Bowing to coming industry regulation,
LPL Financial LLC is eliminating independent representatives' ability to act as their own supervisors and hitting those 2,200 one-person shops with a fee increase.
It is the latest restructuring of compliance and oversight at LPL, the largest independent-contractor broker-dealer with more than 13,000 registered representatives and registered investment advisers.
The move — particularly a $4,800 fee increase in 2015 for reps who choose to be supervised by LPL's home office — likely will rankle the firm's advisers, who have seen fee increases over the past two years, industry observers said.
Under the new plan, reps who run one-adviser shops can also decide to be supervised by an existing, qualified office of supervisory jurisdiction.
Those reps will pay between 4% and 30% of gross fees and commission. Those who pay the most will get a higher level of service.
Industry regulators historically have been very suspicious of such one-person OSJs, citing an immediate lack of oversight in reps' investment product recommendations to clients. But those concerns likely won't matter a lot to reps looking at a sizable hike in expenses.
“The stand-alone reps will be between a rock and hard place with the choice of a $4,800 fee or to work under a multirep OSJ that will likely take an additional 5% haircut on their production to supervise them,” said Jon Henschen, an industry recruiter.
A coming rule revision by the
Financial Industry Regulatory Authority Inc. is one of the factors pushing LPL to make this change, said firm spokeswoman Betsy Weinberger.
“A major factor has been Finra's soon-to-be-enacted consolidated-supervision Rule 3110 that will require firms, among other things, to adopt a new on-site supervisory structure for single-person OSJs, using designated senior principals,” she said.
This has been a difficult year for compliance and oversight at LPL.
In February, LPL agreed to pay a $500,000 fine and to make $2.2 million in restitution for failing to supervise brokers selling nontraded real estate investment trusts from 2005 to 2009. The amount was later in-creased to $4.8 million to cover
REIT sales through February.
And in May, Finra fined LPL $7.5 million for e-mail violations, the largest ever fine meted out by the regulator over e-mail compliance.
