Raymond James vs. LPL

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Jun 1, 2005 12:22 am

I am deep into the due diligence process of trying to decide which way to go as an independent.  Thus far, I have seen a lot of good things from both BDs, but am curious what posters with experience (or research) with both firms found out for themselves.  As near as I can tell, LPL looks to have the superior fee-based platform and a better payout (84.4% vs. 81.2% on our hypothetical production run)while Raymond James has a nice mid-cap research team and a broader range of services, such as investment banking and a bond inventory.


Any insight into this comparison would appreciated.

Jun 1, 2005 9:19 am

Both are solid firms.  Maybe it'll boil down to your business model and business plan moving forward.  My bias is to LPL however.  In terms of bond inventory - that's a non issue.  LPL shops the street v holding inventory.  They have a very solid bond department that will build portfolios for you if needed or make recommendations.  The reason for not having inventory is simple; the margins are so narrow in the bond arena that you don't need to hold any, go to the street makes much more sense.  RJFS holds inventory because they are trying to make some profit there; they'll mark up that bond more than LPL would which limits you a bit more in pricing and yield (as well as net to you).  Same goes with investment banking.  It boils down to this, I believe, RJFS holds the traditional wirehouse model.  That is, you have the advisors (including all their different channels), product manufacturing, investment banking, bond desk etc.. all competing for corportate support and dollars.  LPL has none of that, the only people competing for LPL corportate support and dollars then are LPL Advisors.  And the only way LPL makes those dollars is by ensuring they are providing that support to it's advisors.  So when there's $80m to spend on the business - at RJFS all those competing centers get a portion of that, and guess what, more money goes to the centers that are more profitable; and the independent advisors are least profitable than all the others.  AT LPL, $80m gets reinvested back into what drives the advisors business, alllows them to service their clients better, run their business more efficiently etc.  To me, this is above all else what is different between the two. 


CM

Jun 1, 2005 9:52 am

CM, thanks for your insight & good point on the bond inventory issue.  I hope I can get several good posts from both sides so perhaps this forum could be of value to anyone trying to choose a BD for an independent operation.


Any other opinions/rebuttals?

Jun 1, 2005 11:05 am

Indyone, from the RJFS perspective the only things I'd clearly agree with from csmelnix is that both firms are solid and your business objectives will be an important factor in making a decision.  Other than that, I'll offer a contra opinion.


I'll strongly disagree with his bond commentary, both factually and theoretically.  RJFS does not hold bond inventories just to make a profit.  Their traders build inventories to meet demand, both on the buy and sell side.  They get to know the reps who do a lot of bond business.  They know what types of paper these reps are always looking for, and when they come across an attractive price for this paper they'll buy it and place it in inventory for these reps to work against.  On the sell side, they'll take product into inventory from reps (assuming it's paper that's suitable for the inventory), typically at a better price to the client than if it were just shopped on the street.  This is particularly important with smaller lots where you'd get killed selling to the street. 


But, the vast majority of RJ's bond business is not done through its inventories.  They buy on the street like LPL (actually through their system any rep can buy from the street from our desktops if they don't need to access the desk for special needs).  BUT, and a big BUT -- anything that's bought that way is NOT marked up by RJ.  These are considered "riskless transactions" by RJ (i.e., no firm capital is at risk), so whatever the street price is is what you're buying it for.  LPL, on the other hand, marks up all their bonds, and at a hefty amount.  (One of RJ's bond traders used to be on LPL's desk and that's how we learned all this.)  But, the best way to test this is to submit a list of bonds to each firm and get their prices before your mark-up (the recruiter you're working with at each firm can do this for you).  You'll find RJFS prices will beat them consistently.


RJ's bond area is also much deeper than LPL's, giving considerably greater service & support.  They've got 14 taxable fixed income traders and I believe slightly more on the muni side.  I don't know LPL's #, but I can guarantee it pales in comparison.


Re the comment about RJ having to use corporate dollars to support areas not directly affecting its indy reps, that's strongly debatable. RJ is a very entrepreneurial firm and each business unit is a business unto itself.  Investment Banking, for example, is funded by investment banking revenues, not from corporate dollars that are directed from other areas.  In fact, since IB is a highly profitable business, that area is generating revenues that add to the RJ corporate coffers (which can then be used to support other areas of the firm, like technology, etc.) -- it's a contributor to resources supporting the RJFS reps, not taking away from it.  And, the LPL guys' position that most corporate dollars go to areas that are more profitable than the indy side because that's not a profitable area, is hogwash.  Hogwash not only for what I said just before, but also because RJFS is the biggest contributor to revenues and profits to RJ.  RJFS is the tale that's wagging the RJ dog.  It's no accident that Chet Helck, the President & COO of RJF (the parent company), came from the RJFS management team and was formerly a retail producer (at Jones).


Having said all this, make a list of all those things that are important to your practice and your clients.  Also make a list of any other things you'd like to access to grow your business.  Then have your recruiters have you visit their respective corporate headquarters to meet with every area of the firm on your list that's important to you.  That's the best way to make an evaluation, both of how each firm can meet your needs and to better understand their culture.  Also, get a list of reps at each firm that came from your current firm and talk with them.  Also, get a list from each firm of reps that left either LPL or RJFS and went to the competitor and talk with them re their reasons why they left and what their experiences are like now.


BTW, I'd have to take issue with your comment that LPL's fee business is superior to RJFS.  But, I'll leave that to you once you have a chance to visit each firm.


Again, both firms are good choices and your decision will be based on their applicable resources and respective cultures.  If you're coming from a full-service firm, I think you'll find RJFS comes out ahead.  It's no accident that around 70% of it's reps come from full-service firms.  They are attracted to RJFS in great measure because it can better replicate all the things that both the rep and their clients have become used to.  If you're primarily doing packaged products and just need a solid fee-based platform, then either firm should work well for you.

Jun 1, 2005 12:25 pm

Another great piece of feedback, which I really appreciate, Duke...thanks.  Some feedback related to your reply...both recruiters have been onsite already and I am in the process of looking at the technology platform right now.  I'm trying to avoid making two due diligence trips as that is just more time out of the office than I want to take right now.  Interesting enough, I have asked for a list of referrals from each of them and I in fact used the criteria that you described (people who have been associated with both firms).  Having seen the fee-based platforms, and especially given RJ's problems with their fee in lieu of commission piece, I still believe that LPL has them beat there.  That being said, my mind is far from made up yet.  I have a gut feel for which way I'll end up going, but in the interest of giving both sides an equal shot, I'll keep that part to myself for now.  Besides, the rest of my due diligence (and what CREDIBLE evidence I see in the forum) may very well swing me the other direction.  Odds are, there will still be plenty that I find out after joining one of the two firms.  My hope is that I eliminate most of the surprises beforehand and in that regard, I appreciate the opinions in both posts thus far.  Thankfully, the debate is staying on the intellectual side, but I'd also be very interested in seeing some posts from indys who've been affiliated with both firms.  Thanks again for your insight.

Jun 1, 2005 1:26 pm

IndyOne- where are you currently at? What level of production, service, etc??

Jun 1, 2005 2:00 pm

Bank channel about $375 annual gross w/40% of that fee-based.  Don't want to say much more in case the boss surfs these forums.  Looking to exit sometime this summer...

Jun 1, 2005 2:01 pm

$375K...sorry for the typo

Jun 1, 2005 2:59 pm

Not to get into a back and forth with this on RJ V LPL.  The bond info on the reply to me was wrong.  LPL absolutely doesn't mark up their bonds - your info is wrong and the person who came to RJ from LPL is feeding you bull.  The ability to buy bonds at LPL is from the desk top straight from the street.  On the fee based comments indyone - you are dead nuts.  No other b/d out there has the sales support, platforms, and openness to their platforms as LPL.  LPL also has just lowered ticket charges in their SAM platform; again, one profit center allows them to do that; RJFS can't do that.  Also, it is a well known fact that independent models margins are extraordinarily slim; RJFS is the least profitable of all the businesses they operate compared to the bank channell and RJ advisors.  And from a profitability stand point, is ahead of only the bond desk and investment banking (due to the decrease of that business over the last 3 yrs).  Even if the other argument was correct, there is no getting around the other centers still competing for the corporate dollars v the LPL model.  Which will lead me to my last point; indyone, when you go independent, do you wish to be known as Raymond James Financial or do wish to brand your name as who your clients are doing business with?

Jun 1, 2005 3:28 pm

CM, Thanks for the post, although I think you misread me.  I still view LPL's fee-based platform as superior...Duke is on the other side of your argument.  I'm glad to have a couple of posters who are very sold on their business model...it's helpful in differentiating between the two firms.  As long as Put-trader stays away, I'll be satisfied.

Jun 1, 2005 3:53 pm

I couldn't agree with you more.  At the end of the day it should be comforting to you that there are a couple people out there standing by their model.  As I said first, both are solid firms.  As for misreading you, I actually was saying I thought you were 100% correct and was agreeing with your comments on LPL's fee based business.   One bit of advice, if you can do it, visit both firms; you owe it to yourself to insure you see the operations of both so that you can make the most informed decision.  I can tell you from experience, I have dealt with an advisor or two than all but made up their mind up to a visit.  So if you can, you really should try to see both.

Jun 2, 2005 12:38 am

 Hello indyone its indytwo.  Im enjoying the conversation you've started.  I would like to know the production level of the other people that are chatting.  So csmelnix what do you do per year in commissions.  AUM? etc thanks for the info

Jun 2, 2005 12:11 pm

I'm not a large producer; more avg than anything I guess.  I do about $400 GDC w/ almost $50m aum. 

Jun 2, 2005 12:18 pm

thanks csmelnix.  Your info is very helpful.  Any other advice you have for someone going independent would be helpful.




thanks

Jun 2, 2005 12:22 pm
csmelnix:

Not to get into a back and forth with this on RJ V LPL.  The bond info on the reply to me was wrong.  LPL absolutely doesn't mark up their bonds - your info is wrong and the person who came to RJ from LPL is feeding you bull.  The ability to buy bonds at LPL is from the desk top straight from the street.  On the fee based comments indyone - you are dead nuts.  No other b/d out there has the sales support, platforms, and openness to their platforms as LPL.  LPL also has just lowered ticket charges in their SAM platform; again, one profit center allows them to do that; RJFS can't do that.  Also, it is a well known fact that independent models margins are extraordinarily slim; RJFS is the least profitable of all the businesses they operate compared to the bank channell and RJ advisors.  And from a profitability stand point, is ahead of only the bond desk and investment banking (due to the decrease of that business over the last 3 yrs).  Even if the other argument was correct, there is no getting around the other centers still competing for the corporate dollars v the LPL model.  Which will lead me to my last point; indyone, when you go independent, do you wish to be known as Raymond James Financial or do wish to brand your name as who your clients are doing business with?


Sorry to belabor this, but I can't ignore the innacuracies and/or false impressions of this post. 


Unless LPL has changed the way they do bond business within the last few months, they DO mark up their bonds.  I got this direct from an LPL rep who approached me about joining my firm.  But, as I suggested before, let the proof be in getting bond prices from both firms at the same time.


Re fee business, we obviously have different opinions. Again, visit the respective firms and delve into the depth and breadth of what they're each providing.  RJ has over 120 people supporting their fee business alone, and that's without including the research analysts that design the model portfolios for RJ's asset allocation programs. 


Re profitability of RJFS versus other areas in the firm, I don't know the bank channel profitability, but contrary to what was stated, historically RJFS has produced higher bottom line margins than their NYSE sister company (RJ&A).  It is clearly not the "least profitable of all businesses they operate".  But, while I totally agree that all independents run on fairly thin margins, if someone was concerned about the available financial resources of a company,  would you want one that was totally dependent on the thin margins of independent contractors (LPL) or one that also had other profitably business units that contribute to the bottom line (RJFS)?


cs, what in the world do you mean by your final point question about who do want to branded as???  You seem to be implying that at RJFS I can't use my own business name; that's totally wrong. RJFS is no different from LPL.  At both firms you can brand with LPL, RJ, or your own business name.  While I'd guess more LPL reps brand with their own name than at RJFS (because the LPL name has no public awareness value), whatever you choose is up to you at either firm.  Having said that, if anything I'd rather be with a broker-dealer (even though I use my own business name) that has name recognition (RJ) than a b/d that has no public visibility (LPL).  It's a marketing truism that, all things being equal, a consumer (investor in this case) will pick the company they've heard of.  Having the RJ name, the national RJ advertising, RJ Stadium, RJ analysts regularly appearing on CNBC, etc., and it's public company stature behind me has been an invaluable asset to building my business.  That is a clear weakness of LPL for those who care about such things.  If you've been with LPL for any period of time you know that is a competitive concern of theirs.  They even had an aborted national ad campaign (full page WSJ ads, etc.) several years ago to try to get some name recognition.  That irritated LPL reps tremendously, in great measure because LPL ran that ad program and they directly charged all their reps with the cost of it.


Indyone, re your comment about not wanting to take the time to visit both firms --  You're making a decision over what you should view as the last b/d change of your career.  To not invest the time to do thorough due diligence and visit both firms doesn't seem the wisest thing, for either you or your clients.  Just relying on a recruiter visit to you is not enough to give you what you should need for that decision.  Recruiters are salesmen.  If one of those just happens to be a better salesman than the other (or less candid or more missleading than the other), you may end up making the wrong decision. 

Jun 2, 2005 4:28 pm

Looks like everyone is recommending two due diligence trips, which I know is the correct answer.  I do intend to only do this once so I want he decision to be right.  Duke, you counter with some valid points, although I continue to remind myself that both you and CM are naturally biased toward the BD you are with.  Good point on name recognition...Raymond James definitely wins on that point, although to me, name recognition of the BD is waaaaaay down the list.  I can't think of a single instance in competing with other advisors where "all other things have been equal".  Either I didn't have a chance or they didn't, depending on the situation.  It's rarely close, and even when it is, my experience is that it's usually the rep rather than the firm that breaks the tie.  Sure, name recognition could win me an account, but I really think those opportunities will be very few, particularly given the set-up I am looking at.  Also on the flip side, if your firm screws up like many of the bigs have recently, name recognition can be a real negative.  Bottom line, I'll use my name anyway, so I'm pretty indifferent about the name recognition issue.


Thanks for another informative post...now I need to try and schedule two trips out of the office (sigh)...

Jun 2, 2005 5:52 pm

Indy, I don't disagree with your name recognition points at all, and understand that may not mean much to a lot of people.  So, only speaking from my personal experience, I've found it has helped in a number of situations.  It may be entirely different with you and others.


It's been valuable on a number of occasions to more quickly establish initial credibility with a prospect.  Ultimately I may still have gotten the opportunity to prove myself to be able to successfully compete for their business, but I clearly have felt the RJ name got me to that point quicker.  I felt the name was also invaluable in making my ACAT transition to RJ quicker ten years ago (even when the name wasn't so nearly as visible as it is today).  When I told my clients I had left the well known wirehouse to establish my own independent practice, they all were naturally inquisitive about who I'd be with and who'd be holding their assets.  Even if some didn't know the RJ name at the time, I was able to confirm the substance of RJ with annual reports, etc. since it's a public company.  Ultimately, I'm sure I'd have gotten my ACATs over, but based on how often the question came up about my new b/d, the ease with which I was able to overcome any potential objections was readily apparent.


At this stage the vast majority of my new assets are through referrals, so actually the RJ name is probably not as important as it once was for me.  But, I still get a kick out of talking with clients who say, "hey, on TV on Sunday I watched the game at "our" stadium".  I also get some mileage in emailing my clients when an RJ analyst is scheduled to appear on CNBC, etc. so they can see what they have to say.


Now, get busy clearing your calendar for those two visits!

Jun 2, 2005 8:02 pm

Duke


Thanks for the insight. How long have you been with RJ? (ten years?) What level of production are you at and how does your production break down.  Thanks



Jun 2, 2005 8:07 pm

 does anyone else have a good or bad experience to share about either firm????????????????????????????????????

Jun 2, 2005 10:37 pm
Indyone:

I am deep into the due diligence process of trying to decide which way to go as an independent.  Thus far, I have seen a lot of good things from both BDs, but am curious what posters with experience (or research) with both firms found out for themselves.  As near as I can tell, LPL looks to have the superior fee-based platform and a better payout (84.4% vs. 81.2% on our hypothetical production run)while Raymond James has a nice mid-cap research team and a broader range of services, such as investment banking and a bond inventory.


Any insight into this comparison would appreciated.



Indyone,


Is Raymond James even able to hire anyone right now?


Take a look:


http://www.bizjournals.com/tampabay/stories/2005/05/02/daily 38.html


Part of the article says:


"In addition, the division of enforcement has asked the judge to appoint an independent consultant to review Raymond James' compliance polices and procedures, and to suspend the company from hiring new financial advisors and opening new offices until the recommendations of the independent consultant have been implemented."


Oracle