Broker-Dealers

Behind LPL’s acquisition of Veritat

Purchase will boost indie B-D's new unit targeting the mass market

Buy, not build.
That is how LPL Financial Holdings Inc. is tackling its new subsidiary’s mission of cracking the mass market.
A newly re-named subsidiary of LPL, NestWise LLC (formerly known as LPL New Venture LLC) on Tuesday announced its intent to acquire Veritat Advisors Inc.
According to a prepared statement, the mission of NestWise is “to provide the mass market with access to high-quality and affordable personal financial advice.”
This was confirmed in an interview with NestWise chief executive (and former LPL president) Esther Stearns.
NestWise will operate as a registered investment advisory firm and rely on both Veritat’s home-grown technology and that of LPL Financial’s platform.
“They [Veritat] built that financial planning software and really designed it around the elements of financial planning that are most central to the mass market investor; all of the process is centered on that plan and the technology does all the heavy lifting,” said Ms. Stearns.
“It is very efficient and tightly coupled with the process an adviser will follow working with mass market clients,” she said.
While much remains to be worked out, those joining NestWise will be trained to be mass market specialists; after an as yet undetermined period of training they will then become independent adviser representatives.
NestWise IARs will be restricted to selling from LPL’s platform of professionally managed investment portfolio offerings.
InvestmentNews readers will already be familiar with Veritat; we first wrote about them in January of 2011 and have since had them on one of our recent webcasts (see A different approach to high-tech planning, and our webcast The underserved).
Veritat launched itself as a fee-only registered investment adviser headed by Kent Smetters, a professor of risk management at The Wharton School of the University of Pennsylvania (it came out of beta in September 2010).
“This really is the next step in continuing the mission of what Veritat was all about,” said Prof. Smetters, referring to the acquisition in an interview.
He said that Veritat’s adviser workforce of fewer than 100 advisers should grow quickly thanks to synergy with NestWise and its access to LPL’s resources.
“The heart of our technology is taking in the client data, creating the assessment and then the plan and allows our advisers to carry a much larger client load efficiently without sacrificing the quality of service they are providing the client,” he said.

Part of what made Veritat unique early on was its use of technology, for example video conferencing and screen-sharing services were sometimes employed by advisers following initial in-person clients meetings (if clients were not intimidated or averse). This can prove to be especially fruitful when it comes to clients living at greater distances to the adviser.
At launch Veritat was backed in part by Andrew Rudd, co-founder of the financial information firm Barra, and Arnold Wood, head of money manager Martingale Asset Management LP.

Terms of the Veritat acquisition were not disclosed but Ms. Stearns said the deal would close in the third quarter this year and combined operations would commence under the NestWise name beginning some time during the fourth quarter of 2012.
It is clear that LPL and NestWise sense potential in the mass market category as a business proposition.
“There are 32 million households out there in the [mass market] category and our research has indicated that 70% of them would really love personal financial advice but only 25% have ever had access to that,” Ms. Stearns said.
Prof. Smetters has agreed to continue working with NestWise as a consultant while he pursues his teaching career at Wharton.
“It is really good to see the baby grow up,” he said of Veritat.