LPL Opens New ‘Channel’ Aimed at Wirehouse Brokers

Rich Steinmeier, Managing Director & Divisional President at LPL Financial

LPL Financial on Tuesday rolled out a new channel aimed at brokers who service at least $200 million in client assets, a level that it believes will attract advisors from wirehouses and other employee-model firms eager to work as independent contractors and earn higher payouts.

The Strategic Wealth Services (SWS) channel is one of several new affiliation options the largest independent broker-dealer is opening to stimulate its recruiting efforts. It purchased Allen & Company of Florida last year to seed an employee-model channel and also is revving up a fee-only channel for registered investment advisers who do not accept commissions.

“We think there’s a real acute demand in the marketplace,” said Richard Steinmeier, a former UBS Wealth Management USA executive who is president of LPL’s Business Development division. “A lot of advisors are telling us they want to run their own practice and be independent but unburdened from all the things that would make them more of an operator and less of an advisor.”

The firm will give SWS brokers more intensive support on issues ranging from setting up internet routers through compliance, budgeting and marketing, Steinmeier said. In exchange, brokers will retain more than 60% of the fees and commissions collected from their clients. That is lower than the approximately 80-90% range kept by typical LPL brokers, though Steinmeier said the payout is expected to be close to 80% and will surpass the typical 50% ceiling that wirehouses pay their top brokers.

LPL pays brokers between 20-40 basis points of customer assets transferred from their former firms. Steinmeier said brokers across the firm’s channels have generally transferred 90% of customer assets within two months of being hired.

The books of brokers in the new channel are expected to be well above those of LPL’s typical recruit.

Of 554 brokers hired last year, fewer than 20% had assets over $75 million, Steinmeier said.  (The average broker at Morgan Stanley, the largest wirehouse as measured by its 15,500 brokers, managed $155 million in client assets as of March 31, according to its most recent earnings report.)

Independent broker-dealers are more dependent than employee-model firms on expanding revenue through recruiting because of the higher payout model. LPL executives have said that the majority of the firm’s recruits come from other independent broker-dealers but about one-third move from wirehouses (UBS, Merrill Lynch, Morgan Stanley and Wells Fargo Advisors) and employee-model regional firms.

LPL has revamped its overall recruiting strategy under Steinmeier, and has been more aggressive with forgivable loans offered brokers to smooth their transitions. The publicly traded company carried $338 million of such loans on its balance sheet as of December 31, 2019, up 45% from the end of 2018. The loans typically amortize over ten year terms.

LPL had 16,464 advisors as of the end of 2019, up 355 from 12 months earlier. They had been managing $35 billion of customer assets at their former firms, up from $27.3 billion for advisors recruited in 2018, LPL said.

SWS and other new channels are aimed at meeting advisors “where they are in the evolution of their practices,” LPL Chief Executive Dan Arnold said on an earnings call in January.

LPL has realigned some internal staff to support the wirehouse channel, and is recruiting additional relationship managers to support them, the firm said.

Even as LPL hopes to attract more conventional advisors, several employee-model firms continue to expand their independent-channel tentacles.

Raymond James Financial Services offers both independent contractor and RIA models to supplement its flagship brokerage offices (though its independent broker count is larger than its employee count. Wells Fargo last year supplemented its Financial Network (FiNet) channel for independent brokers with an RIA custody option. Oppenheimer & Co., the much smaller New York-based regional firm, has said in regulatory filings that it is considering creating an independent channel.