The U.S.’s largest independent broker/dealer just got bigger. LPL Financial announced Tuesday it had acquired National Planning Holdings, the network of b/d's affiliated with Jackson National Life Insurance Company, from Prudential, for $325 million. The deal will add 3,200 advisors to LPL’s network.
The deal is the latest example of an insurance company shredding a brokerage business. Last week, independent b/d Kestra Financial entered an agreement to acquire H. Beck, a firm owned by insurance company Securian Financial Group, adding about 600 advisors and $2.4 billion in client assets to Kestra’s platform.
The rationale for these hookups—creating an easy distribution route for proprietary products—has yielded diminishing returns over the past decade. The low-interest-rate environment has also been a drag on profitability.
“Insurance companies have been stressed out since 2009 because of the interest rate environment,” said Jonathan Henschen, president of the recruiting firm Henschen & Associates in Marine on St. Croix, Minnesota. “Their portfolios need to earn about 6 percent, and with the bond yields so low for so long, it puts a lot of stress on these insurance companies.”
The Department of Labor’s fiduciary rule is also likely a driver, especially for Jackson National, which is heavily concentrated in the fixed-index and variable-annuity arena, Henschen added.
“The DOL has just made variable-annuity and fixed-indexed annuity sales tank,” he said. “That was probably the main driver, as well as the DOL expenses reducing their profits further.”
“While we still very much believe in the independent broker/dealer model, our primary strategy in North America is to focus on being the leading manufacturer of retirement products,” said Barry Stowe, chairman and CEO of Prudential’s North American business unit.
LPL CEO Dan Arnold said during the firm’s second-quarter conference call that, although the company’s recruiting had slowed down, the DOL's retirement-savings rule would spur more advisor movement and consolidation in the industry.
Pending a successful transaction and advisor retention, the purchase price could increase up to approximately $448 million, according to a statement from LPL.
“Their track record with retention when they buy broker/dealers isn’t that good,” Henschen said.
When LPL purchased Financial Telesis three years ago, many of the reps went to Kestra. And when the firm bought Pacific Life’s b/d's in 2007, many of the advisors scattered, especially when they had to move from Pershing’s clearing platform to LPL’s self-clearing platform two years into the acquisition.
“If the reps don’t stick around, no sweat off their back. It’s the seller that loses,” Henschen said.