Recruiting Loans Surge at Ameriprise, LPL

Recruiting loan balances at Ameriprise Financial and LPL Financial continued to swell last year, as the firms upgraded hiring packages across their brokerage and advisory channels.
Independent broker-dealers have been far less aggressive than conventional firms in offering signing deals to advisors who receive higher payouts than their employee cousins, but LPL also has been financing its growth and securing retention with recruiting loans.
The biggest independent broker-dealer recorded $338 million of forgivable loans among its 16,464 brokers as of December 31, up 45% from the end of 2018, according to its annual report published last week. In a sign of its ambitions and of the growing appeal of independence to brokers and fee-based advisors, that followed a 46% rise in loans in 2018.
The loans amortize over a term of up to 10 years at LPL and over five to nine years at Ameriprise, according to the annual reports. Ameriprise does not break out the loan distribution among its employee and independent channels.
The growing balances reflect in part the firms’ desire to go upmarket by recruiting more experienced advisors with wealthier clients than they historically have served. Ameriprise’s total advisor headcount actually fell by 1% last year but its recruiting costs as it continued to offer industry-high deals in its employee channel that can reach 320% of the revenue brokers generated over the previous 12 months at their former firms, according to recruiters. The total includes both upfront cash and additional payments tied to hitting production and asset-transfer goals.
LPL in recent years carved a new path in the recruiting world by tying some of its “transition” bonuses to assets moved, which recruiters said can yield significantly higher remuneration than trailing-12 revenue formulas. In addition to offering 30 to 50 basis points of assets expected to be moved, the firm in 2018 added an additional 10 to 20 basis points to selected brokers’ packages in a deal that a spokeswoman confirmed ended last year.
“Our recruited [assets under management] increased nearly 30 percent, which naturally resulted in an increase in the overall amount of transition assistance we provided to new advisors,” Rich Steinmeier, who leads LPL’s recruiting efforts, said in a prepared statement. “Our transition package has long been competitive in the market, and our approach in 2019 was consistent with other years.”
The companies’ growing appetite for successful brokers has affected their short-term profitability.
Among the “significant drivers” of Ameriprise’s 10% drop in pretax profit in 2019 to $2.2 billion were “investments in recruiting experienced advisors,” the Minneapolis-based company’s annual report said.
Ameriprise spokeswoman Stephanie Siegle declined to comment on how the rising costs might affect its offers going forward.
LPL’s brokerage force grew by a net 355 in 2019, and compensation and benefits expenses rose by 9.8%, the company said. Loans to advisors are accounted as “promotional expenses,” which also include advisor conferences and dropped 1.5% in 2019, according to the annual report.
LPL overall reported an 8.9% annual net income gain to $556 million.
Ameriprise and LPL have insurance-sales lineages and have typically sold their products to middle-class, “mass affluent” investors. Their efforts to recruit more fee-based advisors serving wealthier clients came as traditional broker-dealers have been working to reduce their overhang of recruiting balances.
UBS Wealth Management Americas, which had $3.03 billion of recruiting loans on its balance sheet at the end of 2016, ended last year with $2.05 billion. The Swiss bank-owned firm has only selectively been recruiting brokers from rivals in the past three years. It ended 2019 with around 6,000 U.S. advisors, down by more than 1,000 from the end of 2016.
Morgan Stanley Wealth Management, the largest wirehouse with almost 15,500 brokers, has also been on a recruiting diet. Its force fell by a net 226 in 2019, and its recruiting loan balances at the end of 2018 had decreased 18.4% to $3.4 billion from a year earlier. Morgan Stanley has not yet filed its 2019 annual report.