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November 18, 2016 at 09:42 AM
When it comes to a possible bid by Charles Schwab for LPL Financial, industry consultants say they aren’t buying it.
“I’d say the odds are a million to one” against it, said Tim Welsh, president of the Nexus Strategy, in an interview with ThinkAdvisor. (Welsh worked for Schwab from about mid-1999 to late-2005.)
A report on StreetInsider.com on Thursday named Schwab as a potential acquirer of the independent broker-dealer. This news came about a month after Reuters said LPL was exploring its strategic options. The IBD had been contacted about a possible bid from some private-equity investors, who later decided not to pursue the deal.
“Culturally, all Schwab stands for is anti-broker-dealer, with no commission-based products and compensation … no sales of non-traded REITS …,” explained Welsh. In other words, LPL’s operations “are really the opposite of those at Schwab.”
Schwab’s ad campaigns – in which clients are urged to ask their advisors questions about charges and costs – “challenge the broker-dealer model,” said the consultant, whose office is in the San Francisco Bay Area, where Schwab is based.
(Related: Ron Carson Jumping to Cetera From LPL)
Thus, it doesn’t make sense that a firm that spent “the last 40 years on this [type of] branding would just throw it away and buy a … a broker-dealer with more of a … sales-focused culture and with all of the DOL baggage that comes with,” said Welsh, referring to the new fiduciary standard set to go into effect in April 2017.
What about using LPL as a means of getting into the hybrid-RIA business?
“Schwab already partners with some independent broker-dealers … through informal agreements,” he stated. “And they could start their own – which they would probably want to do anyway. They built their own businesses with their own bank and robo-advisor.”
Other Views
Chip Roame, head of Tiburon Strategic Advisors, generally agrees that the acquisition is a long shot.
“Net-net I would be surprised if this happened, but yes it is possible,” explained the consultant, who worked for Schwab from 1995 to 1998 and is also based in the Bay Area.
