LPL CEO not worried about rivals for Commonwealth advisors

LPL CEO Rich Steinmeier has seen the offers other firms are making to Commonwealth Financial advisors and isn’t very impressed.

“To be completely frank with you, I’m not sure that there are a lot of credible players that Commonwealth advisors would consider as an alternative to LPL,” Steinmeier told analysts on an earnings call Thursday.

Steinmeier’s remarks came in the first quarterly update his firm has given since announcing at the end of March that it was buying its former rival independent broker-dealer Commonwealth Financial Network for $2.7 billion. LPL’s competitors were quick to try to take advantage of the coming transition period as a recruiting opportunity. 

Cetera Wealth Management President Todd Mackay, for instance, published an open letter calling on Commonwealth advisors to consider why his firm “can be the best home for you and your team.”

Without naming names, Steinmeier said there are probably a couple of firms with decent chances of recruiting Commonwealth advisors. “And they’re being very active,” he said.

But “small players” now trying to exploit the situation will struggle “to be competitive relative to our robust set of capabilities, especially when you think about how we have been very clear on that we are keeping the Commonwealth experience.”

“We are keeping the brand,” Steinmeier said. “We are keeping the service associates to deliver their experience today. We are keeping the culture, the community, the trips, study groups, the practice consultants, power and practice consultants that help them grow.”

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“Put that together with LPL,” he added, “and it is very hard to come credibly forward as an alternative.”

Digesting all those deals

Commonwealth is just one of several large firms LPL has brought into its fold in recent years through acquisition and recruiting deals. Chief Financial Officer Matthew Audette said LPL continued in the first quarter to move assets over from Wintrust Financial’s wealth unit, which agreed last year to move its custodial, advisory and brokerage business over to LPL’s institutional division. In a similar deal, LPL also completed its transition of assets from Prudential Financial’s wealth unit.

Those deals brought in $43 billion in client assets and helped push the firm’s net new asset haul for the quarter to nearly $79 billion. The net asset figure was up nearly five fold from the comparable number LPL logged in the same period a year ago.

LPL’s tally for net new assets was held back a bit in the first quarter by the recent departure of a couple of large advisory practices technically known as offices of supervisory jurisdiction, or OSJs. The OSJs Wealth Enhancement Group and Merit Financial Advisors both confirmed last year that they’re leaving LPL, taking about $20 billion in client assets with them.

LPL reported Thursday that about $700 million of those assets went out the door in the first quarter.

“And $9 billion of that has offboarded so far through Q1,” Audette told analysts. “So we have $11 billion to go, which we expect the majority of that to be in Q2 and potentially into Q3.”

Even with the OSJ-related outflows, the first quarter’s net new assets pushed LPL’s asset total up by nearly 25% year over year to almost $1.8 trillion. Of that total, $977 million was in fee-generating advisory accounts and nearly $818 million in brokerage accounts.

Also in the first quarter, LPL completed its acquisition of the brokerage and advisory firm The Investment Center’s wealth business, in a deal eventually expected to bring in $7 billion in client assets. And LPL is now in the midst of moving over assets from its purchase last year of the broker-dealer network Atria Wealth Solutions. And its acquisition of Commonwealth, with $285 billion in client assets and roughly 2,900 advisors, is scheduled to close by the middle of this year.

All told, “these acquisitions are expected to add nearly $350 billion of client assets to our platform,” Audette said.

Although LPL is always open to other deals, Audette told analysts that he and other executives have their hands pretty full at the moment. “So I wouldn’t expect any announcements of other large deals in the near term, because I think we’ve got enough to focus on right now,” he said. 

‘Rain-soaked’ bike ride and wine-tasting tour

Steinmeier listed some of the many ways he’s spending time trying to convince Commonwealth advisors they’ll feel right at home at LPL. He and his colleagues have set a goal of retaining 90% of Commonwealth’s client assets and advisors.

Although LPL has reached similar benchmarks in previous deals, industry experts have questioned if the firm might struggle this time, especially since many advisors joined Commonwealth expressly because they did not want to be at a large firm like LPL. Steinmeir, who has previously said he’s “maniacally focused” on keeping as much of Commonwealth intact as he can, provided a long list of ways he’s tried to woo Commonwealth advisors over the past month.

They include a “rain-soaked bike ride” he went on in Scottsdale, Arizona, with 21 advisors and their families, a “wine-tasting tour” and a lunch in Sacramento, California, with an advisor whose brother happens to be the drummer in the rock band Cake. Throughout it all, Steinmeier said, he’s seen no reason to have second thoughts about LPL’s retention goal.

Among his firm’s many appealing points, he said, is the fact that 90% of the Commonwealth advisors who do come to LPL won’t have to “repaper” — or go through the tedious documentation process that usually accompanies moves from one wealth manager to another.

“We’ll deliver capabilities that preserve the key elements of the advisor experience as well, like robust feedback mechanisms, etc …” he said. “Beyond all of that, we’ll facilitate a seamless transition — as seamless a conversion as possible.”

Revenue, expenses, profit all up

Steinmeier and Audette’s remarks came amid another strong quarter for LPL Financial. The independent broker-dealer saw its revenue increase by nearly 30% year over year to $3.67 billion. 

Offsetting that was a 32% year-over-year increase in expenses, which rose to $3.25 billion in the first quarter. The firm’s commission and advisory-related expenses were up nearly 36% to $2.35 billion. That left roughly $319 million in net income for the quarter, a figure up 10% year over year.

Steinmeier sees a recruiting slowdown amid market turmoil

Along with strong asset inflows from big acquisition deals, LPL saw outsized gains from its recruiting efforts. The firm reported its recruited assets in the first quarter were up a whopping 91% year over year to $39 billion — including $16 billion from the Wintrust deal.

LPL’s recent deals also helped push its advisor headcount up to nearly 30,000. LPL ended the first quarter with 29,493 advisors, a figure up nearly 29% year over year largely because of the firm’s recent deals.

Some wealth management CEOs have predicted recent volatility in the stock markets would make for a time when advisors become more eager than usual to change firms. Steinmeier predicted Thursday that the opposite could actually be the case.

Many advisors, he said, are so busy helping clients during times of economic turmoil that they have little time to devote to changing firms.

“Historically, when we’ve seen more volatile market environments, you will see sometimes advisors push out moves,” Steinmeier said. “That’s what we’re used to. Those advisors don’t not move. But oftentimes they don’t want to be out of the marketplace during a highly volatile experience for their end investors or their clients.”