LPL will have to walk a tightrope with its plans to offer an outsourced compliance consulting service to affiliated RIA firms.
At a conference for its RIA firms last week, LPL announced a January rollout of the service, called the RIA Compliance Advantage Program. The service will initially help advisers with registration paperwork and compliance updates, but LPL wants to eventually offer a full suite of compliance consulting services, including mock audits.
LPL officials said the service is designed to leverage the firm’s expertise in running its own corporate RIA, and meet the growing demand from its hybrid RIAs for more compliance help.
But the compliance program would put LPL in the unique and difficult position of working as a consultant for its independent RIAs, while at the same time overseeing the brokerage business of those same hybrid advisors.
LPL-affiliated hybrids run their own advisory firms and usually hold most of their advisory assets at the firm, but also do securities business through LPL. The potential conflict came up as an issue when LPL officials described the program to RIAs last week.
LPL executives say the first phase of the new program is limited to helping with registrations and updates, so conflicts will be minimized.
“In our business, you have conflicts all the time. The key is having adequate disclosure and making sure both sides are fully informed,” said Paul Middlemiss, chief compliance officer of LPL’s advisory unit. “We feel we will be able to mitigate the conflicts.”
The RIA compliance operation will have dedicated staff working the RIA side, Middlemiss said, and will not operate in a legal capacity. Hybrid RIA firms will have to maintain their own chief compliance officers.
The first phase of the program will offer start-up RIAs help with drafting and filing ADV forms, development of policies-and-procedures manuals, registration services and access to templated contracts. Existing RIAs can get an annual support package that includes reviews and updates to forms and procedures.
Pricing hasn’t yet been set, but LPL hybrids would pay in the range of $250 to $300 per hour, about the going rate, Middlemiss said.
LPL’s plan “would be a first,” said Steve Thomas, a consultant at Lexington Compliance. “It’s an interesting departure from the norm.”