LPL raising fees, cutting incentives

Nov 18, 2012 @ 12:01 am

By Bruce Kelly

Bill Dwyer
+ Zoom
Bill Dwyer (Dean Stevenson)

For the second straight year, LPL Financial LLC is raising fees on its 13,000 brokers and will also take away incentives from branch managers recruiting lower-producing representatives.

LPL informed its brokers last week that it will raise its fee for errors-and-omissions insurance for each rep by $250 annually to $3,000. At this time last year, LPL also said that it was raising its E&O charge by $250 a year.

The cost of E&O insurance for brokers will only continue to rise, said Bill Dwyer, a managing director and president of national sales and marketing at LPL. But in the future, the company can “hold this cost down because of our scale and the fact we don't manufacture product,” he said in an interview.

“We think our policy will be competitive. Some firms self-insure, which could be dangerous,” Mr. Dwyer said.

“We're sorry the price is going up, but five years from now, it's not going to be less,” he said. “There's no doubt [there's] upward pressure industrywide” on E&O insurance.

The firm is also erasing differences in its monthly “resource” or “affiliation” fee, raising it to $175 per month per broker, regardless of the size of the office in which the rep worked.

Over the past year, the monthly fee was based on a scale. Reps in offices of one to four brokers paid $175 each; those in offices of five to 11 reps paid $125 each, and reps in offices of a dozen or more paid $100 each.

IMPORTANT SHIFT

The change in the resource fee will affect about 25% to 30% of the firm's reps, Mr. Dwyer said.

“Last year, we went up in that fee for first time in 20 years,” he said. “All advisers will pay the same fee across the firm.”

Although any increase stings reps and financial advisers, the potential change in how branch managers running offices of supervisory jurisdiction are paid to recruit lower-producing brokers signals the most important shift. LPL has built the largest network of independent reps and investment advisers over the past 10 years by aggressively recruiting brokers, many of them producing $150,000 or less in annual fees and commissions.

The emphasis on smaller reps appears to be diminishing, if not disappearing, executives inside and outside LPL said.

Under the potential plan, branch managers no longer would receive bonuses for recruiting brokers until they produced $250,000 in fees and commission, those sources said.

“I have less incentive for recruiting a guy at $125,000 per year,” said one LPL manager, who asked not to be identified. “It doesn't mean I don't want that guy, but I'm getting less compensation.”

Cutting the production bonus for managers doesn't mean that LPL doesn't want smaller brokers, Mr. Dwyer said, pointing out that the firm provides one of the highest payouts in the industry.

“We don't see reduction of the production bonus hampering recruiting here,” he said. “We're starting with a payout at 90%.”

LAGS IN AVERAGE FEES

Although it is the largest network of independent-contractor reps in terms of sheer numbers, LPL lags competitors in the average fees and commissions that those reps and advisers produce each year.

According to the latest annual survey of independent broker-dealers by InvestmentNews, LPL ranked first in total revenue last year, with $3.34 billion, but was No. 21 in average annual payout to advisers, at $186,000.

Large competitors such as Commonwealth Financial Network and Raymond James Financial Services Inc. ranked first and eighth, respectively, in average payout to advisers.

The average Commonwealth adviser had a payout of $378,000, while independent advisers with Raymond James saw average payout of $285,000.

bkelly@investmentnews.com Twitter: @bdnewsguy

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Aug 01

Webcast

An Adviser's Guide to Developing NextGen Talent

As the registered investment advisory business matures, it's clear we need to focus on a new generation of talent.Research from InvestmentNews shows that firms of seven or more full-time individuals employing at least one NextGen... Learn more

Featured video

Events

Amy Florian: Issues with elder abuse and diminished capacity

As clients age, they become increasingly susceptible to diminished capacity and/or elder abuse. Amy Florian of Corgenius explains the nature and causes of diminished capacity and the signs to watch for.

Latest news & opinion

Take 5: Vanguard's new CIO Greg Davis talks bonds, stocks and costs

Having just stepped into the role, this veteran of the firm now oversees $3.8 trillion in assets in more than 300 mutual funds and exchange-traded funds.

Tech companies deploy behavioral finance tools for advisers

They seek to turn knowing more about clients into growing more revenue.

Retirement planning for women

Longer lifespans and lower savings require creative income strategies.

Sean Spicer resigns as press secretary after Anthony Scaramucci is appointed communications director

Scaramucci is known as an ardent foe of the DOL fiduciary rule, having said during the campaign that Trump would repeal it .

Redoing the math on a 4% retirement withdrawal rate

Given the current interest-rate environment and other factors, advisers disagree about whether the number is too conservative or not conservative enough.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print