich Steinmeier, LPL's divisional president of business development, said in a statement. "This acquisition strengthens our relationship with a strategically important client and provides a foundation on which to accelerate expansion of several strategic growth areas, particularly in the financial institution space."

Bank and credit union-based wealth management programs have emerged as a major expansion area for LPL over the past two years. The firm's overall headcount topped a record 21,000 advisors by the end of the third quarter, with the help of four mega-recruits that collectively added about 865 advisors with $77 billion in client assets. More than 25 incoming advisors from Legacy BancorpSouth will bring $2.5 billion more in the fourth quarter. 

After the substantial losses of major branches that left LPL to launch their own brokerages and use different custodians, LPL is pivoting in ways that keep the OSJs with the firm on their own terms.

"They're very entrepreneurial," recruiter Samantha Sferas, the head of business development for the Terrana Group, said in an interview about LPL's approach. "I talk to a lot of different people at LPL. They'll sit down and first talk to you, not say they can or can't do it."

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Representatives for LPL didn't immediately respond to a question of whether LPL had ever invested in one of its large branches in a similar type of deal. If Financial Resources marks the first time it has done so, then the firm is taking a page from competitors such as Advisor Group and Cetera Financial Group, which have started to buy stakes in branches and practices across the country. In its deal from August with Signature Estate & Investment Advisors, Advisor Group provided financing to the $16 billion RIA, even though the firm is dropping an Advisor Group brokerage in the process. That contrasts with wealth managers' usual fights with breakaways.

Financial Resources Group's deal carries some twists of its own. The branch's largest outpost across the network of advisory practices, a $13 billion RIA called Gladstone Wealth Partners, agreed in August to be acquired by a life and health insurance distributor named Integrity Marketing Group. Gladstone has its own 20% stake in Financial Resources under a previous April 2020 deal. Because Gladstone, unlike Financial Resources, has its own RIA, it also gives any advisors joining the branch the ability to operate in the hybrid structure as well. Gladstone has turned into a recruiting engine in its own right over the past several years.

"We support them and provide back-office support for them," Financial Resources' Miller said of Gladstone. "They really attract a lot of high-end advisors."

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Once the LPL deal closes next year, Financial Resources aims to continue growing its client assets by 20% each year. This year, the expansion of assets on its platform dipped below that rate to 17% due to slumping stock values. Technically speaking, the acquired firm will be a subsidiary of LPL that operates under the same contractual agreements in their current setup as separate companies. For the Financial Resources advisors, the transition will be a "non-event," Miller said.

"We do business in almost all states," he said. "We intend to use LPL's capital and resources to not just grow like we have been, but hopefully go beyond that."