Seeking to work with financial advisors in ways beyond the giant firm's independent brokerage, LPL Financial has opened its succession program to outside teams.
The firm joined the constantly expanding group of dealmakers looking to buy registered investment advisory firms, independent practices and wirehouse breakaway teams' businesses as a means of addressing the succession challenge facing the industry. An estimated 37% of financial advisors managing more than $10 trillion in combined client assets anticipate retiring in the next decade, according to a report by research firm Cerulli Associates earlier this year.
LPL rolled out its "liquidity and succession" option among the more than 20,000 advisors with the firm last year after launching an "assurance plan" in 2020 to help practices through an unforeseen death or permanent disability. Rival firms such as Advisor Group, Cetera Financial Group and Kestra Holdings' Bluespring Wealth Partners have also developed succession plans and services displaying how independent brokerages compete with RIA consolidators for deals.
"We think it solves a big industry problem around succession planning," Jeremy Holly, LPL's executive vice president of strategic business development, said in an interview. "We think it could be a good solution for many, many advisors out there in many channels. … There's a ton of consolidation occurring, especially in RIA land."
The firm's increased flexibility in recent years is fueling its record advisor headcounts each quarter, according to recruiter Samantha Sferas, the chief operating officer of Terrana Group. The number of advisors at LPL jumped 5%, or a net 1,071, year over year, to 21,942 in the second quarter, the firm's latest earnings statement showed.
"With our industry, every practice is so custom. Each one has its own personality based on the relationship that the advisor has with their clients," Sferas said, noting that succession planning programs like LPL's pair the monetization of the business with the ability to continue operating the advisory practice. "It depends on what the advisor wants to do with their legacy."
Currently, LPL's program requires the businesses to sell 100% of their equity, join the firm's employee channel — Linsco by LPL — and switch to the firm's custodian, according to Holly. The incoming teams can keep their same individual brands, investment focus and services. Linsco "is the place we believe we can best support them," and LPL is developing more methods for RIAs to retain outside custodians in the future, Holly said.
The firm is targeting potential sellers expecting to retire in the next three to seven years, although Holly noted that those ranges have varied from 12 months to an indefinite amount of time among more than 20 internal succession deals. LPL is looking for firms that generate at least $1.5 million in revenue per year, with purchase prices based on their earnings before interest, taxes, depreciation and amortization, growth and potential expansion, Holly said.
"We're really solving for the next generation of financial advisors," he said. "It gives the seller some time to refocus on their clients and remember why they got into this business in the first place."
