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Why LPL is Pitching an Employee Model and Launching a Premium RIA

By Mrinalini Krishna May 23, 2019

LPL Financial, known for aggressive recruiting in the independent broker-dealer space, is now looking to reposition itself to access a broader spectrum of the advisory business with new channels such as a premium RIA and an employee model for independent advisors.

“What we see is the opportunity to take some of the principles of the independent model that the advisors really like... and then wrapping certain Employee Services around them,” said LPL CEO Dan Arnold, adding there was a shift towards an independent employee channel in the $20 trillion advisory marketplace. Arnold presented new models he said could help LPL double its participation in this market. The independent employee segment alone could amount to a third of the $11 trillion traditional employee model.

One of LPL’s first steps in the employee model for independent advisors was the firm’s acquisition of Allen & Company, a $3 billion RIA based in Florida.

Danny Sarch, recruiter and president of White Plains, N.Y.-based Leitner Sarch Consultants says that firms like LPL acquiring an RIA makes sense because it’s a “high-margin business.” But he does say it’s too early to make any judgments about the move as a business plan going forward.

“How are they going to grow from this or make Allen a launching point to attract other advisors? It’s impossible to judge it, because I don’t know how they’re compensating the people that are in that firm and what that business plan is going forward,” says Sarch.

But Arnold believes the new model may mean higher payout for advisors.

“It's interesting in that we can approach this model, not from the traditional employee-based way where you're loaded up with a lot of the infrastructure that comes with those models, but if you start from an independent model you actually create a more interesting model from an expense standpoint that actually allows you to pay those advisors more than they would get in a traditional employee base model,” said Arnold.

The firm is also keen to launch a premium RIA channel.

Although LPL has so far provided no further details about how it defines its premium segment, a company spokesperson told FA-IQ that the firm intends to introduce the offering in the near term.

Rich Steinmeier, LPL Financial managing director and divisional president, business development, explained the concept a little: “Think about the breakaway advisors who come out of the employee channel. Much of what they think about is they want to move into an advisory-centric model. But beyond that, they want to be supported through the transition. And as we think about the premium segment, of what it takes to compete there, you need to be able to help them take down space, set up their benefits, [and] payroll services. And we think we can do those things in support of targeting and being able to participate more wholesomely in a premium RIA segment.”

LPL is also leveraging its massive 16,000+ advisor force to bolster its roster further.

“Right now we have 65 recruiters that spend all day working to engage advisors, and sharing the benefits of potential affiliations. We think we can expand the number of oars in the marketplace by having our existing advisors become more compelling recruiters. We’ve stood up a team to help those advisors make their business development resources more effective,” said Steinmeier. “We want to galvanize 16,000 financial advisors that are already at LPL to begin sharing the story more broadly.”

The firm also announced an increase of $15 million to its technology spend for the year, to take the total up to $150 million for 2019.

“We are uniquely positioned to be able to deploy capital and invest in our advisors’ business. And we believe that focusing that investment on technology capabilities and resources can bring a tremendous amount of value to advisors and their clients,” said Burt White, LPL Financial managing director and chief investment officer.