LPL doubles its hiring of bank and credit union financial advisors

LPL Financial is seeking an even bigger foothold in banks and credit unions after adding about 1,000 financial advisors from their wealth management programs the last two and a half years.

While the No. 1 independent brokerage and its rivals have worked with advisors from banks and credit unions for many years, giant recruiting moves and M&A deals since 2020 amid ongoing consolidation in the two financial segments highlight how LPL's Institution Services unit is ramping up its recruiting investments in wealth programs. Six recruiting moves unveiled by LPL in the past three years span 990 roughly incoming advisors and $87 billion in client assets. The firm also purchased its largest branch operating in the channel for more than $140 million.

The size of the potential business opportunity for LPL in the channel soared fivefold to $5 trillion in three years, according to the firm's first-quarter investor presentation. The firm works with 3,500 advisors at 1,100 bank or credit union wealth "enterprises" across the country, up from 2,500 at 800 programs at the end of 2020, according to LPL's annual reports. Now it plans to go on an advisor hiring binge among those programs — a step endorsed by experts who argue that talent in the channel looms especially large as a strategic priority for both the banks and credit unions and the wealth management firms.

"Clients and advisors' expectations continue to rise, and so advisors are really expecting to have integrated systems that allow them to spend as much time as possible with their clients," Ken Hullings, LPL's executive vice president of enterprise business development, said in an interview. "At the same time the costs of running a wealth management business continue to rise."

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LPL's push
In addition to increasingly important technology capabilities and rising regulatory scrutiny of a business outside the core area of expertise for banks and credit unions, the human capital expenses of recruiting, paying and retaining large teams of financial advisors and support staff add to the costly difficulties facing many institutions, Hullings said. The recent banking crisis and worries about a potential recession have piled on a new layer to the problems as well.

LPL is helping the thousands of banks and credit unions it services through three units: its own brokerage, registered investment advisory firm and custodian. In roughly the past year, the firm's recruitment of advisors on behalf of those programs has doubled to 70 advisors a quarter, with an expectation that the number could reach 100 every three months by the end of 2023, according to the firm. The 15 dedicated recruiters LPL has focused on the channel lead teams that are on pace to make 10,000 calls a month to prospective advisors.

The number of moves to LPL surpass those of rivals that are also seeking to tap into the possibilities for them in the channel. LPL's six major additions since 2021 are: Bank of the West, Commerce Bank, BMO, M&T Bank, CUNA Brokerage Services and People's United Bank. Ameriprise, Advisor Group, Cetera Financial Group, Raymond James, Atria Wealth Solutions and smaller competitors have added teams in the channel as well over that span.

For the wealth program of Kansas City, Missouri-based Commerce, a year-long due diligence process came down to which firm could offer the best technology, transitional support and cultural fit, Mark Potter, the executive vice president of Commerce Financial Advisors, said in an email interview. The group of about 30 advisors in five states managing $4.5 billion in client assets is slated to migrate to LPL on Aug. 19, Potter noted.

"To deliver an exceptional experience for both advisors and clients, it became apparent from our analysis that a partnership would enable us to scale our business in a way we could not on our own," Potter said. "After a lengthy review, we chose LPL's Institution Services platform. We are confident this partnership will evolve the way we meet the needs of our clients, ultimately fueling our growth."

A lot of banks and credit unions view wealth management much differently from a year ago, when many institutions were planning to launch or build up their programs through in-house brokerages and RIAs, consultant Ken Kehrer, a partner at Kehrer Group, said in an interview. Out of 30 remaining bank-owned brokerages, at least seven are actively talking with wealth management firms about outsourced services, he noted in an interview. More moves like one announced by Ameriprise last week and LPL's recent wins are on the way, Kehrer said.

LPL in particular sees the channel "as their greatest growth opportunity" and perhaps its top strategic priority after technology, he said. "They saw this as a real opportunity perhaps earlier than the competition, so they put a lot of emphasis on it."

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Recruiting imperative
Investing in advisor talent will pay off for the wealth management programs at banks and credit unions and any firms acting as the brokerage and RIA partner to them, according to a report released last week by research and consulting firm Cerulli Associates. Between 2016 and 2021, the assets under management at bank and credit union-based wealth programs had a compound annual growth rate of 11.7%, while advisor headcount was only up 0.7% annually. 

The institutions derive their greatest advantage on the recruiting trail from their steady stream of prospect referrals from their pool of depositors, while technology and traditionally smaller payouts with less flexibility comprise their biggest challenges, Cerulli research analyst Chayce Horton said. The sheer amount of assets have "grown far beyond" their headcounts, he said.   

"As a result, advisors have had to become more productive, more efficient with how they use their time," Horton said. "That increase in productivity has also made it slightly more difficult to break into the industry, because you have a lot of advisors becoming more productive, more experienced and taking on more assets."

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Home court advantage
Across the industry, up to three quarters of advisor trainees fail to stay in the business after two years, according to Cerulli data cited by Horton in an interview. Banks and credit unions' referrals could provide more pathways into the profession that don't rely on calling a personal network of friends and family early in a career, Cerulli analyst Matthew Zampariolo said. Removing that barrier and forming more ties with communities served by banks and credit unions might give the low representation of Black, Hispanic, Asian Americans and other minorities in the industry a boost as well, he noted.

"Tapping into their local markets from a hiring perspective is a really big advantage that they have," Zampariolo said. 

Those institutions "are very trusted organizations in their communities" that already have relationships with their customers in other areas outside of wealth, Hullings of LPL said. Whether they are ready to branch further into wealth or start their own program depends on "where they are in the evolution of their institution," Hullings said. Only about a quarter of all banks and credit unions currently offer wealth management services.

"Their core business is deposits and loans and, so for many institutions, they're just still focusing on building up the deposit and loan portfolio," he said. "They do need a certain level of scale in that core business to really start to contemplate expanding into some adjacent business like wealth management."