BOSTON – With the advisory business changing rapidly amid a cascade of low-fee competition, industry giant LPL Financial is going robo and lowering its prices.
The nation’s largest independent broker-dealer will launch a robo advisor pilot program by the end of September. Two fees will be eliminated immediately for advisors participating in the program and for all LPL advisors by early 2016: the strategist fee charged for all LPL Research models in Model Wealth Portfolios and the IRA maintenance fee on both the MWP and Optimum Market Portfolios advisory platforms.
“We believe that the robo advisor will not replace the financial advisor,” said LPL President Dan Arnold, who made the announcement at LPL’s Focus 2015 conference. But robos will win certain client segments and be “disruptive to pricing,” he added.
As a result, he said, LPL wanted to make sure that pricing was not the only factor affecting consumers’ financial decisions. LPL Chairman and CEO Mark Casady went further in an interview with Financial Planning: “The [pricing] changes we announced today makes the cost issue go away.”
PRESSURE ON RIVALS
Eliminating the strategist fee will allow advisors to save 15 to 20 basis points, Arnold said. Cutting prices means LPL will give up marginal profit for increased volume, Casady said, while also putting competitive pressure on rivals providing turnkey asset management services.
LPL will partner with a third-party company who will provide an investor portal and “the workflows behind it,” for its robo pilot program, Arnold told Financial Planning.
Advisors can use the automated online service as a white label product, he said, which will initially offer a portfolio of low-cost ETFs and be integrated with LPL’s custodial platform and supported by its centrally-managed portfolios platform.
“We want advisors to see this as another tool in their portfolio to help them manage through a client’s life cycle,” Arnold said. “It’s a compliment to a face-to-face solution. Robos are never going to replace advisors’ creative insights and knowledge of complex products.”
DOL RULE ‘NEEDS TO BE CHANGED’
At the general session, Casady told advisors that parts of the Department of Labor’s proposed fiduciary rule “needs to be changed” and urged them to “get involved” by contacting their local representatives.
No matter what the ultimate outcome of the DOL rule he added, the regulatory environment “is going to be difficult for quite some time.”
As for LPL’s longstanding compliance troubles, Casady said enforcement actions involving the company were “close” to being resolved.