LPL purchase of Commonwealth started with CEO's email

Rich Steinmeier, CEO of LPL Financial Holdings Inc., first reached out to Joe Deitch, owner and chairman of Commonwealth Financial Network, around Christmas last year, and sent him an email.

The intent, according to Steinmeier, was not to discuss LPL buying Commonwealth, but rather a simple electronic hello.

LPL’s CEO for just a couple of months at the time, Steinmeier admired Deitch, who started Commonwealth in 1979 and is one of the most well regarded executives in the financial advice industry.

“I said I’d like to get to know him better,” Steinmeier said in an interview Monday afternoon, just hours after LPL announced it was acquiring Commonwealth Financial Network for $2.7 billion in cash. “Joe is well known to some of our legacy people. Jim Putnam, the chairman of our board, holds him in high regard.”

Deitch quickly returned Steinmeier’s email, and then the two started talking the same day via Zoom.

The LPL chief apologized for his onscreen appearance and the makeup smeared “all over his face;” a photographer was in LPL’s San Diego office taking new headshots of executives.

According to Steinmeier, Deitch told him not to worry; he was an old theater hand and had plenty of experience with the tools of such productions.

Three months later, and it’s opening night on LPL’s acquisition of Commonwealth Financial Network.

LPL and Commonwealth have long been rivals in the fight for financial advisors in the independent broker-dealer space. Now, they’re bedfellows.

“This deal makes a lot of strategic sense for [LPL Financial Holdings] for a number of reasons,” wrote Steven Chubak, managing director of Wolfe Research, in a note Monday to investors about the transaction.

Those include: Commonwealth’s focus on high-net-worth clients, in line with LPL’s goal to work with wealthier customers; Commonwealth’s track record of organic growth; and Commonwealth’s asset mix, which likely skews much more heavily to advisory assets, which generate annual fees.

Steinmeier was tapped in October to replace Dan Arnold as CEO after LPL’s board terminated him for making statements, still not yet known publicly, to employees that violated the company’s code of conduct.

“I was a new CEO, and Commonwealth was the firm I held out as being at the apex in the industry,” he said. “I wanted to learn the secret sauce.”

Instead, he bought it. “That [discussion] led in a different direction,” Steinmeier said.

Steinmeier said he and Deitch then had at least 15 conversation about the potential transaction, separate from discussions internally or with bankers. “It felt like we fit together hand in glove; it was not one firm ingesting another,” Steinmeier said.

Steinmeier’s priority is to hang onto the culture and community of Commonwealth, which focuses on top-notch service and technology to its 2,900 financial advisors.

LPL’s message internally to Commonwealth financial advisors is focused on retaining its culture, not an easy thing to do when one large firm acquires a rival.

“We intend to keep the Commonwealth community and service intact,” Steinmeier said. “We want to take what they’ve done and take it broader” across LPL, which is a behemoth and works with 29,000 financial advisors.

“I understand the financial advisors’ element of loving their community,” he said. “There is no other Commonwealth. So we’re going to keep Commonwealth.”