From the September 2006 issue of Research Magazine • Subscribe!

LPL to Boost Payouts, Open Center in Southeast

Advisors attending LPL's recent annual conference in San Diego heard more than personal insights from speakers Bill Bradley and Tom Brokaw. They also received news that their maximum payout levels were going up -- most notably at the $500,0000 production level and higher. Plus, the company is setting up a third service center and a new business development department.

"I'm in awe," says Steve Booren, head of Capital Consulting in Greenwood Village, Colo., which has yearly production of about $2 million. "I never would have guessed they'd want to give us a higher payout, because the payout is already high."

"We want to be the highest quality provider in our space, the lowest-cost provider and the best value proposition in the industry for financial advisors and clients," says Bill Dwyer, LPL's managing director of national sales.

Experts like Chip Roame of Tiburon Strategic Advisors say they're doing just that with their new grid. "This is really savvy. It shows LPL really has it together."

Under the '07 grid (see chart), the payout for an advisor producing $1 million goes up as much as 3 percent from a maximum 92 percent to a 95 percent, for instance. Advisors doing $4 million or better could get up to 98 percent.

For producers in the $200,000-$249,000 production level, the bonus may go up 1 percent for a top payout of 92 percent. "This is very different from what many firms want to do, which is to let those producing under $300,000 go -- or lower their bonuses," Dwyer points out.

"Our financial advisors are growing their businesses tremendously and should be rewarded for increasing production," Dwyer explains. Indeed, since 2000, LPL has doubled revenues, he says.

Industry experts put LPL's yearly revenue at about $1.4 billion. Assets under management top $120 billion.

This puts LPL way ahead of other competitors in the independent space, says Philip Palaveev, a senior manager with the industry consultancy and accounting firm Moss Adams in Seattle. "LPL has the technology and resources that enable their financial advisors to be more productive," says Palaveev. "They're really good at what they do."

In 2006, Dwyer says, LPL is slated to spend $15 million on information technology. "This can help advisors lower overhead by 10 percent to 15 percent," he explains, as paperwork is eliminated -- by document-imaging systems, thereby raising efficiency.

In a study conducted for LPL and released in January, Moss Adams found that LPL advisors had average yearly revenue of about $510,000 versus an average of $450,000 for advisors with other independent brokerages.

Average advisor revenue grew 13 percent in '05 and is on track to make a similar jump in '06, according to Dwyer. For advisors producing $1 million and up, production grew 24 percent on average last year and that amount may increase by 20 percent or more this year. "Given the lack of market returns and stability, we believe this is extraordinary," the LPL executive adds. "It's not just asset growth. It's also new accounts."

Still, LPL's total sales pale in comparison to those of Merrill Lynch, for instance; quarterly revenue at the wirehouse's private-client group are nearly $3 billion -- or double LPL's yearly sales. On average, Merrill brokers are generating close to $790,000 in yearly production, based on the most recent figures.

But, Dwyer argues, the wirehouses are just looking at part of the picture: "They're managing the product side, but there's also net income."

The Moss Adams study found that LPL's advisors earn pretax profits of close to 50 percent of production, or $250,000 a year. Advisors with other independent firms have average pretax profits of about 30 percent of sales, or $135,000.

In the future, more products and services should be coming via a third LPL service facility in Charlotte, N.C. LPL currently has dual headquarters in Boston and San Diego.

According to the company -- which includes a network of 6,800 financial advisors and licensed staff -- the Charlotte offices will function as an East Coast service center and operations facility, handling some compliance and recruiting functions with 120-plus staff.

Some 2,200 advisors attended the company's yearly conference in San Diego this summer, which had a total of 5,000 guests and focused on the theme "Invest in Others."

"Our goal is not to be the biggest, but to be the best," Dwyer says.

Nonetheless, recruiting continues at a "healthy" pace of about 10 percent to 15 percent a year. "We recruit across the spectrum," he explains, adding that $125,000 producers in rural areas, for instance, fit into this plan.

By spending money on its IT infrastructure and service centers, LPL should be able to realize its recruiting goals, observers note. "All of this breeds more success in recruiting and building a good track record for the company and its advisors," says Palaveev.

The more advisors in LPL, the better, some advisors say. "The more quality financial advisors that clear through LPL, the more resources are available to benefit me," explains Robert Fragasso, head of the Fragasso Group in Pittsburgh, a $4 million team.

Fragasso says that he's also pleased with plans for a new service center in North Carolina. "I haven't experienced any frustration with their existing service," he shares. "This is LPL leading with solutions before issues happen. I applaud the pro-activeness."

LPL says it is slated to open a new business development department in the next few months, too. It will include about 20 employees and focus on helping advisors with relationship management and financial analysis of their practices.

This means evaluating profitability per account and per product, explains Dwyer, as well as tackling issues like succession planning and acquisitions. "This is exactly the type of thing the department will focus on," he says.

Fragasso intends to take advantage of the new department: "We want to acquire practices as other advisors leave or retire. Providing benchmarks is also valuable to me in managing the business."

To Roame, such moves make LPL "a formidable competitor" in the industry. "They are really crossing the chasm, and now rival the wirehouses in intellect, offerings and innovation," Roame says. "They don't feel or need to feel second fiddle. Who would have thought they had $4 million producers?"

LPL, now 60 percent owned by Hellman & Friedman and Texas Pacific Group, is "an IPO waiting to happen," says Roame. These private-equity firms are "playing the business game very well," by offering incentives to the biggest producers and focusing all brokers on raising production -- and profits. Though all advisors at LPL won't necessarily receive a higher bonus, "Everybody's talking about it," he shares.

What will advisors do with any new bonus they achieve in '07? Booren insists he'll follow LPL's lead. "I'll take the capital and reinvest it in our capabilities," he says. "That way we can do an even better job for clients and fuel further growth for us and the firm."

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