What You Need to Know
- LPL will market its expanded offering as a concierge-type service.
- There is no minimum asset threshold for an RIA to custody with LPL.
- LPL may have to convince its thousands of IBD reps that it isn't creating a new rival to them, Nexus Strategy CEO Timothy Welsh says.
Although LPL Financial has been in the RIA custody business since 2008, the company is now expanding that offering and will position it as a concierge, “white-glove”-type service, according to Marc Cohen, executive vice president of LPL’s advisor business.
To help communicate what it is offering, “we’re going to be expanding our marketing efforts,” he told ThinkAdvisor in a phone interview on Tuesday. “It’s imminent. We’re in the midst of that launch right now” and will be “participating in more events [and] placing advertising” for the custodial offering as part of that push, he said.
Earlier this year, LPL hired a dedicated custodial sales team, he said.
Up until now, LPL’s custodial business has been mainly focused on supporting the hybrid advisory business of its registered representatives. However, the RIA business has grown significantly for LPL and the industry overall, according to Cohen.
LPL now has “a bit over $500 billion in RIA assets and custody,” he said. That makes it the third-largest RIA custodian, behind only Charles Schwab and Fidelity, Cohen said, citing Cerulli data. (Cerulli did not immediately respond to confirm that.)
“What we see here is … a reinvestment and an expansion of our investment into delivering services to independent RIAs as an independent custodian,” Cohen explained.
The decision to expand LPL’s custodial business, first reported by WealthManagement.com, didn’t come as a huge surprise. After all, Dan Arnold, its CEO and president, said during an earnings call in February that the firm was planning to evolve its custodial platform and enhance service.
The decision was also based on a clear industry trend. “It’s indisputable that the whole industry is moving much more towards [the] advisory fee-based business and away from [the] commissionable brokers’ business,” Cohen explained.
“If you look at LPL, just a couple of years ago, only about 40% of our assets were in advisory accounts,” he told ThinkAdvisor. “Now we’re at a spot where a bit over 50% is and we’ve moved that pretty quickly. We’re seeing about 75 cents on every dollar coming into the firm’s custody being placed into advisory accounts versus brokerage accounts. So it’s very clear that there’s been a massive shift into that direction.”
That trend has been driven by the “pressures that financial advisors are feeling from their clients to deliver more holistic, comprehensive support and financial planning, as opposed to years ago where someone felt OK just calling someone up and asking them to place a trade on their behalf as a broker,” he explained.
With the expanded custodial offering, however, “we can’t simply deliver trade execution and settlements and reporting capabilities the way that a custodian is legally required to,” he said. “We need to also be able to provide much more broader comprehensive solutions to our clients the same way that the advisors are delivering it to their clients.”
LPL’s initiative is “part of a broad-based industry recognition that the independent RIA model is gaining some real traction and that it’s increasingly one to which many advisors aspire,” according to executive recruiter Mark Elzweig.
But the “level of support that LPL is providing is unusual,” he told ThinkAdvisor. “Smaller RIAs often find themselves calling 800 numbers to resolve their support issues at large custodians. Also, access to the additional resources of the LPL platform is a very attractive feature” of its offering, he said.
“This is a seminal moment in the history of LPL,” according to Timothy Welsh, president, CEO and founder of Nexus Strategy. “For years they have been slowly acknowledging that the fully independent RIA model has some merit, to protect their commission-driven brokerage model and keep their reps in their seats, and really have just been playing defense against Schwab, Fidelity” and TD Ameritrade, among other rivals, he told ThinkAdvisor.
For LPL to now “fully launch a standalone RIA custody business makes a big statement that the future really is RIA (not brokerage) and is a big departure from their past strategy,” Welsh explained. “Ultimately, the harder you hold onto something, the bigger the explosion, so good for LPL in making this decision.”