LPL Financial dumps FSI then goes full swank on lobbying office -- but legislative agendas of FSI and LPL don't reveal any divide

Brooke’s Note: We used to talk about polarized politics — with the right and left at the two poles. Now with both sides finding little to like about Donald Trump, what do you call it? The same question might be asked about what is happening in a financial services industry that used to split along the lines of fee-charging fiduciaries and brokers that had a more caveat emptor approach to selling products. But now … let the splintering begin. We don’t really know where LPL falls on the spectrum but this move seems to explain why it’s radically upping its “advocacy” game with a go-it-alone twist.

LPL Financial has dumped the Financial Services Institute and launched its own Washington, D.C.-based lobby office in swanky digs in close proximity to the White House.

The Boston-based independent broker-dealer is putting four of its people at 700 12 Street amid speculation that the Department of Labor’s final rule has driven a wedge between the Labor Department and the FSI. Last week, anti-rule advocacy groups, including FSI, filed a lawsuit asking for an injunction against the rule. See: Why SIFMA & Co.'s trip to a friendly North Texas court to upend the DOL rule looks more like its Alamo.

In the past, LPL has adopted a conciliatory, if sometimes conflicted, tone toward the proposed and then finalized DOL rule, making it an open question whether the apparent divorce with FSI signals fiduciary change or is simply a way for the two institutions to play the lobbying version of good cop-bad.

LPL spokeswoman Lauren Hoyt-Williams says that her firm ended its association with FSI in late March.

“In the past, LPL has relied more significantly on FSI because we did not have a Washington, D.C. office or a state government relations program. This is no longer the case. LPL has now invested significant resources to build our own government relations function and to establish our own voice on positions and issues that matter to us,” she writes in an email.

At press time, FSI had not responded to a request for comment but we added this statement on June 9 when it came in from — Chris Paulitz, senior vie president of membership and marketing at FSI.

“We very much value LPL’s involvement at FSI for over a decade and for their leadership in helping us grow to nearly 40,000 financial advisor members. And we’re grateful to have thousands of LPL advisors as members — including on our Board of Directors. We have over 100 other diverse member firms — about 10 new firm members in the past year — and have added over 2,000 new financial advisor members in just the last month. We wish LPL well and hope to see them back as a firm member soon.”

Rooms where it happens

David Bergers: The work of our
Government Relations team is one important
way LPL demonstrates its commitment to
ensuring all Americans have access to
independent financial advice.

For decades, FSI — from its headquarters at 607 14 Street, just up the block from LPL’s new D.C. office — served as a lobbying organization composed of broker-dealers of LPL’s ilk — and still includes big firms like Raymond James Financial Inc. See: LPL reconsiders FSI as it drops out of its board, offers own DOL stand and hires own lobbyist.

Though lobbyists serve positive purposes, many people view them as glad-handers whose chief means of persuasion includes entertainment and fine vintages of wine.

The marketing description from LPL’s new location certainly highlights such tendencies, noting that the Verizon Center and the Washington Convention center are nearby.

“This brand new building features a dramatic, six-story stone and glass atrium that makes a powerful first impression. The surrounding neighborhood offers everything you will need, including five-star hotels, a dazzling array of restaurants, banks, theaters and shops.” See: The DOL’s final rule contains a litany of 11th hour concessions to brokers that show Wall Street lobbyists earned their keep.

And, in even purpler prose: “Be where business gets done in Washington. You can feel the power and feed off the energy exuded by the purposeful men and women who populate this buttoned-down zone. Are you ready to become one of the movers in the world’ s greatest capital?”

The locations and posh quality of the digs are certainly a sign of the times, says Brian Hamburger, chief executive at Englewood, N.J.-based MarketCounsel, in an earlier interview.

“For the first time, FSI’s citizenship cannot be defined by their constituent’s registration status. What defines a firm’s position on this issue is their business opportunity and readiness to accept a fiduciary obligation. FSI hasn’t realized what many of its members have — that there’s no stopping this train. So that leaves each of its members to stake out their own position on this issue.”

A clear duty

Even as LPL charts its own lobbying course, there doesn’t appear to be much daylight between its rhetoric and FSI’s.

David Bergers, LPL general counsel and managing director of legal and government relations, couches his remarks in terms of helping all broker-dealers and investors in addition to promoting LPL’s interests.

“The work of our Government Relations team is one important way LPL demonstrates its commitment to ensuring all Americans have access to independent financial advice,” he says in a statement. “As a leader in our industry, LPL has a responsibility to ensure the voices of our advisors and investors are heard and to advocate for policies that support the best interests of investors. We are excited to strengthen our commitment to this important effort by establishing a physical presence in D.C. and further empowering our team in their essential work.”

LPL is now certainly well positioned to take on tough topics like the new fiduciary rule. LPL is a member of SIFMA, a lead plaintiff in the lawsuit filed in North Texas last week that seeks to quash, or at least dilute, the years-in-the-making DOL fiduciary rule requiring brokers to act as fiduciaries in retirement plans. See: Why SIFMA & Co.'s trip to a friendly North Texas court to upend the DOL rule looks more like its Alamo.

“We will continue to engage with the DOL and other policy makers as we implement solutions to ensure that investors maintain access to independent financial advice. We hope that the litigation filed by the industry trade associations is resolved quickly and efficiently so that the industry may remain focused on serving investors,” Hoyt-Williams writes in an email.

Of two minds

In the past, LPL has come down on both sides of the DOL rule, favoring parts of it and making a show of publicly cringing about other aspects. See: The RIA-ification intrinsic to LPL’s preemptive DOL policy changes — yet how tightly to revenue sharing in IRAs it is hanging.

In a statement released in April 2015, LPL used words like “supports,” “encouraged” and “committed to advocacy” with regard to DOL’s progressive agenda.

“LPL supports the intentions behind the DOL’s proposed definition of the term, 'fiduciary,’ and its application to investment advice. We are encouraged by the best interest contract exemption provided in the rule proposal. .... At LPL, we believe that access to independent, objective advice is a fundamental need for everyone, and we are committed to advocating for choice and transparency in that advice.”

But the last sentence of that same one-paragraph LPL statement incorporates FSI’s standpoint and has SIFMA-like echoes. “[We] look forward to working collaboratively with the Department of Labor during this comment period to refine the conditions and requirements and ensure access to brokerage products and services for all investors who benefit from them.” See: New York conference: SIFMA wants members to be like RIAs — minus the same rules of accountability.

Unified front

Brian Hamburger: FSI hasn’t realized what
many of its members have —
that there’s no stopping this train.

To be sure, LPL realizes a significant portion of its revenues derive from the sale of variable annuities and other steep-commission products that are considered endangered by the DOL’s rule — at least in retirement accounts that now will include IRAs. Industry observers say that the rule will dramatically lessen those products’ popularity. See: As variable annuities face 'existential crisis,’ LPL’s Casady is latest to warn of end to commission-sold VAs in retirement plans.

When asked if the new DOL rule impacted LPL’s decision to ramp up its lobbying efforts, Hoyt-Williams responded: “Our decision to open this office is not related to any single issue. It is about LPL creating a unified location for our D.C.-based team to do the ongoing work that comes with our role in the industry. We are trying to create a more collaborative environment for our team there and be more efficient.”

LPL laid the groundwork for its increased presence in Washington with its hires of former FINRA regulators such as Emily Gordy, a 14-year FINRA veteran, and Jim Shorris, a former FINRA chief. See: LPL keeps on stockpiling tip-top compliance execs, with JP Morgan’s ex-CCO the latest.

Gordy’s officemates will include Sarah Gill, LPL’s senior vice president of government relations, who focuses on regulatory policy; Nicole Petrosino, vice president of government relations, who leads federal lobbying efforts; and an executive administrative assistant, Denena Washington.

Past troubles

In spring 2015, FINRA ordered LPL Financial to pay $11.7 million in fines calling the firm’s actions “widespread supervisory failures” related to sales of complicated products. See: LPL to Wall Street types: We’re in phase three.

The firm has bulked up its compliance staff. In January, it named Tracy Calder as managing director and deputy chief risk officer. She spent 18 years at UBS before leading efforts at J.P. Morgan Securities.

Hoyt-Williams says the company advocates for objective advice, brokers and investors.

“The firm has a responsibility as a leader in the independent space to represent the value of objective financial guidance and the voice of our advisors and investors in decisions that affect our industry,” she writes in an email.