Industry News

After losing billions in assets, giant hybrid RIA set to open broker-dealer

Independent Financial Partners to launch IFP Securities in May.

On the verge of opening a new broker-dealer, William Hamm over the past year has seen billions of dollars in assets and hundreds of reps and advisers walk out the door of his firm, Independent Financial Partners, a hybrid RIA.

A year ago, InvestmentNews reported that IFP no longer intended to use LPL Financial as its broker-dealer. Mr. Hamm and his team were to open their own broker-dealer, IFP Securities, with Mr. Hamm as the controlling owner.

At the end of 2017, his RIA, IFP Advisors, had close to 480 advisers and $40.5 billion in assets under advisement, according to its annual filing with the Securities and Exchange Commission. A year later, that figure had declined to $10.9 billion. Discretionary managed assets dropped from $9.5 billion to $5.3 billion.

That would likely freak out many in the retail brokerage business. But Mr. Hamm, sounds like he’s taking the changes in stride.

“Part of that was expected attrition we knew was going to happen,” Mr. Hamm said in an interview Thursday morning. “LPL kept a couple hundred advisers and we’re taking a couple hundred. Our 200 represents 60% of key revenue we had before we left. That’s well within our expectations. And now we’re focused on recruiting.”

The new broker-dealer was registered with the SEC and the Financial Industry Regulatory Authority Inc. over the winter, and Mr. Hamm said that advisers on May 1 will begin to move to the new broker-dealer from LPL. Pershing is its clearing firm.

After the dust settles, Mr. Hamm said that IFP, a combination of the new broker-dealer and the existing RIA, would have about 200 advisers with between $13 billion and $15 billion in client assets, including the assets from new advisers it is currently recruiting and expects to join over the next month or two.

“A good chunk of the people who left were retirement plan advisers,” Mr. Hamm said. “Those asset numbers are large, but the revenues were smaller. A good portion of assets that left were assets we were breaking even on. We got the assets we expected to move over.”

Mr. Hamm noted that two large groups left IFP in the past year.

Retirement Benefits Group, with close to $10 billion in assets and focused on defined-contribution plans, left LPL and IFP at the start of the year.

Sheridan Road Financial, an advisory firm overseeing about $14 billion in retirement plan assets, left IFP last year, launched its own RIA and then said at the start of the year it was being acquired by Hub International, an insurance brokerage.

“They were great people, but from an economic perspective it’s not an issue,” Mr. Hamm said.

Margins have been compressing for brokerage firms for years due to increased costs and reduced revenue streams, forcing many smaller or mid-sized firms to close down or sell their assets. Mr. Hamm sounded sanguine at his new firm’s prospects, noting that broker-dealers can tap a variety of revenue streams that a hybrid firm cannot.

For example, Mr. Hamm mentioned revenue sharing from product sponsors as a way to boost the top line, a common business practice in the brokerage industry.

“We are in a stronger financial position now as our own broker-dealer than as a hybrid,” he said.