With its $300-million acquisition of Waddell & Reed's wealth management arm, LPL Financial is inheriting an advisory unit that had been undergoing a multi-year shift away from its legacy asset manager distribution strategy.
LPL’s deal,
“There's a lot of emotion connected to having been at a firm — for some of these advisors 30, pushing 40 years,” says Rich Steinmeier, director of strategy and business development at LPL Financial, who told Financial Planning Dec. 7 he had personally spoken with dozens of advisors since the announcement.
For LPL, the stakes are high. Should the firm successfully retain Waddell & Reed’s advisors, the deal will boost the largest independent broker-dealer’s ranks, give the firm a staffing presence in Kansas City and strengthen its partnership with Macquarie.
Of course, the advisors will also have a say, and they’ll likely be evaluating LPL based in part on their experiences at their current firm.
Waddell & Reed, an asset manager with 80 registered mutual fund portfolios and 60 investment strategies, was founded in 1937 by two veterans of the First World War. Its average advisor oversees about
“Many of [the advisors] are long-term members of the Waddell & Reed family,” says Larry Roth, the former CEO of both Cetera Financial Group and AIG Advisor Group and who is now a partner at a consulting firm.
They were also members of a changing firm, particularly in regards to how the asset manager distributed funds within its wealth management division.
Waddell & Reed advisors largely use proprietary Ivy Fund investment products in their client portfolios. More than 57% of the average assets in Waddell & Reed funds were held within its own wealth management channel in 2019, according to the
“In our opinion, most advisors should not allocate nearly two-thirds of their clients' assets to a single active manager, particularly one with mixed investment performance,” reads the research note by William Blair analysts Chris Shutler and Adib Choudhury.
A Waddell & Reed spokesperson declined to comment. A representative for Macquarie, which is buying the non-wealth management parts of Waddell & Reed for
Waddell & Reed had been working in recent years to transform its “proprietary broker-dealer into a fully competitive independent wealth manager,” according to its 2019 annual
The company had been modernizing its platform and adding unaffiliated investments over the last two years. The annual report acknowledged at the time that new best interest and fiduciary standards could have a “material adverse effect on our business.”
Sharing office space
LPL will bring over Waddell & Reed’s Ivy Fund models onto its platform for the new advisors, according to Steinmeier.
We are “emulating their advisory platforms so that, to the advisor, they see a similar platform, and it meets the threshold for the ability to not have to re-paper,” Steinmeier says.
LPL is also strengthening its relationship with asset manager Macquarie, which will now own Waddell & Reed’s Ivy Funds.
For one, LPL will share office space with the asset manager in downtown Kansas City, where Waddell & Reed was building its new headquarters, according to Steinmeier.
While Macquarie will be moving into the new space sometime next year, LPL will “have space in that building,” Steinmeier says. That service center will “largely be staffed by the Waddell & Reed team members,” he says.
LPL had a pre-existing partnership with Macquarie that the companies expect to enhance, according to Steinmeier.
“We will work together on product development and distribution and understanding what’s best for the advisors,” Steinmeier says, noting that it’s a “strategic partnership like we have with many firms.” He declined to comment further, and an LPL spokeswoman declined to comment.
Asset managers pay LPL to incentivize the broker-dealer to promote their products, according to the firm’s
“The sponsors receive preferential treatment as a result of the payment,” the disclosure says, including product marketing, education and training for financial professionals. In some cases, the arrangements can also include lower ticket charges typically paid for by a financial professional or a client, according to the disclosure.
The LPL spokeswoman did not respond to a request for comment.
Quick to act
When it comes to retaining 900-plus Waddell & Reed advisors, LPL hasn’t wasted any time positioning itself for what it believes will be an easy sell.
Within two days of announcing the deal, LPL’s local business development officers had contacted more than half of the Waddell & Reed advisors to answer questions and discuss what they could expect at their new employer, according to Steinmeier.
LPL has deployed a localized training plan and engagement strategy to introduce Waddell & Reed brokers to the company. Webinars began this week, and there will be weekly training sessions on technology capabilities, the transition, and more, according to Steinmeier.
We are oriented to modeling our firm and really making our firm malleable to support how those advisors do business today.
Once the deal closes, Waddell & Reed’s corporate RIA will be folded under LPL’s. Advisors will also be able to open their own RIA or join the company’s employee channel, according to Steinmeier.
“We are oriented to modeling our firm and really making our firm malleable to support how those advisors do business today,” Steinmeier says.
LPL is seeking to minimize disruption for the advisors, and will permit them to keep using the Waddell & Reed brand for their practices if they choose, according to Steinmeier. Advisors likely won’t have to re-paper client accounts when moving over, he says, noting that “there should be a negative consent letter sent to clients to allow them to move over without re-papering.”
The company is also setting aside $85 million for the Ivy Fund models as well as a “market competitive” retention bonus, according to Steinmeier, who declined to give a specific number.
Recruiters expect the firm to do what’s necessary to keep advisor talent on board.
“They're going to come in fast and aggressive on the numbers, on the dollars and cents to try to retain as much as possible,” says Jeff Nash, a recruiter at Bridgemark Strategies, whose firm is currently working with more than a dozen Waddell & Reed advisors.
LPL anticipates that approximately 70% of Waddell’s advisors will sign on, according to the company. Nash expects the IBD will be able to keep more than that.
“My sense is they are going to retain 80-85% of the advisors,” he says. The money is there, and the technology is superior, he says.
Steinmeier says that with LPL’s tech, Waddell & Reed advisors will be able to see their brokerage and advisory assets all in one place and use eSignature for 99% of their accounts, among other capabilities they didn’t have before.
Advisors at Waddell & Reed will be thrilled at all the new investment choices available to them for clients, according to Roth.
“They'll have to be like kids in a candy shop,” Roth says, due to both the new products and better tech available to them.
As part of the deal, Waddell & Reed will move its
The deal is expected to
“As we've been growing, we've needed to have another market to access talent,” he says.
