NEW YORK — Armed with a series of fee cuts and reimbursements to its advisers,
LPL Financial Services thinks that it can take on the giants of the custody business that provide platforms for fee-only registered investment advisers.
Last Tuesday at its annual meeting with its affiliated representatives and advisers, LPL of Boston and San Diego formally announced a range of fee reductions for mutual fund trades and reimbursements for administrative fees to its advisers who use its proprietary asset management and advisory platform.
And the giants of the custody business for registered investment advisers — Schwab Institutional of San Francisco, the Fidelity Registered Investment Advisor Group of Boston and TD Ameritrade Institutional of Jersey City, N.J. — had better watch out, said Bill Dwyer, president of LPL’s independent-adviser division.
Lower ticket charges
“This is going to put us [at] an enormous competitive advantage for the custodians in the marketplace,” he said.
LPL’s fee cuts include cutting ticket charges on a wide swath of its mutual funds in its advisory platform. Beginning in January, ticket charges on trades for “fully participating” mutual funds will be cut to zero, from $5.50. “Partially participating” mutual funds will have ticket charges reduced to $4.50, from $13.
The firm is also reimbursing advisers’ administrative fees on advisory or asset management business. That program is based on tiers with a base of $250,000 in advisory gross dealer concession.
With nearly 10,000 independent-contractor reps and advisers who use its various brokerage platforms, LPL is the largest independent-
contractor broker-dealer in the market. Last year, it reported $1.7 billion in gross revenue, the most of any independent broker-dealer.
Mr. Dwyer said the firm will also introduce an incentive stock option program, group health care to branches and a deferred-compensation program for advisers with $500,000 or more in fees and commissions.
One common criticism in the industry of its Strategic Asset Management — or SAM — platform has been its expense.
Mr. Dwyer shrugged off that criticism. “Expensive is a relative term,” he said, noting the consulting-type work in legal and compliance LPL offers its affiliated advisers.
Two executives were quick to point out the differences between LPL and their respective firms.
“I think that LPL is in a very different market than Schwab Institutional,” said Barnaby Grist, managing director for strategic business development. “The average Schwab adviser is about five times the size of the LPL adviser.”
The fee structure for a registered investment adviser is simply far different than an adviser who is also registered with a broker-dealer, J. noted Thomas Bradley Jr., president of TD Ameritrade Institutional of Jersey City, N.J.
“We don’t have administrative fees that we charge advisers,” he said. “We’re zero percent, across the board.”
“We’re still in an incredibly competitive position with someone like” LPL, Mr. Bradley said.
LPL’s reduction in fees is “an improvement, but it’s targeted at big offices,” said an executive at a competing independent broker-dealer, who asked not to be identified. “They’ve gotten more competitive.”
LPL, like other brokerage firms, has a lot of ground to make up when competing with the fee-only registered investment adviser custodians, the executive said. Such firms have no regulators from Washington-based NASD looking over their shoulders and don’t carry the liability of broker-dealer compliance issues.
Meanwhile, other custodians were mum about LPL’s moves.
“We won’t comment about other firms,” said Steve Austin, a spokesman for Fidelity.
This is the second consecutive year LPL is giving a bump to its bigger-producing registered reps.
Appetite for acquisitions
In 2007, the firm, which has completed two significant acquisitions of broker-dealers in the last 12 months, began giving a new production bonus to its bigger advisers.
That bonus program created payouts of 98% of GDC — fees and commissions — for the firm’s elite reps.
And those changes will likely result in $28.4 million in bonuses paid to 2,800 affiliated reps and advisers, Mr. Dwyer said.
Next year’s reduction in some mutual fund ticket charges and reimbursement of some administrative fees could result in LPL’s returning as much as $30 million to its branches, he said.
When asked if LPL is soon likely to buy another broker-dealer, Mr. Dwyer responded: “The marketplace continues to be very active. If you’re [a broker-dealer] under $300 million [in gross revenue], or even $500 million, you’re finding challenging times.”
