LPL building out alts, banking services to chase wirehouse advisors, new CEO says

Rich Steinmeier, in his debut call as CEO of LPL Financial Holdings Inc. with analysts to discuss the company’s earnings, made sure to stress that pursuing top revenue producing financial advisors was part of LPL’s strategy, along with a recent spate of acquisitions, strong recruiting and organic growth.

To better attract wirehouse financial advisors, who are the most profitable in the financial advice industry and on average produce more than $1 million in annual fees and commissions, LPL is currently focused on improving its alternative investment and banking programs and capabilities, Steinmeier told analysts Wednesday evening in a conference call to review earnings.

“Inside of alternatives, over the last year, we’ve made significant progress in building towards a world-class platform,” Steinmeier said. “The first thing we did was expand our custodial and operational capabilities. And the second was then beginning the material expansion of our shelf of alts themselves.”

LPL now has more than 20 employees in its alternative investments unit focusing on due diligence as well as working with advisors to use them with clients, he added.

Alternative investments are double-sided sword. They typically charge higher fees due to the expertise of their managers, which generates potentially higher revenue. They also carry greater risk; broker-dealers have paid millions of dollars in fines, penalties and legal damages due to failed alternative investments.

Meanwhile, the share price of LPL Financial Holdings stock, with the ticker LPLA, took off on Thurday morning in the wake of the company's third quarter results; LPLA shares rose 6% in the first 15 minutes of trading, reaching $279.92 by 9:45. 

Steinmeier, a wirehouse veteran who joined LPL in 2018, most recently was managing director and chief growth officer before being tapped in October to become CEO. He replaced Dan Arnold, who had been chief executive since 2017 and was fired for cause by LPL’s board on October 1.

Specific details about what led to the board’s termination of Arnold have yet to come to light, and Steinmeier did not mention his predecessor during the hour-long call.

Almost a year ago, LPL, which has traditionally focused on independent contractor advisors, the lowest producing advisors in the industry, launched a new services for wirehouse and advisors with wealthy clients, LPL Private Wealth Management. Success has been limited in that new group, Steinmeier said, recruiting four teams with more than $2 billion in assets in the past 12 months, although he was optimistic about the future.

That’s a small amount for a firm with more than 23,000 financial advisors and $1.6 trillion in client assets.

With financial advisors leaving the four bank wirehouses and other regional brokerage firms, LPL has “built capabilities that allowed us to progress into a private wealth market,” Steinmeier said, which includes advisors owning their client list or book of business and higher payouts along with services to clients like advanced planners and access to capital markets.

One analyst was optimistic about the next two months for LPL, citing a recent acquisition of the Atria broker-dealer network and a service agreement to work as the service provider for Prudential Advisors’ reps and advisors.

“LPL is poised to end the year strong given the closing of the Atria deal and the onboarding of Prudential in the fourth quarter as well,” wrote Jeff Schmitt, an analysts with William Blair Equity Research. “In addition, the company indicated that it will increase its focus on operating leverage/expense management and reinstate share buybacks going forward.”