LPL Financial said Tuesday that it bought National Planning Holdings’ four broker-dealers — National Planning Corp., Invest Financial, Investment Centers of America and SII Investments — for $325 million.
The independent broker-dealer aims to pick up about 3,200 advisors with $120 billion of client assets—putting the combined group at 17,500 and $660 billion in assets. LPL says it will pay up to $123 million more in the first half of 2018 if 72% of NPH advisors’ production (fees & commissions revenue) joins the company.
It’s worth noting, that LPL reserves the right to “not transfer a small subset of representatives who do not meet certain affiliation criteria,” according to a memo sent to NPH advisors and obtained by ThinkAdvisor.
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Plus, LPL says the NPC and ICA reps will be moved in early December, while the Invest and SII advisors will be transferred in mid-February. Letters to clients will likely go out in October for the first group and January for the second.
NPH is an affiliate of Jackson National Life Insurance Company. (The BDs it has sold will meet for their national conference in Nashville from Aug. 20 to 23.)
How likely is it that such a bar, of 72% of production, will be reached?
“I think the bank channel [BDs] will have higher retention than the independent advisor channel — so SII and NPC will have more defections than Invest or Investment Centers of America,” said Jon Henschen of the recruiting firm Henschen & Associates, in an interview.
“In the late ‘90s, I was the Midwest recruiter for NPC, and the tagline at that time was ‘We have small-company culture with large-company financial backing.’ For NPC and SII advisors, the large corporate culture of LPL will be a difficult pill to swallow,” Henschen explained.
A Good Move?
Equity analyst Steven Chubak of Nomura Instinet had expected a price of $750 million, more than twice what LPL paid on Tuesday, has been incorporating an advisor attrition rate of 15% into his financial models—which represents a potential movement of at least 2,700 NPH advisors.
Chubak is also bullish on what the addition of these reps could mean for LPL’s bottom line: a roughly 20% addition to its earnings in 2018.
“In our view, the acquisition of NPH could generate sufficiently compelling risk-adjusted returns for LPL given:
(1) significant revenue synergies as NPH is not self-clearing (i.e., LPL would better monetize client cash/generate higher attachment fees);
(2) expense synergies as LPL’s fixed cost base supports meaningful operating leverage; and
(3) excess liquidity/leverage capacity should enable LPL to complete a deal without issuing equity.
Self-clearing may be a plus for LPL as a corporation, but perhaps not for all advisors, says a veteran industry consultant wishing to remain anonymous.
“The transition process could be very challenging and difficult,” he said in an interview.
(Three of the NPH BDs use Pershing for clearing and custodial service, while one relies on Fidelity’s National Financial.)