What are LPL, Cambridge paying for advisors’ businesses?

Now that independent broker-dealers are competing in the red-hot mergers and acquisitions market to buy registered investment advisors and wealth managers, they're paying millions of dollars for financial advisors' business, the same non-employee advisors who were already registered with the firms.

IBDs like LPL Financial and Cambridge Investment Research Inc. in the past week reported assorted details about the deals they completed last year in filings with the Securities and Exchange Commission. One striking aspect to the acquisitions is that the old adage of the independent broker-dealer industry, that a firm like LPL or Cambridge would never own a broker's book of business, has disappeared over time.

IBDs want to buy their advisors' practices, and in abundance.

In its annual audited financial statement, known as a Focus report, LPL Financial reported on February 21 that last year the IBD giant, with 21,000 financial advisors, had completed a total of 19 acquisitions using a program called its "liquidity and succession" solution, in which it buys advisors' practices. The total consideration for just five of those transactions was $190.2 million, with potential future payments of another $107.2 million for those firms.

Meanwhile, Cambridge Investment Research Inc., another industry leader, said Tuesday in its 2023 Focus report that last year it acquired the commission business of Antaeus Wealth Advisors Inc., which uses Cambridge as its broker-dealer, for a total consideration of close to $4.4 million.

The managing partner of Antaeus Wealth Advisors, A. J. Sohn, did not return a call Wednesday afternoon to comment. A spokesperson for Cambridge did not comment.

For years, broker-dealers have had a variety of succession plans to acquire retiring financial advisors' clients, but the outright purchase of advisors' businesses, particularly as private equity managers are snapping up wealth management firms, is a more serious step. LPL announced at the end of 2022 that it was buying one of its own giant branch offices, Financial Resources Group Investment Services, which at the time housed bank brokers overseeing $40 billion in assets.

"For the next decade, we are going to be in a succession planning landslide, so IBDs need to compete with the private equity buyers for advisors' practices or they will suffer and see advisors' assets taken off their books," said Carolyn Armitage, an industry consultant. "Private equity buyers are willing to pay more for those assets. A firm like LPL also has a big advantage since they self-clear and that's a more diversified way to earn money on those assets."

"This strategy by IBDs makes so much sense, because all the statistics show that a lot of financial advisors are going to be retiring in the next decade and firms have gotten wise to that," said Jodie Papike, president of Cross-Search, a third-party recruiting firm. "If the broker-dealers want assets on their platforms, they need to be aggressive, and they are throwing a lot of money at this."

Meanwhile, Cambridge Investment Research also reported that the SEC's enforcement division was reviewing the revenue-sharing practices, as well as potential conflicts, of the firm and an affiliated entity.