LPL Financial said last year it was expanding its platform to capture advisers who are employees rather than independent contractors, the firm's bread and butter.
Now, LPL is putting its money where its mouth is and this morning revealed it would pay those advisers top dollar, with an adviser who generates $1 million annually in fees and commissions seeing a potential as much as a 33% pay increase.
For decades, LPL has been the largest firm for advisers who work as independent contractors and typically receive 80 cents per dollar of revenue from fees and commissions. Advisers who are employees, like those at UBS and Merrill Lynch, have a pay scale, known as the grid in the industry, that is roughly half of an independent contractor adviser.
With more than 16,000 independent contractor reps and advisers, LPL joins competitors such as Raymond James Financial Inc. and Ameriprise Financial Inc. that have platforms for both independent contractors and employees.
"The economics are unique to be an employee and receive payouts that are so strong," said Louis Diamond, an industry recruiter.
And LPL's offer is potentially more attractive for advisers with less in annual commissions and revenues, Diamond added. "If you're an adviser with less than a million per year, say $500,000, you are not in high demand from other wirehouses, which are looking for the million-dollar guy. So, LPL's offer is compelling for the adviser who produces $350,000 to $500,000."
According to LPL, an employee adviser in its new program that generates $350,000 in annual revenue will receive a payout of 50%. The amount increases from there, with advisers producing revenues of $500,000, $1 million, and $5 million receiving payouts, respectively, of 52.5%, 60%, and 70%.
"The payout is 50% to 70% from dollar one, and there's no penalties for having small households as clients or not doing more banking or liability business," said Rich Steinmeier, managing director and head of business development for LPL.
A former wirehouse executive, Steinmeier was echoing a common complaint by those advisers, that compensation has been increasingly linked to banking business.
The offices for the new LPL employee advisers will be in major metropolitan areas, Steinmeier said.
LPL was able to offer the competitive pay for employee advisers due to lower targets for profit margins on its wealth management franchise than a typical wirehouse, Steinmeier said. Wirehouses also have layers of management in branch offices and regions, essentially adding built in costs that eat into an adviser's compensation, he said.
"The companies we are challenging have the costs of legacy infrastructure that don’t wind up benefiting the adviser or his practice," Steinmeier said.
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