The partners at Pilot Financial knew they had a choice when they learned of Osaic's plans to buy Lincoln Financial Group's wealth management businesses.
Like the many other advisors and teams that shared a long affiliation with Lincoln Financial, they could move over to Osaic. Or they could find themselves a home at a different firm.
They chose the second option. On Wednesday, the partners running Pilot Financial announced they and their 105 advisors managing $4.5 billion in assets would be joining the independent broker-dealer LPL Financial.
One big reason for their decision: The four partners running Pilot Financial didn't want to be faced with the prospect of a sale again anytime soon, said firm partner Greg Smith.
Smith, who runs Pilot Financial with Chris Roney, Bill Harnden and Daryl King, noted in an interview Wednesday that mergers and acquisitions have been a constant feature of the broker-dealer industry in recent years. Much of that consolidation has been driven by privately held firms like Osaic, which is backed by the private equity group Reverence Capital Partners.
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LPL stood out in part, Smith said, for being a publicly traded company and a mainstay of the independent broker-dealer business.
"We just didn't want to go through this again," Smith said. "And we were a little worried that, at some of the other broker-dealers that we did due diligence with, we would go through a lot of changes down the road as firms consolidate and try to compete with the likes of LPL."
Attrition always likely
When Osaic
Phil Waxelbaum, the founder of the recruiting firm Masada Consulting, said the loss of Pilot Financial shouldn't necessarily be taken as reflecting poorly on Osaic. Anytime one firm buys another, there's always an expectation that some advisors and assets formerly at the acquired entity will go elsewhere.
"If you hold on to 95% of it, it's a win," he said.
Most likely, Waxelbaum said, the partners at Pilot Financial looked at their various options and ultimately decided LPL was the best fit — however that's defined.
"I don't think this means LPL is good and Osaic is bad," he said. "It's more like Osaic is a good blue suit and LPL is a good brown suit. They both fit. But these advisors think they look better in a brown suit."
Greg Cornick, the president of advice and wealth management at Osaic, confirmed that some loss of headcount and assets is always expected in big acquisition deals. He said Osaic has enjoyed a high retention rate with former Lincoln Financial advisors.
"We were confident the vast majority would find us to be the best partner, and they have," Cornick said in an email statement.
Retention deals could have been bigger
Smith said on Wednesday that the retention deal offered by Osaic fell a bit below his and his partners' expectations.
"It didn't cover as many advisors as we thought it should," Smith said. "Not every advisor received retention offers. So we just felt like our organization probably held a little more value than what was being offered to us."
But far more than that, Smith said he and his partners were attracted by what LPL had to offer. He said the sale of Lincoln Financial's wealth units forced him and the other principals at Pilot Financial to sit up and really think about what they wanted out of a broker-dealer affiliation.
Lincoln Financial's roots, Smith noted, are in insurance rather than wealth management. Pilot Financial's 25-year affiliation with Lincoln was comfortable, he said, and never gave him and his partners real reason to consider other arrangements.
Then came the sale.
"And we said, 'Holy cow, there's a whole world out here that we didn't know existed,'" Smith said. "We for so many years had been with an insurance broker-dealer. So the world just got opened up in a big way for our organization and for every single one of our advisors."
One of Smith's partners, Roney, gave a particular nod to LPL's Service360 Team, a small group of employees who provide support for things like new accounts, moving money and account transfers. Roney also cited the support LPL has in place for office administration, marketing, technology and other "back office" functions.
"And LPL has top-notch technology that advisors can leverage for their practice, but also leverage for their clients so their clients have instantaneous access at their fingertips," Roney said.
New OSJ on the block
Pilot Financial's business model technically puts it into the category of an
The new policy is expected to make LPL a less hospitable place for OSJs. But the firm nonetheless remains home to some of the largest offices of supervisory jurisdiction in the business.
Waxelbaum said it's inconceivable that Pilot Financial wouldn't have taken into consideration, "some of the 300-, 400-, 500- and 600-person OSJs that are already living in-house at LPL."
One again, Waxelbaum said Pilot's Financial's choice of LPL shouldn't be taken as a knock on Osaic.
"But LPL clearly was able to demonstrate how they would be able to better support the continued growth of the OSJ," he said. "And the way you could support the continued growth of it is with two things. You have to give them the tools to retain the advisors that are already part of the OSJ, and then be committed to recruiting to the OSJ to help it grow."
Recruiting and M&A at LPL
LPL has seen steep increases in its advisor headcount recently, both through acquisitions and recruiting deals. The firm reported having 22,884 advisors at the end of the first quarter of this year.
That figure has been bolstered by large deals such as LPL's pending acquisition of
On the recruiting front,
Roney and Smith confirmed that he and their partners at Pilot Financial, which has advisors in states ranging from Hawaii to Maine to Texas and Florida, think LPL will be able to help their practice grow.
"LPL is making it as easy as we ever could have imagined in the transition," Smith said. "But we also see this as a potential catalyst for our advisors to be able to recreate themselves a bit and maybe reach whatever that next level is that they're trying to accomplish."
