LPL sees $1.5B AUM slide in Crown Capital acquisition

LPL Financial has closed its deal to buy Crown Capital Securities but with apparently $1.5 billion less in assets than first announced.

When LPL announced its plans to buy Crown Capital Securities, a hybrid advisory and brokerage outfit in Orange, California, it said the firm had 260 advisors and roughly $6.5 billion in assets under management. With the recent closing of the deal, LPL said in a press release that it had brought on board 125 advisors and $1.3 billion in advisory and brokerage assets by May 8. 

LPL said it expects an additional $3.7 billion to come over eventually — bringing the total to $5 billion. But it didn't mention how many more advisors — if any — would also be moving.

A spokesperson for LPL, one of the largest U.S. independent broker-dealers, declined to comment on the numbers.

"We have a proven track record of strategic and mutually beneficial acquisitions and look forward to helping Crown and its advisors continue their strong growth trajectory at LPL," the spokesperson said in an email.

Jason Diamond, an executive vice president at Diamond Consultants, said the attrition figures seem a little higher than usual, although it's not at all uncommon to see both headcount and asset losses when one firm is taken over by another.

"A lot of advisors are asking themselves, 'If I was starting with a blank sheet of paper, where would I go?'" Diamond said. "Some people are going to say, 'It's going to be a hassle to make a change anyway, so I might as well pick something that's better for me."

Diamond said LPL is usually good at making itself attractive to advisors working at teams that it has acquired. Its pending agreement to buy Atria Wealth Solutions has come with very generous retention offers to the firms roughly 2,400 advisors, he said,

"They've gotten pretty good at these deals," Diamond said. "They've done enough of these that they've learned a lot of hard lessons. And their acquisition and recruiting playbook is among the best in the industry."

Speaking to analysts on May 1 about LPL's first quarter earnings, CEO Dan Arnold said he and his colleagues have indeed learned a lot about what it takes to keep advisors happy through acquisitions. 

"Our guiding principle when we explore any growth initiative, whether it's organic win, like large institutions or even an acquisition like Atria, is to ensure that we're going to continue to deliver an exceptional experience to our existing advisors and that then we provide a seamless transition for advisors that are joining our platform," Arnold said.

Diamond Consultant's own research suggests Arnold's words were true. The recruiting firm's "Advisor Transition Report" for 2023 found that LPL added a net 1,246 advisors last year. The second highest gain, at LPL's direct competitor Cetera Financial Group, was only for a net of 487 advisors.

Diamond noted that acquisitions are a particularly expensive way to increase headcount. Acquiring firms essentially pay twice for what they're getting: Once for the business themselves and a second through retention deals to keep advisors around. 

LPL's recent acquisitions have weighed on its earnings. The firm reported a 15% drop in profits thanks to higher compensation, acquisition and promotional costs stemming from its record headcount. LPL ended the quarter with 22,884 advisors.

Diamond said he thinks LPL will most likely take some time off from making big acquisitions so it can "digest" its recent and pending big purchases. That said, LPL is not the sort of firm that will let a good deal slip by should one come its way.

"You see this happen a lot in this industry with acquisitions," Diamond said. "Firms will hit pause for a while and then start up again."

There's little suggesting, meanwhile, that mergers and acquisitions will let up in the wealth management industry. The research firm Cerulli found in a recent report, Wealth Manager Consolidation: Analyzing the Factors Behind a Ripe M&A Deal Environment, that the top five biggest wealth management firms control more than half of the broker-dealer industry's assets under management.

"Deals that make sense on paper can prove to be cautionary tales when acquirers miscalculate the impact of melding operations," Bing Waldert, a Cerulli managing director, said in a statement. "In a wealth management environment where advisors and assets are on the move more than ever before, there is increased potential that a deal may have negative ramifications for advisor retention."