LPL deal raises questions

NEW YORK — LPL Financial Services Inc.’s plan to acquire three broker-dealers owned by Pacific Life Insurance Co. came as little surprise to many in the industry, though the deal has raised a few key questions, industry observers and advisers say. Terms of the deal, which was announced March 1, were not disclosed, but numerous broker-dealer executives want to know the price Linsco/Private Ledger Corp. paid for Mutual Service Corp. of West Palm Beach, Fla., Associated Financial Group of Los Angeles and Waterstone Financial Group of Itasca, Ill. Having that information would help them to better understand the market for — and valuations associated with — mergers and acquisitions involving independent-contractor broker-dealers. The second question is whether Linsco, based in San Diego and Boston, will remain committed to using Pershing LLC of Jersey City, N.J., as a clearing firm for a separate network of broker-dealers, including those it has agreed to acquire. Linsco, a former Pershing client, became self-clearing in 2000, and many wondered how the firm could give up such a potentially lucrative line of business in such a large deal. In an acquisition, the first year typically is the honeymoon, and the second year is when the acquirer begins to tighten the screws, said Jonathan Henschen, a brokerage recruiter based in Marine on St. Croix, Minn. “I’d be very surprised after two years if they still had Pershing” as the clearing firm, he said. Committed to platform Linsco, however, is stressing that it is serious about its commitment to the platform offered by Pershing, said one executive with the broker-dealer. “Just to be very clear: It’s our intention to be with Pershing and grow with Pershing,” said Bill Dwyer, president of LPL’s independent- adviser-services division. The firm wants to use the Pershing platform as a recruiting hook, he said. “We have a great relationship with Pershing,” Mr. Dwyer said. Linsco’s offering of Pershing as a clearing firm clearly calmed down many brokers and advisers, who were nervous about an acquisition by a firm such as Ameriprise Financial Inc. of Minneapolis, which was said to be near a purchase of the Pacific Life broker-dealers at the end of January (InvestmentNews, Jan. 22). A final question raised by the deal involves the fate of another Pacific Life broker-dealer, United Planners’ Financial Services of America, which is based in Scottsdale, Ariz. Industry sources said that Newport Beach, Calif.-based Pacific Life, which owns a minority stake, is trying to decide whether to keep or sell its portion of the firm, the majority of which is owned by its brokers. For its part, Pacific Life maintains that its two remaining broker- dealers, United Planners’ and M.L. Stern & Co., will remain independent. “Pacific Life continues to be approached concerning its interest in selling these two broker-dealers,” wrote company spokesman Tennyson Oyler in an e-mail. Pacific Life’s broker-dealer network, the Pacific Select Group LLC, included the three broker-dealers Linsco is acquiring plus United Planners’ and M.L. Stern. Last year, the Pacific Select Group had $426 million in gross revenue, a 20% increase over 2005. With the deal to acquire three broker-dealers employing a combined total of 2,200 affiliated advisers and registered representatives, Linsco is likely to have close to 10,000 affiliated advisers by the time the deal closes in the next few months. “I’m actually glad [Pacific Life] sold it to Linsco” rather than to a fellow insurance company, said one adviser affiliated with Mutual Service Corp. who did not want to be identified. Broker-dealers owned by insurance companies can sometimes be “tough to deal with,” the adviser said, while Linsco is much more like a wirehouse. “We’ll benefit from [Linsco’s] technology and proprietary research,” said the adviser. If Pacific Life had sold its broker-dealers to Ameriprise, “you’d be hearing a whole different tune,” he said. That doesn’t mean recruiters from other firms are not pursuing the advisers involved in the deal. The MSC adviser said that four broker-dealers called to recruit him last Wednesday. “It’s like the feeding frenzy is on,” he said.