LPL Financial's decision to overhaul how it pays for recruits to join the firm is receiving mixed reviews from LPL branch managers, who rely on the independent broker-dealer to support and underwrite their efforts to bring in new advisers.
In the past, LPL's 45 or so external and internal recruiters received the same compensation to recruit to any platform, such as the firm's own registered investment adviser or a hybrid RIA affiliated with LPL. The firm said last summer that it was changing that policy.
As of the start of the year, recruiters' compensation has been tilted in favor of placing recruits at LPL's corporate RIA, recruiters and LPL branch managers said.
The change comes as LPL continues to rely on recruiting as a key to its growth.
After a slow start to 2016, the firm picked up steam and added a net of 323 financial advisers for the year. It ended 2016 with 14,377 advisers, a 2% increase compared with the number of advisers under its roof at the end of 2015.
The new strategy also comes at a time when
the question of whether the Department of Labor's fiduciary rule is having a negative or positive effect on recuitment in the brokerage industry. The broad stock market is also roaring, with the S&P 500 up 6.4% on the year. When times are good, the common wisdom is that advisers stay put.
LPL's recruiters are being paid less if a candidate lands at one of its affiliate hybrid RIAs, which may custody assets at a competitor such as TD Ameritrade or Fidelity, according to one branch manager, who asked not to be named.
"It's all about profitability," the manager said. "The margins are higher if an adviser is on the corporate RIA as opposed to a hybrid," adding that advisers are currently receiving less of a bonus if they move to a hybrid RIA rather than LPL corporate RIA.
"There is clearly a shift in strategy," he said. "The focus is on the corporate platform and not the hybrid space. I don't blame them, but now LPL is really competing against us."
Another branch manager called the recruiting change "smart business" on the part of LPL. "Take an [Office of Supervisory Jurisdiction] that LPL supports, and the branch puts a recruit on a hybrid platform away from LPL," said the manager, who also asked not to be named. "Going forward, LPL is being more strategic."
LPL has pulled back from supporting those recruits as they have in the past and is offering less in a recruiting bonus, he said. Instead of 20 basis points of the adviser's prior year's annual fees and commissions, the recruits could receive 10 basis points in transistion assistance, he said.
Both branch managers said that hard numbers of adviser profitability were difficult to ascertain because LPL kept such numbers close to the vest. They estimated, however, that an adviser on LPL's corporate platform — as opposed to a hybrid — could end up being five to nine basis points more profitable annually.
Bill Morrissey, managing director in charge of business development, said that the firm was continuing to support branches that want to grow and add new advisers.
"We pay our [recruiters] based on profitability," he said. "That's how most firms operate. Deciding on the corporate RIA versus a hybrid is not a huge driver."
"A number of factors makes up an adviser's profitability, including the product mix, cash balances, and trading volumes," he said. "The mix of products has a bigger impact on profitability than the business model."
When asked whether LPL was competing against branches for advisers, Mr. Morrissey said: "I don't think we're competing against our hybrids or OSJs. We're providing them with tools and resources to grow," he added, including referrals, analyzing leads, and tens of millions of dollars in transition or recruiting money.
"I'm not aware of another firm in the industry that provides the level of support that we do to help existing clients grow," he said, referring to LPL's advisers.
