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As Kleintop Leaves LPL for Schwab, Will Morale Suffer?

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Jeffrey Kleintop has stepped down as chief market strategist at LPL Financial (LPLA) and officially starts a new job at the giant RIA custodian Charles Schwab (SCHW) next week.

“As our new chief global investment strategist, Jeff will help investors make sense of international market trends and events and their implications for investing strategies,” Schwab said in a statement on Monday.

Kleintop left LPL, the biggest independent broker-dealer, in early August. His departure comes on the heels of news that Chief Marketing Officer Joan Khoury is leaving later this month. Earlier this year, Derek Burton retired as head of Independent Advisor Services after the IBD expressed “concerns over his interactions with other employees.”

“The general impression I have is that they need to stem the bad press and the flight of key personnel,” said recruiter and industry expert Jon Henschen in an interview. “This does not bode well.”

The exit of Kleintop and other executives is likely to “affect the morale of the back office, as folks see key personnel leaving,” Henschen adds. “It seems like they’re stuck in a downward spiral, and you have to ask what steps will be taken.”

LPL  has not yet named Kleintop’s replacement.

“Part of being an employer of choice is becoming known in our industry for the quality and depth of the talent at our firm,” said Sallie Larsen, managing director and chief human capital officer of LPL Financial, in a statement. “That means, at times, some employees will be targeted by other firms seeking to strengthen their own talent. We understand, too, that from time to time our people will choose other career paths and we always wish them the best.”

Not all industry observers are as pessimistic about LPL as Henshen. “They remain a fabulous firm,” said Houston-based recruiter Rick Peterson, in an interview, pointing to the executive talents of Mark Casady, CEO, and Bill Morrissey, who runs the advisor business.

“It’s very easy to sell brokers on talking to LPL,” he adds. 

Still, Peterson says the IBD has lost a couple of key recruiters in recent months, such as Joe Line, who went to Wells Fargo FiNet. “But this is not necessarily an anti-LPL statement,” the recruiter explained. “It’s not a reflection on the firm, and we shouldn’t read a lot into it.” 

In late July, LPL Financial said its second-quarter net income fell about 4.4% from a year earlier to $43.09, mostly related to unforeseen regulatory costs.

Roughly 80% of the regulatory fines were rounding errors in transactions that primarily use paper-based products, said Chairman and CEO Mark Casady during the firm’s earnings call. In an effort to mitigate future regulatory costs, Casady added that the company has grown its legal and compliance department by 41%.

“Of course, you could see more restrictions on [sales of] alternatives,” Henschen explained, “as the firm takes a more conservative stance, and then the restrictions could cause reps to react negatively. In other words, as the firm tries to fix a problem, it can cause new ones. It’s between a rock in a hard place.”

Schwab Shifts

Schwab says it hired Kleintop because its clients, “both individual investors and investment advisors, look to us to understand the markets both broadly and deeply … Jeff is joining Schwab to help us develop and present a clear and actionable point of view on international developments.”

Kleintop will zoom in on market developments outside the United States, while Chief investment Strategist Liz Ann Sonders focuses largely on domestic markets for Schwab. They both report to Jim McCool, executive vice president for Client Solutions.

Meanwhile, Schwab is expected to announce its moves into the world of automated advice later this year.

Could that affect its affiliated advisors and RIAs? “The robo-advisor option could make it easy for clients to switch,” said Henschen, “and should cause downward pressure on the cost of [advisor] fees.”

Last week, Schwab said net new assets in July were close to $16 billion, including $2.4 billion inflow related to a mutual fund clearing-services client. Total client assets were $2.38 trillion, up 12% from July 2013 and down 1% compared to June 2014.

Average client daily trades totaled 458,000, though, down 8% compared to July 2013 and down 2% compared to June 2014. This trading activity included a 3% sequential increase in daily average revenue trades.

Schwab’s second-quarter net income increased by 27% year over year to $324 million vs. $256 million in Q2’13.


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