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Practice Management > Building Your Business

LPL Plans to Sell Business Services to Outside Advisors

By Jeff Berman

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LPL Financial President & CEO Dan Arnold LPL Financial President & CEO Dan Arnold.

LPL Financial is looking to not only increase the number of Business Solutions it offers to advisors but also expand these solutions to non-LPL advisors, according to Dan Arnold, its CEO and president.

The firm sees “several pathways for continued growth including partnering with more of our LPL advisors, introducing new solutions, and experimenting with serving advisors outside of LPL,” he told analysts on LPL’s fourth-quarter earnings call Thursday.

When LPL started Business Solutions more than two years ago, it saw an “opportunity to help advisors find better alternatives for some local services that cost in excess of $1 billion a year,” Arnold said.

“Our hypothesis was that we could provide higher quality services at a lower cost and free up additional time for advisors to spend on more valuable activities, including serving their clients and growing their practices,” he explained. “In that spirit, we created our Business Solutions portfolio to solve for these discrete needs, with outsourced professional expertise.”

Since then, LPL has been able to “expand and evolve the value proposition of the portfolio and scale our subscription base,” Arnold pointed out. “As a result, we finished the fourth quarter with about 1,400 monthly subscriptions, which is more than double the level a year ago.”

Meanwhile, the firm has “expanded the portfolio to include business optimizers and additional professional services,” he said. “We are also innovating on how we package these solutions such that we can unlock additional value for advisors when using a combination of different offerings.”

During the Q&A with analysts, Arnold explained that because Business Solutions are subscription-based services, that “gives us flexibility as to how an advisor can plug in and leverage the LPL platform — so that’s the premise where you have a bit more flexibility in this concept about being able to serve advisors outside of the LPL family.”

LPL remains “focused on continuing to innovate and deliver” those services to LPL advisors, so “that’s where the majority of our allocation of investment goes across this strategic play and that’s allowing us to continue to learn and innovate on our offering,” the CEO said.

However, “our hypothesis is these services could potentially be offered to all 300,000 financial advisors in the marketplace,” he noted.

“If you think about that premise, if I’m operating my own business and I have local-level services that are necessary to support the operation of that business, well then we believe we could step in and create higher quality solutions at a lower cost using automation and digital capabilities to create real interesting scalability,” Arnold explained.

As an example of where this strategy can lead, he noted that if it provides M&A solutions successfully to LPL advisors, “then we could easily take that and point that to an advisor that doesn’t necessarily sit on our platform today, and help create growth opportunities associated with the practice by providing or plugging in to that type of solution.”

The plan for outside advisors is just in an “experimental phase now” and “it’s early days of that experiment,” he told analysts.

But, he said: “We will likely take one of these solutions and begin to explore how that might work and present itself outside of the LPL family of advisors, and that will allow us some learning they did and apply and further innovate on how we might take this portfolio outside the LPL advisor base.”

Waddell & Reed Advisor Retention

Separately, Waddell & Reed advisors who serve about 80% of that unit’s client assets have “already committed to join our platform” following the close of LPL’s recent acquisition of Waddell & Reed’s wealth management business from Macquarie Asset Management for $300 million, Arnold told analysts.

In announcing that transaction in December, LPL said that Waddell & Reed business had 921 independent advisors and $63 billion of assets under administration.

After the signing of that deal, “our teams have collaborated well with Waddell & Reed and Macquarie, which is contributing to solid progress on the transaction,” he said. “We will give you an update on the rest of the retention pipeline next quarter.”

The 80% retention “puts us above our 70% modeling assumption thus far in the process,” according to Matthew Audette, LPL’s chief financial officer. Waddell & Reed Wealth Management assets at the end of Q4 were $70 billion, up $7 billion from Q3, he noted.

Elaborating during the Q&A with analysts, Arnold said that when the transaction was announced in December, “we began our retention efforts associated with the Waddell & Reed advisors and so we’ve been at that largely six weeks.”

The 80% retention rate “has more to do with just the timing and where we are in the overall process than anything else,” he explained.

But the CEO was quick to point out that LPL expects to “close and convert in the second quarter, so there is still time left to have that ongoing dialogue and make sure that all advisors can make an informed choice around where that best option is for them.”

Jeff Berman

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