Over the past 10 years, the world of independent-contractor broker-dealers has been turned on its ear.
On one hand, the past decade has seen the rise of the aggressive regulator, pressuring independent broker-dealers and their affiliated registered representatives like never before.
The Securities and Exchange Commission, the Financial Industry Regulatory Authority Inc. of Washington and New York — formerly NASD — and the 50 state regulators have been making life miserable for firms through tougher regulation and enforcement, sparked by the collapse of technology stocks in 2000.
On the flip side, the remarkable growth since 1998 of LPL Financial, formerly Linsco/Private Ledger Corp., has become emblematic of the industry's potential.
Ten years ago, LPL Financial of Boston was a big player, but not the behemoth it is today. In 1998, the firm had about 3,000 affiliated reps and advisers, and it generated gross revenue of $480 million, according to a report in a trade magazine.
The firm has since exploded in size and scope, with 11,100 reps and advisers affiliated with its various platforms and major business centers in San Diego and Charlotte, N.C.
It's been an interesting decade, particularly as these two forces, the growth of this channel of the brokerage industry and aggressive regulation, have collided and butted heads, observers said.
Securities regulation has become "increasingly bureaucratic and oppressive, not only on the reps, but on the broker-dealers," said Jonathan Henschen, president of Henschen & Associates in Marine on St. Croix, Minn. The issues were Y2K compliance, mutual fund breakpoint discounts, and anti-money-laundering and privacy rules and regulations.
Despite regulatory issues, LPL has been a model of the decade-long growth of independent broker-dealers, observers said.
Last year alone, it made five acquisitions, spending $235.7 million. The previous year, the firm began to compete in the clearing business when it took over the clearing and back office operations of AXA Advisors LLC of New York, a giant insurance company-owned broker-dealer.
The moves have paid off. Last year, the firm generated $3 billion in gross revenue, almost triple its nearest competitor.
The firm has had a major influence on the competition. For example, when the market tanked at the start of the decade, LPL flooded the country with regional recruiters and built the largest recruiting team in the industry. The strategy of building large recruiting teams and placing them in the field instead of basing them in the home office has been adopted by many other independent firms.
LPL has "come to redefine the independent broker-dealer marketplace," said Dennis Gallant, a consultant who has worked with LPL Financial in the past and is president of Gallant Distribution Consulting of Sherborn, Mass. "It's a new benchmark, and much more of a full-service shop. LPL put the independent marketplace on the map."
With such expansion come some growing pains. Last August, a massive technical snafu temporarily prevented affiliated reps and advisers from doing business online with their broker-dealer. And some reps and advisers grumble about other glitches in the platform and rising fees for some services and training.
Despite the problems, LPL's strategy helped to make advisers more competitive. "I think we were a huge driver for independent advisers to be as competitive as any on the Street," said William E. Dwyer III, managing director and president of LPL's independent advisor services.
E-mail Bruce Kelly at [email protected].
