Lpl ipo

Weddle has bought his own island already. Now Casady and friends will be neighbors....

It's the beginning of the end at LPL.  This is not a knock at independance, or at LPL directly.  It just seems that going public was the death knell to the brokerage industry back in the 80's/90's.  Look where it got us.  Now you will have millions of people looking at your financial results every quarter, questioning every fee, every strategy move, every personnel move.  And it was probably much nicer to tell clients, "hey, you don't see LPL all over the news do ya?"  Well, NEWS FLASH, now they will.  I think it's a bummer.

B-

You could be right but we can leave with our books without a fight!

That's absolutely true.  And that may the one saving grace - indy B/D's don't have the luxury of pissing off their advisors, because it's MUCH easier for them to walk than at captive firms.  But the public pressure will be there nonetheless. 

When LPL is public they will have to explain expenses.

I see were Bill Clinton is going to speak at  this years conference in Boston.

I do not know how much they  are paying him, but it is it is free it is still to much!  

WIth crap like Bill speaking they are throwing money away.

How will this benefit current reps?  My hunch is it won't.  If it does, would love to hear about it.  It still baffles me that a firm their size continues to take $100k producers.  Those are either lawsuits waiting to happen or a detriment to the other reps b/c LPL has to manage to the lowest common denominator.

I would agree they do need to raise the bar.

To many branches for compliance to cover once a year.

The lower producers will need to be covered by a current OSJ. 

I have heard that they are discouraging low producers to get there OSJ now.

I think the benefit to FA's is nil. It will give the execs island money (as in buying their own). There is a rumor that they will dangle shares to existing FA's to keep them. And I would guess it might be used as a recruiting tool.

In my dreams, I am  hopeful that it would improve service. My nighmares are that it will get worse.

I love it when I talk to a so-called specialist who attains their CFP and recently started to shave. They don't know a heck of a lot, but they have those important credentials...

I don't think you will notice much of a difference in the first few years.  It will be interesting to look back in 5 years and see what, if any, major changes have occured.  As I said before, I think public ownership was the downfall of the other major brokerage firms.  So instead of island money they only had a boatload of money to go out and vacation on the island. 

BUT, as someone said earlier, the indy model is a bit different than the typical Wall Street brokerage, so it's not an apples to apples comparison.  Then again, Schwab has had a rather bumpy ride over the years.  It would be interesting to see how a public LPL would fare during a time period like 2008.

Where will you walk? 

There is a reason you chose LPL, no?

There was no way you guys couldn't see the writing on the wall then.

[quote=Magician]

Where will you walk? 

There is a reason you chose LPL, no?

There was no way you guys couldn't see the writing on the wall then.

[/quote]

I don't think there's a reason to walk unless it actually does turn out poorly (which would probably take years to evolve).  Let's not forget, most of the firm's revenue is in the hands of independant advisors, so there is a vested interest in getting it right.  And it's not like BAC buying MER or something sinister or forced.  It's has been widely anticipated for years.  So I think LPL went about it about the best way they could.  They probably built some goodwill among FA's for being so forthright about their intentions (I assume).

As B24 stated, LPL is totally dependent on their advisors and pissing them off would be the death knell of the company. I am not exaggerating.

That is exactly why RJ is so successful even as a public company. They realize that the way to best serve their shareholders, is to serve their FA's well. The culture is clearly one of "FA as client".

Unless the folks at LPL are stupid, which i dont think they are, it will be the same and the IPO will be a non event for the FA force. With one exception. I think, as was stated, the under 100k FA's will have to give up something. Either join another OSJ, or pay a maintenance fee on top of what they already pay. Because every FA will have to be profitable for the firm.

But other than that, its a non event.

I'm not sure I agree that it's a non-event.

The "FA" may be the client.  But I think you are setting the bar low at $100k producers.  My guess is that number will be much higher.

After all, aren't the margins bigger on larger producers?  Can they reduce the size of the people supporting those FAs if they have less?  Where are the majority of the producers situated and how much of the revenue do they account for?

How significant would it be to either their top line or bottom line if they cut all reps producing less than $300k with a LOS more than five years?  Three years?  $250k and five years? 

They will be looking at these things a lot more carefully and possibly tacking on extra fees.  If you are a good producer, there will likely be no reason to walk, but isn't that how it is at most firms?

Most people who are producing a ton at wirehouses or at regionals stay at there firm.

I don't think they will cut reps under a certain number, but will force them into OSJ's.  Nothing wrong with that.  You can't have 20,000 reps producing 150K average - it's just too damn expensive.  On the other hand, the small producers have been their lifeline.  The bulk of their sales force is small producers (50% produce under 100K, and their avg is like 225K), and I don't think they will continue to be the B/D of choice if they piss off all the small producers.  In fact, their FA makeup is very similar to Jones' in terms of production - in 2009 Jones did about $3.5B gross revenue on 12,600 FA's.  LPL did about $2.8B with 12,000 FA's.

B24 - That is what I'm saying.  If 50% of the reps are producing less than one-tenth of the revenue, then why keep them?  How is that their lifeblood?

80/20, right?  If you have 500 clients, but 100 of them make up 80% of your revenue, do you keep the other 400 clients?  No, you begin to tack on fees to make it useful for you to keep them (or make them go to an OSJ and tack on some more fees) until they either a) leave or b) earn money for our company with minimal involvement. 

Those small reps already have a marginal cost to LPL of essentially zero.  There might be some minor changes to their model, but what is suggested above is like saying Costco would keep a customer out for not spending enough money there.  As long as you pay your $50/yr membership, it doesn't matter if you never walk in the door...then that $50 falls to the bottom line.  LPL makes money on the nickel and dime stuff and much of that is in fixed costs that the rep bears regardless of their gross.

Are you saying that those small reps aren't allowed to get support from LPL?

I'll admit it's been a long time since they recruited me, but I can clearly remember that every rep had access to the same tools and support.

I guess I can call Jeff and pretend to be interested in going to LPL to get the breakdown again, but maybe you guys will just set me straight.

Magician, I'm not saying it's a pure support-cost issue.  There is also a compliance liability issue.  Having 12,000+ reps that you are responsible for is expensive, and a huge potential liability.  Cut that number in half, and it drops your liability dramatically.  Honestly, I don't know what the specific costs are for LPL, nor do I know their level of liability per-rep.  I am just looking at it from a business perspective.  Think of it this way, it's the same reason Starbucks and McDonalds and other fast-food chains close down stores.  They are probably making SOME profit, but not enough to justify the resources allocated to such small amounts of gross profit to the firm.

We are liable for ourselves. OSJ stands for office of supervisory jurisdiction. We are real business owners like attorneys and cpa's. We are just using LPL's software and support. Also, 5 guys producing 100K is like 1 producing 500K in the firms eyes. Who cares. Here there is no squeeze to force people to produce more so that you can add more GP's and LP's and keep everyone happy. LPL rocks!!!

[quote=indythankgod]

We are liable for ourselves. OSJ stands for office of supervisory jurisdiction. We are real business owners like attorneys and cpa's. We are just using LPL's software and support. Also, 5 guys producing 100K is like 1 producing 500K in the firms eyes. Who cares. Here there is no squeeze to force people to produce more so that you can add more GP's and LP's and keep everyone happy. LPL rocks!!!

[/quote]

Indy, I agree, and I know what an OSJ is.  However, there definitely is some incremental cost to having more FA's.  So in your example, you are saying it makes no difference to LPL whether they have 10,000 FA's producing $4B in revenue, or 50,000 FA's producing the same amount.  We're talking scale here.  There is a BIG difference in cost to LPL.  And FWIW, that's not a knock on LPL or the model, I am just trying to better understand the model, its scalability, and how public ownership will affect LPL's desire for small producers in the future.

[quote=indythankgod]

We are liable for ourselves. OSJ stands for office of supervisory jurisdiction. We are real business owners like attorneys and cpa's. We are just using LPL's software and support. Also, 5 guys producing 100K is like 1 producing 500K in the firms eyes. Who cares. Here there is no squeeze to force people to produce more so that you can add more GP's and LP's and keep everyone happy. LPL rocks!!!

[/quote]

Except shareholders now.  That's what I'm saying.  When the bean counters come in and look at cost per rep, don't you think they are going to try and figure out how to reduce that number.

I never said you weren't business owners.  I'm just saying that while you can fire LPL anytime you want, now that the company needs to increase the bottom line, things may change.

I think we are all (except indythankgod) are saying more or less the same thing. Its just what is the number.

It is more profitable for an indie b/d to have one 500k producer than 5 100k producers. That should be obvious. But its also more profitable to have 5 100k producers under 1 OSJ than 5 100k producers with each being their own OSJ. Only one audit, i would think everything would run thru the branch manager, or ops manager who would be the one point of contact for the B/D.

Also, there is an incremental cost to the B/D for each advisor, yes. But its not as much as an employee model, because the all the cost of the fixed overhead attributable to the branch shifts from the b/d to the FA.

Nevertheless, i think that whatever the number, there will be a number under which folks will be forced to partner with an osj or pay a maintenance fee. At my B/D that number is $250k. At LPL it may be different.

The problem with much of the debate about producing minimums here is that with LPL, reps are carrying their own overhead which is not the case in the wirehouse world.  Yes, there is some liablitiy but much of that can be control by selection and auditing, fees/pricing and through mandatory E&O outlays.

The models are so different.....A $100,000 producer in a UBS office-- takes up space, turns on the lights, and uses resources in mailing, phone, equipment, etc that are bottom line costs to the firm.  At LPL-- all of those things are paid by the RR.

It's been a while since I've heard much about the LPL public offering... think they're pulling back or have they pulled back?  I know there can be no official word on it during the quiet period, but what's the sentiment on this board??

Why are any of you discussing guys who make $100k? They are pointless and so are you. And when did being public lead to the end of a business model? EDJ people don't forget your corporate numbers are easy to view with an internet connection.

LPL will be just fine, just as Raymond James is.

Some Broker-Dealers Scramble for Capital...

If so, is LPL going to make a move yet this year or is this wishful thinking for FAs at LPL looking to cash in on options?

I'm not in any position to cash in on options.

My thought after reading the article is many of the brokerages are undercapitalized to some extent.

I know little except for this; many FAs who joined LPL over the years are holding mass quantities of LPL options. Word from them is that they are generally unhappy with the service levels they recieve and will depart for greener pastures once the IPO happens as they can realize the value of their options. I'd not be surprised to see 10-15% of the larger FAs head out if and when this event finally happens. It'll make some of them rich and some of them at least feel a bit bolder about their futures in the business.

Interesting, why do I always miss out on this stuff? Timing I guess.

Anyway, if some leave, LPL won't like it. But I won't mind. LPL is growing very fast and getting on the too big side.

LPL Financial's IPO is the story of the American Retirement Dream Fulfilled. This IPO is not unlike the IPO of Apple or Microsoft for their respective industry. Todd Robinson, Mark Casady, Jim Putnam and countless others followed the desires of the American investing public for independent advice, fee for service, non-proprietary products and superior technology. 

LPL now embodies the American Retirement Dream and is the antidote for the American Retirement Crisis.

Read my blog for more insight.
http://www.wealthvest.com/blog/wade-dok ... ommentary/

Wade Dokken
President
WealthVest Marketing

Good post, Wade.

Where is LPL headed?

Thanks for the post American Flag.  Good article.  Begs the question I posed earlier.. if many LPL reps will cash in on the IPO, could a good sized wave of movement out of there post IPO also be in the works? Lots of firms like FiNet or RIAs like Hightower would pay substantial $ to get the whale producers at LPL.

LPL built an incredible brand over 20 some years.  Todd Robinson's vision, combined with some exceptional management talent in Jim Putnam, Mark Lopez, Bill Dwyer, Joh Easton, Ester Stearns, Stephanie Brown and of course, Mark Casady, created this great firm. Todd gave a tremendous amount of the company away in style of generosity and love of his employees.   

Read more in my blog:

http://www.wealthvest.com/blog/wade-dokken/lpl-ipo-roadshow-presentations-prospectus-management-presentation-expected-pricing-11172010/

Wade Dokken

President, WealthVest

http://www.wealthvest.com

Burton I understand your question but don't think you really understand the LPL Model so here goes.  First off most huge producers if they wanted to go RIA only would probably have already done it.   Ron Carson who does north of $13 million in production annually uses commission products in his menu of offerings to clients.  I am sure that if RIA would be more profitable for him he would have already gone.  Most LPL advisors aren't 100% fee based.  Obvisously the ones that are when they get big enough become dually registered or RIA only.  Most wirehoue advisors don't go to LPL or indy because they have been brainwashed that the name of the company on the card means more to clients than the personal relationship.  While in the first ten years of a reps career a brand name most certainly makes a huge difference in the HNW and UHNW market  the realtionship and understanding of a clients situation is most important.  So what happens wirehouse advisors build a book of mass affluent and HNW clients over time become successful and instead of wanting to become a Entrepreneur and Business Owner they take a nice check of 200% production of whatever and go to a new firm for a decade.  Bring over 90% of their clients don't tell the ones they don't like that they left the firm and are done with them.  After nine years the advisor has grown their book increased production the firm they went to merged with a new firm they don't like. So guess what take a check go to a new firm and repeat process. As an indy advisors are responsible for all overhead, marketing , branding etc.  LPL's costs for advisors is what it is whether they are doing seven figures or 300k.  As long as the rep has a clean compliance record and produces recurring revenue LPL is making money off the rep.  Going public will actually help in the competition for higher end clients because the number one issue very wealthy people have with an unknown brand name is if things go wrong they know a large institution has recourse to make them whole.  That argument is now gone with LPL being a "big public company".  I would like to point out  the vast majority of LPL advisors are in rural areas and tend to be solo practiioners.  Our office is different we are a   cooperative group with four principals each with an area of expertise who work on common clients and operate under the same brand name.  We are in a major market and compete against all the wirehouses, regionals, RIA, and boutique private banks from time to time.  From my perspective LPL will be very similiar to RJ minus the bank which is a good thing since the wirehouses ability to manufacture product caused two boutiques (Bear, Lehman) to disappear, Merrill and Wachovia to be acquired, UBS to have more outflows of advisors and assets than any other wirehouse and Morgan to need an injection from of capital to stay alive.  And let's not forget Citi which basically became a penny stock.  I think you get the point when your entire business is supporing independent advisors that's a good business model to be in.