LPL Financial CEO Dan Arnold says the firm plans to spend $1 billion a year to help advisors compete during the pandemic and beyond, as client expectations rise in response to how today’s technology giants do business.
At the firm’s first virtual Focus conference Wednesday, Arnold spoke to some 10,000 advisors and staff about how that spending will be used to “transform” the independent broker-dealer, so its advice business can function more like Amazon, Netflix and eBay in terms of client service.
(Last year, the IBD had operating expenses of $4.8 billion, revenues of $5.6 billion and net income of roughly $600 million — up 27% from 2018.)
The industry “has hit a competitive crossroad,” he said. “The first road is for firms providing advice through an institutionalized solution that’s more one-size-fits-all, built around a tech experience and access to a customer service desk.”
Arnold gave Charles Schwab and Vanguard as examples, along with Merrill Lynch’s Edge offering.
“The second road … is built around a financial professional who offers a unique ability to take care of clients in a highly personalized and emotionally relevant way,” the CEO said. “Think of firms like Morgan Stanley, Edward Jones and, of course, all of us at LPL.”
Cerulli puts the size of the advisor-centered model in 2030 at about $25 trillion — up from $22 trillion today — vs. $10 trillion for the institutional model. “The demand for human advice will only increase in the future,” he added.
“If the industry is at a fork in the road, then at LPL, we want to turn this advisor-center[ed] road into a superhighway, that allows you to be more agile, execute more quickly and use technology as an accelerator for your business,” Arnold said.
3 Growth Paths
COVID-19 has further raised client expectations, according to the executive, which both its advisors and its own staff have to meet.
“The first one is convenience, which may become more important than anything,” Arnold said. “Amazon certainly has proven that the new standard [is] ‘always accessible and always on.’”
Clients want “a personalized experience whenever they want it and wherever they are,” he added.
As a result, LPL is working to offer “human and digital experiences that make it simpler and easier for your clients to connect with you,” Arnold said.
The second shift, he said, “is the desire for a more modernized experience. Think how Netflix knows just what you want to watch when you want to watch it.”
In other words, the CEO explained, the firm and its advisors must use data and analytics as “a powerful tool to provide more personalized content and solutions.”
This strategy should go hand in hand with engaging with clients “in the ways that matter most to them …,” he said, such as “in the biggest moments of your client’s life.”
Arnold added: “Let’s see how an algorithm and a customer service rep try to compete with you on this one.”
The third shift concerns “a focus on value and … delivering good value for a reasonable price,” according to the CEO. “Think about how eBay makes available premium brands like a Rolex at a more affordable price.”
The need to raise the bar on client service, though, comes as prices for financial advice “are trending down,” Arnold acknowledged.
“We will help you lower your operating costs to give you more flexibility in how you set your price, create more scalability in your business to handle more clients [and] further differentiate your value to give you pricing stability,” he said.
The IBD has a strong incentive to help its advisors compete via improved workflows and other processes.
Its “aspiration is to be the market leader in the advisor-centered model in the next 10 years,” according to Arnold.
Its $1 billion spending plan, for instance, includes work on offering advisors more affiliation options “creating more flexibility in how you structure your business.”
(It launched its employee model in July.)
LPL also will invest in systems tied to “streamlining” and “digitizing your workflows” via the ClientWorks platform and “expanding the investment content in our advisory platforms while also lowering the cost.”
As for its service model, it intends to rework it into “a customer care model that will deliver a unique experience” through both human and high-tech elements.
Also, LPL wants to offer more outsourcing tools for “key business functions at an affordable cost,” as well as “capital solutions” for advisors to grow their businesses, according to the CEO.
“You make us proud to be your partner …,” Arnold said at the end of his 15-minute speech. “Together we are transforming the industry and the lives of your clients.”
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