From the April 2007 issue of Research Magazine • Subscribe!

April 1, 2007

LPL to Buy Three PacLife BDs and Near the 10,000-FA Mark

After months of speculation, LPL Financial Services says it has reached a deal to acquire three of Pacific Life Insurance Company's broker-dealers: Mutual Service Corporation, Associated Financial Group and Waterstone Financial Group. Combined, the three BDs have about 2,200 financial advisors and $353 million in revenues.

"The acquisition of Mutual Service, Associated Financial and Waterstone Financial is a major cornerstone for our growth strategy in an industry where, increasingly, size and scale matters," LPL Chairman and CEO Mark Casady says.

Expected to close by June, the transaction should increase LPL's financial-advisor ranks to 9,900 from 7,700. San Diego-based LPL is not acquiring two other Pacific Life broker-dealers, M.L. Stern & Co. and United Planners' Financial Services of America.

Chip Roame of Tiburon Strategic Advisors, who predicted this deal in Research in June, says LPL's buying spree "isn't over yet."

"It's a strategy," Roame explains. "They wanted to and did get bigger."

Bigger indeed. Since two private-equity firms, Hellman and Friedman of San Francisco and Texas Pacific Group of Fort Worth, bought a majority stake in LPL in late 2005, LPL's been on a tear. At the time, LPL had 6,200-plus FAs, with total yearly sales of about $1 billion.

By the second half of 2006, though, the independent, self-clearing BD's advisor force had grown to 6,775. That's when it bought UVEST Financial Services of Charlotte, N.C., giving it about 675 more advisors, mainly in the bank channel.

Earlier this year, LPL arranged with AXA Advisors to do clearing work for its 4,000 FAs. As part of the deal just struck with Pacific Life, however, LPL won't do the three BDs' clearing work. "These three new entities will continue to operate under their current brands, management and Pershing clearing and operational platforms," shares Casady.

Why all the growth? "Clearly LPL's aim is to go public at some point," says Roame, who is hosting Tiburon Strategic Advisors' 12th CEO Summit April 18-19 in San Francisco. "They need to go public as a mid-cap, not as a micro-cap, and their two savvy investors know they've got to grow." Plus, he adds, the equity firms have helped supply LPL with enough capital to make the deals happen.

From Pacific Life's standpoint, the deal is about "moving to a stronger focus on our insurance and annuity business," according to the insurance company's COO Jim Morris. "We are confident that these broker-dealers and their advisors will enjoy a bright future in affiliation with LPL."

When it comes to this strategy, Pacific Life may not be alone. "I wouldn't be at all surprised if AIG, ING, Jackson National and others did some selling, too," adds Roame. "The idea that you have to own the whole food chain has collapsed."

LPL, which Roame says is a now a "well-oiled acquisition machine," could even have its sights on Raymond James. "I'd even say that within the next 12 months, LPL could surpass Merrill Lynch in terms of the number of financial advisors."

For those who are counting, that would be 15,880 worldwide or about 13,000-plus in the United States, give or take a few.

---

LPL's Latest BD Shopping Spree

Mutual Service Corporation

FAs: 1,300

HQ: West Palm Beach, Fla.

BD Staff: 141

CEO: John Dixon

Waterstone Financial Group

FAs: 620

HQ: Chicago

BD Staff: 43

Led by: Stephan Anderson

Associated Financial Group

FAs: 250

HQ: Los Angeles

BD Staff: 52

CEO: Fitz Fisher

Source: LPL

---

Janet Levaux is the managing editor of Research; reach her at jlevaux@researchmag.com.

----

Reprints Discuss this story
This is where the comments go.