Dan Arnold is using force and finesse to make LPL a deal machine -- giving Atria and its brokers incentives to come aboard and Fidelity and Pershing a reason to play ball

LPL Financial may have caught two big rivals – namely Osaic and Cetera – napping after digesting their latest deals, while addressing three layers of vested interests with an out-of-the-blue purchase of Atria Wealth Solutions.

Just don't ask too much about Atria's sub-brands -- Cadaret Grant, NEXT and Sorrento – that may or may not survive as of now. Atria was only formed in 2017.

LPL's approach to the deal – not least of which includes paying bonuses to many advisors – assures its chances of success and explains in part why it's hoovering up the industry. 

“The [Atria advisors] have been told they'll be treated very, very well,” says Philip Waxelbaum, principal of Masada Consulting, a recruiting agency for broker-dealer reps.

The beauty of putting off the custody transition is that the assets skip the ACAT [Automated Customer Account Transfer Service] system, he adds.

“You can close the transaction quickly and be holistic with investors,” Waxelbaum says.

Best in class

LPL will pay 90% [of annual production revenue] to Atria advisors who stay, and it will forgo transitioning their books to its own clearing and custody initially. 

The assets are currently split between Pershing and Fidelity through the old National Financial Services unit.

“LPL’s best-in-class platform will significantly improve capabilities to help our advisors serve clients and grow their practice even faster,” said Brad Hearn, president of Retail Advice and Solutions at Prudential, in the August release.

LPL will pay $805 million upfront for Atria then as much as $230 million earnout, according to a Feb. 13 investor presentation about the announcement. Onboarding and integration costs are budgeted between $300 million and $350 million.

The Fort Mill, S.C., broker-dealer – soon to be the largest on earth by headcount – picked up $100 billion in assets held in the books of 2,400 advisors and 150 banks and credit unions.

“We expect to close the transaction in the second half of 2024, and the conversion is expected to be completed in mid-2025, subject to receipt of regulatory approval and other conditions,” LPL writes in its deal release.

Rising stakes

The side benefit is that LPL's easy pace in transitioning assets is likely appreciated by the big clearing houses and ensures that they take extra care with investors and advisors.

Both Osaic and Cetera “passed” on the deal, sources say. 

Osaic, the former Advisor Group, has been busy integrating Lincoln Wealth, which it bought Dec. 13. The deal includes 1,450 advisors with $108 billion in assets – divided into $71 billion in AUA and $38 billion in AUM.

Cetera closed its purchase of Avantax in late November, reaping $82.3 billion in assets under administration and $42 billion in assets under management from 3,111 brokers and IARs.

The stakes have risen because so few IBDs with critical mass have yet to be aggregated by the giants. 

B. Riley Financial in Los Angeles and Kestra Financial, an independent broker-dealer in Austin, Tex., may be next, experts say.

Improved onboarding

LPL, itself, is now a force in the clearing world, and its broker-dealer headcount is also being aided by the 2,600 Prudential advisors who left Pershing in August with $50 billion destined for its custody unit.  

Wall Street has taken notice, LPL shares (LPLA) are trading close to their 52-week-high, closing today (Feb. 13) at $263.36, up 71 cents or 0,27%, a shade below its $20-billion market cap. 

The stock has traded between $179 and $267.04 over the past year. 

Indeed, LPL's CEO Dan Arnold talked about how LPL's ability to bring aboard advisors and broker-dealers at an enterprise level has vastly improved.

“We're much better than we were three years ago when we brought our first larger enterprises on, and we continue to automate more and more of that kind of changed management of onboarding effort process,” he said.

Challenging ourselves

“Not only are you going to create more interesting economic outcomes by lowering the amount of investment upfront in these opportunities, you can also bring them on at a faster pace,” he added.  

"I think we're working our way into being able to be very thoughtful about how we bring these on and in an orderly fashion, assuring that first and foremost, we get the experience right, that you continue to operate your existing platform at the level that you want to. 

“We're challenging ourselves to do [it] without being overly precise and exactly how that would look or what that looks like," he said. 

"I think we begin to challenge ourselves with pragmatic opportunities to think, ‘How do you shorten that onboarding and change management work?’ So, that's the problem we're trying to solve.”

Building the ecosystem

LPL Financial declined to say which – if any – of the Atria street brands will survive.

“We are early in the process and no decisions have been made,” says LPL spokeswoman, Allison Carter Fanney. "Brand equity is important to consider, and we appreciate there are strong brand identities across the Atria network.

Waxelbaum noted LPL's success in transitioning Waddell Reed and maintaining the existing brand, which suggests which way it may go. 

Brands may not be a contentious issue between LPL and its new advisor flock, says Ryan Shanks, principal of FA Match.

“The cultural challenge can be an issue when a smaller firm acquires a smaller firm,” he says.

“But each of the underlying businesses that Atria acquired can become large OSJ's within the LPL ecosystem and potentially maintain their legacy brands. 

"Another positive is that Atria did a nice job consolidating resources which will transition nicely to LPL's operating model.”

The broker-dealers include two with a focus on supporting banks and credit unions — CUSO Financial Services and Sorrento Pacific Financial.

Five others support independent financial professionals — Cadaret Grant, NEXT Financial Group, SCF Securities, Western International Securities and Grove Point Financial.