DOL Fiduciary Rule
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LPL Makes More Changes to Prepare for DOL Rule

Ahead of the DOL rule, LPL has standardized brokerage mutual fund commissions, and later this month, the firm will add more no-transaction fee funds to its corporate advisory platform, it announced Wednesday.

LPL Financial said it made further progress in preparing for the Department of Labor’s fiduciary rule in the third quarter. During its third quarter earnings call on Wednesday, Mark Casady, CEO of the independent broker/dealer, said the firm standardized brokerage mutual fund commissions and will add more no-transaction fee funds to its corporate advisory platform later this month.

The b/d has already made changes to adapt to the new regulatory environment, including standardizing commissions for variable annuities and alternative investments in early second quarter. The firm will soon introduce a mutual fund-only brokerage account. The firm also has an FDIC-insured deposit cash account; more than $4 billion of money market balances have already converted to the program.

“Much like the updates we made in Q2 on variable annuities and alternative investments, standardizing brokerage mutual fund commissions will reduce potential conflict for advisors,” Casady said, on a conference call with analysts Wednesday evening.

Early on in the call, Chief Financial Officer Matt Audette addressed recent reports that the firm is exploring a sale, saying that the firm is focused on creating long-term value for its shareholders. Audette said the firm would not comment beyond that.

The DOL just recently released its first set of frequently asked questions related to the fiduciary rule, set to take effect in April 2017. Casady said the FAQs just affirm the direction the firm is heading.

One effect the DOL rule will have on LPL is a reduction in the number of relationships with asset managers. For example, the firm’s mutual fund direct account will have about 15 fund families, compared to 130 fund families on the platform today, Casady said. But those 15 managers represent nearly 100 percent of the assets on the platform, with a large concentration among the top 10.

“The world is going to get more narrow, meaning there is going to be a smaller set of products that one can support,” Casady said.

Casady believes the DOL rule will create opportunities for the firm; the IBD can offer stability for individual advisors struggling to comply, and the rule will be a catalyst for banks to explore no longer operating a b/d.

“Across our industry we expect more assets to be in motion as a result of changes in the regulatory environment and wirehouse compensation,” he said. “Advisors and institutions have taken notice of the enhancements we’re making, and we’re getting more opportunities in our pipeline.”

The firm reported third-quarter net income of $52 million, or 58 cents a share, up 27 percent from a year ago. Net revenues were about $1 billion, down 4 percent year-over-year.

Brokerage and advisory assets exceeded $500 billion at the end of the quarter, up 3 percent sequentially. Net new advisory assets were $4.1 billion, up 8 percent on an annualized basis, supported by continued strong recruiting. Advisor headcount declined by eight during the quarter, to a total of 14,185. But the results included an institutional client that was acquired by another bank that operates its own b/d. If that acquisition was excluded, the firm would have had 88 net new advisors.

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