Earlier this year, LPL Financial executives briefly discussed the possibility of buying Investors Capital, but LPL Financial decided not to pursue such a move, according to one industry source familiar with the situation.
While Investors Capital Chairman Ted Charles (left) was in the process of publicly filing to sell his nearly 55% stake in the firm, conversations regarding LPL Financial's interest in a possible acquistion took place, the source told AdvisorOne. However, LPL Financial, the largest publicly traded independent broker-dealer, then said it did not intend to pursue an acquisition of the smaller broker-dealer.
Industry experts suspect a key reason for the decision may be the fact that Investors Capital’s independent advisors clear through Pershing, and LPL Financial is a self-clearing firm.
“One critical issue in expected IBD mergers will be their clearing brokers,” said Chip Roame, of industry consultancy Tiburon Strategic Advisors, in an interview on Friday. "While it is relatively easy to convert accounts from one IBD to another when the accounts are on the same clearing platform, “transitions across clearing brokers will always bring more risk and cost,” Roame said.
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At the present time, LPL Financial is moving some 500 UVest advisors, acquired in August 2006, onto its self-clearing platform. Thus, the company likely did not want to have to focus on “further integration issues” in 2011, said the industry insider, wishing to remain anonymous.
Charles (left) founded Investors Capital in 1992. It trades on the NYSE Amex under the ticker ICH.
On March 28, Investors Capital filed an amended S-3 registration statement with the SEC, disclosing that Charles, members of his immediately family and their trusts, plus a charitable foundation, plans to sell 3.6 million shares of the common stock of Investors Capital Holdings, Ltd. (ICH). At a proposed offering price of $5.75 per share, Charles' stake would be worth $19.03 million. ICH stock closed at $6.08 on Friday, April 1.
According to the 2010 Investment Advisor survey of independent broker-dealers, Investors Capital is the 34th largest IBD by revenue, with 2009 gross revenue of $76 million. Based in Lynnfield, Mass., and led by CEO Tim Murphy, Investors Capital was the 39th largest BD by number of independent contractor reps, with 565 representatives, but ranked 28th in average annual production per rep, at $132,000.