LPL Financial is taking a page from the smaller competitors nipping at its heels.
The firm’s largest hybrid RIA and office of supervisory jurisdiction, Private Advisor Group, plans to offer wirehouse breakaways a new affiliation model by the end of January, according to chief marketing officer Abby Salameh. The Morristown, New Jersey-based hybrid RIA currently has 650 advisors and $16.8 billion in assets under management.
Under the arrangement with Private Advisor, LPL would take a role similar to that of so-called friendly BDs which have been attracting hybrid RIA practices and breakaway teams who use platform providers and consolidators. LPL has also agreed to forego its supervision fee of 5 basis points on off-platform assets to support the new model, Salameh says.
Private Advisor’s move comes as IBDs are ramping up their tailored RIA offerings, including services aimed at reverse breakaways from the full RIA channel and advisors who are opting to go fee-only. LPL also walked back a requirement on assets held on its corporate RIA last year, after objections and departures by hybrid RIA practices.
Private Advisor’s offering is a strategic partnership with MarketCounsel and Orion Advisor Services, which will handle performance reporting, trading and billing. The advisors would align with LPL on the brokerage side and choose among five custodians for the RIA assets with Private Advisor.
MarketCounsel approached the firm launched by Pat Sullivan and John Hyland with the idea for the new offering, according to Salameh and Brian Hamburger, founder of the breakaway legal services firm.
By aiming the model toward smaller teams who want independence without opening their own brand new RIA, the firms are taking a different tact than platform providers like Dynasty Financial Partners and Hightower Advisors, executives say.
“There’s certainly a need for these types of services,” Salameh says. “They look at these large teams, and they make them RIAs. This is different because we’re taking them under our wing, so they don’t have to worry about the compliance aspect.”
Advisors would pay between 10 to 14 basis points on AUM from their payouts to Private Advisor in exchange for the technology, compliance and other services, according to Salameh. The firm is “cautiously optimistic” it could recruit a dozen teams with an average of $500 million in assets under management under the offering this year, she says.
“Their commitment to supporting independent advisors has proven to be a huge success, and we look forward to partnering with them on empowering wirehouse teams to make this move to independence,” Andy Kalbaugh, LPL’s divisional president of national sales and consulting, said in a statement.
Private Advisor had “an awful lot of discussions to get LPL comfortable with this,” Hamburger says. The idea for the offering came up around the time that Morgan Stanley and UBS abruptly left the Broker Protocol in late 2017, which resulted in a wave of lawsuits filed against wirehouse breakaways.
LPL agreed to it “because they’ve gained comfort with the supervisory systems that PAG has built over the years,” Hamburger says. “The marketplace can’t stop the notion of open architecture and independence. The more firms do to try to close the gate, the greater the demand is going to be to find solutions.”
Private Advisor calls the new affiliation “RIA and OSJ: Fully integrated” to distinguish from the “RIA and OSJ” used by 550 of its advisors and the roughly 100 others using LPL’s corporate RIA. The OSJ network has also purchased the brokerage businesses of less than a handful of advisors who have gone fee-only.
The new setup does resemble those of friendly BDs like Mutual Securities, Purshe Kaplan Sterling Investments and Private Client Services or fellow IBD Kestra Financial’s subsidiary hybrid RIA, Kestra Private Wealth Services. Private Advisor’s multi-custodial offering with LPL contrasts with those options, however.
Ex-wirehouse or other teams joining the new offering would pick either LPL, TD Ameritrade, Charles Schwab, Pershing or Fidelity for custody of their advisory assets. The incoming advisors could also decide to go full RIA with Private Advisor’s support after a year or so on the platform.
“What they’re doing will allow advisors an easy transition bridge toward independence,” says Orion CEO Eric Clarke, who notes the technology platform includes API which integrates with customer relationship management and planning software. “It really provides the benefit of scale and a strong compliance background.”
Private Advisor has 14 full-time compliance staff members, and Salameh says the firm expects to hire three new team members for the new affiliation model. The hybrid RIA-OSJ also tapped Jim Hooks, who spent 32 years with LPL and Raymond James in supervisory roles, to be its chief compliance officer.
Sullivan will now have more time for business development and relationship management after building what he calls the firm’s “gold standard” compliance. Private Advisor’s AUM expanded by some $2.5 billion year-over-year in 2018 to $16.8 billion, up from $615.5 million at the launch of the RIA in 2011.