$12B hybrid RIA firm Merit to leave LPL in biggest exit of past 5 years

One of two major independent branches leaving LPL Financial after a change in the company's policies is hybrid registered investment advisory firm Merit Financial Advisors.

While the exact timeline and the eventual destination for brokerage and custodian services remain unclear, LPL confirmed on July 30 that Alpharetta, Georgia-based Merit and the as-yet unidentified second office of supervisory jurisdiction began moving a combined $20 billion in client assets off the company's platform this month. With about 250 financial advisors and other employees in 48 offices managing nearly $12 billion in client assets on behalf of 20,000 households, Merit represents the largest branch to leave LPL since Independent Financial Partners in 2019 and Carson Group in 2017.

"Our collaboration with large OSJs, like Merit, supports the growth and independence of advisors," LPL spokeswoman Shannon Greene said in a statement. "LPL and Merit have enjoyed a mutually beneficial relationship for many years, and LPL values the role we've played in Merit's impressive growth. As both companies continue to evolve, we have together agreed that our missions and models have become strategically misaligned. We remain committed to ensuring a smooth transition for Merit advisors and their clients, and we're confident this relationship shift will ultimately benefit and enhance LPL's ability to support our valued clients."

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Representatives for Merit didn't immediately respond to requests for comment. The firm's pending move was first reported by Citywire RIA. Although the company is "grateful for the many years of support and collaboration" with LPL, the team led by founder and CEO Rick Kent believes that "this transition will better position us to offer innovative solutions that meet the evolving needs of our clients and ensure our continued growth and success for generations to come," Kent told the publication.

"We appreciate the trust and confidence our clients have placed in us and are committed to ensure that this transition will be seamless," Merit President Kay Lynn Mayhue said in the interview with Citywire. "Our focus remains on their financial well-being and ensuring that they receive the highest level of service and support."

The looming exit contrasts with LPL's expansion to continuing record headcounts of advisors through recruiting and M&A deals. Earlier this year, LPL altered the rules for M&A deals within the terms of its "master service agreement" contracts with OSJs, which are the independent channel equivalent of branches. Last week, the firm revealed as part of its second-quarter earnings that two large branches would take their brokerage and custodian business elsewhere over the policy change. No other major OSJs are likely to follow the lead of those two firms, CEO Dan Arnold told analysts on a call after the company disclosed its results.

"We've been actively working to strengthen our alignment with these firms for a number of years, driving incremental changes to the broader OSJ ecosystem over that period," Arnold said in prepared remarks. "This year, we put a capstone on those efforts and through that work, there were a couple of isolated firms that surfaced as strategically misaligned with our mission and model as they were limiting advisors' ability to choose how and where they do business. That posture is in stark contrast to our core principles of advisor independence, and as a result, we have resolved to separate from these relationships."

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The outgoing firm has completed many acquisitions in the past several years. Since receiving a minority investment in 2020 from financial services holding company Wealth Partners Capital Group and a group of strategic capital providers led by private investment firm HGGC, Merit has acquired 26 firms, according to the most recent M&A announcement on the firm's website. The firm has at least 143 registered representatives that currently use Merit's RIA and LPL's brokerage, its latest Form ADV disclosure to the Securities and Exchange Commission showed.

Kent "built the firm on a servant-leadership style, which empowers his team to solve problems, create solutions and grow," according to Merit's website. "Rick continually looks for ways to serve the team and better each member."