With fiduciary rules, the economics of RIA custody and LPL fresh off a CEO departure, Resources Investment Advisors Inc. with $4 billion of its own and $6 billion of affiliated assets, declines to say if it's found a new home

February 3, 2017 — 7:17 PM UTC by Janice Kirkel


Just months after  LPL Financial got its walking papers from a $2.2-billion AUA hybrid, the Boston-based IBD has fired a $10-billion firm under circumstances shrouded in mystery.

The firm, Resources Investment Advisors Inc. of Overland Park, Kan., has $4.1 billion in AUA and a network of affiliates with another $6 billion in assets. The hybrid RIA focuses on qualified retirement plans. It isn’t clear if LPL also fired the affiliates.

When contacted, the LPL's spokesman did little to clear up the confusion beyond issuing a terse email: "LPL decided to part ways based on business priorities and wishes Resources Investment Advisors all the best going forward," wrote Jeff Mochal.  Neither LPL Resources Investment Advisors responded to emails asking when the split took place.

Typically, a custodian that drops an advisor and alludes to business priorities is signaling a segmentation strategy of concentrating resources on firms that  can be served most profitably. "Segmentation" is generally a euphemism for chopping out smaller clients. But it also happens with big firms that operate on low profit margins -- namely institutional ones. See: Schwab shoos $25 billion of client assets out the door as it calls the bluff of employers with lopsided 401(k) contracts

Resources Investment Advisors is the legal name under which affiliated advisor reps of Bukaty Companies provide investment advice, according to Bukaty’s Form ADV Part 2A brochure. When asked why the firm was fired by LPL, Vincent Morris, president of Bukaty Companies Financial Services, wrote: “We can’t really offer any comment at the moment just because we’re in the transition but we’re hoping to have more comment or more availability to speak in the next three to four weeks.”

LPL is still reeling from the defection of Omaha billionaire Ron Carson’s firm to Cetera Financial Group. See: The real Ron Carson story is that most assets went to Fidelity and TD Ameritrade where technology allows him to execute his vision. Also in November, WealthPlan Partners, a $2.2-billion AUA hybrid RIA, split up with Boston-based LPL in November after a decades-long relationship, attributing the break to LPL's insistence on exclusivity and all the negatives that flow from that.  See: Why exactly a $2.2 billion RIA hybrid abruptly dumped LPL for Securities America -- and Schwab, Fidelity and TD Ameritrade

Red herring?

To gain insight into this mystery, we turned to Resources Investment Advisors’ most recent Form ADV, filed Aug. 9, 2016, and found what appeared to be a clue when the firm typed "yes" underneath the following question: “Has any other (than the SEC or CFTC) federal regulatory agency, any state regulatory agency, or any foreign financial regulatory authority ever found you or any advisory affiliate to have been involved in a violation of investment-related regulations or statutes?

But when questioned on the matter, Morris wrote in an email: “The disclosure was related to the failure of a previous RIA to properly register an advisor who is now with us."

Indeed, the apparent clue appears to relate to a technicality. Florida regulators had imposed a $10,000 fine when the matter was settled in January 2012. It was paid by the advisor’s firm, Independent Financial Partners, which also paid a $20,000 fine on its own behalf.

Riskier businesses

Louis Diamond, vice president of Diamond Consultants in Morristown, N.J., says LPL has recently stepped up its separations from associated firms and speculates that it may be part of a larger policy.

“Across the board we’ve seen a good number of terminations from LPL, much more so than in the past,” he says. “There are some bad apples who deserve to be terminated but a good number where it’s clear LPL is looking to cull the ranks, swing down some of their smaller or riskier relationships.” 

Diamond says a $4-billion firm, never mind a $10-billion one, certainly constitutes a significant loss, especially on the heels of the loss of Carson.

“It’s a black eye to the new CEO, especially with all the rumors of a sale," he says. See: LPL is for sale -- in whole or part -- and Wells Fargo at least makes the list of potential buyers.

On its website, Bukaty calls itself an employee benefits and insurance brokerage firm, offering services such as benefits and human resource consulting, Affordable Care Act compliance and support as well as benefits administration, payroll administration and accounting services. The insurance business includes personal and business insurance and surety bonds. Managing the assets in 401(k) accounts does not figure prominently on the list.

The privacy policy section of the Resource Investment Advisors website still refers to LPL transactions, saying “Bukaty may collect information … about your LPL transactions …”

An SEC-registered RIA must adopt a "privacy policy" which is a set of written policies and procedures  telling clients what companies, people and agencies are being availed of their personal financial information. See: How the SEC is poised to hand RIAs the keys to the $1.3 trillion private placement market -- largely at the expense of stockbrokers.

But Bukaty will presumably nix LPL from its privacy policy in the near future.

Behind the scenes

An LPL advisor, who asked not to be named, says he heard from his own sources that it was LPL who asked Resources Investment Advisors to leave. He points out that LPL's breaks with that company and Carson's firm are not easily comparable. 

“They are totally different animals. Size matters but profitability also matters as it relates to business,” he says, referring to the low margins of a retirement based firm.  “Profits are probably one-tenth of what they would be at a normal retail RIA firm. [Resources Investment Advisors] acts like a big firm but they’re not profitable. It was not a good relationship for LPL from what I heard through the rumor mill.”

He also says LPL likely did not lose anywhere near $4 billion in assets here. See: LPL takes selling off the table and takes out boisterous Mark Casady at CEO in favor of quiet Dan Arnold.

Diamond agrees. “Retirement plan assets are normally custodied at the recordkeepers, like Vanguard or Fidelity,” says Diamond. “It was likely just the wealth management assets custodied at LPL. Any retirement assets – it’s my strong guess they were not at the firm.” 

He also says there have been relationship problems in recent years between the big broker-dealers and advisors, with advisors and assets moving toward the independent RIA space to get out from under the regulations and policies of the LPL’s of this world.

“A firm may have its own RIA but LPL is doing compliance so they have to follow LPL’s policies, and those policies are meant for 14,000 LPL reps instead of being customized to individual firms,” Diamond says. The result is that “they’re not allowed to do certain things for clients and have to follow what seem like pretty stupid policies because LPL has to manage the guy with 15,000 in production who’s been terminated three times, that’s why we’re seeing a lot of firms leave LPL even though they have their own RIAs.” See: LPL restores OSJ rights to $35-billion AUA super-rep that just kept growing during its three-year ordeal.

Mystery men

Diamond says from his experience working with a number of LPL advisors, that LPL is understaffed. It doesn’t have enough people to serve all the advisors, so smaller advisors affiliate with an OSJ, like Carson or Resource Investment Advisors, to get an extra level of service.

“These $4 billion OSJ’s are really interesting businesses, says Diamond. “They operate as mini LPL’s, but the flip side is they are all independent advisors so each individual advisor owns their own business, so nothing ties them to the OSJ.”

If the principals of Resources Investment Advisors “were smart,” he says, “they would find a way to bind individual advisors to the firm either as employees or with equity. No serious buyer would look to buy Resources because at any time any of their advisors could just walk away with their book of business.” See: How LPL used its RIA love and long OSJ leash to lure Wells Fargo's $550-million FiNet team in Louisiana.

Another reason to go independent, says Diamond, is that it’s not worth it financially for a firm to have its own RIA unless it leaves LPL.

“LPL allows bigger groups to have RIAs, and there is some cost advantage to groups to have their own RIA. They can custody with Schwab Advisor Services or Fidelity Clearing & Custody Solutions in addition to LPL, but groups find it inefficient to do so because there are other expenses associated with running an RIA – compliance, services, you have to file an ADV. Unless you leave the broker-dealer it’s not worth it to do that in many cases.”










Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Bill Morrissey

Peak Advisor Alliance
Consulting Firm
Top Executive: Ron Carson

Diamond Consultants
Top Executive: Howard Diamond

Share your thoughts and opinions with the author or other readers.


Hoosier Counsel said:

February 3, 2017 — 10:25 PM UTC

So let me understand...an LPL adviser admits in the last paragraph of an article he knows nothing about the firm or any of its employees. However, he is quoted as having the knowledge the firm is not profitable and allowed to speculate the firm may have been terminated as a result of compliance concerns. That's considered a credible source for a news article???

brooke southall said:

February 4, 2017 — 1:19 AM UTC

The comments were made in two contexts. The first was speculative about the business. The second was more personal. That said, I agree that those quotes are complicating and we undermine the credibility of our source. I removed both quotes.

Hoosier Counsel said:

February 4, 2017 — 1:58 AM UTC

I hope my comments were not seen as an indictment of the reporter or your publication. I understand your blog relies to some extent on industry rumors and, in some circumstances, they may prove to a valid starting point for getting to the truth. My point was that a person who is unfamiliar with the firm or the situation should be more careful about alleging facts regarding either. If there was a compliance concern with the firm, it would seem LPL would have had a duty to note it on the principals' U5s. Similarly, it seems unlikely a firm could grow to $4 billion in AUM without being profitable. There obviously appears to be more to this story, and Mr. Morris indicated he would be able to reveal more in the near future. Hopefully, we will learn the true facts then.

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