LPL Investment Holdings Inc., already the largest independent broker-dealer in the industry, wants to add 400 registered reps and investment advisers each year, chief executive Mark Casady said last week.
Mr. Casady, in his first public comments since taking the company public in November, said, however, that an obstacle to that goal is that that it has become more expensive to recruit new talent.
LPL's range for upfront money on average has been between 6% and 12% of a broker's prior year's fees and commissions, Mr. Casady said.
“Historically, it's been about 7 cents on the dollar, and now it's maybe 10,” Mr. Casady said. “The overall average has gone up, and there are definitely some cases, particularly with multimillion-dollar practices,” that skew the figures of the average deal, he said.
LPL's competitors keep a close eye on the firm and how it recruits brokers and advisers, especially the number of brokers it brings on and the upfront recruiting bonuses it pays.
The company's IPO raised $469.7 million, and Mr. Casady personally sold shares worth $58 million. Based on its current market capitalization, LPL is worth $3.65 billion.
Over the past decade, LPL has been a recruiting juggernaut, growing from 3,596 reps and advisers to around 12,000. During that time, 80% of the firm's growth came from recruiting, Mr. Casady said, with the rest coming from about six acquisitions of reps from broker-dealers. At the end of last year, LPL closed the acquisition of assets from National Retirement Partners Inc. and acquired 206 advisers focusing on retirement planning.
Mr. Casady acknowledged that the firm's overall head count was “flat” at the end of September. That, however, doesn't mean LPL had an off year in recruiting, he said.
About 720 brokers left in the first nine months of 2010, which was due to fallout from the integration of broker-dealers acquired in 2007. Those brokers were replaced by 750 new brokers — and their production far outstripped those that left, Mr. Casady said.
The brokers who left averaged less than $50,000 per year in fees and commissions, while those who joined averaged $250,000 to $350,000, he said.
“That will provide some really nice growth for us,” Mr. Casady said.
He declined to disclose recruiting numbers for the fourth quarter. LPL will report its adviser head count when it releases earnings Feb. 7.
While LPL has the ability to increase its overall head count of reps and advisers, it lags behind both the wirehouses and other independent broker-dealers in attracting the larger, more profitable advisers who produce $750,000 or more annually in fees and commissions, some industry observers said.
“I think they've got a monopoly on the low end of the market,” said Danny Sarch, a recruiter who works with firms across a variety of business lines, including the wirehouses, independent broker-dealers and registered investment adviser networks.
Competing with wirehouses can be difficult, as they offer upfront bonuses of 200% to 300% of a rep's prior year's production, though independent broker-dealers pay reps a much higher commission rate.
Mr. Casady dismissed the notion that the firm can't attract big advisers.
He said that the brokers the firm recruits produce, on average, about 20% more in fees and commissions annually than the average broker.
“We have the most brokers who do over half a million dollars of any independent firm,” Mr. Casady said. “People can say whatever they want, but the facts are that we have a very developed business” to recruit big producers.
According to this year's
InvestmentNews survey of independent broker-dealers, LPL Financial, the larger broker-dealer under LPL Investment Holdings, had 861 affiliated reps and advisers who produced more than $500,000 per year in fees and commissions in 2010. That was 7.5% of its advisers.
Uvest Financial Services Group Inc., the other broker-dealer under the holding company, had 41 reps and advisers, or 7.2%, producing more than half a million in fees and commissions, according to the survey.
Mr. Casady said LPL saw a pickup in interest from wirehouse advisers starting in the middle of 2010 and that recruiting should get better in 2011. Many brokers at the major wirehouses took “stay” or retention bonuses in 2009, he noted, and as they work those bonuses off, they will be more inclined to contemplate changing firms.
Mr. Casady said the firm has 40 or so initiatives for reps and advisers in 2011. For example, it plans to expand the number of fee-based variable annuities to advisers. It currently has one. Variable annuities are a very popular product for brokers to sell but have drawn criticism for their high sales commissions and complexity.
“The exchange-traded-funds program we rolled out last year, which is essentially a re-balanced use of ETFs, is a good example of us trying to find a more efficient way to support an adviser who wants to have an ETF-centered practice,” Mr. Casady said. “The variable annuity initiative is a similar idea: "How can we take VAs into the advisory world and provide a commission-free VA option for advisers to use with their clients?'”
E-mail Bruce Kelly at [email protected].
