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LPL's hybrid RIA platform is fast off the mark and names new leaders for 2010

The giant IBD has already surpassed Raymond James' RIA assets but Derek Bruton plans to build on momentum

Monday, January 25, 2010 – 7:05 AM by Brooke Southall
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Derek Bruton is now in charge of LPL's hybrid business after years of RIA experience with Merrill Lynch, TD Ameritrade and Schwab

Ben Marks wanted to break away from the wirehouse world for several years, but there was always one deal-killer.

His book of business was split 70/30% between fee and commission, and the founder of Marks Group Wealth Management wasn’t willing to take his six-person UBS advisory team independent unless the new platform could blend transactional and fee business as well as what he was using.

He says that the hybrid platforms of most RIA custodians were not seamless; in fact, the platforms were like doing business with two different companies. The independent broker-dealers, like Raymond James and Wachovia’s FiNet [now Wells Fargo Advisors Financial Network] “did not fit our business model,” he says.

What finally lured his Minnetonka, Minn.-based practice into the independent realm was a hybrid platform that LPL Financial quietly launched in October 2008.

The LPL hybrid platform has already attracted $7.3 billion of RIA assets to its new platform, an increase of more than 400% from the $1.3 billion it had under custody as of Jan. 31, 2009.

“By being on LPL’s platform, we have the best of both worlds,” Marks says. “They have all the infrastructure that we’re used to, but we’re still an RIA.”


LPL, the largest independent broker-dealer with 11,146 IARs, has a lot riding on the success of the platform. In recent years, more of its elite reps have been saying: Build-it-or-else, and some have shifted their assets to other custodians so they could escape the constraints of operating under LPL’s corporate RIA.

So far, LPL’s investment and careful planning – it has stayed mostly quiet for the past year about the hybrid platform – appear to be paying off.

The $7.3 billion it has on the new platform is held by 92 firms. The average RIA on the platform has nearly $80 million of assets. For an update on this story, see: How LPL lured advisors from Raymond James, UBS and Ameriprise to its hybrid RIA platform

As a point of comparison, LPL’s rival, St. Petersburg, Fla.-based Raymond James, launched its RIA custody platform in 2001. It has about 93 firms on the platform, managing a combined $5.5 billion.

Both numbers are tiny compared to the assets held by legacy custodians like Schwab Advisor Services and Fidelity Institutional Wealth Services, which have $590 billion [as of Dec. 31]and $372.3 billion of assets [as of Sept. 30] in custody respectively.

But legacy custodians ought to consider LPL’s growth rate as a shot across the bow, according to Philip Palaveev, president of Fusion Advisor Network of Elmsford, N.Y., and former senior consultant for Moss Adams LLP.


“They are a very professional corporation and a very dangerous one” to competitors, he says from his Seattle office. See: What LPL’s Bill Dwyer had to say about recruitment, and pressure from custodians

He adds: “This [new platform] allows them to stop the bleeding [to the RIA channel] and to recruit from other brokerage firms and custodial firms.”

Mike Di Girolamo of Raymond James says that he has noticed the effect of LPL’s custody platform on his company’s business.

RJ had won four LPL hybrid RIAs and had a big pipeline of others prior to LPL’s launch of its custody platform. Interest from these advisors has since tailed off.

“It was a great strategic move defensively” by LPL, Di Girolamo says. He adds that RJ’s platform is fully integrated for assets held within Raymond James and that it will soon be integrated with assets held outside of RJ, too. It is implementing software from Albridge Solutions.

LPL has had a successful corporate RIA since 1991. That corporate RIA allows advisors to do discretionary fee-based business; LPL had $72.6 billion of advisory assets as of Sept. 30, including the corporate RIA and the hybrid platform. Its total brokerage and advisory assets were $269 billion.

Demanding access

But in today’s competitive environment, sophisticated investors are demanding access to elite money managers, hedge fund managers and alternative investments that don’t exist on many corporate RIAs, according to Timothy Welsh, managing principal of Nexus Strategy.

In addition, they are demanding highly customized planning and reporting that an advisor may only be able to provide by using technology of vendors outside their broker-dealer.

“You thought you have the flexibility, but you don’t” under a corporate RIA, he adds.

This demand from RIAs for flexibility is what set LPL on a course in 2008 to build, run a beta trial and then heavily market a new hybrid platform.

Analysts pointed out that one downside of going onto the hybrid platform is that it will have a fee attached to it.

LPL declined to disclose hybrid platform fees but Derek Bruton, executive vice president – independent advisor services national sales manager of LPL, says the fee structure has little impact how advisors choose to custody their assets.

Rarely cost-driven

“In our experience, the decision to work through our corporate RIA versus having your own RIA is very rarely a cost-driven one,” he says. “There are a range of important factors far beyond price that would drive such a fundamental business model decision.”

The effort to create a hybrid RIA platform at LPL is bearing fruit, Bruton adds.

“We had a terrific year in 2009,” he says. “We are competing and winning” in head-to-head competition with the largest asset custodians.

Bruton officially became the head of LPL’s custody unit at the start of 2010, but his involvement built steadily during 2009. He assisted Gary Gallagher, former head of the unit, in developing the platform.

Because LPL is shifting emphasis from creating a platform to bringing advisors aboard it, it has brought the unit under Bruton’s aegis. He formerly oversaw RIA custody sales for TD Ameritrade Institutional and Merrill Lynch.

Before that, he also was a top salesman in RIA custody for Schwab Institutional [now Schwab Advisor Services].

LPL also appointed Trevor Norton this month to oversee the LPL custody unit and report to Bruton. Norton’s title is senior vice president, RIA services and financial planning.

Gallagher is now taking a job within LPL as executive vice president for product and platform development.

Whether LPL can continue to attract RIAs and their assets at its red-hot 2009 pace remains to be seen, analysts and recruiters say.

Though there are advisors like Marks who were lured to LPL by the platform, analysts say much of the growth in 2009 may have come from RIAs that were operating under LPL’s corporate RIA and subsequently switched to the hybrid platform.

Pent-up demand

“That was pent-up demand, and advisors just wanted to get their assets in there,” says Palaveev. “The floodgates just opened – not cannibalized assets but just converted assets.”

Charles “Chip” Roame, managing principal of Tiburon Strategic Advisors, agrees with Palaveev that LPL is enjoying good success recruiting RIA assets internally.

He believes it may help to explain how LPL has already moved past Raymond James in asset custody. RJ has about $5.5 billion of assets in custody.

“LPL has far more reps than Raymond James now – 11,000 versus about 5,000,” he says “So using a natural internal demand, LPL would have twice Raymond James’ reps relatively quickly.”

Raymond James’ RIA assets come primarily from external recruiting, Di Girolamo says.

LPL’s hybrid platform will attract advisors outside of LPL – as well as existing ones, according to Bruton.

Gaining momentum

“We’re confident that our platform will continue to gain momentum in attracting new advisors, especially wirehouse breakaways and larger independent advisors,” he says. “Equally important, we’re always listening to our existing customers and focused on meeting their evolving needs.”

To make his point, Bruton adds that seven of the 10 largest breakaways that came to LPL from full-service brokers in 2009 let it be known that the ability to do both fee-based and transactional business played heavily in their decision.

Furthermore, of those seven advisory firms, five of them subsequently moved substantial assets into LPL’s RIA custody unit, he adds.

“The vast majority chose to custody with us because they can see everything in one place,” Bruton says.

Finding ways to win the business of financial advisors is nothing new for LPL, according to Danny Sarch, founder of Leitner Sarch Consultants of White Plains, N.Y.

Clear path

“LPL has always had a tremendous sales and marketing strategy,” he says. It lays out a clear path for the advisor with $500,000 of production at a wirehouse to gain a big jump in payout with little dislocation, Sarch explains.

It was a clear, easily articulated path that won Marks over the LPL.

“I can get my arms around it, and if I can get my arms around it, I can explain it to my clients,” Marks says.

The early success of LPL’s hybrid platform also bodes well for the broker-dealer’s long-stated goal of completing an initial public offering, Sarch says.

Investment bankers favor IPOs with strong growth and predictable earnings, and RIA income tends to be steady because of the fee structure, he adds.

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Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Dan Arnold

Tiburon Strategic Advisors
Consulting Firm
Top Executive: Charles Roame

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Raymond James Financial Inc.
Asset Custodian
Top Executive: Bill Van Law

Moss Adams
Consulting Firm
Top Executive: Rebecca Pomering

Frederick Van Den Abbeel

Frederick Van Den Abbeel

January 27, 2010 — 11:59 AM

For the past several years, interest in Hybrid Programs has certainly grown sevenfold and LPL (like any other securities firm) is reacting to this trend and certainly going to receive their fair share of the Hybrid Pie. It will be interesting to see what regulatory changes occur in the years ahead and how it might affect the Hybrid Advisor community. Not too many firms exist which offer one clearing/one platform for service. Schwab nor TD clear for broker-dealers so their Hybrid Program is somewhat a hodge-podge system.

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