New RIA policies cause $800M OSJ to bolt LPL
A pole-vaulting financial advisor sets the bar too high for his clients to remain with LPL Financial under its new RIA policies, he says.
Mark Cortazzo’s Macro Consulting Group, an office of supervisory jurisdiction which has five advisors and $800 million in client assets, bolted from LPL for Mutual Securities late last month, Cortazzo said. A former competitive pole vaulter, he now coaches at an area high school.
LPL now requires new advisors to place $50 million on its corporate RIA before joining any hybrid firms. The change, which took effect this year, made staying put unfeasible for the Parsippany, New Jersey-based firm, Cortazzo says.
The No. 1 independent broker-dealer also cut fees on its corporate RIA at the beginning of the year. CEO Dan Arnold has said the new policies have received support among current and prospective advisors in light of their increased compliance and technology challenges. Cortazzo still opted to part ways, though.
Arnold has “done a terrific job for the shareholders of LPL,” Cortazzo says, noting the value of the stock has nearly quadrupled to about $60 per share from a low of $16.50 roughly two years ago.
“He is a fiduciary to the shareholder, but I’m a fiduciary to my clients. And when there’s conflict with those interests, we have to do what is in our clients’ best interests,” he says.
“As we were evolving and they were evolving,” Cortazzo adds, “it became apparent that, although their business model and our business models are both great business models, they weren’t compatible business models.”
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A spokesman for LPL declined to comment.
Advisory assets at LPL jumped 29% year-over-year in the fourth quarter to $273 billion between its corporate and hybrid RIA channels. With $160 billion, the corporate RIA contains $47 billion more in client assets than the hybrid RIA channel’s $113 billion, LPL’s latest earnings report shows.
However, the hybrid channel has grown faster. LPL hybrids placed 34% more assets with outside custodians than in the year-ago period, compared to an increase of 26% on the corporate side.
Arnold has heard positive feedback about the corporate RIA, he told analysts last week, noting it’s too early to assess the impact of the change.
“Based on that dialogue, we feel that we’re on the right course and right trajectory with that,” Arnold said. “At the same time, we’ve got to continue to ensure that our hybrid program is competitive, and we will continue to invest in that hybrid program.”
Cortazzo’s practice joined LPL in 2012 from SII Investments, one of four National Planning Holdings IBDs whose assets LPL acquired in August. Prior to his 15 years at SII, Cortazzo, 49, had a two-year stint with Merrill Lynch amid his 28 years of experience in financial services, according to FINRA BrokerCheck.
The practice has 22 support staff members, and Fidelity and TD Ameritrade serve as custodians, according to Cortazzo. The firm generally requires a minimum of $800,000 to open an advisory account, with an annual fee of $7,500, according to its latest Form ADV brochure.
“Our need to have a broker-dealer is primarily servicing some legacy investments that are still on the books,” says Cortazzo. “So it is very little of our new business, but it still represents a significant block of legacy accounts.”
In leaving LPL, Macro Consulting follows another former LPL hybrid, Cornerstone Wealth Group, which aligned with Camarillo, California-based Mutual Securities in November while being acquired by consolidator Focus Financial.
Focus was not involved with Macro Consulting’s move, however. Mutual Securities CEO Aaron Jasper credits his firm’s commitment and belief in the hybrid IBD model for the recent recruiting successes, along with other factors related to compliance and firm culture, he said in an email.
“The changes made by LPL have certainly resulted in large practices exploring their options, and Mutual has and will continue to benefit as a result,” says Jasper.
Cortazzo serves as a volunteer pole-vaulting coach for the track and field team at the New Jersey high school attended by his kids. He has previously competed in USA Track and Field’s Masters tournaments, and won a conference championship at Rider University and a New Jersey state championship in high school.
In a Wall Street Journal video, he likens pole vaulting to planning and says he has even found clients at track meets.
“When you first start out pole vaulting, it’s very awkward, it’s very uncomfortable, it’s a very unfamiliar feeling,” he said. “I think it’s very similar to what our clients experience when they transition into retirement.”