Can LPL be everything to everybody? Firm’s answer is a (qualified) yes
Around six weeks before LPL Financial’s annual Focus conference, CEO Dan Arnold called financial advisor Julia Carlson for some help fine-tuning his message. She recommended he zero in on his now-frequent refrain that LPL and its advisors are united behind “one mission.”
“I told him, ‘You need to stop apologizing,’” says Carlson, the founder of Newport, Oregon-based Financial Freedom Wealth Management Group. “I feel that new culture is here.”
The Focus conference drew more than 4,000 advisors and 3,500 other attendees over three days last month to San Diego. Advisors praised Arnold and other executives for their engaged outreach, along with new technology and services like easier client onboarding and outsourced business solutions.
At the same time, Arnold faced questions at a town hall from advisors who asked if the firm’s new employee channel would compete against them. The firm says that the advisors of newly acquired Allen & Co. of Florida are W-2 employees, but it still views them as independent.
LPL is also striving to support more fee-only advisors, including those operating hybrid RIAs with some assets held under outside custodians. Last year, LPL reduced the AUM it requires incoming advisors to bring to the corporate RIA after losing at least nine hybrid RIA teams.
The firm could run into such friction along its expansion path if it does indeed seek to be all things to everybody across a rapidly changing and fractured industry. But for now LPL is pitching advisors on its vast scale and resources as the antidote to a challenging landscape.
“We are building sets of capabilities that, at their core, we think are going to be the best in the industry,” says Rich Steinmeier, LPL’s head of business development. “It matters that we actually serve 16,000 advisors because that means we have the size and scale to make investments.”
With record consolidations shuttering many smaller BDs and advisors switching affiliations unexpectedly, “no one has that fear” with LPL, he says.
LPL has deployed its deep pockets for acquisitions. The firm purchased Allen for around $35 million this summer, and it acquired modeling and proposal generation software company AdvisoryWorld in December for $28 million. LPL also added nearly 1,900 advisors last year after acquiring the assets of National Planning Holdings in August 2017 for $325 million.
The firm still has $296.3 million in cash available for corporate use and a trailing 12-month leverage ratio of 1.99x on its credit agreement. S&P cited the ratio, as well as LPL’s record client assets of $706 billion, when it upgraded the parent firm's rating to “BB+” from “BB” on Aug. 23.
Wall Street has taken notice of LPL’s expansion: Since Arnold took over as CEO in January 2017, LPL’s stock value has doubled to more than $80 per share. In his remarks at Focus, Arnold sought to win over advisors, by discussing topics like better onboarding tech that will cut down the number of fields to fill out by 30% while cutting the overall time in half.
“We are going to meet you where you are in the evolution of your practice, transform how you spend your time and give you a leading client care experience,” Arnold said, according to brief excerpts of the speech released by LPL. “By doing this we will create the next generation of wealth management as one team on one mission.”
Advisors have expressed support for Arnold’s efforts to “transform” the company’s culture in response to advisor feedback. The shift toward better service served as a major theme of last year’s conference, while this year’s motto was, “it’s all about you.”
“The promises made from last year have been mostly kept,” says Chandran Rajaratnam, the president of Carlson’s Financial Freedom practice and one of three other advisors managing $270 million in client assets. He recalls a major applause line from Arnold’s speech: “What you want is people who can answer the question the first time.”
Arnold's mea culpa
LPL restricted media access to interviews with certain executives and a company-run broadcast desk its press team compared to ESPN’s College GameDay. The multimillion-dollar event also featured a salute to the 30th anniversary of the merger of Linsco and Private Ledger.
The company attributed the media restrictions to Arnold’s wish to speak more freely with advisors, though. When an advisor asked in the town hall if the employee BD would compete with them, Arnold “made it clear that wasn't the case,” says Rajaratnam.
He also told advisors that the company shouldn't have called the new affiliation an employee model because it can be misrepresented, according to Rajaratnam.
Carlson, who hosted a research session on serving LGBT clients earlier this year, applauded the LPL's increasing efforts to boost diversity in the industry. Arnold’s changes at the home office have also had “a great impact,” Rajaratnam says.
“His vision is being spread nicely throughout the organization,” he says. “His strategy is clearly to help us be more successful.”
Financial Freedom has also started using the firm's new “admin solutions” service, one of three alongside CFO and Marketing Capabilities that LPL started offering on a pilot basis earlier this year. More than 500 advisors have already outsourced some of their operational tasks. The company opened the three services to all advisors at the conference.
The services “create an extension of your company at LPL,” Carlson says. “I'm going to pay a premium for that, but it's worth it because it's more efficient.”
In addition, Carlson says she's interested in the idea of converting to full RIA status, which is often considered to be considered the most serious threat to IBDs. Rapidly growing RIA consolidators and platform providers, not to mention other custodians, are competing with LPL for breakaway teams.
The pricing, technology and independence of the channel is putting LPL and other incumbents on notice, according to recruiter Louis Diamond. He attended Focus and said he was impressed with LPL’s IBD answers to an increasingly RIA world.
“There's no reason why these broker-dealers shouldn’t be able to move in that direction,” says Diamond. He notes the appeal of LPL’s scale, stability and competitive upfront transition assistance. “Often times that outweighs the additional flexibility of the RIA model,” he adds.
LPL’s fee-only services include simplified operational resources and the choice of tapping the corporate RIA for risk management or using an outside RIA structure. Arnold also told advisors that the firm will soon integrate the popular planning software Envestnet MoneyGuide. LPL converts about $1.5 billion in assets each quarter from brokerage to advisory accounts.
And more than 5,000 LPL advisors at 420 hybrid teams operate their own RIAs, LPL’s last annual report states. But the firm has no plans to copy rivals like Ladenburg Thalmann IBDs Securities America and Triad Advisors by offering an alternate corporate RIA with external custodians. LPL's hybrid RIAs have $125 billion in AUM, with a portion of it held outside the firm.
Other IBDs “can't compete on price or value,” says Matt Enyedi, executive vice president of national sales and consulting. He notes LPL is a self-clearing and custody firm. “We have a very different ecosystem with which we're working and we're just not forced into those types of decisions,” he adds.
The employee model became another part of the ecosystem under the Allen deal. LPL employee representatives receive a lower payout than its traditional indie advisors in exchange for more infrastructural resources like real estate and benefits such as health care and a 401(k), according to Steinmeier.
In a follow-up email after the conference, he noted that LPL employee advisors maintain their specific brand and own their client books. The question of W-2 vs. 1099 employee is simply “the IRS construct to how they get paid,” Steinmeier says.
“This new affiliation model becomes another way advisors can choose to affiliate with LPL, which is independence supported with employee services,” he says.
While at the conference, Steinmeier had told the story of one advisor who obtained capital from LPL a couple of months earlier. The advisor used it to buy another practice, open a new office and ramp up the additional location by hiring a new entrant to the industry as its lead advisor, he said.
LPL had offered growth loan capital to advisors in the past, but at Focus the firm unveiled unified succession planning programs it calls Advisor Financial Solutions. Under it, the firm will monetize an advisor’s business if they make an unplanned exit such as a medical illness. LPL can also take on the tasks of valuation, deal structure and arranging the capital.
“We've done pieces of this process. We realized there was a big opportunity here to take the execution risk off advisors’ plates,” says Jeremy Holly, the senior vice president of Advisor Financial Solutions. “We think we can really reduce the timeline.”
As if it all weren't enough, LPL also deployed a new app and launched compliant client texting through vendor MyRepChat. The firm is trying to give advisors everything they need to compete in a challenging industry, Enyedi said.
“You're seeing this theme resonate in this conference, which is there is a capacity crisis that our advisors are facing and also a value crisis,” he says. “We're really focused on solving for both.”