LPL Financial investment in Private Advisor Group strengthens position as M&A force for RIAs

LPL Financial has acquired a minority stake in Private Advisor Group, as the independent-broker dealer expands its grip on assets from independent advisors. Private Advisor Group, which manages over $40 billion in assets, has been affiliated with LPL since its founding in 1997.

Merchant Investment Management, which took a minority stake in Private Advisor Group in 2021, remains a minority owner in the firm alongside LPL. Private Advisor Group’s legacy shareholders will retain majority ownership in the firm, which operates as an RIA and OSJ. Private Advisor Group CEO Frank Smith told InvestmentNews that about 90% of the firm’s advisor assets are held with LPL, either under its custodial platform or broker-dealer business.

“They [LPL] are operators, which is where they're very distinct to Merchant. They're not just strictly investors, they're operators. And they're very integrated in how we run the operation today,” said Smith. “The relationship with Merchant remains unchanged. So LPL and Merchant will both be minority investors in our business.”

Smith joined Private Advisor Group (PAG) in 2020 and previously worked at LPL for 13 years. While broker-dealers encroaching on advisor assets was once seen as taboo in the industry, LPL had made several purchases of financial advisor practices in recent years before its latest investment in Private Advisory Group, which spans 800 advisors and is based in New Jersey.

“Twenty years ago, the idea of an independent broker-dealer buying into an underlying practice would have been unthinkable,” said Louis Diamond, CEO of advisor recruiting firm Diamond Consultants. “With the average advisor nearing 60, succession is the biggest existential threat facing IBDs. If they don’t step in as a buyer, they risk losing high-quality practices at the very moment those assets are most valuable. Importantly, these solutions are optional. Advisors aren’t required to sell to the home office but increasingly, they want that option.”

Majority ownership in PAG is held by six legacy owners, including co-founders John Hyland and Pat Sullivan, who remains the primary shareholder and executive chair. His brother, James Sullivan, is also an owner. Pat’s son, Patrick R. Sullivan, remains chief of staff.

“Osaic's announcement earlier this year of its acquisition of CW Advisors is another example of a broker dealer taking a larger stake in an RIA. In that case, their plan is to keep CW as an entirely separate entity to run as a fee-only firm. LPL taking a stake in PAG could be a way to hedge against advisors leaving the LPL ecosystem to go independent and choosing to move over to PAG instead,” Jessica Polito, founder of M&A advisory Turkey Hill Management, told InvestmentNews.

Smith added that he expects Private Advisor Group to "ramp up" its M&A activity following the minority investment from LPL, particularly towards firms looking for succession relief solutions.

“I think the idea with this minority stake is that [LPL] likely negotiated some type of first right of refusal. They want a seat at the table, and instead of competing against themselves, they position themselves to get first look at whatever deal comes next,” said Gabriel Shahin, founder of the RIA Falcon Wealth Planning. “They [LPL] mentioned at last year’s conference that they’re continuing M&A outside the firm into independent RIAs, with the goal of bringing those assets to LPL. So all indications point to one thing: assets, assets, assets.”

LPL is “absolutely positioning itself as a permanent, influential player in the RIA M&A ecosystem,” Diamond said, adding how their approach to the RIA market differs from LPL’s blockbuster $2.7 billion acquisition earlier this year of Commonwealth Financial Network.

“Commonwealth was about acquiring infrastructure and gaining first rights to recruit their advisors,” said Diamond. “The PAG deal is largely about serving and retaining existing LPL-based practices and giving them a platform to pursue more bolt-on acquisitions. Both moves are smart, but they accomplish different goals for LPL’s growth and scale.”

Broker-dealers that have joined LPL in making direct investments into advisor practices include Kestra, which launched Bluespring Wealth Partners in 2019 to acquire RIAs. Raymond James launched its own program earlier this year to take minority stakes in independent advisor practices, while Cambridge and Cetera have also actively invested in or acquired advisor practices.

“LPL seems to be first focused on investing in firms already on its platform to help retain them in the face of minority and acquisition offers from competitors and PE firms directly,” RIA M&A consultant Corey Kupfer told InvestmentNews. “Most firms that have done that have moved to making investments and doing acquisitions of firms off the platform after they locked up their large internal teams. It would be surprising if LPL doesn’t follow that pattern, especially since it has already shown an appetite for external acquisitions with the Commonwealth deal.”