LPL Financial plans to create a mutual-fund-only brokerage account and curtail its directly placed fund business.
LPL chief executive Mark Casady said Thursday during the firm’s earnings call that the new mutual fund account was being developed in response to the U.S. Department of Labor’s fiduciary rule.
“Our new mutual-fund-only brokerage account will have no maintenance fee, and all new mutual fund assets will be custodied with LPL,” Casady said.
“We believe this will lower costs for investors, and also lower sponsor costs and complexity by outsourcing custody to LPL,” he said. “We expect it to be more efficient and cost-effective for us, to have these mutual fund assets in our custody.”
Assets in custody at LPL “are easier to oversee,” Casady added.
The new account would be used for both retirement accounts and taxable accounts.
When the new account will be rolled out “has not yet been finalized, but we would expect implementation to occur near the effective date of the [DOL] rule,” said Heather Randolph Carter, an LPL spokeswoman, in an email.
The applicability date for the rule is April 10, 2017, although many specific provisions of the best-interests contract exemption don’t apply until January 1, 2018.
Some advisors prefer the so-called “direct business,” done by sending an application and check to product sponsors, as a way to avoid nuisance and custodial charges.
“We are still analyzing the rule and formulating policy changes, including changes that may be needed to [LPL advisors’] direct business, but we currently expect any policy to provide for grandfathering of existing assets,” Randolph Carter said.
Recruiter Jon Henschen wonders if the new account will charge for systematic withdrawals and investments, or hit clients with inactivity fees—small charges that he says “torment” reps.
“I can only guess it’s for [LPL’s] profit,” he said.
Randolph Carter said the account will not charge a custody fee, but other fees are yet to be determined.
Meanwhile, LPL’s profits improved somewhat in the first quarter despite a drop in revenue, helped by reduced administrative and regulatory expenses.
LPL earned $0.56 per share, up from $0.28 per share in the prior quarter and $0.52 per share in the first quarter of 2015.
LPL’s biggest revenue line, commissions, was down six percent from the prior quarter, to $437 million, and off 17 percent from a year ago.
Sales fell across product lines, and trail commissions declined due to lower asset levels.
Advisory fees also fell as asset values declined, dropping one percent from last quarter, to $319 million, and down seven percent from a year ago.
Total net revenues for the quarter were $1 billion, down one percent sequentially and off nine percent from the first quarter of 2015.
The firm saw “significantly lower brokerage activity” due to the volatile market in the first quarter, Casady said, but some of the slowdown was also due to advisors pulling back in response to the DOL rule and its unknown impact on commission business.