From the April 2010 issue of Research Magazine • Subscribe!

LPL Financial Upbeat On FA Recruiting in '10

The independent broker-dealers shares what's behind the success of its latest quarterly and annual results.

This year, LPL Financial aims to build on its recruiting success in 2009 after "experiencing record levels of recruiting growth," said Bill Morrissey, executive vice president of business development for LPL Financial, in an interview.

"We added 750 net new advisor relationships for the full year," he said, giving LPL Financial, an independent broker-dealer, a total of 11,950 affiliated financial advisors as of December 31, 2009.

The '09 growth figure excludes attrition related to the three affiliated broker-dealers acquired from Pacific Life in 2007, Mutual Service Corporation, Waterstone Financial Group and Associated Financial Group.

LPL Financial follows a national recruiting strategy that includes all major advisor channels. Historically, about one-third of its recruiting prospects come from the wirehouses, one-third from independents and other broker-dealers, 20 percent from insurance firms, and the remainder from banks and other financial institutions, according to Morrissey.

What type of advisor did LPL Financial attract in 2009? "This industry is cyclical. In 2009, the churn in the marketplace was dominated by small wirehouse advisors looking for a home," Morrissey said. "We were fortunate to recruit a disproportionate share of the wirehouse advisors looking to go independent."

The movement of these advisors was very strong in the first half of last year, he explains, and then it slowed down in the second half. "This is when the big firms began awarding retention bonuses to their advisors, and they suspended some of the more draconian changes they had made to compensation programs for smaller advisors," noted Morrissey.

The recent weakening in the movement of wirehouse advisors means that LPL Finanicial's recruiting prospects are now increasingly coming from independent and regional broker-dealers, and this includes advisors with robust businesses.

"Last year, brokers -- particularly -- in the wirehouse space felt a need to change broker-dealers and did so in the first and second quarter," explained Morrissey. "At the same time, many larger producing advisors and those that were either already independent or were at a regional firm focused on their clients. With the market's recovery, these advisors are examining their options."

In the past year or so, the majority of LPL Financial's recruited advisors have wanted to launch their own business, the broker-dealer executive says. However, "We've seen an increase in the number of advisors that did not want to go alone, so they were recruited into existing branches. This trend is continuing into 2010."

LPL Financial has 4,000 branches across the country. "Recruited advisors are able to meet with several branch managers to find a good fit," said Morrissey.

Just as LPL Financial recruits across various advisor channels, it also gives prospective advisors a choice of channels to join if they come over. "The registered rep, hybrid and the RIA offerings all experienced strong growth in recruiting last year," said Morrissey.

Advisors coming out of an employee model may join the registered-rep model on day one, since that is what they're most familiar with, he explains, and then they eventually may evolve their business model into one of LPL Financial's other options. "As an advisor's business model evolves ... their client account numbers move with them, and other elements do not change."

While some wirehouse executives are celebrating the slowdown in the movement of "breakaway brokers," managers at independent broker-dealers like LPL Financial remain confident about recruiting from the major Wall Street firm in both the short- and long-term.

"The market environment in 2010 supports investors looking for objective, conflict-free advice. And for financial advisors, that means there's a need to align with a firm that has the size and scale to address that desire," said Morrissey.

"With the number of advisors that have left the large Wall Street firms over the last year or so, it has demystified going independent. And we know that the advisors we've recruited are talking to their friends and former colleagues and telling them about going independent," he added.

Also, when it comes to issues like technology, wirehouse advisors have nothing to lose by moving over to LPL Financial, according to Morrissey: "You don't have to sacrifice technology when you change firms and go independent, especially since there's open architecture. You can get the same technology at LPL as at a Wall Street firm."

Overall, though there may be fewer wirehouse advisors coming over to LPL Financial and other independents in 2010 vs. 2009, he remains very upbeat as to how the broker-dealer will do in the recruiting area this year.

"The churn has slowed, but our ability to recruit nationally and across the major channels is why we are so positive," said Morrissey. "Plus, our model includes a full continuum of options that addresses the needs of the marketplace today."

In a related development, LPL Financial announced in early March that Derek Bruton, national sales manager of Independent Advisor Services (IAS) was appointed a managing director of the company. This appointment makes Bruton the broker-dealer's tenth managing director.

Bruton reports to Bill Dwyer, president of National Sales and Marketing and oversees business consulting and business development for all independent advisors and RIAs, as well as financial-planning services. Morrissey is one of the executives he supervises.

Prior to joining LPL Financial in 2007, Bruton worked in senior management at TD Ameritrade, Merrill Lynch and Charles Schwab.

In February, LPL Financial reported net income of $47.5 million in 2009, an increase of 4.4 percent compared to 2008. The company's non-GAAP net income was $82.9 million -- excluding restructuring charges associated with the full integration of the operations of three affiliated broker-dealers (Mutual Service Corp., Waterstone Financial Group and Associated Financial Group) onto the LPL Financial self-clearing platform.

The company said in a news release that net revenue for 2009 decreased 11.8 percent from $3.1 billion in the prior year to $2.7 billion "primarily as a result of poor market conditions prior to the fourth quarter."

In the fourth quarter of 2009, net income grew to $18.6 million vs. $2.4 million a year earlier. Non-GAAP net income rose 153.4 percent to $28.8 million vs. $11.4 million in the prior-year quarter.

Net revenue for the fourth quarter of 2009 was $734.9 million, an increase of 4.4 percent from $703.8 million in the same period of 2008, "propelled by a 19.5 percent rise in total advisory and brokerage assets to $279.4 billion, up from $233.9 billion in the fourth quarter of 2008, consistent with increased investor participation in the securities market and recent market value increases," LPL Financial said in a statement.

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