LPL Financial confirmed industry speculation by announcing that it recently bought Jackson National Life-affiliate National Planning Holdings’ four broker-dealers: National Planning Corp., Invest Financial, Investment Centers of America and SII Investments.
While LPL Financial has about 14,300 advisors and $540 billion in assets, the four NPH broker-dealers have about 3,200 advisors with $120 billion of assets — putting the combined group at potentially 17,500 reps and $660 billion in assets. LPL Financial is a self-clearing and custody firm, while three NPH BDs rely on Pershing and one on Fidelity.
(Related: 5 Big IBD Deals Dwarf RIA Mergers in 2017)
“The demand for financial advice continues to grow, and the independent model is the fastest-growing part of the industry,” said LPL President and CEO Dan Arnold in a statement. “We are committed to being a leader in our core markets, so we are excited to announce our purchase of NPH, which brings us together with one of the largest U.S. independent broker-dealer networks.”
The initial purchase price was $325 million, though LPL says it could pay up to $123 million more for the four BDs in the first half of 2018, based on how much of the advisors’ revenues move onto LPL’s platform. No contingent payment will be paid, however, if less than 72% of the advisors’ production (fees and commissions revenue) onboard, “and the amount of the contingent payment increases on an interpolated basis for onboarded production in the range of 72% to 93.5%,” it explained.
Arnold and CFO Matt Audette spoke with equity analysts about the news the day after it was made public. At $325 million initially and with a possible contingency payment of up to $123 million, Arnold says the independent broker-dealer is paying “a price that is attractive to us.”
Industry observers agree. “The price seems both reasonable and tied to success in moving the financial advisors, their assets and their revenues,” said Chip Roame, head of Tiburon Strategic Advisors, in an interview. “Somewhere between $325 million and $448 million seems very reasonable. I doubt that there were many other legitimate bidders.”
William Blair analysts Chris Shutler and Andrew Nicholas said in a note: “It is hard not to like the financial implications of this deal, given [the] reasonable purchase price of about five times post-synergy EBITDA, and up to 16% EPS accretion on top of our existing 2018 estimate … .”
The NPH advisors will be moved onto LPL’s platform in “two onboarding waves” by March 30, 2018. According to LPL, that will entail costs of between $40 million and $60 million in account-transfer fees, clearing expenses, technology expenses and the like. The company also has budgeted about $100 million for forgivable loans, with three- to five-year time horizons for this “onboarding assistance.”
On the conference call, Arnold said: “Historically, we see 70% … as a solid number for transitions. We have spectrum from past deals … and 70% is a good average retention level.” The NPC and ICA reps will be moved in early December, while the Invest and SII advisors will be transferred in mid-February.
Raymond James moved some staff and operations due to Hurricane Irma, but soon returned to “normal operations” and pledged support for general relief efforts and staff needs. “I’m happy to say that our planning and exercises anticipating a variety of crisis situations paid off during Hurricanes Harvey and Irma,” said CEO Paul Reilly in a statement.
As Hurricane Irma approached Florida in September, Raymond James announced that it was relocating critical business operations out of the St. Petersburg area. Some personnel went to Memphis, Tennessee, as well as to Detroit and Denver, where the company has facilities. “We smoothly transitioned to our business continuity protocol and experienced no operational support issues during the evacuations and relocation of associates. And most importantly, we’ve heard of no injuries among our associates from the storms,” Reilly explained.
Some other steps taken by the firm, which has more than 7,000 advisors, include the following: a donation of $500,000 to recovery efforts in areas affected by Hurricane Irma; matching up to $100,000 of donations to Friends of Raymond James, which supports associates coping with hardships, by Reilly’s family and matching an additional $135,000 by the firm’s Executive Committee; and over $1 million of financial help tied to the cost of evacuation, travel and other storm-related expenses for non-management/senior advisor branch professionals and non-executive level corporate associates.
“I’m incredibly proud of the dedication and performance of our associates during this emergency,” Reilly said. “We’ve received dozens of communications from our advisors across the country, their clients and our institutional partners expressing their satisfaction and gratitude.”
Meanwhile, two Raymond James advisors helped rescue at least 75 people recently in the wake of Hurricane Harvey. Weston Keenan, an employee advisor in Austin, and Kyle Hawthorne, who recently joined the employee channel of Raymond James from Wells Fargo Advisors in Baton Rouge, Louisiana, participated in volunteer-organized relief efforts that saved the lives of those affected by flooding along the Gulf Coast.