Independent Financial Partners gives advisers 15% equity stake as it readies launch of new broker-dealer

IFP also secured a multimillion-dollar line of credit from NexBank as it aims to make up to three acquisitions within the next 18 months

Jan 22, 2019 @ 3:00 pm

By Greg Iacurci

Independent Financial Partners will give financial advisers a 15% equity stake in the company, an announcement that comes as the firm gets ready to break away from LPL Financial and launch its own broker-dealer in a few months.

IFP, a hybrid advisory business with $9.5 billion in assets and 540 investment adviser representatives, is giving advisers the stake in the holding company that houses its registered investment adviser, IFP Advisors, and new broker-dealer, which is set to launch April 1.

IFP serves as a super-OSJ (or office of supervisory jurisdiction) for LPL Financial, the largest independent broker-dealer in the country. InvestmentNewsreported in April that IFP planned to leave LPL to start its own brokerage.

In addition to advisers' equity, Pacific Current Group bought a 10% stake in IFP. The stake is valued at $1 million, which includes the value of the RIA and OSJ business but not the new broker-dealer, said IFP chief executive Bill Hamm.

IFP will have a 75% majority stake in the company; however, executives have the option to sell another 15% to Pacific Current Group within two years, Mr. Hamm said. He characterized the Pacific Group investment as "permanent capital" that has a much longer investment time horizon than the typical five- to seven-year private-equity deal.

The decision to give advisers an equity stake stems partly from trying to prevent adviser attrition, Mr. Hamm said, but "primarily because it's the right thing to do."

"It might help in some instances because advisers do want equity, but I don't know that it's a major factor in them coming over," he said.

Roughly 225 advisers have committed to transitioning to IFP's new broker-dealer, said Mr. Hamm — less than half of the firm's 490 registered representatives. Around 100 are undecided, and an additional 70 to 80 are being recruited by other firms, he said. IFP isn't allowed to recruit from LPL for a year after departure, which is planned for March 31.

Two big retirement advisory groups — Retirement Benefits Group, which has roughly $10 billion in assets, and Sheridan Road Financial, which has $14 billion — have recently announced their departures from IFP.

IFP has also secured a multimillion-dollar line of credit from NexBank, a Dallas-based lender, as it weighs acquisitions and infrastructure growth. Mr. Hamm declined to disclose the specific sum but said IFP is looking at funding two to three brokerage acquisitions within the next 12 to 18 months. Although he declined to identify the firms, he said they have roughly 400 brokers between them.

Some adviser executives question why IFP would be launching its own broker-dealer in such a challenging environment.

Broker-dealers are facing shrinking revenue and low margins in the brokerage side of their business, said John Hyland, managing director of Private Advisor Group, which is affiliated with LPL and has more than 600 advisers.

"The regulatory environment probably isn't going to be really great for broker-dealers, in a time when it's all about fiduciary," Mr. Hyland added. "It's hard for us to understand," he said of IFP's move.


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