LPL's Casady on tech, a bank and regulators

The chief executive offers frank talk on where the firm stands in key areas

Aug 20, 2013 @ 11:57 am

By Dan Jamieson

InvestmentNews caught up with LPL Financial LLC chief executive Mark Casady yesterday at the firm's annual adviser conference to ask him about some of the firm's recent developments, including its technology improvements, efforts to start a bank and regulatory scrutiny.

InvestmentNews: Is the announcement of a package of technology upgrades really LPL playing catch-up on its technology?

Mr. Casady: Not now. I would have said that a year ago. The [enhanced] trading system, the new account view, which is the way end clients look at data, and with mobile access as well, we're right there in terms of clients and mobile access.

InvestmentNews With private equity now owning just 17% of the company, LPL is in a position to start its own bank, primarily to handle cash sweeps. What's your thinking there?

Mr. Casady: We've been looking at it since 2008, when we'd gotten through a pretty significant loss of earnings from low interest rates — $170 million last year that should have otherwise showed up. We've been able to absorb that through [better efficiencies]. A bank would allow us to be more efficient users of capital. We could move some funds in one part of our business that today have to be in a money market fund. On our latest earnings conference call, I said it would be [$6 billion] in IRA rollovers within our advisory programs.

InvestmentNews: LPL would earn a higher spread than with the brokered-deposit program on all deposits, right?

Mr. Casady: We would, but it doesn't mean that it would be enough to pay for the capital required. You have to capitalize the deposits. It takes a pretty serious amount of capital — roughly a million dollars of capital per billion of deposits. So you have to think about that. It's possible [a bank] would be something interesting, but not accretive to the company.

There are other services a bank could provide, like capabilities in a bank custodian that we can't do today. Every now and then, a wealthy client says “I really trust the banks.” Well, today, they go to State Street or Northern Trust. If we had our own bank, it could actually offer bank custody, which would appeal to our RIA business in particular.

InvestmentNews: Assuming you formed a bank, what kind of time frame are you looking at?

Mr. Casady: It would be measured in years, not months.

InvestmentNews: What's the feedback been on your new supervision program that requires single-person offices to team up for supervision or pay the home office for oversight?

Mr. Casady: As you can imagine, people don't like to change, and I can't blame them. Once they understand that what we're doing will actually save them time, that it's a better way of working with the regulators and ensuring they're compliant, they'll feel much better about what we're doing and why. What this allows is to use our scale and technology to do the part they were doing — overseeing e-mails, branch trade reports and all the administrative work.

InvestmentNews: LPL has taken some lumps from regulators lately. Do you think they don't trust the independent-contractor model?

Mr. Casady: I won't touch that one. But every industry has good apples and bad. Our job and regulators' job is to get the bad apples out. The number of bad apples is the same if you normalize for the size of a firm. I'll stand by our record as being quite exemplary and our ability to oversee the majority of advisers here. We are going through a sea change in the industry. The majority of advisers are now independent. I do think the regulators are trying to do a good job of looking at that fluidity and the consequences of those changes.


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