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LPL Sees Strong Hybrid RIA Growth Amid ‘Massive Consolidation’

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Consolidation among financial advisory firms will not only continue in the coming years but also accelerate, according to LPL executives at the firm’s Focus 2015 conference in Boston. But as that industry trend continues, reducing the number of firms, LPL itself expects to recruit more advisors, especially in its RIA hybrid channel, its fastest growing.

The year 2016 will be one “of incredible growth” for the firm’s evolving RIA platform, said Matt Enyedi, executive vice president of LPL’s RIA and HNW Solutions.

LPL added 77 new hybrid RIAs to its RIA platform in the quarter ended March 30, boosting the total to 342 firms. That’s 29% more than the comparable quarter a year ago, and assets grew 51% to almost $105 billion — a “big leap” since LPL first established the channel in 2008, says Enyedi. (LPL’s next earnings report will be released Aug. 5 before the market opens.) Given that each firm has an average 10 advisors, according to Enyedi, that represents 3,420 advisors, or almost one-quarter of the firm’s 14,000-plus advisors. 

“It makes sense to be a hybrid RIA,” says Enyedi. Hybrid RIAs, which combine fee-only service with brokerage, get access to LPL’s brokerage services and other resources while operating their own fee-only advisory, explains Enyedi. This structure is especially attractive to breakaway brokers because the hybrid model “helps them make the move without too dramatic a change in their business,” says Enyedi.

Another potential benefit of the hybrid RIA: they’re well-positioned if Labor Department rules requiring brokers to act in the best interest of their clients take effect, replacing the lower suitability standard. Hybrid RIAs are already operating as fiduciaries, says Envedi.

Hybrid RIAs, as well as independent advisors affiliated with LPL’s own corporate RIA, will also have access to LPL’s planned robo-advisor platform, which will soon begin a pilot program. Access to this platform and LPL’s support services including performance reporting, trade order management and portfolio execution free up advisors to spend more time doing the things that matter most to their clients, namely financial planning, estate planning and investing, says Enyedi.

The offering will also help other independent RIAs scale their businesses and expand into different segments, such as millennials and other clients who prefer a more cost-effective product.

LPL advisors themselves can potentially save time and money using the company’s new Vendor Affinity Program, which was announced at the Boston meeting Tuesday. Advisors using the program can access more than 50 vendors that provide a variety of products and services including office management, financial planning, practice management and more at discounts ranging from 10% to 80%. “The Vendor Affinity Program is a tangible example of how our scale can benefit our clients’ bottom line and further underscores the value in affiliation with LPL,” said LPL President Dan Arnold in a statement.

Another area of strong growth for LPL is its Private Client service for high-net-worth investors with $5 million or more in assets. It began as High Net Worth Consulting Service in 2009 with less than $100 million in assets and grew to $2.3 billion in assets last year, two years after LPL acquired Fortigent, which outsourced high-net-worth solutions and consulting services for RIAs, banks and trust companies. LPL renamed the service LPL Private Client in January, and in May it extended its availability to all LPL platforms for clients with $5 million or more in investable assets. Enyedi calls this broad-based offering a “democratization of the marketplace” and an “opportunity for all advisors.”

William Morrissey, managing director of Independent Advisor Services at LPL, which comprises most of the firm’s advisors, says “there’s never been a better time” for advisors given the supply-and-demand fundamentals. Demand for financial advice is growing, especially among baby boomers, while the number of advisors is shrinking, Morrissey explains. Cerulli Associates reported in its 2014 Advisor Metrics report that 21% of all advisors will retire or leave the channel in the next five to 10 years. Morrissey expects “massive consolidation” as a result.

— Check out LPL Announces Robo-Advisor Plan on ThinkAdvisor.

 

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