LPL to offer payouts of 50% to 70% in new employee channel

With an eye toward tripling its pool of potential recruits, the largest independent broker-dealer has formally launched its employee advisor channel.

LPL Financial’s W-2 financial advisor affiliation carries payouts ranging from 50% to 70% with no platform, transaction or administrative fees, the company said. The highly anticipated details come after the firm’s announcement last year that it would compete for employee advisors against rivals like Ameriprise and Raymond James. In the first step of the strategic pivot in 2019, LPL purchased a small BD named Allen & Co. for $35 million.

While W-2 models have existed for decades, LPL’s employee channel stands out because of its industry-leading headcount of nearly 17,000 independent advisors and the potential for adding employee representatives. New affiliation models will “expand our addressable markets” to $13 trillion from $4 trillion, CEO Dan Arnold told analysts in the company’s second-quarter earnings call.

“We're seeing solid early interest from prospective advisors, and we expect the model to contribute to our opportunity set, pipeline and results going forward,” Arnold said in prepared remarks.

The firm began the “independent employee” channel in June. After the Allen acquisition last year, Arnold faced questions from LPL advisors at the firm’s Focus conference about the employee channel competing with them.

Ameriprise and Raymond James have nearly 5,500 employee advisors between them. In 2003, Raymond James started a program for “all the benefits of employee status” with “true control of your practice.”

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In its statement, LPL provided more specifics on the recently launched employee model. The company will not have requirements around small accounts or households. It also will not have growth targets. It will collect 5 basis points for its Model Wealth Portfolios advisory accounts on top of the varying portions of revenue advisors pay to the home office for the full range of services.

The payouts come out 35% to 40% higher than the competition with a structure based solely on the gross dealer concessions, according to LPL. Starting at 50% for $350,000 to $424,999 in production, the compensation steps up in graduated amounts to 70% at $5 million and above.

LPL pledges that advisors will own their book of business with autonomy to run their practices as they please. Besides the higher compensation and 1099 contractor status in the independent channel, the main difference from employee firms shows up in the frequent litigation arising when advisors break away from wirehouses or other W-2 wealth managers.

The firm’s employee channel also follows LPL creating a wirehouse breakaway suite of services earlier this year for independent advisors. In other moves in recent months, LPL agreed to acquire two family-owned IBDs with a combined 55 advisors and $3.5 billion in client assets. It also scored a major recruiting win in attracting M&T Bank’s $20-billion retail brokerage unit.

“The expansion of our employee advisor model is the next step in our delivery of an independent solution to meet the needs of advisors wherever they are in the lifecycle of their business,” said Rich Steinmeier, LPL’s divisional president for business development, said in a statement.