As part of its planned purchase of Waddell & Reed’s wealth management unit, LPL Financial aims to keep the acquired firm’s Midwest base and use it as a service center, according to LPL Business Development chief Rich Steinmeier.
It also expects there to be limited paperwork for W&R’s clients and that it will retain over 70% of its 921 advisors.
LPL aims to “introduce a new service and operations center [in the Kansas City area] and anticipates it will be largely staffed by existing Waddell & Reed employees,” Steinmeier said.
“This is a strategic fit, and we’re not making lemonade out of lemons,” he explained in an interview Monday. “We need a Midwest operations and service [center],” which is different in its focus and reach from LPL’s new technology campus in Austin, Texas.
LPL’s main campuses are in Boston; San Diego; and Fort Mills, South Carolina. W&R’s operations are now based in Overland Park, Kansas, and the firm is building an 18-story tower in downtown Kansas City.
“We are really happy about … the talent in this service and operations facility,” Steinmeier said. “Waddell & Reed advisors beam about the service and about the financial planning and other teams there, so we’re excited to get it.”
Plus, LPL has bought the W&R brand name. “So if [advisors] want to continue as Waddell & Reed, they can do so. We are keeping the … connective tissues,” said the executive, referring to the brand and to its longer-term LPL-Macquarie Asset Management partnership that is part of the transaction.
Turning to account transfers from W&R to LPL, Steinmeier said “largely for the brokerage side of the business, there should be no repapering.”
“For the advisory side, we feel strongly that about 70-80%-plus, and potentially up to 100%,” should move onto LPL’s Advisory platform via negative consent, he explained, with some exceptions.
Steinmeier added that as W&R advisors “step into more capability” at LPL, they “won’t have to go through the disruption of client paperwork,” which should be “de minimis.”
According to LPL’s investor presentation on Wednesday, when the independent broker-dealer announced plans to buy the wealth unit from Macquarie Group for $300 million, Waddell & Reed’s wealth business has roughly $63 billion in client assets — of which some 45% is held in advisory accounts and about 55% in brokerage. Client cash sweep balances total $1 billion.
W&R advisors have an average $70 million of client assets, an amount that is somewhat higher but generally similar to LPL advisors’ average, according to Steinmeier. Across the wealth business, 60% of client portfolios are invested in Ivy-branded funds, which are being sold to Macquarie.
Further Growth Plans
“We are now at about 17,300 advisors — up from 1,000 year ago net and independent of this transaction,” Steinmeier said. “We are building a firm with capabilities to attract advisors, especially those with an independent ethos.”
The executive thinks W&R advisors will likely take advantage of some of LPL’s different channels.
“They can drop their FINRA license, stay on our corporate RIA or form their own RIA,” he said. “They also can move into the independent employee channel if they don’t want to manage real estate, paying staff and so forth.”
W&R advisors also “can work with LPL’s dealmaking and capital capabilities” to grow their own capabilities, Steinmeier explained.
As for the deal’s timing, the IBD “does think it’s important to be a scale player, as well as to invest and add to its capabilities,” he said. “Opportunistically, this potential deal came across our desk, and we thought it was a home-run fit.”
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