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How LPL's CFO answered the Cetera question at Morgan Stanley Financial's conference

Dan Arnold wrote off the Schorsch roll-up as PacLife, AIG or Jackson National reincarnated

Author Lisa Shidler June 16, 2014 at 2:14 AM
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Dan Arnold: Their strategy is they're a product manufacturer that is amassing distribution to complement that product manufacturing.


Stephen Winks

Stephen Winks

June 16, 2014 — 7:30 PM

The independent b/d model has no control over their brokers each of which is a free agent, thus the competitive market stature of each IB/D is determined by how enticing its service offering is structured. Giving brokers control over their value proposition, cost structure, margins and professional standing at lower cost to the consumer but higher compensation to the advisor than brokers selling expensive advice products (inconsistent with ongoing fiduciary duty) is the holy grail. This requires a degree of technical competency not present in any existent brokerage format as it requires accountability and ongoing responsibility not recognized by FINRA.

Thus LPL as a custodian may actually have a broader platform than any IB/D as it can deal with all a client’s assets as required for continuous comprehensive counsel.. The challenge to LPL will not be IB/Ds but from Advice Products emerging as Custodians like EnvestNet that are close to being in the advice business. B/ds actually have to be in the advice business and be accountable for all broker recommendations and fulfill their ongoing fiduciary duties to each and every client—something broker/dealers have never acknowledged or supported. Envestnet will have channel conflict between broker/dealers who use their advice products and brokers of those broker/dealers who actually want to fulfill their duty through EnvestNet as a custodian which is not possible with their broker/dealer.

Thus, custodians like Pershing have an edge over any b/d or advice product that cannot provide the advisor control over their value proposition, cost structure, margins and professional standing? By making advice safe (through an expert authenticated prudent investment process), scalable, easy to execute and manage as a high margin business at the advisor level, Pershing and other like-minded custodians can literally outdate the old commission brokerage model delivering an unprecedented level of counsel at a lower cost to the consumer while better compensating the advisor than brokers selling inferior advice products.

January 15th 2015, the entire industry will be operating under entirely new rules. Accountability and responsibility are required as a condition of doing business and the old brokerage business model and expensive packaged products will have to be reconciled with the best interest of the investing public. Everything changes, and nothing will be the same. The industry has had five years to prepare, much of which has been wasted in delaying tactics with little effort to actually support the trust of the investing public. Leadership has been meek or non-existent. Advice product vendors, IB/Ds and custodians need to get busy, trade associations must be prepared to raise their standards, and regulators must accept their duty to protect public trust.


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Mentioned in this article:

LPL Financial
RIA-Friendly Broker-Dealer, RIA Welcoming Breakaways, Advisory Firm
Top Executive: Dan Arnold

Tiburon Strategic Advisors
Consulting Firm
Top Executive: Charles Roame

Cetera Financial Group
RIA-Friendly Broker-Dealer
Top Executive: Larry Roth

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