For the third year in a row, LPL Financial plans to institute some kind of fee increase. The one slated for 2014 is on the firm's third-party money management platform and has some advisers unhappy. Bruce Kelly has the story.
LPL Financial last week informed its advisers about a fee increase for a third-party money management platform, and the coming change has some advisers howling.
The fee increase affects financial advisers who use the Model Wealth Portfolios platform, according to LPL advisers familiar with the change. In January, LPL will begin charging 15 or 20 basis points on new accounts in the MWP platform for advisers who choose LPL's internal research to create model portfolios. Advisers have a variety of choices of money managers in the MWP platform, including BlackRock and JPMorgan, but until now there had been no charge for model portfolios created internally by LPL.
Introduced in late 2007, such model wealth portfolios created by LPL had not carried that management fee, according to Geoff Forcella, an adviser with family-owned Forcella Wealth Management.
Such portfolios created by third-party managers are often the bread-and-butter strategy for many reps and advisers who work with clients who have $100,000 to $1 million to invest, typically known as the “mass affluent.”
It is the third straight year that LPL's 13,000 reps and advisers are facing some type of fee increase.
In an open letter to LPL's management, including chief executive Mark Casady and president Robert More, posted on LinkedIn and Google last week, Mr. Forcella wrote: “I hope to express my disappointment, confusion and a small but honest sense of betrayal with this most recent business decision.”
“LPL's independent research team has always been viewed as a 'value-added service,” he wrote. “However, I understand the goal and need to properly fund the department. And yet I think LPL is taking the wrong course of action.”
His reasons include the current ability of LPL advisers to undercut competitors by 15 to 20 basis points on similar third-party portfolios and distrust over changing the rules of a continuing program.
“With the proposed fee change, LPL Research, I argue, is falling in line with the rest of the advisory world,” Mr. Forcella wrote. “That is not a good thing. We are witnessing fee homogeneity.”
“I am not the only one who feels slightly misled by this course of action,” he added.
His father, Jim Forcella, also signed the letter.
“LPL Financial regularly assesses its fee structures to ensure they fairly represent the services and support we provide,” spokeswoman Betsy Weinberger wrote in an e-mail. “The changes to the Model Wealth Portfolios will help bring our strategist fee structure in line with the marketplace, and enable us to invest in the LPL research team so we can continue providing market-leading solutions and outstanding services to our clients.”
Advisers widely blame the steady upticks in fees on LPL becoming a publicly traded company in November 2010 and management's subsequent attention to shareholders. Ms. Weinberger did not respond to that criticism.
LPL “seems to be more shareholder-focused” than focused on its advisers, Geoff Forcella said in an interview Monday. His father and uncle are also advisers with the firm. Because the firm uses the MWP platform heavily, LPL called him Oct. 16 to discuss the change and followed up with an e-mail the next day.
Mr. Forcella said one particularly galling change is a 15-basis-point increase to model portfolios LPL research creates using passive manager Dimensional Fund Advisors. DFA traditionally approves advisers' use its funds after a training and education process. But LPL advisers using the MWP portfolio circumvent that process, Mr. Forcella said.
Advisers choose DFA funds because of cost, Mr. Forcella wrote in his letter to LPL's management. “But now I pose the question: How can one advertise or justify the 'value added' of MWP by charging a client 1.35% — to net about 70-something basis points — on what will most likely be a strategic buy-and-hold portfolio?”
