Recruiter Tells Commonwealth, LPL Advisors: Don't Panic

“While this is not the largest IBD acquisition, as far as valuation or advisor headcount, to me, it's certainly the most notable and most shocking in recent memory,” Diamond said. “Even firms that pride themselves on legacy and culture are susceptible to changing tides, be it succession, estate taxes, market pressure or strategic opportunity.”

Commonwealth’s sale to a publicly traded company, according to Diamond, raises the very real prospect that “anyone can always be for sale.”

“Commonwealth, Cambridge, and a couple of other firms really stood out for a long period of time as the antithesis to the private equity-backed broker-dealer model and to their publicly traded counterparts,” Diamond said. “Whether you’re private, publicly traded or private equity-backed, this is [a] clear proof point that either everyone has a price, or sometimes things change where the strategic decision of a firm has to change.”

Commonwealth has built an “impeccable reputation” as one of the most advisor-friendly independent broker-dealers in the industry, Diamond said, so this move naturally raises eyebrows from advisors who chose Commonwealth for its boutique feel and consistent leadership.

Effects on LPL Advisors 

Diamond said he expects the deal to make LPL’s respected advisory capabilities “even better.”

“From LPL’s perspective, this acquisition makes a whole world of sense,” Diamond said. “LPL has been executing a strategy to become the dominant player in the independent space, and acquiring Commonwealth adds significant advisor headcount, AUM and market share.”

Also notable is that Commonwealth cleared through Fidelity National Financial Services, while LPL is self-clearing. This means that LPL has “ample opportunity” to monetize Commonwealth’s assets under management and under advisement in a more efficient and profitable manner, according to Diamond.

“The firm is betting that its enhanced scale cannot only make the LPL experience better, but also potentially enhance what Commonwealth is doing for its advisors and not dilute it,” Diamond added.

“As LPL grows, its one Achilles heel is really the reception of poor service," he said. "While that’s a debate, and I’m not here to say whether it’s true or not, perhaps LPL can pick up some really talented service folks who can not only help existing Commonwealth advisors — but the entire LPL community.”

Finances aside, Diamond said he ultimately sees “a ton of benefits” for LPL and its advisors. He further observed that both LPL and Commonwealth pride themselves on supporting entrepreneurial advisors.

“There is a cultural overlap that could smooth this transition, plus just about every advisor who picked LPL likely considered Commonwealth and vice versa, so there’s definitely a lot of familiar faces as part of this deal,” he said. “For those at Commonwealth, I understand this is a very emotional time. Commonwealth was one of the most beloved firms that I’ve ever encountered.”

Issues for Commonwealth Advisors

Many of Commonwealth’s advisors were attracted to the independent firm allowing advisors to own their books of business and also being one of the last well-known privately held broker-dealers, according to Diamond.

“In an industry where boutique and high-touch broker-dealers are mostly a thing of the past, Commonwealth is a lifeline and a real home for many top advisors,” he said. “I legitimately never come across Commonwealth advisors who aren’t extremely happy with the firm, so understandably, there are a lot of questions and I empathize with what advisors are going through.”

In Diamond’s view, Commonwealth’s advisors are “not really in a bad spot,” particularly from a financial perspective. Generally, when deals like this happen, the acquiring firm pays retention deals to advisors who were part of the transaction, and they’re typically structured as forgivable notes.

“We’ve seen anywhere from 20%, 30% to 50% of an advisor's [gross dealer concession] or perhaps basis points and assets,” the recruiter explained. “It could be more; it could be less."

For Commonwealth advisors, "you can go to LPL, which is a great firm, and get paid to stay without a full repaper. Or, if their goals are divergent from LPL, there’s no shortage of suitors that will no doubt pony up to recruit quality talent, especially since Commonwealth advisors are amongst the best in the industry,” Diamond said.

Other key financial considerations: the succession and monetization of an advisor’s practice.

“LPL has a very innovative structure to acquire affiliated advisors,” Diamond said. “It’s a structure I haven’t really seen before, where LPL buys the business but transfers it to the next generation, and after a period of time, the next generation owns the business full stop.”

Commonwealth never developed a structure like this to acquire its practices.

“Also, LPL has many very deep-pocketed buyers, something that Commonwealth didn't, and now Commonwealth advisors have the largest network of affiliated advisors to potentially sell to,” Diamond said.

Overall, he added, “This deal’s a home run for Commonwealth advisors, because more choices and more money typically means better deals and better valuations. Then the real question is, over the medium to long term, what's going to happen? What's going to change?”

Longer-Term Considerations 

Diamond noted that it’s very early days, and that "there will be changes in custodians, changes in technology platforms, changes in service models, changes in firm branding, and many more things that I did not mention.”

With shifts likely in operational support and compliance policies, the bigger uncertainty, Diamond said, is whether the boutique experience that Commonwealth was so well known for can be preserved under a larger corporate umbrella.

“I would expect, in the short term, there would be some stability, at least outwardly,” he said. “Deals like this take time to integrate, they take time to close, and LPL will likely emphasize continuity and preservation of the Commonwealth feel — at least for a period of time.”

LPL is also an “absolute pro” at integrating advisors, Diamond said.

“They have the playbook, and I would expect this to be as smooth as possible from an acquisition standpoint,” he said.

For outside advisors, according to Diamond, this is also a moment to pause and reflect.

“Do you know who owns your firm and what their long-term vision is?” he said. “Do you have a voice in strategic decisions that impact your business and clients? And if your firm were sold tomorrow, would you be prepared to pivot?”

In general, the recruiter emphasized, “We always say, ‘Even if you're not planning a move, understanding your options gives you power and puts you in the driver's seat.'"

Pictured: Louis Diamond