LPL Financial

LPL Targeting B/Ds Struggling with Regulatory Costs

LPL Financial is gearing up to take advantage of the ongoing and projected increase in regulatory burdens by acquiring smaller broker/dealers struggling with the increased complexity.

“These higher costs that all firms are experiencing providing financial services, whether you’re a bank or whether you’re a financial advice provider, accrue to the benefit of large, scaled players,” LPL CEO Mark Casady said in an earnings call Wednesday. “We’re obviously the largest in the independent broker/dealer space, and we’re now sizable in the RIA custody space, so we have the scale to withstand that cost increase.”

And the Department of Labor’s proposed fiduciary rule, if implemented as it is currently written, will only add to those rising compliance costs. Casady noted that in regards to LPL’s business, he expects the proposed rule’s restriction on alternative investment sales will have a 2 percent or less effect on the firm’s pre-tax profit. But he expects the impact to smaller players to be more dramatic.

“We see lots of opportunity for growth as a result of the increased complexity of managing these businesses,” Casady said. “We absolutely anticipate smaller broker/dealers to find ways to change, which may mean shutting down their b/d and moving to us or it might mean selling to us.”

LPL’s recent investments in its infrastructure, talent, technology around compliance and risk also comes into play. Over the past few years, the firm has spent over $100 million and hired 400 risk and compliance personnel to boost its operations. These moves give LPL the capacity within the firm’s management and operations to take on acquisitions, Casady said.

“We’re fit for purpose as we think about consolidation going into 2016,” Casady added. With that in mind, he said to expect the firm to shore up its cash holdings.

“You will see us trying generally trying to be thoughtful about where we’re at on our ratings scale," he said. "[But] we’d be happy to have that [credit rating] degrade a bit if we found the right opportunity and leverage to buy it.”

TAGS: Industry
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