At LPL, recruiting is warming up but nontraded REIT sales are cooling

After winter woes, the pipeline is healthy, says CFO

Jun 10, 2014 @ 12:28 pm

By Bruce Kelly

After severe weather crimped its recruiting efforts over the winter, LPL Financial reported Tuesday that it is seeing a return to normal levels of adviser movement.

A recruiting slowdown in the first quarter extended into the second, but activity has recently accelerated, LPL chief financial officer Dan Arnold said at a Morgan Stanley Financials Conference.

“The strong pipeline [going into] the third quarter” is an indication of the company's ability to sustain momentum in recruiting, Mr. Arnold said. He did not disclose any recruitment numbers, but the firm's stated goal is to add 400 to 500 advisers a year.

Now with 13,726 independent registered representatives and advisers, LPL in part blamed a recruiting slowdown earlier this year on an unusual factor — the winter's rough weather. In an investor presentation from March, LPL said its “adviser pipeline for 2014 remains healthy but momentum slowed in part due to disruptive weather.”

Meanwhile, the company said sales of nontraded real estate investment trusts, which hit record levels across the industry last year, look to have returned to historic norms in the second quarter.

In the third and fourth quarters of last year, revenues from sales of alternative investments were close to $80 million per three-month period, he said. That's double the normal historic levels of $40 million in revenue per quarter from the sale of alternative investments, Mr. Arnold said. Most of that revenue at LPL comes from the sale of nontraded REITs.

In the second quarter, LPL revenue from alternative investment sales was “normalizing to the $40 million level,” he said.

However, there could be another burst of nontraded REIT listings and mergers, known as “liquidity events,” in the second half of the year, according to LPL's presentation. “Elevated activity” from liquidity “is expected to be pushed out to” the third and fourth quarters, according to the investor presentation.

Sales of new nontraded REITs could increase over this time as reps make choices to reposition clients and either reinvest those proceeds into another nontraded REIT or allocate that cash into another part of the client's portfolio.

LPL Financial has $447 billion in brokerage and advisory assets and another $99 billion in retirement plan assets.

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