LPL ramping up clearing business

But new division head faces uphill climb

Jul 17, 2011 @ 12:01 am

By Bruce Kelly

LPL Investment Holdings Inc. last month proved it wants to be a serious player in the clearing services business by hiring one of the most respected names in the industry to head the unit.

But some observers feel that even David Akellian, who has worked as an executive in the clearing divisions of Merrill Lynch & Co. Inc. and Pershing, will face an uphill climb trying to expand the number of outside broker-dealers and registered investment advisers using LPL Financial Custom Clearing Services.

An executive from a competing firm is skeptical of LPL's ability to make a dent in the broker-dealer marketplace, arguing that independent broker-dealers may be reluctant to sign on with a clearing firm run by a competing broker-dealer.

“There's a lot of opportunity out there, but would people want to clear with LPL if they view them as a strong competitor?” asked Christopher Frankel, chief executive of Legent Clearing LLC. “If it was me on the other side, I'd be a little leery.”

Mr. Frankel also questioned LPL's motives. “Are they trying to make a business of clearing or take advantage of excess capacity?” he asked.

LPL's clearing unit has a mixed track record. In December 2006, it landed its biggest broker-dealer client, Axa Advisors LLC, but it has no other top 50 independent broker-dealers as clearing customers, according to InvestmentNews data.

And while LPL, which went public last November, has been able to increase the number of registered representatives and advisers affiliated with the company, its ability to add brokers to its clearing and custody unit has lagged.

At the end of the first quarter, LPL had 12,554 brokers affiliated with the firm, an increase of 5% since the fourth quarter of 2009. Over that same period of time, however, the number of reps and advisers affiliated with other broker-dealers that use LPL's clearing services dropped 10% to 4,394.

Mr. Akellian, whose formal title is executive vice president, is undaunted. He attributed the declining levels of reps and advisers from outside firms using LPL's clearing services to “natural attrition in the industry.”

While in the past, LPL's clearing division has focused on signing up broker-dealers owned by insurance companies — it has seven on its client roster — the new division head aims to cast a wider net.

“I see a tremendous opportunity to grow the clearing business,” Mr. Akellian said. “Part of our growth is to continue to do what we do ... but we also will focus on expanding into other market segments. That includes full-service firms, smaller regional broker-dealers and boutique broker-dealers for high-net-worth clients. There are a lot of broker-dealers out there.”

With almost 30 years in the business, Mr. Akellian has a deep grounding in the securities industry, specifically the clearing business. From July 2009 until recently, he was chairman and chief executive of Century Securities Associates Inc., an independent broker-dealer owned by Stifel Financial Corp.

From 2001 to 2008, he worked at Merrill Lynch, where he was president of the Broadcort Capital Corp. clearing unit, and head of global clearing and execution services. Before that, Mr. Akellian was chief operating officer and head of investment manager services for the Pershing division of Donaldson Lufkin & Jenrette Securities Corp. He worked at DLJ from 1984 to 2000.

LPL does not break out the financial results for its clearing group. Mr. Akellian would not comment about its profitability, but said: “It's a very important part of the overall strategy of LPL.” The company's clearing services are designed to “take care of advisers and their clients regardless of life cycle of that enterprise,” he said.

"A SMART MOVE'

The addition of an executive with years of networking and contacts is a significant asset, said Stephen Winks, an industry consultant.

“I know of [Mr. Akellian], but I don't know him directly,” he said. “He's very capable. What's important is the relationships and understanding the business in an articulate way, and he's among the best at that.”

Mr. Winks added: “He's been doing it for a long time and not only understands the business but has a very powerful Rolodex. Hiring him was a very smart move on the part of LPL.”

Mr. Winks noted that it is more likely for Mr. Akellian to have success getting small registered investment advisers onto LPL's platform than regional broker-dealers. “There are not many regional broker-dealers” still open for business, he said, and those that are, such as Raymond James Financial Inc., do their own clearing.

E-mail Bruce Kelly at -bkelly@investmentnews.com.

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