LPL Financial bumping up fees on 'direct' business, mutual funds held at outside firms

LPL Financial Holdings, home to more than 30,000 financial advisors, is introducing next year a new five basis point annual fee for advisors' mutual fund accounts stored or held at outside money managers. This method is a traditional and popular way for independent broker advisors to conduct business directly with mutual fund companies such as American Funds.

Called "direct to fund," or DTF by advisors, the method is a simple way for advisers to sell mutual funds to clients. The new fee by LPL could cost some advisors who have a practice that features direct mutual fund accounts thousands of dollars each year.

The new charge is scheduled in January to hit LPL’s advisors who use direct to fund accounts.

“Advisors are not going to like this, obviously,” sad a senior industry executive who spoke privately to InvestmentNews about the matter. “Imagine, if you have a large practice with $1 billion in assets held directly at American Funds, that translates into $500,000 per year, or $125,000 each quarter.”

Financial advisors loathe such charges because it takes money out of their pockets. And advisors routinely complain of broker-dealers nickel-and-diming them when they are hit with such fees. It also gives competitors and recruiters reason to call advisors and try to persuade them to jump to a new broker-dealer.

“While many competitors have moved away from supporting direct mutual fund business, we understand the importance of choice for our clients,” LPL’s Chief Growth Officer, Marc Cohen, wrote to InvestmentNews in an email.

“To continue providing this option, we are introducing a modest fee that will allow us to maintain support and invest in meaningful enhancements to improve the direct business experience,” Cohen wrote.

LPL did not confirm or deny the increase was five basis points; two independent sources confirmed to InvestmentNews it was the amount of the new charge.

The end of the year is the time of year large firms like LPL unveil changes in compensation to their financial advisor sales forces; changes in pay and compensation are ways to drive financial advisors’ behavior. 

Like its competitors, LPL is creating more favorable pricing for advisory assets, which are more profitable, than brokerage assets like “direct” mutual funds.

At the end of last month, LPL said that, as of next July, fees will be lowered for advisors across LPL’s Strategic Asset Management and Model Wealth Portfolios advisory programs.

Fees will also be reduced for customer in LPL’s Guided Wealth Portfolios advisory platform.

“With nearly 80% percent of LPL’s organic net new assets flowing into advisory solutions, this pricing update reflects the industry-wide shift from brokerage to advisory,” according to a statement from the company.