LPL Financial Holdings Inc.’s recent rash of moves to bolster its alternative investment platform will not only expand the number of investment products financial advisors may sell to wealthy clients but also boost the firm’s ability to generate revenue in the future, according to industry observers.
LPL, which works with close to 29,000 financial advisors, for several months has been beefing up its ability to sell more alternative investments, which typically charge higher fees than plain-vanilla stock and bond mutual funds. The moves include hiring key personnel and expanding products available to advisors.
Such investments, including private equity funds, nontraded business development companies, and nontraded real estate investment trusts, also carry more risk and are designed for wealthier investors who can better stand those risks.
“This is nothing that different from the large custodians or wirehouses are doing with alternative investments,” said one senior industry executive who spoke confidentially to InvestmentNews about the matter. “LPL is just playing catch up. It really doesn’t impact the investor but squeezes margins on asset managers.”
“The new LPL suite will cost the fund manager some more to be on its preferred platform so the advisors can use the fund as a fee or advisory product,” the executive added.
And, along with the potential for greater revenue, alternative investments also carry risks, another industry observer noted.
“The focus is on making it easier to invest in alternatives by digitizing all of the subscription agreements and the process for advisors,” said Sam Edwards, a plaintiff’s lawyer. “This is undoubtedly a way for LPL to join the party and start selling these investments to retail clients to increase LPL's revenue as well as the risk to its customers.”
In October, LPL said it was currently focused on improving its alternative investment and banking programs and capabilities to better attract wirehouse financial advisors, who are the most profitable in the financial advice industry and on average produce more than $1 million in annual fees and commissions.
“Over the course of 2024, our alternatives with selling agreements that are available for sale on our platform more than doubled as we exited the year with greater than 80 selling agreements,” LPL’s CEO Rich Steinmeier said at the end of last month during a conference call with analysts to discuss fourth quarter earnings.
In his discussion of alternative investments, Steinmeier declined to specify potential “monetization improvement,” meaning fresh revenue, that would translate into for the company.
“Our intention over the course of 2025 is to continue to grow that dramatically so that we sit in a fully competitive, best-in-class position in regard to our inventory available for sale with a custody platform that is second-to-none and with a selling process that we think is incredibly strong in the marketplace,” Steinmeier said.
“You put those three together, we think that advisors will get more comfortable on our platform positioning alternatives as a credible and important component of portfolios for their clients,” he added.
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