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LPL Targets Advisor Growth Opportunities



Many of the most promising long-term growth initiatives for broker/dealer LPL Financial lie with banks and credit unions that are seeking revenue from wealth management services and looking to outsource broker/dealer operations, LPL executives said.

Banks and other financial institutions within LPL’s registered investment advisor (RIA) channel have enough demand to add more than 400 advisors over the next few years, said Mark Casady, LPL Financial chairman and chief executive officer.

LPL added 23 new financial institution “relationships” last year, and 33 new institutional relationships in 2012, he said.

In the first quarter, LPL added 52 new advisors. There were a total of 13,726 advisors working for LPL at the end of the first quarter, an increase of 2.6 percent compared to the year-ago period, the company also said in its quarterly earnings report .

More institutions joining the LPL platform, has resulted in a greater number of advisors affiliated with LPL.

“Through these combined efforts in 2013, we added 119 net new advisors in the institution channel, with 45 of these advisors representing an incremental headcount growth within existing institutional relationships,” he said during a conference call with analysts.

Casady added that financial institutions are looking to grow by offering wealth management services, which advisors supply.

Higher capital constraints on banks and tougher regulatory standards are making it more expensive for banks to remain as profitable. Wealth management services represent new revenue sources for the banks, he said.

Banks also want to outsource their broker/dealer operations because the fixed costs associated with the regulatory requirements and the technology infrastructure needed to meet those requirements are not worth it, he said.

Casady estimated that the outsourcing of broker/dealer operations by banks would add as much as $900 million in revenue to the financial institution marketplace “in the coming years.” That represents an increase of 60 percent over the size of the marketplace today, he added.

Millions of middle-market depositors entrust their wealth to banks through checking, savings and other assets insured by the Federal Deposit Insurance Corp. These deposit accounts represent a lucrative opportunity, not only financial advisors and wealth managers but for life and annuities sold by insurance companies.

LPL already supports more than 2,200 financial advisors in 735 banks and credit unions. Those banking institutions hold billions of dollars in wealth, and LPL wants to deepen its foothold in the conservative bank market.

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Thus, LPL’s “bank wealth initiative,” Casady said.

The initiative seeks to cut costs by allowing banks to combine retail investment, trust department and wealth management needs, providing LPL with an “entry point” into the $2 trillion in assets invested in the trust market.

Akin to LPL’s hybrid RIA strategy, “we envision this (bank wealth) initiative to providing a unique solution through a completely integrated investment and operating platform,” Casady said.

Casady said LPL managers are talking with bank and credit union managers about accelerating the bank programs by adding advisors and speeding up asset conversion, but only if it makes sense for the banks.

LPL is experimenting in two areas, he added. LPL is recruiting advisors on behalf of the banks, and the company is helping to finance the cost of an advisor for a year or two. If the initiatives work, they will be expanded into next year.

LPL Financial, one of the nation’s biggest broker/dealers, serves a broader swath of the middle market than some of the nation’s more well-known financial services competitors such as Merrill Lynch, Morgan Stanley and Wells Fargo Financial Advisors.

Advisors are the profit-generating engine for LPL. The key to growth is to bring on new advisors and to increase the profitability of each advisor.

First quarter revenue came to $1.08 billion, up nearly 12 percent over the year-ago period, LPL reported. The increase was due to more advisors joining the company, higher productivity per advisor and market appreciation, LPL chief financial officer Dan Arnold said.

Average asset levels managed by advisors also rose. At the end of the first quarter, advisors managed an average of $33 million, up from $29.5 million compared to the year-ago period.

In the past six years, fee-based assets have doubled to $12 million per advisor compared to $6 million per advisor in 2008, Arnold added.

Because fee-based assets represent more than 50 percent of new sales, LPL expects advisory assets under management to grow. Advisory assets under management represent 35 percent of LPL’s total assets under management.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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