With its acquisition of Commonwealth Financial Network, LPL Financial plans to "bend" to look more like its former broker-dealer rival rather than try to remake it in LPL's image.
That's what LPL CEO Rich Steinmeier told analysts in a call Monday after his firm announced earlier in the day it was buying Commonwealth in a deal valued at $2.7 billion. The purchase, expected to close in the second half of the year, promises to add as much as $285 billion in advisory and brokerage assets to
Steinmeier said Commonwealth will retain its brand and, more importantly, its commitment to supporting advisors. He suggested there are even a few things LPL could stand to learn in that regard from its former independent broker-dealer rival.
"We deeply respect this firm, and we want to bend LPL to look more like Commonwealth, not the other way around," said Steinmeier,
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Industry recruiters said LPL will have some work to do convincing Commonwealth advisors that won't change following the merger. Phil Waxelbaum, the founder of the recruiting firm Masada Consulting, said that Commonwealth has been telling its advisors for years that they were part of an "elite corps, that there is something special, and the advisors largely accepted that."
Now they will be part of a firm with a headcount running into the tens of thousands.
"Rich (Steinmeier) is going to have to keep these people happy long enough that they forget about Commonwealth," Waxelbaum said.
Jason Diamond, vice president of the recruiting firm Diamond Consultants, said Commonwealth for many years had positioned itself as an "anti-LPL" of sorts. It pitched itself to advisors as a boutique firm that specializes in working with high net worth clients, rather than one determined to become one of the largest players in the industry.
"The cultural match could be tricky," Diamond said. "They wanted to be part of this boutique firm, and now they're part of the mothership."
In the call with analysts, Steinmeier said LPL's task will be to show Commonwealth not only what they're gaining from the deal but also that "the things that they love today will sustain."
"I think if you put those together … I would be surprised if we weren't able to be very convincing," he said.
Retaining responsiveness to advisor complaints, advice
As an example of what will be retained, both Steinmeier and Commonwealth CEO Wayne Bloom cited an internal feedback system that lets advisors easily log complaints, comments or suggestions for improvement. Bloom said Commonwealth receives around 5,000 submissions through the system a year. The comments are routed to the "right people" in the firm and more than 90% receive responses within 24 hours, he said.
"It's the engagement that they are truly part of this business, that they are truly part of the journey, that they really have a say in the direction of the firm and how we prioritize things has been just instrumental," said Bloom, who will join LPL's management committee following the merger and also help start an office of advisor advocacy.
LPL Chief Financial Officer Matthew Audette said on the call with analysts that the prospects for advisor retention tend to be lower when an acquiring firm is buying up a bunch of smaller competitors and aggregating them.
"And then we've had acquisitions where it really is a tight community, in a tight culture, where those retention assumptions have been higher," he said. "And I think to state the obvious, what we have here is the latter of those two examples."
Commonwealth fetching 8x EBITDA
Audette said LPL is planning to spend roughly $485 million to move Commonwealth advisors, clients and assets over, a process he expects to be completed by mid-2026. Among other things, LPL plans to start providing custodial services to Commonwealth, which now uses Fidelity Investments as its custodian.
Audette said LPL is also planning to spend $155 million on technological improvements aimed at accommodating Commonwealth advisors. Those planned expenditures along with the $2.7 billion purchase price mean LPL Financial will be acquiring Commonwealth for roughly eight times its EBITDA — or earnings before interest, taxes, depreciation and amortization.
Audette said LPL will pay for the transaction through a combination of debt and equity sales.
The need to raise capital and that $93.5 court judgment
Commonwealth advisors who are worried about losing their boutique firm should not neglect the advantages of being part of a larger firm, Waxelbaum said. Among other things, they'll benefit from being part of a company that has invested heavily in technology in recent years, Waxelbaum said.
"Overnight, they will have access to scale and capacity they never dreamed of before," he said.
Waxelbaum said it's long been recognized that Commonwealth would need an infusion of capital from somewhere if it was to keep pace with its competitors in the independent broker-dealer industry. Commonwealth began looking for outside investors roughly a year ago with no apparent success.
"Commonwealth allowed the world of scale to pass them by," he said. "They marketed themselves as a quality firm run by quality people. But they were asset poor."
Commonwealth was also recently saddled with
Diamond said he wouldn't be surprised if the judgment helped push Commonwealth into a sale.
"That's a massive fine for a firm to stomach," he said. "So I could see how it could speed up the timeline."
LPL spells its ambitions HNW
The Commonwealth deal meanwhile doesn't just solidify LPL's position as the largest U.S. independent broker-dealer (LPL ranked as the No. 1 largest firm by annual revenue in Financial Planning's latest
LPL executives said on the call with analysts Monday that the average AUM for Commonwealth advisors is $100 million, while that for LPL is $60 million. Analyst Steven Chuback of Wolfe Research wrote in a note on Monday that the Commonwealth deal "is consistent with CEO Steinmeier's ambitions to service larger advisor teams with more affluent clientele."
LPL has been on an acquisition and recruiting tear in recent years. LPL
One of LPL's main pushes in recent years has been to appeal to wirehouse advisors who are looking to go independent by offering support services on par with those found at Morgan Stanley, Merrill or other Wall Street players. It has coupled that with an appeal to advisors who want to control their books of business and have freedom to run their practices more or less as they see fit.
Steinmeier told analysts Monday that he thinks advisors who leave wirehouses are seeking a couple of attributes in a new partner.
"They're looking for an at-scale player with unparalleled technology. They do not want to see a step backwards. That is LPL in spades," he said. "They are looking for a firm that has a service orientation and culture that has an expectation that when they have issues, when they have opportunities they identify, there is 100% responsiveness. That is Commonwealth in spades."
