It is too early to tell the impact of LPL Financial's new, unprecedented recruiting deal, which one recruiter described as "the best deal that's out there."
Instead of paying a broker a percentage of the prior year's fees and commissions, known as an adviser's "trailing 12" in the industry, LPL is paying a signing bonus based on a percentage of assets moving over to its corporate advisory platform, according to industry recruiters and LPL insiders.
Earlier this month, LPL said it was focusing recruiting on advisers at select firms, including Cetera Financial Group, Kestra Financial Group and Securities America Inc., according to sources. The offer is in the form of a three-year forgivable loan that pays an adviser 50 basis points on assets under management transferred to LPL, they said.
But there's a catch. LPL is only paying advisers for AUM that land on its corporate RIA or are under home office supervision, according to one LPL source, who asked not to be identified. "Has it been a success," the source asked. "It's not clear yet."
Like other independent broker-dealers, LPL has traditionally offered advisers the firm wants to recruit a traditional recruiting package of 25 to 35 basis points based on the prior year's production of fees and commissions.
The two types of deals, one based on AUM and the other on the prior year's production, are markedly differ. For example, a team with $200 million in assets would get a recruiting bonus of $1 million if all those assets moved to LPL under the new deal. The same team would receive a bonus of roughly $500,000 to $550,000 using the formula based on moving fees and commissions.
"For an IBD, that's unbelievable," said Casey Knight, an industry recruiter. "From an economic standpoint, it's the best deal that's out there."
"LPL's new deal was just released this month, and it will take a little bit of time for advisers to react to it," said Jodie Papike, executive vice president at Cross-Search, a recruiting firm that works with many IBDs. "But I have never personally seen a firm pay 50 basis points on assets for a truly independent contractor type of platform."
"The majority of broker-dealers out there couldn't make a profit on such a deal but LPL has an advantage because it is self-clearing," said Ms. Papike. The majority of IBDs use a clearing firm to complete trades and hold client assets, which means the broker-dealer shares that revenue with the clearing firm, making it less profitable for the broker-dealer.
A spokesman for LPL, Jeff Mochal, declined to comment.
It appears that LPL's CEO, Dan Arnold,
is not afraid to shake up the status quo and use the firm's position as the largest IBD to its advantage.
After taking over as head of the firm at the start of last year, he made a bold move with LPL's
acquisition last summer of the National Planning Holdings network of broker-dealers. It was the largest acquisition ever by LPL, which has bought a number broker-dealers since 2005 after a majority of the firm was bought by private equity managers.
Around the same time the NPH acquisition was announced, LPL instituted a new policy
to make sure advisers joining LPL park their fee-based assets on the firm's corporate RIA platform.
