LPL's Atria deal to supercharge firm's growth past 25,000 advisors

LPL Financial is testing how big an independent wealth management company can grow with a billion-dollar deal that's likely to push its headcount of financial advisors above 25,000 next year.

The company will spend between $1.105 billion and $1.385 billion to acquire New York-based Atria Wealth Solutions. The price tag includes an upfront price of $805 million, "earn-outs" of up to $230 million (tied to the level of advisor retention between 80% to 100%) and expected onboarding and integration costs ranging from $300 million to $350 million, LPL said Feb. 13. Based on the $100 billion in client assets managed by 2,400 advisors at seven Atria-owned firms, the deal constitutes the second largest of the year among independent brokerages — bigger than the $50 billion moving to LPL through incoming mega-recruit Prudential Financial, but not quite as large as rival Osaic's acquisition of Lincoln Financial Group's $108 billion wealth business.

Atria's current owner, private equity investor Lee Equity Partners, will exit with the deal, seven years after the firm launched with its backing. The agreement displays the ongoing momentum in private equity deals in wealth management amid dips in volume in other industries, particularly with respect to exit deals. The Atria advisors will go to LPL in the middle of 2025, following an expected close in the second half of this year. That timeline contrasts with the relatively quicker onboarding to LPL that figured in competitors' success in peeling off a lot of recruits the last time the firm struck a deal of comparable size in 2017.

"There was talk years ago that no IBD could sustain 20,000 advisors without blowing up," independent advisor recruiter Simon Hoyle of RIA Choice said in an email, using the industry's acronym for independent broker-dealers. 

"For any 'Top Gun Maverick' fans, they just passed mach 10, but it doesn't appear they need to eject any time soon," Hoyle continued. "They have debunked the myth that IBDs aren't viable at 20,000 deep. One of the biggest concerns for large firms is service level and culture. It can become increasingly difficult with a combination of fast growth coupled with a mega size. Living as a public company brings constant pressure for quarterly results. For now they appear to be overachievers. To other BDs it may feel their mantra is, if you buy 'all' the competition, you won't have any competition."

READ MORE: LPL's Rich Steinmeier on Prudential, AI, tax and 'reimagining' the firm

'Stay' bonuses on the way

Atria and LPL didn't make any executives available to discuss the deal beyond the prepared statements in the press release earlier this month. 

"I'm excited for the opportunity that our financial advisors and institutions will have to leverage LPL's breadth of services, vast resources and unparalleled value proposition," Atria CEO Doug Ketterer said at the time. "There is no question that LPL represents the best opportunity for a financial professional, bank or credit union to grow their practice or investment program."

Asked whether the incoming advisors will receive retention bonuses if they remain with LPL after the transition, representatives for LPL said they could not disclose that level of detail. 

However, the "competitive economics" of the deal for Atria advisors comprise a "competitive and simplified payout grid" and "competitive transition assistance to support advisors financially through onboarding," according to LPL's investor presentation about the deal. LPL is also promising "limited repapering, specialized transition teams and personalized outreach and onboarding guidance," as well as "flexibility in how they affiliate and partner" with the firm and a "broader set of capabilities and technology." 

LPL has targeted Atria as one of several potential acquisitions based on the other companies' similar "independence and book ownership by the advisors," Divisional President for Business Strategy and Growth Rich Steinmeier told industry publication ThinkAdvisor last week. "Atria has been at the top of that list for a very long time," Steinmeier said.

READ MORE: IBD Elite: The 15 largest independent brokerages in wealth management

What's driving deals

The deal follows many that keep reshuffling the industry's deck, in particular among firms ranked Nos. 10 to 20 in Financial Planning's IBD Elite list of the largest independent brokerages. With $736.3 million in 2022 revenue across subsidiaries CUSO Financial Services, Sorrento Pacific Financial, Cadaret Grant, NEXT Financial Group, SCF Securities, Western International Securities and Grove Point Financial, Atria is the No. 13 firm on the most recent list. Last year, LPL rival Cetera Financial Group acquired Nos. 14 and 15, Avantax and the wealth and trust business of Securian Financial, and Lincoln's wealth arm is changing hands as the No. 11 firm.

For the sellers, the continuing volume in the last several years simply reflects the margin pressures from rising expenses that make folding into a larger buyer attractive, according to Phil Kerkel, a partner at financial services management and technology consultancy Capco.

"As the leading provider of investment and business solutions for independent financial advisors across the nation, LPL provides Atria businesses an industry-leading technology platform and business support for operational, supervisory and regulatory compliance," Kerkel said in an email. "The scale of solutions and services LPL offers will allow their financial advisors to maintain focus exclusively on their clients, and have access to an expanded suite of offerings, i.e., trust and estate planning, tax planning, etc. — with further access to marketing support and recruitment services to help scale as their businesses grow."

"We expect the M&A trend in the independent broker-dealer and RIA space to continue," Kerkel added, "as the investments required to continue to attract and retain advisor talent, provide leading edge platforms and technology and analytics capabilities and build robust programs to establish and maintain compliance with an ever-evolving and complex regulatory landscape, will continue to put sustained pressure on smaller independent firms to operate profitable businesses."

For LPL, the deal expands its footprint among its traditional base of independent advisors and with "enterprises" that often operate as the wealth and investment programs of banks and credit unions, the investor presentation showed. After adding Atria, LPL will be working with 4.7% of the addressable market in the former channel and 7% in the latter. Two of Atria's brokerages, CUSO Financial and Sorrento Pacific, have built a strong presence among enterprises at roughly 150 banks and credit unions.

"LPL's interests have long included banks and credit unions. This further diversifies their holdings but, more importantly, adds compelling components such as technology and services they can now replicate and introduce as best practices across this channel lineup," Hoyle said. "One of Atria's stated value-adds/differentiators was better advisor-client touching technology. This was one of their biggest touted benefits."

READ MORE: LPL's profits climbed 26% despite soaring expenses

Earnings outlook as a combined firm

LPL will tack on about $140 million to its annual earnings from the acquisition, which is costing the buyer an amount that's 7.9 times Atria's current yearly profit. Out of the $100 billion in client assets at Atria, 20% come from advisory accounts with the rest from brokerage holdings. 

In addition, the incoming advisors will use LPL as the custodian for assets held in their corporate registered investment advisory firm. That means a loss in business for LPL competitors Pershing, which is listed on FINRA's BrokerCheck site as a custodian for six of the seven brokerages, and Fidelity Investments' National Financial Services, which currently counts two of them as clients. LPL's recruiting and M&A deals have kept that part of its business growing as well, with the firm's headcount of advisors rising by 1,385, or 7%, year over year to a record 22,660 in 2023.

Not surprisingly, Wall Street analysts have praised the deal. Upon close, LPL's client asset growth for the year could rise by as much as 8% on top of an existing organic expansion estimate of 12%, William Blair analyst Jeff Schmitt wrote in a note.

"This deal further builds on the success of LPL's leading aggregation model, which has driven strong organic growth in recent years as newer advisor affiliation models scale, it expands in the enterprise channel and service capabilities are enhanced," he wrote. "With access to LPL's broader capabilities, technology and services, we expect Atria to realize revenue synergies as well."

The deal constitutes a "bread and butter 'scale' transaction" for LPL, according to JMP Securities analyst Devin Ryan, who noted how much more successful LPL was in retaining assets and advisors from Waddell & Reed in 2021 than the level from its last acquisition of roughly the same size as Atria seven years ago.

"LPL has become quite skilled at acquisitions, in our view, and also can back that up with a leading value proposition for advisors (which is also why its organic growth has been so elevated, in our view)," Ryan wrote in a note, pointing out that LPL kept 99% of Waddell & Reed's client assets after that deal. "While that deal was a bit unique, being more of a captive platform, it provides a recent testament to LPL's well above trend success. Looking further back, in the 2017 announced National Planning Holdings NPH transaction, the firm retained closer to 70% of assets, but we would argue its value proposition and ability to drive a seamless transition are much stronger today."