LPL’s New ‘Employee’ Channel Not Quite Ready for Prime Time
LPL Financial, the largest independent broker dealer, has not yet worked out details of the employee-broker channel that it unexpectedly launched in August when it purchased Allen & Co., a small but traditional employee-model brokerage firm, said officials working on the project.
The 16,000-broker LPL won’t begin promoting the channel internally or to outside brokers until it works out branding, pricing and other logistics, which is expected some time in 2020, Kenneth Hullings, senior vice president of business development, said in an interview.
The channel will bridge the pure independent model, in which brokers keep from about 80-to-95% of the revenue they produce but accept the expenses and operational burdens of running their businesses, and the conventional employee model. Brokers in the latter typically keep about 25-50% of revenue but receive strong operational and marketing support.
“We expect it to be very attractive, especially to advisors who are currently captive,” Hullings said with reference to the conventional model, “and also to some advisors who are already independent but more tenured in their career.”
Firms on both sides of the independent and full-employee spectrum have experimented with differing models over the years, with Wells Fargo Advisors’ “Profit Formula” the most well-known example. It pays brokers an intermediate payout and offers more firm-paid support, but Wells has not actively recruited into the channel for several years.
LPL officials said it remains challenging to develop the model.
“We’re candidly working through what the description is to make it clear to the industry,” said Marc Cohen, who joined LPL as a senior vice president last December from RIA compliance consulting firm MarketCounsel to help recruit out of the wirehouse worlds.
LPL will contribute to health benefits, rent, and support staff compensation, he said, but did not give specifics or discuss whether changes will be made to the compensation model of Allen & Co.’s 33 brokers, all of whom have remained with the firm. LPL did not announce financial details of its purchase of the Lakeland, Florida broker-dealer.
Recruiting deals will be offered for the new channel, the officials said, in hopes of raising average production levels. Around 30% of the $33 billion in assets that LPL recruited last year came from brokers at “captive” firms, including wirehouses, Cohen said.
LPL generally gives its independent channel recruits cash “transition bonuses” ranging from 30 to 50 basis points of assets they are expected to move from former firms. It added 10 to 20 basis points for certain brokers who were in play because of ownership changes at their former firms and who agree to register as investment advisers under LPL’s corporate RIA, but that premium is expiring at year-end, Hullings said.
The new channel will be aimed at conventional-model broker employees nervous about giving up their firms’ overall support, but Hullings said LPL has been having more success in recruiting wirehouse brokers into its traditional independent contractor model. Several in active talks are are managing around $1 billion of customer assets, he said, well above LPL’s traditional recruits.
The average LPL advisor generated $243,000 in fees and commissions annualized in the third quarter, up 3% from $235,000 a year ago, according to LPL’s most recent earnings report. Average annualized broker production at Morgan Stanley Wealth Management, Merrill Lynch Wealth Management and UBS Wealth Management USA is more than $1 million, the companies’ parents said in their quarterly reports.