LPL Financial has started to offer retention packages to reps at National Planning Holdings, the network of 3,200 advisors the firm purchased from Prudential last month. The firm shared some details about the transition efforts, including the timeline for the tape-to-tape transfer, as well as transition assistance.
Something unusual about the offers is that for some loosely affiliated groups, transition assistance and payouts are based on individual advisors’ production, not the group’s. So for many advisors who were used to being dealt with as a team by NPH, their payout may be going down.
Typically when broker/dealers have acquired other firms, the new owners have kept everything the same, including the economics, to make the transition as easy as possible for the reps.
“To not keep things like for like can definitely have a negative impact on their retention, and advisors will look elsewhere to get the same or better than what they have currently,” said Jonathan Henschen, president of the recruiting firm Henschen & Associates in Marine on St. Croix, Minnesota. “You can mess with a lot of things for advisors, but payout is not one of them. That is a break-the-camel's-back event for many advisors.”
Whether the LPL packages are based on individual or group production depends on the nature of the office of supervisory jurisdiction’s relationship with the advisors and its organizational structure, said Bill Morrissey, managing director and divisional president of business development at LPL. For those OSJs set up as an ensemble practice—where they share the same DBA, technology offering and oftentimes ownership of the clients—deals will be the same across the group. The same goes for financial institutions, or bank programs. But for those groups in which the advisors themselves are making individual decisions, the firm is underwriting transition assistance at an advisor level.
But a lot of teams aren’t structured as ensembles, and this is affecting many advisors at NPH broker/dealers that consider themselves part of a group, even though they have their own branding and name and operate somewhat independently. For example, a large group of reps that left Associated Securities to join National Planning Corporation, one of NPH’s broker/dealers, formed a loose affiliation.
LPL is currently engaged with all of NPH’s advisors, especially those at NPC and Investment Centers of America, scheduled to move over as part of the first wave on December 2. Licenses for reps at those firms will transfer near the end of November, the firm said. Licenses for the second wave, which includes SII Investments and INVEST Financial Corporation, will be transferred on or around February 17.
“That moves over overnight,” Morrissey said. “There will be no disruption to the revenue. They’ll still be able to manage client assets.”
The firm will also pre-populate all of the account-opening paperwork for all the advisors that move over, so they can send the paperwork to clients quickly via DocuSign for electronic signature.
“Oftentimes it takes 90 or 120 days for the business to move and ramp, and you’ve got all that labor and opportunity cost built into that move. In this case, we’re minimizing or eliminating all of that,” he said.
As part of the tape-to-tape transfer, LPL will pay the advisor's conversion costs of moving. Also, if the advisor has a loan outstanding with NPH, that loan will be assigned to LPL, and the rep will not have to pay it off immediately. If the rep participates in NPH’s deferred-compensation plan, NPH will freeze the plan when they join LPL, and the advisor will be eligible for LPL’s plan.
“We spent a lot of time planning for this acquisition, and what we’ve tried to do is take as much disruption out of the change as possible," Morrissey said. "Let’s face it—no one likes change, particularly if it’s change that they haven’t initiated themselves. And we know that each one of these advisors has a decision to make, and we want to help them make the right decision. And we want to give them the facts they need to make that decision.”
Morrissey would not provide specifics around the retention deals, except to say that the firm is segmenting advisors based on complexity of their practice and the cost associated with the move.
Offers extended to lower producers, those with less than $250,000 in gross domestic concessions, are typically anemic in these types of acquisitions, Henschen said. But Morrissey said the firm is providing transition assistance to these advisors.
Those with $250,000 to $500,000 in annual GDC will likely get 10 to 15 percent in up-front money, while those with $500,000 to $1 million will likely get 15 to 20 percent; $1-million-plus producers may get 20 to 25 percent, Henschen said.
However, Henschen added that the composition of an advisor's book can impact the up-front money they receive. For example, if two advisors both have $500,000 in annual GDC, the one with a higher percentage of fee-based revenue might get a better deal.
One advisor, with about $900,000 in GDC, was offered a 15 percent cash loan forgivable after three years and a 91 percent payout, according to someone familiar with the deal.
“In some past acquisitions, new owners have come in and kept everything the same,” said Jodie Papike, executive vice president at Cross-Search, a recruiting firm. “This acquisition is different in the sense that advisors are having to evaluate their deal individually to determine if LPL is a good fit for them.”
LPL did not acquire NPH’s back-office staff as a result of the deal. But the firm plans on adding more than 300 positions to accommodate the new advisors on its platform. Those positions will be open to the home-office people at NPH firms.