LPL marches into rival territory with purchase of $3B firm

LPL may be following its two largest rivals to the employee channel — but it’s embarking on new territory for the firm as it seeks to triple its reach in wealth management.

The No. 1 independent broker-dealer agreed in May to purchase Allen & Co, welcoming the firm’s 32 representatives managing more than $3 billion in client assets as its first-ever employee advisors. CEO Dan Arnold says the employee reps present a “really cool innovative opportunity” for LPL.

LPL's new move is old hat for rivals Ameriprise and Raymond James — which generate the second and third most revenue in the IBD sector. The firms have offered advisors W-2 status for decades, and they have more than 5,000 reps across their two employee channels.

The day after announcing the acquisition, Arnold described LPL’s employee option as an extension or a different version of independence. Regardless of how LPL builds out the channel, its rivals have certainly done well with theirs, says recruiter Jodie Papike of Cross-Search.

“They've had a lot of success in offering multiple channels and giving advisors options to take a look and get to know the options in each channel,” Papike says. “Nowadays, breaking away or going independent can mean so many different things for advisors.”

LPL and Lakeland, Florida-based Allen — an 86-year-old brokerage and RIA that will maintain its own brand — haven’t disclosed financial terms of the deal, which they expect to close by the end of the year. They estimate a final price multiple of “7x post-synergy EBITDA.”

Representatives for the two firms declined to say whether LPL is providing retention bonuses to the selling firm’s advisors or discuss other details like expected payouts under LPL. A “best of both worlds” form of employee affiliation at Raymond James has rep payouts of 70% to 80%.

Allen operates from branches in Viera and Winter Haven, in addition to its headquarters in the Tampa area. It has expanded to about 70 employees as a family-owned firm under the founder’s son and current chairman Ralph Allen, according to Keith Albritton, a senior vice president.

“The industry is changing rapidly,” Albritton says. “It was critical for us to extend the legacy of Allen & Co. yet piggyback on a firm with LPL's reputation and their size and their scale, so our advisors and, ultimately, their clients can be delivered the best client experience possible.”

C. Micahel Potthast

In his presentation at LPL’s investors day event in New York, Arnold praised Allen as “a great and extraordinary group of advisors.” Arnold has received kudos of his own from many LPL advisors after calling for a transformation of the company’s service culture and investing in technology.

His prior reputation since taking over his post in 2017 had pegged Arnold as a numbers-driven technocrat adept at speaking Wall Street’s language. LPL’s new “opportunity set” targets 65% of the wealth management market, up from 20% right now, the firm’s May 22 presentation states.

Using an estimate of $20 trillion in assets for the overall industry, Arnold cited enhanced advisory-focused indie models and the move into “certain components” of the employee channel as the source of the increased competitive reach. He also noted the shifts in the industry.

“Operating that independent business is becoming more complex and tougher with the changing needs in the marketplace, and this creates a great opportunity for us to continue to evolve the independent model and preserve the principles of it, but wrap some employee services around it, thus positioning those advisors to more successfully run their businesses,” Arnold said.

Ameriprise and Raymond James could argue they’ve already been taking this approach for quite some time. About 2,200 of the Ameriprise’s 10,000 advisors are employees, spokeswoman Kathleen McClung noted in an email.

Raymond James has nearly 3,200 employee reps under its employee BD, the 57-year-old Raymond James & Associates. In 2003, it launched the Employee Select Advisor program to provide “all the benefits of employee status” with “true control of your practice.”

The rivals didn’t express any public dismay at LPL’s move, and Raymond James-owned investment bank Silver Lane Advisors advised Allen in the deal. Preserving its culture was Allen’s “primary criteria,” says Liz Nesvold, the division’s head of asset and wealth management.

“It is a wonderful fit relative to the expansion initiatives LPL was embarking on,” she wrote in an email. “To say you are going to build a W-2 model is one thing; to go out and show the market you are serious via a sizeable acquisition is another.”

Indeed, LPL must have noticed the opportunity in the marketplace or it wouldn’t have struck the deal, according to Papike, the recruiter. With more wirehouse retention loans reaching term, advisors will be on the move, she says. BD services and help make for a strong pitch to reps.

“They can focus on what they do best and leave everything else up to someone else,” Papike says, calling LPL smart to provide advisors more choices and options. “It’s a really interesting play, and I think more will be revealed going forward as to how they're going to build it out.”