Charles Schwab, Fidelity, TD Ameritrade and Pershing will soon have a new and powerful rival to worry about, while the hybrid broker/independent RIA model should get a major boost. The largest independent b/d in the U.S., LPL Financial, announced today it’s going to launch an RIA custodian later this year, which will serve both hybrid and fee-only investment advisors who operate independent RIAs. LPL currently has about 12,000 Series-7 advisors under its massive b/d umbrella.
“It’s the first time a really large broker/dealer is declaring that it’s okay to have a hybrid registration,” says Moss Adams principal, Philip Palaveev. “In other words, they’re allowing reps to have their own RIAs and manage assets there, and, at the same time, be affiliated with the broker/dealer.”
Palaveev says the industry has allowed hybrid registration for a long time, but that it’s been “hush-hush, and b/ds have been somewhat uncomfortable with it.” In fact, about 8,000 of LPL’s own advisors are currently dually licensed as investment advisors, but are not permitted to operate under their own RIAs. They manage about $75 billion in advisory assets under LPL’s corporate RIA. Now, Palaveev says, the largest independent b/d in the market is declaring that hybrids are not only welcome, but they can register their RIA in their own name.
But the platform is not just for hybrid advisors. This is the first time a b/d is transforming itself into a custodian. “LPL is still a b/d, but if an advisor just wants to operate as an RIA, then he can still leverage LPL’s capabilities and services as a custodian,” says Dennis Gallant, principal and founder of Gallant Distribution Consulting in Sherborn, Mass.
LPL’s new ability to serve fee-only RIAs makes it a direct competitor of Schwab Institutional, Fidelity and Pershing. At least one analyst says LPL’s plans are making them very nervous. “In a broad sense, we’re redefining the independent advisory marketplace, ” says LPL Financial CEO, Mark Casady.
Of course, the appeal of the independent-RIA custodian business is no secret. Charles Schwab and its RIA custody rivals have been gathering assets at a butt-kicking pace in the last several years, and far outstripping their brokerage rivals on Wall Street and beyond. In fact, LPL’s move echoes talk of similar shifts in strategy and service at Merrill Lynch, where head of global wealth management Bob McCann said last year the firm planned to create a custody offering for independent RIAs.
But LPL may have a long way to go before it can go head to head with the likes of Schwab. Last month, Schwab Corp. reported $1.4 trillion in total client assets. About $570 billion of that sits at Schwab Institutional, the company’s RIA custodial services group, which reported $19.9 billion in net new assets in the first quarter of 2008.
Responding to news of LPL’s plans for the new platform, Rich Brueckner, Chairman and CEO of Pershing LLC, says, “Given the trend of investment professionals toward the advisory business, it is not surprising that more broker/dealers who have been serving investment professionals in the traditional brokerage arena are extending their business model to meet the advisory needs of investment professionals. We continue to develop and deliver a comprehensive suite of brokerage, advisory and managed account solutions to empower growth-minded registered investment advisors and broker/dealers across all market segments to help them grow their businesses in this rapidly changing marketplace."
A Fidelity spokesperson says, “We have long recognized the needs of hybrid advisors, and believe we provide the most complete solutions for the RIA and broker/dealer markets.”