Projecting that pace of growth forward, the independent broker/dealer could surpass all of the larger wirehouse firms by rep count by either 2013 or 2014, depending on how they grow or shrink over the next few years.
Regardless, "This is a huge milestone for independent broker/dealers," said Chip Roame, head of the consultancy Tiburon Strategic Advisors. "Ten years ago, LPL only had 3,000-4,000 financial advisors and were looked down upon by many wirehouse financial advisors." While that viewpoint has not completely turned the corner, it is in the process of doing so. "More wirehouse brokers will respect the firm as a public company and that may boost LPL recruiting of larger teams," explained Roame.
Recruiters agree. "The LPL IPO will be an overall positive for their recruiting efforts," said Mark Elzweig of Mark Elzweig Company, executive search consultants. "The IPO has been in the works for quite some time, now the uncertainty as to when it will take place has been removed. More importantly, advisors will welcome the opportunity to be part of a solid, public company." (See related story on the recruiting implications of LPL's announcement.)
Wirehouse rival Morgan Stanley Smith Barney has 18,140 advisors, while Wells Fargo Advisors includes 15,119 and Bank of America-Merrill Lynch has 15,005. UBS' advisor force is now about 6,870.
Privately held Edward Jones includes 12,743, and publicly traded Ameriprise has 11,837. Raymond James, also a public firm, has 4,523 financial advisors.
A Good Place to Be
"They are well positioned," said Tim Murphy, CEO and President of Investors Capital, a publicly traded independent broker/dealer with about 550 advisors. "The independent channel is gaining ground, and they are the dominant player in the channel."
By going public, LPL Financial now has "a currency to pay employees and maybe even to pay financial advisors," said Roame. It's "a way to tie key people to the firm longer, and it also gives the firm a source of new funds if they determine that another acquisition is wise. Plus, I assume it lets the firm pay out some long time employees."
In late 2005, 60% of LPL Financial was sold to Hellman & Friedman of San Francisco and Texas Pacific Group of Fort Worth, a signal to many observers that the company's next financial move would be to go public. At the time, LPL Financial's advisor count was 6,800.
In 2007, it acquired three broker-dealers from Pacific Life.
The Pros, and Cons, of Going Public
"Access to the capital markets will help the firm obtain the needed funds to continue to upgrade technology and grow its business in the coming years," noted Elzweig. But there are some negatives to going public, too, experts point out. "As a public company however, if the firm has a bad quarter, the whole world will know," said Elzweig.
In addition, "The ability to run the company changes," said John Rooney, managing principal of privately held Commonwealth Financial, which has about 1,300 advisors. "As a public company, you are numbers driven, and that will mean that the decision-making process aligns accordingly."
For Commonwealth, says Rooney, "Our decisions don't have to be purely profit maximizing and can incorporate the interests of our community. That's a big deal for us. In other words, they will have a fiduciary duty to shareholders in being a public company. For a private company, that duty is to your employees and advisors."
Other experts say that since its sale to the private-equity firms in 2007, LPL Financial has very much been run like a public company. For instance, it has been filing K and Q statements (see related story on the financial details on LPL's filing). "They have been moving their business plan along during this time," noted Murphy. "They integrated operations and became fully self clearing. They were smart in using this time to their advantage."
As Roame and other experts see it, LPL Financial's IPO could easily shift its position in the brokerage industry: "This is a defining moment for the independent broker/dealers and for LPL," said Roame. "This announcement is another threat to the dominance of the wirehouses."