Two former chief executives of mutual fund companies that built their businesses on the direct-sold model are in the position to make money as a result of the pending LPL Investment Holdings Inc. initial public offering.
John J. Brennan, former chief executive of The Vanguard Group Inc., and James S. Riepe, former chairman of T. Rowe Price Group Inc., are on the LPL board and own shares of the broker-dealer, which filed a preliminary prospectus for an IPO with the Securities and Exchange Commission two weeks ago. The estimated price range for the offering is between $27 and $30 a share.
InvestmentNews reported that according to sources who declined to speak for attribution, LPL will launch the IPO this Wednesday. That date hasn't been confirmed by the company, and spokeswoman Ruth Pachman declined to comment because the firm is in its quiet period.
Mr. Brennan, who left Vanguard last year, joined LPL's board in February and owns 22,136 shares, which could be worth between $597,672 and $664,080 after the IPO. Mr. Riepe, who retired from T. Rowe Price in 2005, joined LPL's board in 2008 and owns 90,567 shares, which could be worth between $2.4 million and $2.7 million after the IPO.
Neither Mr. Brennan nor Mr. Riepe intends to sell his shares at the time of the IPO, according to LPL's filing with the SEC.
Still, it is interesting to see two executives who built their business on no-load investing now in the position to make money off of a broker-dealer's IPO, observers said.
“In some ways, they are going where the money is,” said Dan Wiener, editor of the Independent Adviser for Vanguard Investors newsletter.
The fact that two former executives of no-load fund companies are on the board of a broker-dealer speaks to a trend in the industry toward broker-sold products, said Katie Rushkewicz, an analyst at Morningstar Inc. “It's almost ironic, in a sense,” she said.
Mr. Brennan and Mr. Riepe de-clined to comment, citing LPL's quiet period.
The company, which filed a preliminary prospectus with the Securities and Exchange Commission last month, said in the filing that it hopes to raise about $500 million with the offering — less than previously anticipated. When the broker-dealer filed its registration for an IPO in June, LPL said that it could raise as much as $600 million.
With more than 12,000 representatives in its network, LPL is already one of the largest brokerage firms in the country, and the largest independent-contractor firm.
In 2005, when two private-equity firms acquired a majority stake in LPL, the firm had 6,300 reps and financial advisers. It then went on an acquisition binge and added five broker-dealers, nearly doubling the number of affiliated brokers.
And the firm hasn't stopped buying. This past summer, LPL said that it was acquiring the assets of National Retirement Partners Inc., which has about 350 reps and advisers affiliated with its broker-dealer, NRP Financial Inc.
At the time of the 2005 deal, LPL was valued at about $2.5 billion. Assuming a share price of $30, the current valuation of the firm is closer to $3.7 billion.
LPL's going public has been viewed as a seminal event for the independent-contractor broker-dealer industry. Long overlooked and misunderstood, independent-contractor broker-dealers see LPL's public listing as a validation of the way their firms do business.
