Acknowledging the inevitability of the Department of Labor's new fiduciary standard rule, LPL Financial on Wednesday said it was cutting prices and easing minimums on some of its model wealth portfolios.
LPL's moves include price cuts and lower account minimums for its in-house, centrally managed model portfolios. LPL's internal research team, led by chief investment officer Burt White, creates the portfolios. The price reductions could be as much as 30% and will take effect in 2017. The firm had previously announced the elimination of the research strategist fee and the annual IRA maintenance fee for these model wealth portfolios.
Those price cuts are an about-face for the company. In 2014, LPL raised prices on the same portfolios by 15 to 20 basis points for new accounts.
LPL also is lowering minimums later this year for an advisory platform called optimum market portfolios. In the past, the account minimum had been $15,000; in the future it will be $10,000.
The securities industry widely expects the DOL to release its fiduciary rule in the coming weeks. The rule would raise investment-advice standards for retirement accounts. The brokerage industry is concerned about the increase in costs and manpower needed to implement the rule, and LPL is trying to get in front of it.
"We need to help advisers manage the change and give them solutions to have strength and gather assets in an industry that has been disrupted," said Dan Arnold, the firm's president in an interview Wednesday. “The price changes in the model wealth portfolios are in the context of helping and supporting advisers with some of the changes around the DOL rule. We expect the DOL to be a catalyst for more advisory business to be done.”
(See: House Speaker Paul Ryan
becomes leading opponent of DOL fiduciary rule)
Like many other broker-dealers, LPL Financial for years has been moving a sizable portion of its revenue from the commission-side of the business to the fee-based advisory model. Advisory assets account for 55% of LPL's gross profits, according to the firm. Fee revenue is typically considered more favorably in a brokerage because of its predictability and stability.
After the Financial Industry Regulatory Authority Inc. last May whacked LPL with a $10 million fine and ordered it to pay $1.7 million in restitution to clients for widespread supervisory failures involving a number of complex products, a number of advisers and industry observers at the time
noted LPL's increased emphasis on the fee side of the securities business.
On the brokerage side of the business, LPL on Wednesday said it was also planning to create a simplified mutual fund-only brokerage individual retirement account offering to support the continued use of mutual funds as an option for an adviser's IRA business. The firm also said it plans to provide advisers with specialized practice management support to help them through the coming changes, as well as simplifying operations in order to convert client accounts from brokerage to advisory in a more efficient manner.
