Is LPL's deal sweet enough for NPH's 3,200 reps and advisers?

They will have to decide if the signing package they are being offered by LPL makes sense. A lot is hanging in the balance.

Aug 16, 2017 @ 2:13 pm

By Bruce Kelly

LPL Financial's deal to acquire the National Planning Holdings Inc. broker-dealer network was embraced by Wall Street on Wednesday, but the 3,200 NPH registered reps and advisers who manage $120 billion in client assets must evaluate the deal on their own, according to one industry recruiter.

"This is not a private equity firm buying a broker-dealer and saying everything will be the same," said Jodie Papike, executive vice president at Cross-Search, a recruiting firm for independent reps and broker-dealer executives. "It all comes down to what advisers think, and whether LPL is a good fit for their practice."

On a conference call Wednesday morning to discuss LPL's purchase of the four NPH firms, which was announced Tuesday after the market closed, LPL Chief Financial Officer Matt Audette said the firm had set aside $100 million for advisers making the transition to LPL. Most of that will be in the form of forgivable loans, he said.

The firms LPL acquired are: National Planning Corp., Invest Financial Corp., Investment Centers of America Inc. and SII Investments Inc. Combined in 2016, they generated $909 million in revenue, according to InvestmentNews data.

LPL, the nation's largest independent broker-dealer with 14,000 reps and advisers, said on Tuesday when the deal was announced it had paid $325 million for the network, and would pay up to $123 million more, depending upon the number of NPH advisers who move to LPL.

LPL's $100 million in forgivable loans represents about 11% of the NPH's total revenue, which is a lower percentage than being offered to advisers in recruiting deals, Ms. Papike noted. Advisers who generate $500,000 in annual production could expect to be offered a recruiting bonus of 20% to 25% of their annual revenues by a big firm, she said.

The "value proposition" to NPH advisers includes: a competitive payout; enhanced capabilities; forgivable loans to move; and simplified account transfers and registration process, according to an investor presentation.

"This wasn't unexpected — the rumor of the deal had been out there for a couple weeks," said Gloria Foote, partner at Financial Focus, a team registered with National Planning Corp. that has $425 million in client assets. "We will consider LPL and also look at other alternatives. Wherever we go, it has to be a fit for the true financial planner."

Ms. Foote added that her practice has its own RIA, and she wasn't sure how that would work under LPL.

Meanwhile, Wall Street embraced LPL's acquisition of the NPH network, which was rumored to be in the works for the past month. The share price of LPL Financial Holdings Inc. increased more than 3% in trading Wednesday morning.

LPL said it expects earnings per share to increase 25 cents to 40 cents as a result of the NPH acquisition.

"LPLA/NPH merger checks all the boxes, accretion, structure, price," wrote Steven Chubak, an analyst with Nomura Securities.

"This announcement only further reinforces our bull case for LPLA shares, given: 1) a better deal structure which limits downside risk from lower adviser retention; 2) lower-than-expected purchase price which suggests the deal could be consummated with excess cash and limited incremental debt issuance; and 3) double digit accretion guidance, which we also view as conservative."

One key positive for LPL from the deal is that it "offers longer term accretion around transition to advisory and enhanced advisor tools, such as centrally managed platform," wrote William Katz, an analyst with Citigroup Global Markets Inc.

NPH client asset mix is 75% in brokerage accounts and 25% in advisory, according to the investor presentation.

NPH's annual conference for its advisers will take place this weekend in Nashville and LPL senior management will be on hand to speak with advisers.

"NPH is a good business, both in quality and scale," said LPL CEO Dan Arnold, during Wednesday morning's conference call. "Their advisers share our passion for independence and serving American investors."

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