Commonwealth and LPL CEOs are determined to share bright future after black swan HR event unlocked the opportunity

Dan Arnold's highly unlikely dismissal as LPL Financial CEO already has an equally unlikely ramification – an LPL and Commonwealth super-merger with an idealistic vision to seek successful singular destinies… collectively. 

Until Arnold was pushed out on Oct. 1, Commonwealth CEO Wayne Bloom was entertaining a whole array of financing and merger options that specifically excluded LPL – to keep his company as a known oasis of great staffing and service culture. See: Dan Arnold steps down as LPL CEO, under a cloud, effective immediately; Steinmeier steps in as interim CEO

Bloom credits Steinmeier, who took LPL's reins permanently on Oct. 21, for turning the situation on its head – leading to his firm's sale to LPL for $2.7 billion, plus an as-yet-undisclosed set of broker bonuses to keep them affiliated with Commonwealth.

“If Rich wasn't here, it wouldn't have gotten done, period,” says Bloom in an RIABiz interview. “Without [Steinmeier], no deal.”

Deal, no deal

Steinmeier, who was present with Bloom during the interview, said he had never told Bloom in so many words, but he was also not interested in a Commonwealth deal unless the firm was willing to keep doing what made it into the “service gold standard.”

“If we hadn't done the deal like this, we wouldn't have done the deal,” he said.

In a previous interview, Steinmeier articulated how his vision differed from his predecessor – a radical raising of the bar for advice delivery away from IBD channel relativism.

“A clear articulation, uncompromised, no asterisk, no categorization, the best firm in the marketplace supporting advisors in delivering their advice to their clients,” he told Louis Diamond, president of Diamond Consultants, in early March. 

"You don't just say, ‘We want to be the best IBD.’ You say, 'We want to be the best firm in wealth management. We want to go toe-to-toe with Morgan Stanley, right?' We disclose the firms that we want to be better than," he added in that interview.

He mentioned Commonwealth as a service standard-setter. 

His mention of Morgan Stanley also proved to be a foreshadowing. The wirehouse was sole underwriter of the $1.5 billion secondary offering funding much of the Commonwealth purchase.

People before profits

Though neither Bloom nor Steinmeier mentioned Arnold in the shared post-deal interview with RIABiz, Arnold's worldview always struck observers as Commonwealth anathema, says Philip Waxelbaum, principal of Masada Consulting, a brokerage recruiter.

“Dan was the antithesis of Commonwealth culture,” he explains.

"Commonwealth prided itself as a warm, supportive and empathetic community. All senior leadership held themselves to a people-before-profits ethos. 

“Dan aspired to the running of a great company where the explicit benefits of success were the overwhelming goal and reward.”

Indeed, both Bloom and Steinmeier see the merger as a cross-pollination.

Friend from foe

Commonwealth's economics radically improved by joining LPL's self-clearing, and it gets a massive liquidity injection – both by bringing $600 million-plus to non-management shareholders, and LPL's retention deals with its existing advisors.

In return, LPL suddenly gets exposed to a JD Power-approved culture and service mastery that is the envy of the industry – right at a time when the game of scaling good-enough-service independent broker-dealers is nearing its end. See: J.D. Power and Associates hints strongly at wirehouse deficiencies as it puts Commonwealth Financial and Raymond James on a pedestal

Only Cetera and Osaic remain as large competitors to compete against the running of the scale-IBD table.

Even in the hardball world of broker consolidation, some finesse is called for to solve a big puzzle of making a friend of a foe.

“LPL has figured it out,” says Cecile Munoz, CEO of U.S. Executive Search. “How do fierce competitors become friends? They solve their biggest problem for them.”

“These people care about each other,” she adds. “Dan Arnold would've tried to squeeze every penny [by merger redundancy eliminations].”

“This is a far more hopeful vision.”

Terrific position

Still, Bloom does not disclaim that his push to seek a sale derives foremost from economic factors - albeit he's not giving up quite what might be apparent.

He couches it as selling the company to save it.

“We were driving toward $1 trillion, but we didn't want to give up what we are,” he says. “We got a commitment to allow us to be a boutique. We find we are in a terrific position.”

The task of convincing Commonwealth execs that LPL was sincere about keeping its pledge for Commonwealth autonomy long-term fell largely to Steinmeier, who says he had a secret army of advisors willing to speak on his behalf.

LPL bought $3-billion, 30-broker Allen & Co. in 2019 with a pledge to leave it intact – and keeping the pledge ended up paying off in this instance.

“I got a note from half of Allen's advisors saying, ‘Let me go speak to advisors at Commonwealth.’

Succession crisis

What Bloom was hearing from his advisors, many of them with him for decades, was that they wanted liquidity – not necessarily a sale, but a market-value retention bonus.

In addition, Commonwealth has begun internally combining practices – with 70 events like tuck-ins in the past year – within its network as part of a succession push.

With 2,900 firms, Commonwealth has some critical mass for finding fits, but growing that network 10-fold with LPL's 29,000 advisors with $1.8 trillion is a huge win, he adds.

LPL has a program to match and fund firms headed by Jeremy Holly. See: Rich Steinmeier power poaches Jeremy Holly, who returns to LPL as EVP to head Dan Arnold-directed 'liquidity' project to buy -- but not hold -- LPL firms

“They are much more mature along that road,” says Bloom.

It's a universal problem for the wealth management sector, says Munoz.

“People are aging out,” she says. “The succession crisis is really here, and they have to make decisions. To me, it's that.”

“It's identifying personality alignment and saying, ‘This person can handle my client,’”

It's a comfort level that Bloom sought – and found – in handing over his 2,900 IBD client/firms to Steinmeier.