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LPL has a new high-margin, high accolade advisory platform but SAM's sticking around

Under Model Wealth Portfolios, the advisor stops picking investments, but they still pick strategies.

Tuesday, May 24, 2011 – 3:21 PM by Lisa Shidler
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John Moninger: We think we’ve struck a great balance.

Brooke’s Note: It used to be that a broker-dealer’s idea of fee-based advice was to offer a bunch of managed accounts and let the broker select them. Now that’s evolving. increasingly the idea is to have the broker choose the broad strategy and leave the choice of how to execute that strategy to people who specialize in building portfolios. We write about it with regard to TAMPs. It’s also playing out inside the broker-dealers. Here is some insight about how LPL is making tracks in that direction to serve asset gatherers.

LPL Financial is attracting advisors and garnering kudos with its sleek new platform – but the big Boston and San Diego-based broker-dealer has no intention of putting its old cash cow out to pasture.

Since its debut in 2008, Model Wealth Portfolios has proved to be an industry darling and last week Washington-based Money Management Institute named it Advisory Solutions Product of the Year.

Industry observers see MWP as evidence that the nation’s largest independent broker dealer is stepping up its game to meet new competitive realities by allowing advisors to offer their clients professional management strategies.

“This is the equivalent to LPL Financial acting as a TAMP, much like the wirehouses do for their reps or Envestnet or Genworth does for their independent advisors,” says Charles “Chip” Roame, managing principal of Tiburon Strategic Advisors in Tiburon, Calif.

“There’s a big group of financial advisors who would rather asset gather.”

Enduring appeal

Still, LPL will continue to invest in its 20-year-old Strategic Asset Management system, or SAM, as many advisors still favor that platform, according to John Moninger, LPL Financial executive vice president of advisory brokerage consulting services.

SAM, a fee-based platform, has historically appealed to advisors who pride themselves on their investment prowess and want to hand pick and direct investment options for clients.

SAM has also generated significant revenue for LPL over the years.

“LPL is motivated to have [advisors] put clients in fee-accounts so SAM has been a decade-long home run product,” says Roame. Broker-dealers tend to favor fee-based revenue because it is more stable, predictable and represents stickier business than business thhat earns revenues based on transactions.

LPL declined to list its profit margin for MWP and SAM but Moninger says the two generate similar profits.

The nation’s largest IBD has total advisory assets of nearly $100 billion. The company’s total advisory and brokerage assets are $330 billion.

Both successful

MWP is attractive to advisors who want access to money management services that let them make universal changes in clients’ accounts.

The company created the product because advisors wanted a model that allowed them to choose the best investment strategies while at the same time having more time to spend with clients, Moninger says.

“The advisor has relinquished the decision about what to buy, but they’re deciding on the strategies. We think we’ve struck a great balance between keeping them involved but taking away the most time consuming part for advisors by figuring out strategies.”

“Both are successful and both have large and small clients,” Roame says. “You may see MWP grow much faster [than SAM] in the next few years.”

Third-party strategists

One of the most powerful features of MWP is that it allows advisors to gain access to third-party strategists, which is similar to AIG’s recent move. See: “After AIG presses for new deal, SEI Advisor Network TAMP offerings”:https://www.riabiz.com/a/6620525

MWP allows advisors to leverage the expertise and resources of LPL Financial Research and portfolio strategists including BlackRock, Cougar Global Investments and Quantitative Advantage.

Providing this platform to advisors puts LPL on the same stage as firms such as Schwab, says Ryan Shanks, chief executive of Finetooth Consulting, an advisory consulting firm in Longmeadow, Mass.

For instance, he says wirehouse advisors who are accustomed to institutional platforms will be attracted to MWP.

“This is a very turnkey approach,” Shanks says. “It’s very much like UBS. For a wirehouse advisor who can’t get their arms around entrepreneurial independence, this is very attractive. This allows advisors to choose a pretty sophisticated money manager.”

MWP was honored the Money Management Institute because LPL created a “forward looking answer” to the centrally managed platform option, says Hilary Fiorella, vice president of communications for MMI.

Model Wealth Portfolios offers theme-based investing and the portfolios also benefit from the state-of-the-art technological monitoring, rebalancing and tax management services, Fiorella says.

Room for both

LPL officials say they intend to stick with both platforms because they believe there’s a demand from advisors for both SAM and MWP

Moninger says that the company will keep improving SAM. For instance, this year the firm added an offering that allows advisors to purchase annuity products on this platform as a fee-based approach rather than a commission product. See: An inside look at why LPL Financial is leading the charge with fee-based variable annuities

Industry leaders agree that SAM is a worthwhile alternative to MWP.

“It’s been a fantastic platform for them for a long time,” Shanks says.

In the end, LPL maintains that costs to advisors and investors for both products are relatively similar but can vary based on advisors’ usage.

For example, an advisor who is an active trader on SAM will see his costs go up because of the ticket charges, while advisors who use MWP pay additional fees such as overlay and costs for the strategy which could be as high as 25 basis points.

“Advisors need to find out what’s better,” Moninger says. “What services do you want to provide your clients and how can you effectively do that in your business.”

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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

Finetooth Consulting
Consulting Firm
Top Executive: Ryan Shanks

FA Match
Consulting Firm, Specialized Breakaway Service, Recruiter
Top Executive: Ryan Shanks

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