LPL Commission Structure

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Sep 30, 2009 7:59 pm

So I met with a prospect today that is with a little LPL outfit. He is getting raped left and right, but the most telling issue he had was with the last trade his broker made. The LPL guy sold some closed-end funds (a short duration muni fund) WITHOUT asking him and without his consent. In fact, my prospect specifically did NOT want to sell any of this fund. So the broker marks it as "Unsolicited" and "Non-Discretionary" (he showed me the transaction receipt).



So that's bad enough. But the guy charged him 7.5% commission and 2.5% ticket charge. The strange thing is that the transaction was only $200. I am guessing the guy is trying to nick as many clients as possible without raising eyebrows of his clients due to the small amounts. So this prospect came to me UNSOLICITED, and pissed as hell. I basically told him to call his LPL rep on it, and demand to reverse the trade, the commission, and take any market loss (which will be minimal).



My question is, do ALL LPL reps do things like this? Is this common? Do they coach their reps to do this?



Just kidding. Scumbags are everywhere.



My REAL question is, is that commission structure normal, even on a small trade? At Jones we normally have "Accomodation trades" for small trades, where the commission is capped at like 2.5% of the principle. And the ticket charge is pro-rated down. 10% seems like an awful lot, especially if the funds get reinvested with another commissions. This just seems absurd to me.

Sep 30, 2009 11:49 pm

Frankly, you're talking about $20.  WIth the exception of zero trades, I've never discounted below the LPL stated minimum, which is about $50, I believe.  If I'm thinking right, the rep probably lost money on that trade, based on LPL ticket charges, so $$$ is hardly his motivation.  The bigger issue is selling without client permission...how stupid would it be to go to arbitration over a $200 trade that the poor schmuck lost money on?!!  He's a scumbag (or at least a dumbass) for trading without permission, but a $20 commission, regardless of the size of the trade is a non-issue as far as I am concerned.

 
I question how good a prospect this is with a $200 position.  I won't trade below $1000 because of LPL minimum commission.  Instead, I refer clients and prospects to Scottrade or Ameritrade for penny-ante stuff like that.  At $7 a trade, I'm doing both of us a favor.  I'll give them research for their "play" account as long as I'm managing the serious money.  That's a win-win in my world.  You Jonesies can have all the $200 trades you want.
Sep 30, 2009 11:50 pm

A small transaction and that is always going to be a costly trade no matter where you are. So you think it is excessive that he charged 15 dollars for commission and 5 dollars for his ticket charge? The big problem and I mean BIG problem is the trading. No B24 we are not coached to do that.......

Accomodation trades are done at 10% at Jones if my memory serves me correct. Isn't it A10?

Oct 1, 2009 10:33 am

It is A10.  And you can only do it on a sale.  If a client wanted to do a $200 stock buy trade, it would cost him $50 plus the $4.95 transaction fee.  I do the same thing that Indy does.  Those people are better suited for Scottrade. 


BTW, us Jonesies don't want those $200 trades either.  Scottrade can have them.  
 
B24 - I don't think the commission is out of line.  But I'd agree with the other folks that the more important piece of info is the unsolicited trade.  Did the LPL guy explain to the client why he did the trade?  What could you possibly do with that kind of money in your client's account? 
Oct 1, 2009 2:41 pm

I was just kidding about the "coaching" part.  I know it's just this guy being a scumbag, not anything to do with LPL.

 
And the client actually has about 300K with this rep, so the $200 sell makes no sense to me.  It was part of a larger position, so it's not like he was doing it for strategic purposes.  It was a short-duration muni fund for god's sakes!  That's why I figured he was somehow profiting from it, even though it was very small - and was probably doing it to a lot of his clients.  Just doesn't make sense.  And no, there was no explanation to the client whatsoever.
 
Here's a thought...I wonder if the guy had some fees coming due soon and wanted to free up some cash without having to call and have the "fee discussion".  The client does have several non-public REIT's in his portfolio.  Is there a fee to hold those at LPL?  Other than that, the only think I know he was paying was the IRA fee.
Oct 1, 2009 4:38 pm

B24, LPL charges $35 per year per "private" holding in the account with a max of $100/year.  And the IRA maintenance fee is $40 so maybe that is what he was doing.  I usually just leave a few hundred dollars uninvested in the account so I don't have to do exactly that.    

Oct 1, 2009 5:08 pm

Yeah, more and more I think that's what he was doing.  Does something stupid for an honest reason.  What a moron.  Just have the conversation.

Oct 1, 2009 5:22 pm

Those type of trades seems to be par fo the course at LPL...Clients need to be with a firm that has a bit more supervision so these things don't happen with the larger trades too!

Oct 1, 2009 5:43 pm
Hey Kool-Aid:

Those type of trades seems to be par fo the course at LPL...Clients need to be with a firm that has a bit more supervision so these things don't happen with the larger trades too!





Or a firm that doesn't sell Lehman Brother's bonds, BAC when it's at 40, or AAPL when it's at 180.

Oct 1, 2009 5:52 pm
Moraen:
Hey Kool-Aid:

Those type of trades seems to be par fo the course at LPL...Clients need to be with a firm that has a bit more supervision so these things don't happen with the larger trades too!



Or a firm that doesn't sell Lehman Brother's bonds, BAC when it's at 40, or AAPL when it's at 180.

 
OK...Moraen...I forgot my smiley face...but you knew I was bustin balls!  Just thought i'd spin it like an LPLer would if it were a EDJ story!
 
I must admit...when Jones research came out with the Buy rating on AAPL after it hit 200 I laughed out loud, however, I bought it for several clients under 100!
Oct 1, 2009 8:12 pm
Baldy McGrindy:

B24, LPL charges $35 per year per "private" holding in the account with a max of $100/year. And the IRA maintenance fee is $40 so maybe that is what he was doing. I usually just leave a few hundred dollars uninvested in the account so I don't have to do exactly that.





Most firms wave it for $250K+, so if he has $300K, then probably doesn't have an IRA fee

Oct 1, 2009 9:41 pm
Squash1:
Baldy McGrindy:

B24, LPL charges $35 per year per "private" holding in the account with a max of $100/year.  And the IRA maintenance fee is $40 so maybe that is what he was doing.  I usually just leave a few hundred dollars uninvested in the account so I don't have to do exactly that.    





Most firms wave it for $250K+, so if he has $300K, then probably doesn't have an IRA fee



Maybe at some firms, but not at LPL.  IRA fees are charged $10 per quarter, regardless of account size. 

Oct 1, 2009 9:44 pm

Can someone explain to me the justification of an IRA fee? I've never understood it. No client of mine pays an IRA fee.

Oct 1, 2009 9:56 pm
Moraen:

Can someone explain to me the justification of an IRA fee? I've never understood it. No client of mine pays an IRA fee.



The only custodian I've ever used that doesn't charge one is Pacific Funds.  Obviously I use direct mutual funds for small IRA's and they pay $10/year usually and $40 for brokerage.  I guess I never thought of justifying it.  It's a charge the firms charge not the advisor. 

Oct 2, 2009 10:29 am

The "justification" has been the administrative costs to do the record keeping, filing tax documents, etc.  I guess someone has to click all the right keys on the keyboard to make sure that stuff gets done, so the client has to pay for that service.  Jones will waive the IRA fees if your household is over $500K.  Generous, huh?

Oct 2, 2009 10:39 am
Spaceman Spiff:

The "justification" has been the administrative costs to do the record keeping, filing tax documents, etc. I guess someone has to click all the right keys on the keyboard to make sure that stuff gets done, so the client has to pay for that service. Jones will waive the IRA fees if your household is over $500K. Generous, huh?





At least they discount multiple accounts at Jones. Some places charge MORE for multiple accounts.



My question is: don't they have to keep records for most accounts? Non-qualified as well. Don't they have to get 1099's out too?



Personally, I think it's a way to guarantee revenue.

Oct 2, 2009 11:22 am

I think it's an industry sham.  As Moraen said, plenty of broerkage accounts have to generate 1099's for interest, div's, cap gains, maintain cost basis, etc.  Why is that LESS expensive than a $20K Roth IRA that had no distributions?  I just can't figure that one out.  Unless there is some weird IRS requirement for IRA's that costs money to administer, but it's nothing I've ever heard of.  Even RIA custodians charge that fee (at least the one's I know of).