On Advice

As LPL buys broker-dealers, its rivals also benefit

Competitors like Cetera and Advisor Group are seeing recruiting gains from LPL's NPH purchase.

Feb 8, 2018 @ 11:18 am

By Bruce Kelly

The more broker-dealers LPL Financial buys, the better it is, not only for LPL itself, but also for the rest of the independent broker-dealer industry.

An acquisition means disruption, and that turns into lots of advisers looking to move to the firm that fits them best. And one recent LPL purchase shows that plenty of advisers chose a competitor over LPL.

Before discussing how LPL is helping its competition, let's back up a moment.

In August, LPL said it bought four broker-dealers, the National Planning Holdings network, for $325 million from Jackson National, an insurance company. NPH advisers had $105 billion in assets that LPL wanted to move to its platform.

By LPL's account, it is satisfied with the NPH acquisition.

At the start of the month, the company released its fourth-quarter and 2017 earnings, reporting that it was on track to hit its target of bringing over 70% of the revenue from NPH. LPL expects eventually to add $85 million in earnings before interest, taxes, depreciation and amortization — EBITDA — to its bottom line from the acquisition, which is quite a tidy sum.

LPL is bringing over about 2,000 NPH advisers in two stages. The first wave of advisers came over in December from two of the NPH broker-dealers, National Planning Corp. and Investment Centers of America. Those advisers controlled about $34 billion in client assets.

The second and final group of NPH advisers is moving this month. If the second group controls a similar amount of assets, that means LPL's acquisition of NPH spurred close to 1,000 advisers with $30 billion to $35 billion in assets to move to competing broker-dealers.

While many independent broker-dealers use Fidelity or Pershing as a clearing firm, LPL has its own clearing platform. And LPL's move to buy NPH is widely regarded as the firm's attempt to increase the assets on its own clearing platform, which drives profit for LPL.

It's that push for advisers to clear trades and transactions through LPL that caused many NPH advisers to look around, evaluate their alternatives and choose to stay or go elsewhere.

"When there are fundamental changes at a broker-dealer, such as a moving to a new clearing firm, advisers have to evaluate that," said Jodie Papike, executive vice president at Cross-Search, a recruiting firm that works with many IBDs. "That's neither good or bad."

"LPL goes into acquisitions knowing that advisers will evaluate these changes and understands that they won't keep every adviser," said Ms. Papike. "Even though they lost some advisers with the NPH deal, I'm sure they expected to."

LPL's competitors clearly saw gains from the NPH purchase.

Cetera Financial Group recruited almost 800 advisers to join its various firms last year, with about a quarter of those coming from NPH firms, said Cetera CEO Robert Moore, who is also a former president of LPL.

"We feel very good about recruiting in 2017," Mr. Moore said. "We had 784 advisers with about $15 billion in assets under their direction join Cetera. One hundred ninety-four came from NPH, which we feel very good about as well."

Other IBD executives were also sanguine about recruiting last year, in good part due to NPH.

"In the fourth quarter, so many people were looking," said Jamie Price, CEO of Advisor Group, which recruited 614 new advisers last year across its broker-dealer network.

When asked about NPH, Mr. Price replied: "We got a lot of phone calls from advisers who had to make a decision. They were looking at multiple firms and deciding if they should stay" with LPL or move to another broker-dealer.

"We got a significant boost in the fourth quarter," he said. "We got more than our fair share. In the second half of the year, we got 65% of recruits, and a chunk of that in the fourth quarter."

LPL has a history of large acquisitions. And it sure sounds as if it is ready and willing to pull the trigger on another broker-dealer acquisition, once the company wraps up moving the last of the NPH advisers.

"We also continue to believe our industry is positioned for consolidation," Dan Arnold, LPL's CEO, said during a conference call with investors on Feb. 1 to discuss earnings. "M&A can drive meaningful long-term value and complement organic growth."

"Our work with NPH reinforces this view," Mr. Arnold said. "So while we are focused on smoothly onboarding NPH now, we're also positioned to take advantage of future opportunities as they arise."

Mr. Moore and Mr. Price should tell their recruiters at, respectively, Cetera and Advisor Group, to stay alert. It sounds as if LPL is going to make sure more advisers, assets and revenues will soon come their way.

(More: Independent broker-dealers are stepping up their game on recruiting from the wirehouses)

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