Some advisers question future of LPL unit

Tensions have been building for months among financial advisers affiliated with Mutual Service Corp., a subsidiary broker-dealer of LPL Investment Holdings Inc., as they wonder about the future of their firm.

A big question is whether LPL will dump the Pershing platform that holds many of the advisers’ client accounts and processes their transactions and trades.

In recent meetings with Mutual Service representatives and advisers, LPL officials, including Bill Dwyer, managing director and president of independent-adviser services at LPL Financial, have been questioned about the firm’s future and LPL’s commitment to keeping open the Pershing platform that many of them use.

LPL officials declined to comment when asked specifically about plans to continue using the Pershing platform for Mutual Service reps.

LPL Financial, the largest broker-dealer in Boston-based LPL Investment Holdings’ collection of firms, is self-clearing. It is a rarity among independent broker-dealers, which typically rely on Jersey City, N.J.-based Pershing LLC or National Financial Services LLC of Boston for clearing services.

Industry observers noted that it would be more profitable for LPL to house those advisers who use Pershing on its own clearing platform.

However, current and former advisers with Mutual Service have complained to management about the meshing of LPL’s system, BranchNet, with its own system. The conversion of accounts was particularly laborious, advisers said.

To that point, some heads of Mutual Service offices have been clamoring for answers to questions about the firm since March, when a small group of advisers sent a charged 10-page memo to Andy Kalbaugh, chief executive of Mutual Service.

“The MSC story is broken,” the memo stated. “It is our hope we can partner together to rewrite the story.”

According to the memo, four areas need “immediate attention.” They are “the clarification of MSC’s corporate vision, recruiting, BranchNet and service.”

During a meeting in March in San Diego, Mr. Dwyer via teleconference said that LPL is reviewing all aspects of its business and that there is no guarantee it will be using Pershing’s services in a year, said Paul Hoffman, one of the authors of the memo.

His firm, Hoffman Financial Services Ltd. in Appleton, Wis., has 43 reps and advisers, and generated $5 million in fees and commissions last year.

In a meeting this month in Chicago, advisers asked Derek Bruton, national sales manager of LPL’s independent-adviser business, whether Pershing will be available to them, said another Mutual Service rep, who asked not to be identified.

“They didn’t say they were going to get rid of Pershing, in any fashion,” the adviser said. “The gist of the meeting was that Pershing was under review” as were many of the facets of Mutual Service’s business.

In the past, Mr. Dwyer has left no doubt that LPL was committed to Pershing. Soon after LPL announced its acquisition of Mutual Service and two other broker-dealers in March 2007, he said in an interview: “Just to be very clear: It’s our intention to be with Pershing and grow with Pershing.”

LPL wanted to use Pershing as a recruiting hook, Mr. Dwyer said.

The big question that advisers face, Mr. Hoffman said, is the future of Mutual Service and the other affiliated broker-dealers that LPL purchased from Pacific Life Insurance Co. LLC of Newport Beach, Calif., in 2007.

He questioned whether Mutual Service of West Palm Beach, Fla., Associated Securities Corp. of El Segundo, Calif., and Waterstone Financial Group of Itasca, Ill., will be merged together or merged into LPL.

The three are a large part of LPL and are home to about 1,700 of LPL’s more than 12,000 reps and advisers.

As such questions swirl, some reps have started to walk.

This month, David Whelan’s group, which had 14 reps and produced about $2.5 million in fees and commissions last year, left Mutual Service and joined Cambridge Investment Research Inc. in Fairfield, Iowa. Seven advisers have followed Mr. Whelan so far, he said.

In March, Russ Jones’ Troy, Mich., group, which has 40 advisers and about $5 million in fees and commissions, joined Summit Brokerage Services Inc. in Boca Raton, Fla.

Mr. Whelan declined to comment about concerns related to Pershing at Mutual Service.

“I did not want to work for a big company,” said Mr. Whelan, who is based in Peabody, Mass. “At Cambridge, I’m with a mid-sized broker-dealer and understand their business plan and the direction they’re heading.”

LPL promised to leave Mutual Service alone when it acquired the firm, and also said it would help recruit advisers to the firm’s offices, Mr. Jones said. That hasn’t happened, he said.

The merging of BranchNet was “klutzy,” Mr. Jones said. “They tried to make it work; it’s not working to this day,” he said, adding that he regularly talks to Mutual Service advisers.

LPL officials said that the firm is continuing to work hard to support all its advisers.

Another Mutual Service adviser, Frank Congemi, downplayed such complaints, saying that every time firms merge such systems and data, there will be problems.

“I’m not trivializing the problems, but there are patches and do-overs to the problems,” he said.

Mr. Congemi is clearly pleased with LPL and the direction in which it is taking Mutual Service.

“I’m not going anywhere,” he said. “I fully intend to end my career here.”

And when LPL announced a 10% cut in its work force at the end of the year, the layoffs in the Mutual Service home office were particularly deep, with some 30% to 40% of the employees there eliminated.

In the past, it was almost impossible to get an adviser to leave Mutual Service, recruiters said. Now, Eric Schwartz, chief executive of Cambridge, said that six offices could move to Cambridge from Mutual Service over the next year.

“The trend is accelerating, not slowing down,” he said.

Cambridge has had 26 separate inquiries from Mutual Service advisers over the past 12 months, Mr. Schwartz said. “That’s an unusually large number from any one company,” he said.

“Our strong commitment to supporting the advisers of MSC, as with all advisers associated with LPL Financial, has been clearly demonstrated by our introduction of a significantly expanded menu of practice-management and research tools, as well as educational conferences,” said Joseph Kuo, a company spokesman.

He said that 150 Mutual Service advisers are enrolled in LPL’s new marketing program, ClientsFirst, and many have responded favorably.

“Additionally, we continue to recruit to the MSC platform, with particular success in helping our branches grow their businesses through adding new advisers,” Mr. Kuo said.

E-mail Bruce Kelly at [email protected].

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