More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
LPL Financial’s Mark Casady spoke to a conference of investors in London of the value the broker-dealer has to shareholders and its advisor-customers, not least the ability to raise fees amounting to $1,000 per advisor.
Speaking at the Nasdaq OMX Investor Program held jointly with Morgan Stanley, Casady delved deeply into the broker-dealer’s business strategy, emphasizing the firm’s ability to grow, develop new markets and avoid blowing up. In lengthy remarks the transcripts of which are posted on financial blog Seeking Alpha, Casady said LPL is now the fourth-largest broker-dealer in America by advisor count. While an M&A binge in 2007 ratcheted up the number of advisors, Casady said 80% of the firm’s 13,000-advisor head count has come through organic growth.
LPL, which has long been the No. 1 firm by advisor count among independent broker-dealers, has also branched out into the RIA space, quickly amassing $20 billion in assets under custody in the three years since it has entered that market. Casady says LPL now ranks No. 5 in that space, right after Pershing, and has diversified its earnings through its custodial services.
Responding to a conference participant’s question about profitability, Casady also touted the firm’s ability to raise its advisors' fees, attributing that pricing power to “the great relationship with our advisors,” who “understand we have to make sure the company is profitable.”
The fee hike would raise about $13 million. Said Casady: “We’re able to raise fees on our advisers about $1,000 per adviser for the entire system. So, roughly 13,000 people have seen essentially an inflationary increase that’s come as a result of our examination of our costs and the need to charge a bit more in a number of areas, like affiliation fees, E&O insurance, in areas where we see costs going up.” LPL is simultaneously reducing equity transaction ticket charges from $15 to $9.
Despite the fee hikes, Casady argues the firm’s value proposition is financially compelling. Addressing the lack of a consumer brand, the CEO said the firm does not need it because 80% to 85% of its advisors do business under their own name, calling their business something like “Casady Wealth Management.” But when new advisor recruits leave their expensively branded wirehouses, “they’re going to make twice as much money as they did when they were an employee of that firm,” Casady said.
And the LPL CEO emphasized that their firm enjoys a high degree of protection against compliance risks, thanks to LPL’s careful oversight.
But Casady (left) was clear that it is not just the firm’s advisor-customers that are happy, but shareholders who benefit from the firm’s unique business model. “If you think about it, we’re outsourcing agents. We get paid a fee for the services that we offer. And the dynamic of paying for their office rents and the staff are really done by the advisors themselves, so we don’t have to worry about what real estate looks like, what the right location is for an office in Des Moines, Iowa, that’s really done by the local adviser, it’s their risk in doing so
Casady also touted the firm’s ability to produce support and services to advisors in the 401(k) market–to the tune of $60 billion in assets, and he noted the launch of a new ETF program that has raised over $1.5 billion of assets in just over a year–“our most successful launch in the history of the advisory program”–in which the firm earns revenue off a custody fee (since ETF products aren’t designed for revenue sharing).