Jonathan Henschen of Henschen & Associates in Marine on St. Croix, Minnesota, said it might lead to higher expenses and lower payouts. "In my view," he explains, "publicly traded broker/dealers are trying to get upwards of 15% out of the B/D to drive the stock, whereas privately owned B/Ds, if they can run the firm, pay advisors, and come out 3% to 4% ahead, are content. Do the math."
Publicly traded companies, he says, also have more miscellaneous expenses, and while they can offset some of those expenses because of economies of scale, "they have higher expenses than many B/Ds I work with."
Mitch Vigeveno, of Turning Point, Inc., in Safety Harbor, Florida, points out that such might not be the case with LPL. While he says that running an independent B/D is "fundamentally a small-margin business ... they do as a self-clearing organization pick up all the ancillary revenues that all the others have to give to Pershing and [others]. They make money on debit accounts, margin, and money market accounts."
Two possible lures in recruiting, says Vigeveno, may be the value of stock options and the fact that LPL's goal of paying down debt "may put them in a financial position to do things that some of the smaller independents can't do."
A possible negative, he says, is the possibility that the interests of the stockholders may be put ahead of those of advisors. Henschen agrees, saying that he's curious about what their pricing will be like after they go public.
He also wonders how LPL advisors will be affected. "You have to satisfy stockholders. How will that affect [advisors]? Will it affect payouts or cutting commissions? Economies of scale and soft dollars from vendors aside, it gets to a point of being between a rock and a hard place. It may affect [LPL advisors] in expenses and payouts, and . . . administrative fees on advisory platforms."
Vigeveno adds that some advisors will look at the change--and the possible loss of independence--and say that, since LPL will be bigger, " 'I'm out of here after I get my stock options.' Some will find it less interesting as a company if it's more interested in taking care of stockholders. Some want to be with smaller companies for more attention and support." LPL is already competing with the wirehouses, he says--"they're in the RIA space"--and its size will strengthen its financial position.
Read a story about LPL's recruitment forecast from the archives of ResearchMag.com.