LPL will launch third-party robo for advisors and eliminate some fees

LPL Financial will fight fire with fire — or robo with robo — in anticipation of disruptive pricing changes in the industry, according to a 20-minute speech given today by Dan Arnold, president of LPL Financial, to the opening-day crowd of 7,000 at the LPL Focus conference at the Boston Convention Center on a pleasant summer’s Monday.

The nation’s largest independent broker-dealer, based in San Diego, Boston and Charlotte, N.C., will partner with an as yet unnamed robo vendor as one means of countering the threat to pricing and profit margins posed by robo-advisors. The first step will be a pilot program with 20 of its advisors. See: How Vanguard Group’s robo-countering effort got to $1.3 billion of AUM so easily and why its future seems bright.

“We believe the robo-advisors will not replace financial advisors, but the robo-advisors will ultimately garner and win a certain segment of the market,” Arnold said in his Georgia-inflected accent.

“We also believe it will be disruptive to our pricing and force us to reconsider our traditional pricing structures. We want to hit this head-on and deliver a complementary robo solution.”

This is a new twist in the company’s thinking..

Got your back

The program will launch in the next 60 days and will offer a low-cost portfolio of ETFs. It will be targeted, at least initially towards the mass-affluent. Dan Arnold says LPL will announce the third-party company it’s working with on its robo offering soon. The service will be a “white-label” offering. LPL will offer the service to advisors as part of its Model Wealth Portfolio program. Advisors will then have discretion over setting the price clients pay.

Before the pilot program announcement, Mark Casady, CEO of LPL, made it clear that the company wasn’t abandoning its advisor clients in the face of the modern technological threat.

“At the end of the day, there’s nothing better than your relationship with your clients. That’s why we are backing you in this fight.” See: Bill Crager: I’ve got your back against the attack of the killer robo-advisors.

“The difference for us is we’re not going to go direct to consumers,” Casady says, “We don’t have products that we create and that’s critical for supporting advisors.”

Arnold also announced that LPL was eliminating its research strategy fee on all existing model wealth portfolio accounts. Arnold says this cut was made to make the price of LPL’s robo service competitive in the market. As part of the price structure changes, the strategist fee charged for all LPL research models in MWP will be eliminated in early 2016, thus allowing advisors to offer LPL research model portfolios for the MWP platform at a 15 basis point to 20 basis point cost reduction. See: LPL Financial sees explosive asset growth of model portfolios by linking BlackRock and J.P. Morgan-level brand names to the little guy.

Applause for cut rates

Note that the LPL vendors include
companies as diverse as Orion Advisor
Services and Tiffany & Co.

LPL is also taking direct action to mitigate the potential effects of the proposed Labor Department efforts to require higher fiduciary standards on all retirement assets, including IRA assets. LPL disagrees with many of the Department of Labor’s proposed changes, but has initially charted its own course in reaction to them — one that differs from the Financial Services Institute. See: LPL reconsiders FSI as it drops out of its board, offers own DOL stand and hires own lobbyist.

Because of the proposed rules, Dan Arnold announced that LPL is also eliminating IRA custodial fees across model wealth portfolios and “optimum market portfolio” accounts in early 2016. LPL says these fees amounted to $18 million annually. See: What’s behind LPL’s decision to slash its ticket charges for advisors.

This surprise announcement drew the most animated round of applause of the morning’s general session.

Arnold told RIABiz after the session that LPL was making these cuts in order to get out ahead of regulatory uncertainty. He hopes these preemptive measures give LPL’s advisors a solid competitive advantage in a soon-to-be roiled market.

“These changes are a win-win for both advisors and their clients,” added Arnold in a prepared remark. “LPL has a history of leadership in the advisory space, and we have been known for passing along the benefits of our scale to our affiliated advisors, which in turn allows for strong growth in new accounts and total assets. We are pleased to be able to introduce these pricing changes, which will continue to be a strategic differentiator for our firm, while helping more end investors receive the independent, objective advice they need.” See: LPL signs on with FolioDynamix for rebalancing to boost its IBD offering and Fortigent’s.

LPL also announced a new “vendor affinity program” in response to advisor demand. LPL has negotiated an average discount of 25% with a multitude of new vendors, according to the firm.