LPL Financial (LPLA) says it will continue to invest in its independent RIA business, which now accounts for 65% of new business development, according to President Robert Moore. This approach is part of LPL’s emphasis on organic growth, he adds, rather than acquisitions.
“We started this business in late 2008, and today we are the fifth-largest custodian in the fastest-growth area of the industry. We feel pretty good about that,” said Moore in an interview with ThinkAdvisor on Tuesday, during the firm’s second annual independent RIA symposium in Austin.
(Also on Tuesday, LPL Financial agreed to pay some $541,000 to senior citizens in Massachusetts due to the failure to properly disclose surrender charges these clients paid when switching variable annuities.)
There’s room to grow the independent RIA business for a variety of reasons, Moore notes. For instance, just 38% of LPL’s revenue is based on fee-based operations. “That provides us with opportunity,” he said.
Also, plenty of advisors are interested in exploring and later making the move to form their own RIAs. As of late June, 282 RIA firms custody $78 billion of assets with LPL vs. about $50 billion a year earlier.
The independent RIA conference has grown accordingly, says Matt Enyedi, executive vice president of RIA and High Net Worth Advisor Solutions. While some 65 investment professionals attended the event last year, there are over 100 individuals from 62 firms at this year’s event in Texas. Collectively, these RIA firms have $43 billion of AUM, or $692 million per RIA on average.
“There’s a good contingency of people here [who are prospective RIAs] and a pipeline of potential prospects we continually engaged with, and they represent a lot of diversity,” Moore explained. “One of our strengths is the ability to attract advisors from a variety of business types and firms, be they wirehouse, insurance and regional broker-dealers or other custodians. Take your pick.”
“A big trend we see … are advisors moving from the LPL Financial RIA to their own RIA,” Enyedi added in an interview. “Some prospects don’t necessarily have their own RIA already, and we help with that.” The firm’s RIA Compliance Advantage Program has about 50 participants this year, he says.
Across its broker-dealer, RIA and other operations, LPL Financial’s leadership believes it has “all the key capabilities and components it needs to not only retain existing advisors and partner with them, but also to attract new advisors with our high-net-worth, private trust, RIA and other capabilities,” Moore explained.
Rolling up more broker-dealers (like RCS Capital is doing today) is a process “we finished in 2007,” he says. Instead, the company intends to use its “scale, talent and positioning in the best ways possible, so our own capabilities can fuel growth from our core.”
Acquisitions of other firms to add capabilities (rather than advisors) are not a priority, either, according to Moore, which he explained to the 100-plus advisors at this week’s event. “In my talk to the group [early Tuesday], I focused on our focus, which is very much on the fundamentals of the business and our organic opportunities vs. acquisitions,” he said.
LPL Financial does plan to leverage its resources to bring more individuals into the business and is reaching out to universities with CFP programs to do so. “We would like to provide growth opportunities in the business itself via new industry advisors in partnership with other institutions,” Moore explained.
“We have relationships with 23 universities, like the University of Wisconsin, and are forming more all the time,” said LPL’s president. “In 2015, we will have two pilot projects to explore this approach” to bringing on new advisors.
While the firm is upbeat (if not exuberant) about its independent-RIA growth prospects, it acknowledges that the marketplace is competitive.
“We have a lot of admiration for Charles Schwab, which is a very different organization from LPL Financial … and we don’t peg ourselves to them,” said Moore. “We see our value-add, and these business relationships [with independent RIAs] benefit from our range of capabilities and integration vs. what Schwab, Fidelity and Pershing, for instance, have to offer.”
This growth should continue, generally speaking, regardless of how the financial markets are performing, he explains. “We see ourselves as a market-share grower regardless of what the [stock] market is doing, and relative to rivals, we anticipate growth in new assets and increases in market share,” said Moore.
The independent RIA’s business model is “an area of heightened interest for advisors and their end clients, with fee-based relations, rather than commissions, as a growing preference,” he said. “With their own RIA, advisors can grow their business practices in highly customized ways, and we give them the flexibility to grow as they want to.”
That appeal is only increasing, according to Enyedi. “We succeed by helping them address what it is that their business is trying to achieve,” he said.
“And advisors and firms benefit from their affiliation with LPL Financial,” added Moore. “Our growth statistics and momentum are proof of that.”
According to LPL Financial, independent RIAs are speaking with a variety of third-party portfolio management and performance reporting providers at its second annual symposium. This exposure should give them more tools to add to LPL’s open-architecture platform.
A variety of practice management experts are in Austin to share presentations modeled on the popular TED Talk format as well. These talks, though, will emphasize profitability, efficiency and growth (or PEG).
Presenters include author, athlete, philanthropist and firefighter Robyn Benincas, Ron Carson of Carson Wealth Management and Michael Kitces, partner and director of research for Pinnacle Advisory Group.
In addition to Moore and Enyedi, the independent RIAs and prospects will hear from LPL Financial Chief Information Officer Victor Fetter.
LPL Financial will share its Q3’14 financial results before the markets open on Oct. 30. In the second quarter, the firm’s net income declined about 4% due to higher expenses tied mainly to regulatory affairs.
Asked about how the firm balances the twin tasks of making a profit for shareholders and investing in its operations, Moore said, “We hold true to our core principles and do what’s best for the long-term sustainability of a great business. We have 40 years of experience doing that, and the next 90 days won’t detract us from that. We look at the long-term health of the business … and discuss that long-term horizon with our shareholders.”
Check out LPL’s Largest Hybrid Is on a Wild Growth Tear on ThinkAdvisor.