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Advisor Moves His Practice Away From LPL, In Stages

By Miriam Rozen March 14, 2018

Ross Gerber is on a roll.

Since the beginning of the year, the financial advisor’s television appearances on networks such as CNBC, CNN, Fox Business News and Reuters, have gone from occasional to almost daily events. Impressions on tweets to his 48,000 Twitter followers have jumped from two to four million in the same time period. And his client assets have gone from $600 million to $700 million.

What’s behind this surge? Gerber, head of Santa Monica, Calif.-based Gerber Kawasaki Wealth & Investment Management, says it’s down to escaping marketing restrictions imposed by independent broker-dealer LPL Financial, with which he had been affiliated as a dual registrant, a broker with LPL and an investment advisor rep with his own RIA.

“I can’t stress to you enough the significance of freeing ourselves from an antiquated model based on laws of 1933,” says Gerber.

In December, Gerber dropped his affiliation with LPL after six years with the IBD. Although other advisors at his firm remain affiliated with LPL and his firm still uses the company as a custodian for clients’ assets, Gerber is out.

Gerber’s telling of why he severed his ties — particularly in the context of a recently proposed rule change by Finra and Wall Street buzz about LPL’s potential acquisition plans — point to change afoot for IBD and RIA relationships.

Specifically, Gerber thinks IBDs will come under more pressure to rethink their relationships with RIAs, as the advisory business becomes more focused on delivering client services rather than racking up commissions.

“Selling products in the investment world is over,” Gerber says. Gerber’s elated he’s no longer constrained by LPL’s cautious compliance strictures. “It’s a service business, not a broker business” — and IBDs that don’t get that won’t survive.

LPL's compliance rules had limited — beyond what Gerber deemed necessary — the topics that he could discuss on Twitter, in media appearances, or with his clients. Now he’s free to talk about Bitcoin and legalized cannabis business, and other topics about which his clients and prospects are eager to hear his thoughts, Gerber says.

In December, he negotiated a termination of his affiliation with LPL after his relationship with its compliance department began to sour.

“The business people loved us and want us to be successful; the compliance people hated us and wanted us to go,” Gerber says of his relationship with LPL

Ross Gerber

“I couldn’t do my job as a fiduciary. I couldn’t advise our clients,” he says because there existed entire industries, such as those that have grown up around legalized marijuana and cryptocurrency, that LPL rules barred him from broaching in any substantive way.

When his clients were making money from Bitcoin investments, Gerber asks rhetorically, “Are we supposed to close our eyes and say, ‘I can’t help you?’”

Back in 2012, when Gerber Kawasaki’s relationship with LPL began, LPL bragged in a press release that the firm, then two years old and with $175 million in client assets, was “rapidly growing” and “on the cutting edge of the financial advice industry.”

Initially, as Gerber appeared on financial news broadcasts, and his firm’s client assets grew robustly, LPL welcomed and extolled Gerber Kawasaki’s approach, he says. “Our media exposure was celebrated,” recalls Gerber.

But that changed in 2017, after Robert Moore, the former LPL president, defected to lead rival Cetera Financial Group and Mark Casady, the former CEO, retired, Gerber says.

LPL’s new management pursued strategies to refocus on selling the brokerage’s products, Gerber says. “My business didn’t fit into their business model,” Gerber says.

LPL didn’t respond to a request for comment.

When LPL’s compliance department began talking about fining Gerber for alleged compliance violations, he decided he needed to renegotiate his relationship with LPL.

“We agreed I would resign and I would spin out my advisory business from our broker business,” Gerber says. So LPL remains affiliated with some advisors at Gerber Kawasaki, but not Gerber.

Eventually, Gerber plans to terminate the LPL affiliation for almost all his advisors — but one so the firm can continue offering 529s — and using LPL as only one of multiple custodians for clients’ assets. “We’ve decided to become custodian agnostic,” Gerber says.

His firm’s expenditures related to LPL remain significant since each of the affiliated advisors pays LPL an $8,000 annual fee, which covers insurance and technology. For Gerber, buying insurance coverage on his own is much cheaper because he presents less risk to underwriters than does LPL’s pool of 14,000 affiliated advisors.

In late February, two new developments may have set the stage for LPL and other broker-dealers eventually to reverse some of the stringent compliance policies that left the Gerber Kawasaki CEO so dissatisfied.

On Feb. 26, Finra said it was considering revising its rule governing outside business activities of registered advisors and private securities transactions of brokerage associated advisors. The changes are “intended to reduce unnecessary burdens,” Finra said in a statement, announcing it was seeking comment on the rule change.

In addition, Bloomberg News reported in February that Cetera was looking for a buyer.

Steven Chubak, a securities analyst with Nomura Instinet, who covers LPL, issued a recommendation that LPL consider becoming the acquirer.

But Gerber has no intention of resuming his affiliation with LPL if that should happen.

“We don’t need broker dealers to run our business,” he says, citing their “enormous overreach” into the practices of affiliates.