LPL's 2008 Plans: Options, Lower Fees & Health Care

LPL put on quite a show at its 30th-annual Boston conference this summer, introducing changes to its bonus plan, a stock option program, health insurance, lowers fees and more. Bill Dwyer, president of LPL’s independent-advisor division shared some of these new programs, and more of what’s up at the 10,000-plus FA firm in a discussion with Research.

Note: Shortly after the interview, LPL announced a deal to buy Sun Life Financial’s Independent Financial Marketing Group, which includes 1,100 full-time employee financial advisors and some 1,500 branch staff. IFMG, a provider of investment and insurance services to banks and credit unions, is set to become part of LPL’s Financial Institution Services channel.

What are the big changes for ’07-’08?There’s a tremendous amount of change due to the scale, the tremendous growth of LPL in the past few years. In 2001, we had about $730 million in revenue. This year we are tracking for $2.4 billion. That’s incredible, over three-fold in six years or so. What that’s done is to give us great scale to roll out more and more initiatives to create more value for our advisors.

Last year, we announced a production bonus that’s taken place in 2007. That’s on track to give our advisors $15 million more in production bonuses than in 2006. We like that; it’s part of our core philosophy of investing in our advisors who can take that money and invest in their practices.

Our advisors have hugely successful businesses, and their growth rates are enormous. The greater their bonuses, the more effective they can be and more active they can be in their communities. And it’s part of a virtuous cycle, since then we do more business.

And there’s another area where we’ve achieved tremendous scale: our advisory platform. We were at $15 billion in assets in 2002. Today we are at $62 billion in these [fee-based] assets, out of total assets of $164 billion. That’s four-fold growth. We’ve been able to get the benefits of scale, which can drive better pricing.

At our recent national conference, we announced two significant pricing changes and an administrative fee reimbursement program to start in January 2008 that should — based on today’s business — put an additional $15 million back out into our advisors’ businesses. Combining our pricing programs and bonuses, our advisors should benefit from an additional $30 million going to them and their branches. For administrative fees, advisors will get greater reimbursement with greater advisory revenue.

We currently have three different transaction charges for the SAM, or the Strategic Asset Management, program: For fully participating funds now with ticket charges of $5.50, the charge drops to zero in 2008. Ticket charges for partially participating funds with $13 ticket charges will go down to $4.50, and ticket charges on non-participating funds will remain at $26.50.

How about stock options?When the firm changed ownership in 2005, about 900 advisors participated in a stock-option plan in which they received awards. That was very well received, so we wanted to introduce an ongoing program. We will roll out a broader stock-option plan for employees and advisors in 2008.

Advisors and branch managers in the top 50 percent are eligible to participate in the program. That represents those advisors with about $375,000 in production and up, which is going pretty deep into the system. They will get stock options based on their commensurate production.

Sixty percent of the pool will be allocated based on total production. Thirty percent will be based on recurring revenues. And 10 percent will be based on their year-over-year growth rate, just to have a carrot.

This should deepen the partnership we have with our advisors. For the largest producers, it could represent a 0.75 percent of production impact and others, for example, a 0.25 percent impact. The options will have a five-year vesting period.

And you’re rolling out more benefits? Two other programs have also been introduced. I’ve been with LPL for 15 years, and during that time we’ve worked on a group health benefit plan for advisors. We are always trying to drive their costs down and their top line up, which is why we’ve made changes to payouts. And now our advisors will be able to participate in a true group health plan.

That’s an opportunity for advisors to get more cost-effective health benefits with no pre-existing condition limitations. We’re very, very excited about that, and that will start in January 2008. It will cover advisors, their staff and the advisors’ families. We aligned with Fiserv Health and Trustmark Life for the program.

We’ve also announced a deferred-compensation program for those with roughly $500,000 in production and up, arranged with the Newport Group of Florida.

In addition, we know that hiring good, qualified labor is a broad challenge for many firms. We now have about 1,000 openings at LPL and within advisor branches nationwide. So we’ve aligned with Aon Consulting of Chicago and have come out with a program to help advisors find and hire staff at their offices. This has been on the top of their wish list: the ability to help them find talented employees.

How are advisors doing in terms of sales? To help advisors grow their business and the rate of change in the industry, we introduced a business-development group a year ago. It is fully operational and has 20 employees working with advisors on a consulting basis, so all we offer is incorporated into their practices. It’s proving to be very effective. We can assist in business and financial analysis, for instance. We look at their costs, time spent by staff working in the branch, client demographics and profitability per account, how advisors are managing their relationships, etc.

It’s having a big impact on increased productivity. The 100 branches that worked with the business-development group from April 2006 to April 2007 grew their production 31 percent more than similar branches. We’ve got best-practice solutions that work for advisors and that they can incorporate as they see fit.

The average production at LPL in 2007 is up 21 percent over last year for those advisors who’ve been with the firm more than three years, or a bit over $280,000 in production. That’s amazing.

It does differ from the levels of some wirehouses. We are serving Americans all across the county, not just in large urban locations. This production is from rural, suburban and urban locations nationwide in about 4,000 branch offices.

We feel that it’s our obligation to help advisors of all levels become more productive. We actually lowered the bar a bit for when you participate in terms of the production-bonus program, and 2,100-plus of the 6,900-7,000 advisors on the LPL platform participate in the 2007 bonus program. If someone is doing $100,000 in production, for instance, they get 1 percent, and the bonuses go up from there.

What’s the latest on the integration of the three broker-dealers recently acquired from Pacific Life?Our goal isn’t to consolidate the operations onto one platform. These are three strong independent firms that will continue to operate on their own: Mutual Service Corp. of West Palm Beach, Fla.; Associated Financial Group in Los Angeles; and Waterstone Financial Group in Chicago. For these groups, we want to leverage our core competencies – such as back-office business processing.

Pershing will continue to handle the clearing for them, while we will handle the compliance, operations and technology. The individual firms will handle their own sales and marketing, along with relationship management and business consulting for the advisors, as well as with product-manufacturer selection and other services that come on the front end.