The transformation of a privately held brokerage firm into a public company is very much a double-edged sword.
On one hand, the new organization’s access to the capital markets means that its advisors and clients alike can be confident the firm will have the resources to continue to upgrade its fee-based platform and technology.
This is no small matter. LPL’ Financial's excellence in both these areas has been a critical factor in fueling its impressive growth. LPL had 3,569 advisors in 2000 and now has slightly more than 12,00, giving it the industry’s fifth-largest retail sales force (after Morgan Stanley, Merrill Lynch, Wells Fargo and Ameriprise).
Along with the firm’s well-respected name, this combination has made LPL a very comfortable destination for many wirehouse advisors.
Capital is also a prerequisite for innovation. Most of the latest wrinkles in today’s fee-based business began at large, well- capitalized and public wirehouses. They had the means to dedicate resources to new product development.
Public companies have another important advantage. They are viewed by investors as solid, reliable places to trust with their assets. (Yes, even now, despite the shakiness of many big firms following the 2008-09 market meltdown.)
This confidence factor will surely help LPL’s successful advisor-recruiting machine grind on to new heights.
The IPO also affords LPL the opportunity to take a page from the wirehouse playbook and establish a stock purchase plan for its productive advisors.
Nonetheless, there are downsides to the new structure –the most fundamental being that corporate officers and advisors suddenly
find themselves reporting to an additional group of bosses: the firm’s shareholders.
Shareholders are interested in a profitable return on their investment. As such, they can be overly focused on short-term earnings and less enthusiastic about expenditures most necessary to promote long-term growth.
Even before the IPO, LPL blew out a lot of top-drawer people from its home-office staff. The goal was to boost revenues before the firm went public.
Brokers at the old Smith Barney used to quip that the tight-fisted nature of Sandy Weil made the firm’s stock a great investment to own, but made the firm itself a tough place to work.