LPL Financial’s purchase of National Planning Holdings holds the prospect of creating a 17,000-advisor firm, but it also presents the firm’s direct competitors with an opportunity.
The $325 million acquisition boosted recruiting momentum at top independent broker-dealer competitors to LPL such as Cetera Financial Group, Commonwealth Financial Network and Securities America, according to executives with the firms. Other trends in the IBD space are also working in their firms’ favor, they said.
For instance, changes in ownership and clearing firm are “extra burdens that have an impact on your productivity, which ultimately has an impact on your profitability,” says Gregg Johnson, executive vice president of branch office development and acquisitions at Securities America.
“We are very well-positioned when situations arise where a rep is going to be forced to go through a change they didn’t choose.”
Indeed, industry experts named firms that clear with Pershing — the sole partner for three of NPH’s four member firms and one of two for the other — as having an advantage in the fight to peel off some of NPH’s 3,200 advisors. LPL offers the possibility of self-clearing and automated repapering, though.
Securities America, a Ladenburg Thalmann subsidiary which has both Pershing and Fidelity’s National Financial Services as clearing firms, added nearly $100 million in production through recruiting last year, according to Johnson. The ninth largest IBD appears ready to exceed its goals for 2017, he says.
Like all executives interviewed for this article, he declines to state specific figures. At least a dozen top IBDs clear solely through Pershing or dually through it and NFS, including Cetera firms, Advisor Group firms and three of Ladenburg’s firms, according to their FINRA filings.
A spokesman for Pershing didn’t respond to requests for an interview or comment on the recruiting impact of its clearing agreement with the NPH firms — National Planning, Invest Financial, SII Investments and Investment Centers of America.
In an email, LPL spokesman Jeff Mochal rebuffed any links between potential concerns around switching clearing firms and the largest IBD’s so-called negative consent capability in its transition process.
“Having to repaper every client account is a significant time and money commitment, so eliminating this makes it much easier for advisors to move onto our platform,” Mochal said. LPL also pledged to pay all account closure and transfer fees, along with $100 million in onboarding support and forgiveable loans.
MANY FACTORS AT WORK
Others also reject the notion of clearing and custody firm as a deciding factor. Commonwealth, the fourth largest IBD, saw slow second-quarter recruiting sandwiched between strong first and third quarters, says Andrew Daniels, its managing principal for business development.
“The folks that are calling us are looking for a better service model,” says Daniels, who notes his firm custodies 99% of its clients’ assets with NFS and “insulates” advisors from its clearing partners. “I think it’s fairly commonplace to change. There has been consistent movement in our industry.”
Daniels adds that his firm gets more room to pick its advisors selectively and design its business model as a privately-held firm. Cetera’s member firms, the largest of the BD networks, share the same attribute, notes CEO Robert Moore. LPL’s move fits the larger trend of IBD consolidations, he says.
“The presence of these transactions does create a potential dialogue. In many ways, the transaction itself creates movement,” Moore says. “We are making it clear that we view ourselves as the destination of choice.”
Cetera had already hit its 2016 recruiting totals by the end of June, and its pipeline through July was three times that of a year ago, according to Moore. The mergers and acquisition activity, tightening regulatory structure and fast-changing technology are moving people toward Cetera, he says.
Key Cetera and LPL personnel know each other well. Moore took over Cetera’s CEO post in 2016 after tenures as LPL’s CFO and president. Tim Murphy, the former CEO of Investors Capital, joined the LPL-affiliated hybrid RIA Integrated Financial Partners late last year after Cetera closed his onetime firm.
Murphy declined an interview, but Ron Carson, the former LPL office of supervisory jurisdiction manager who is now a regional director with Cetera, says Carson Wealth Management’s transition has gone well. Carson Wealth’s 54 partner firms have seen an average 22% organic growth through July, he says.
“By making the switch, we eliminated a tremendous amount of friction that was in our business model,” says Carson. “The transition has been beautiful. We’ve accomplished that in record time.”
Collin Meeks moved to LPL in 2012 after eight years with National Planning. Although the Carney, Maryland-based founder of Maryland Financial Advocates describes himself as a “small fish in a very big pond” at the 14,256-advisor LPL, he praised his BD.
“One of the reasons I considered LPL was because of the self-clearing,” he says. “As an advisor, I like to be able to just call LPL. They’re not a third party.”
PROS AND CONS
However, other Pershing BD’s can provide what in the industry is known as a tape-to-tape transfer between two firms with the same clearing firm, according to Bill Butterfield, a senior analyst for wealth management with consulting firm Aite Group.
At the same time, LPL’s self-clearing platform counts AXA Advisors as a client but no other major ones outside the firm, Butterfield points out.
“They really haven’t built up their clearing,” he says. “They have excess capacity from a systems perspective, and I think that is a driver in this deal.”
The rarely used negative consent does give LPL an advantage in its quest to make its headcount larger than any wirehouse, according to recruiter Mark Elzweig. Clients may not understand how their advisor’s BD affects them, but clearing and custody partners have more visibility to them, he says.
“They typically don’t care who the broker-dealer is,” Elzweig says. “When you change the custodian, it is a big deal.”