LPL spent big on recruiting in 2016

Broker-dealer's forgivable loan balance was $136.7 million last year, up 44.7% over the previous year

Mar 17, 2017 @ 2:00 pm

By Bruce Kelly

+ Zoom

After reporting that 2016 was its best recruiting year ever, adding 323 net financial advisers, LPL Financial is now revealing that it paid handsomely for those recruits.

As of the end of last year, LPL had a forgivable loan balance of $136.7 million on its books, according to its annual audited financial statement that was filed at the end of last month with the Securities and Exchange Commission. That's an increase of 44.7% over 2015, when it reported $94.5 million of forgivable loans. And compared with 2014, when the forgivable loan balance was $68.6 million, it is nearly double.

In the brokerage industry, forgivable loans are a common way to structure compensation for recruiting advisers, who work off the balance of the loan over time by meeting specific targets in generating revenue.

LPL began writing more forgivable loans about five years ago, said one LPL branch manager, who asked not to be identified.

"The company clearly used more forgivable loans over the past couple years," the manager said. "In the past, they just gave the recruit a lump sum for transition assistance and gave him the money with no strings attached."

LPL spokesman Jeff Mochal confirmed that the timing of the switch was accurate.

"Our increase in forgivable loans is simply a reflection of the greater success we have had recruiting larger advisers to LPL the last two years," said Mr. Mochal. "Last year was our best recruiting year ever. It's tied to the transition assistance we offer" to advisers, he added.

The average rate of transition bonus or forgivable loan, calculated as a percentage of an adviser's annual revenue, is in the low 20s, but large groups could command a higher rate, said one industry recruiter, who asked not to be named.

After a slow start to recruiting last year, LPL picked up steam and reported a 2% net increase in new advisers when compared to the number of advisers at the end of 2015.

LPL net income, commission revenue and adviser headcount, 2009-2016

The spike in forgivable loans to advisers joining LPL Financial comes at a time when the firm has shifted its policy in recruiting. In the past, LPL's 45 or so external and internal recruiters received the same compensation to recruit to any platform, such as the firm's own registered investment adviser or hybrid affiliated with LPL. The firm said last summer that it was changing that policy.

As of the start of the year, recruiters' compensation has been tilted in favor of placing recruits at LPL's corporate RIA. The shift has been made to underscore LPL's drive to recruit advisers who are more profitable to the firm, sources said.

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