LPL Financial is on track to retain 70 percent of advisor production from National Planning Holdings after transitioning the first wave of advisors from the acquired independent broker/dealer, the company said during a conference call Wednesday morning, even though CEO Dan Arnold told investors that the earnings the company would realize, measured by EBITDA, would equal 80 percent.
“I felt that’s a little better than I thought they’d do,” said Jonathan Henschen, president of the recruiting firm Henschen & Associates. “I was anticipating around 60.”
There have been a lot of announcements of NPH advisors leaving the firm in the wake of the acquisition, and some IBDs have made it a point of recruiting NPH advisors specifically who may be wary of joining LPL. Henschen says Commonwealth Financial Network, for example, has recruited about $16 million in production; Cambridge Investment Research has picked up $35 million; and Securities America has brought on $50 to $60 million in production, just to name a few.
“What they have in their favor is the tape-to-tape transfer of the brokerage accounts, the ability to do block transfers, and perhaps some retention money as well,” Henschen said. “But is it a cultural fit? Is it something that will resonate with their advisors? And that a lot of times where broker/dealers trip up and don’t find a good cultural match that is agreeable to their reps.”
“Anytime you have a transaction, you’re putting potential assets in motion, it’s going to be a competitive environment,” Arnold said. “We also knew that this was a good quality property but that all advisors wouldn’t necessarily match up with us strategically. That said, we thought we had a very compelling offer of economics and a way to transition to the platform and capabilities such that we thought it would be an attractive alternative for many of the advisors.”
LPL agreed to pay an initial purchase price of $325 million for NPH, and a contingent payment of $0 to $123 million, based on production transferred from 72 percent to 93.5 percent, respectively.
“If their 70 percent is accurate, then that’s a home run for LPL, and it’s a home run because it gets the maximum amount for the price without having to come up with an extra $100 million to Jackson National,” said Jeff Nash, CEO of Bridgemark Strategies, a third-party advisor transitions and M&A consulting firm. “Generally on deals, you’re going to want to see 80 percent. But the way this one was priced out, if they are actually at 70, it’s kind of ideal.”
The retention rate was higher than Nash thought it would be, given the broker/dealers that are part of the first wave, which includes National Planning Corporation and Investment Centers of America. NPC is heavily comprised of OSJs, Nash said. Several OSJs have left in recent weeks.
“LPL has become very public in the fact that they’re really competing with OSJs, especially those that are hybrid,” he said. “So any OSJ that’s hybrid or thinking of going hybrid that’s with NPC is not going to be a great fit.”
The second wave, which includes SII Investments and INVEST Financial Corporation, will be transferred in mid February. SII is a smaller b/d, with about 500 advisors.
“Advisors who choose a boutique broker/dealer are choosing it for a reason—they want to be with a smaller firm,” Nash said. “And LPL is clearly not a smaller firm.”
Arnold said it was too early to predict how the second wave will shake out, although he did say it included a higher mix of banks and credit unions, which historically have better retention. The firm will have more clarity around wave two retention in early February, when the firm announces fourth quarter earnings.