Can LPL Financial carve out significant market share in the high-net-worth market? The nation's largest independent broker-dealer is certainly trying, but faces a difficult uphill battle.
"LPL doesn't have a brand in a very brand-sensitive market," says industry consultant Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy. "You're competing against Goldman Sachs, Northern Trust, Bessemer Trust and high-end boutique RIAs. If a wealthy prospect hasn't heard of LPL, that's a big challenge."
Creating a high-end brand from scratch is a daunting prospect, agrees Jeff Spears, chief executive of Sanctuary Wealth Services, a San Francisco-based outsourcing provider for independent wealth managers.
"This is a hyper-competitive space," Spears notes. "Look what Wells Fargo had to do to carve out an identity in the market a few years ago - they created Abbot Downing, an entirely new brand with an old-sounding name. It worked, but it wasn't cheap and it wasn't easy."
LPL doesn't have plans to create a new high net-worth brand, but the retail giant still believes it can grab market share by beefing up its support and capabilities for advisors already working with clients who have $5 million or more in investable assets.
LPL has identified approximately one million U.S. households with a minimum of $5 million in investible assets. All told, these household control over $11 trillion in assets. LPL is strongly committed to the space, says Matt Enyedi, LPL's executive vice president for RIA and High-Net-Worth Solutions, who is heading the firm's HNW push. "This is the growth area of the business."
The IBD launched a Private Client division earlier this year dedicated to helping its top producers identify wealthy prospects. Advisors will also receive consulting services, practice management resources and access to specialized performance reporting technology and research.
LPL first signaled its intention to attack the HNW market in 2012, when it bought Fortigent, a highly respected outsourcer with a devoted clientele of high-end RIAs to whom it provided sophisticated reporting, manager due diligence and selection, asset allocation modeling and portfolio construction services.
LPL subsequently integrated Fortigent into its own platform, moving the firm to its Charlotte, N.C. campus and offering Fortigent's state-of-the art consolidated reporting service for free to advisors bringing on new clients with over $5 million in investable assets.
"People are looking for independent objective advice," says Enyedi. "That's the starting point. If clients and prospects can see what resources you can provide, you can thrive."
Advisors can tap the Private Client division for help with financial, estate and tax planning, portfolio analytics, trust services and expertise on philanthropy issues, executive compensation, insurance and business exit planning. They are also encouraged to visit to LPLs national offices in Boston, San Diego or Charlotte with their wealthy clients and prospects.
"We want the clients to see who we are and what we do," Enyedi says. "They'll see our research process and the kind of customized marketing we can do for them. One advisor had clients who were baseball players, for example, so we made up special baseball-shaped cards for him."
TAKING ON THE COMPETITION
The home office visit is indeed an effective marketing tool reports Robert Errico, an LPL advisor based in Newport Beach, Calif. "I brought two clients to the San Diego home office; one of them was a bankruptcy lawyer who is very skeptical," Errico says. "LPL reviewed her financial plan, she met the president of the company, asked him questions and came away feeling very confident about LPL."
This kind of personalized service, Enyedi and Errico are convinced, is LPL's most effective weapon in the cutthroat HNW market. "It's about democratizing high net worth service," says Enyedi. "We offer Main Street appeal with Wall Street capabilities."
"Even if you have $5 million or even $25 million, at Goldman you're at the bottom," argues Errico. "You'll be with a better known firm, but you're going to get lost in the shuffle. I keep a spreadsheet to track my phone calls and make sure I call every client at least once a month and keep them continually updated. My pitch is I can give you very special personalized service versus just being a number somewhere else."
The results to date have been encouraging.
Overall, LPL now has over $27.5 billion in advisory and brokerage assets in accounts of $5 million or more, up from $23.5 billion at the end of 2013. Whereas LPL didn't even make Barron's top 40 wealth managers list several years ago, it now ranks 26th, ahead of such better known rivals as First Republic Bank and Atlantic Trust Private Wealth Management.
LPL also has a foothold in the very heart of the country's wealth management business, having taken a minority stake two years ago in Robertson Stephens, a high-end RIA in San Francisco.
SEGMENTATION IS KEY
But the real key to LPL's success or failure in the HNW market will be how it segments the market.
The Do-It-Yourself (DIY) high net worth market will be "tough to crack," says industry consultant Amy Parvaneh, "unless LPL is able to give access to highly unique and specialized opportunities like private hedge funds and other alternatives." Similarly, clients who like a big brand name like Morgan Stanley or Merrill Lynch are unlikely to go with LPL, says the Newport Beach, Calif.-based consultant, unless large teams from those firms "are bought out with hefty checks."
In Parvanehs view, clients who are attracted to independent RIAs, particularly a one or two-man shop with experience managing money for wealthy families, are a more receptive market. "The sheer size and marketing budget of LPL can help it grow its HNW business, she says, as long as it's very strategic about which market segment it targets."
Increasingly, LPL is targeting top producers already working with wealthier clients. This is in response to a trend the firm has identified over the past three to four years, says David Symecko, LPLs senior vice president for business development. The business is going upmarket, wealthier clients are facing more complex issues and the momentum is rising.
The average production of newly recruited HNW advisors is now around $4 million to $5 million, says Steve Pirigyi, LPLs executive vice president of business development. Revenue from those top producers makes up around 25% of total revenue of newly recruited advisors, according to LPL, and the percentage continues to grow.
But it's a sellers market for elite advisors, as LPL acknowledges. Everybodys competing for the top producers, says Symecko, who heads a six-man recruiting team out of Houston.
And this is where the whole branding issue may come back to haunt them.
"This is a road where on which there are a lot of BMWs and Jaguars," observes Sanctuarys Spears. "Neither the client nor the advisor wants to be in a Yugo. LPL without question has the resources to pull this off. But they still have a lot of wood to chop."
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