Technology said to be impetus behind LPL-Fortigent deal

Buy, rather than build. That appears to be the consensus among several industry insiders, analysts and financial advisers on why LPL Financial acquired the wealth management consulting firm Fortigent LLC.

Buy, rather than build.

That appears to be the consensus among several industry insiders, analysts and financial advisers on why LPL Financial acquired the wealth management consulting firm Fortigent LLC.

Michael Herley, a spokesman for LPL Financial LLC, wrote in an e-mail that Fortigent will retain its brand and operate as an entity solely focused on supporting sophisticated practices and those serving high-net-worth clients.

The acquisition “creates new possibilities for speeding up the evolution of the Fortigent platform,” based on LPL’s resources, scale and experience, he wrote.

“Just as they could prior to the acquisition, LPL Financial advisers who target and service primarily high-net-worth clients will have the option of partnering with Fortigent,” Mr. Herley wrote.

Other industry observers speculated about the deal’s meaning, though some preferred not to be identified.

“Mark Casady has always been a big deal guy. Esther Stearns, on the other hand, has always wanted to build rather than buy — so what yo-u have here is LPL recognizing that they cannot keep up in terms of meeting the technology needs of RIAs by building,” said a former senior LPL executive, who asked not to be identified.

Mr. Casady is chief executive and chairman of LPL Financial, and Ms. Stearns is the firm’s president and chief operating officer.

“We are the only custodian in the industry that offers a fully integrated solution for hybrid RIAs that combines their brokerage and advisory business on one platform,” Robert Moore, LPL’s chief financial officer, said in response to the former LPL executive’s claim.

“The race to be the technology and service leader provider in the RIA space is exceptionally competitive and we are winning by building the most efficient platform, as shown in the 2010 LPL Advisor Productivity and Profitability Study conducted by PricewaterhouseCoopers [LLC],” he said.

“It shows that our technology and service offerings yield an 18% profit advantage for LPL practices. That is leadership,” Mr. Moore said.

LPL will in-crease spending in technology to build new capabilities on its existing platforms, he said.

These include new trading capabilities, advisory proposals and end-client account access and information.

“MOVE MONEY’

Several industry experts weighed in and said that providing LPL advisers a way to “move money” and actively manage the assets of high-net-worth clients was a key motivation for this deal.

This should also make LPL a more attractive destination for those breakaway brokers leaving wirehouses, some said.

“I think this is really going to help attract the wirehouse guys, and that is a great business move on the part of LPL,” said Dennis Nolte, a former LPL adviser who has been with independent broker-dealer Capital Guardian LLC since 2010.

“Guys with a lot of margin — this will be great for them. But I wonder about the smaller producers and guys servicing the mass-affluent client. I do wonder whether they will still get serviced as well down the road,” Mr. Nolte said.

“Clearly, what it allows LPL to do is both increase its service offering for affiliated advisers and external firms like registered investment advisers,” said Alois Pirker, research director at Aite Group LLC.

The deal also makes sense be-cause Fortigent is one of the few viable players in the turnkey-asset-management area that is privately owned, available and affordable, he said.

That, in large measure, is thanks to the widespread consolidation in the industry, Mr. Pirker said.

“Envestnet is the big player in this space now, and too large for [LPL]. Then you have Advisorport and Lockwood [Advisors Inc.], both now with Pershing [LLC], and Curian [Capital LLC] is part of Jackson [National Life Insurance Co.], Mr. Pirker said.

At the end of the third quarter, Envestnet reported that it had $127 billion on its platform, which includes assets under management and administration.

Fortigent, by comparison, said in September that it had reached a milestone of $50 billion in assets managed on its platform.

Although Bill Crager, president of Envestnet, declined to comment about his competitors, he does agree that a lot of consolidation is occurring among managed-account providers, much of it as a consequence of the growth in the independent advisory sector.

“I think [the Fortigent acquisition] is indicative of the industrywide focus on the RIA space of trying to meet the needs of the adviser, both on the investment management side as well as their practice management infrastructure needs,” he said.

Although most advisers interviewed agree that the acquisition is a positive development, many wanted more specifics about the benefits they will realize before they would comment further.

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