Since then, competitive pressures and the DOL rule have drained various revenue pools that LPL and its OSJs could divvy up together. Ticket charges and platform fees have been slashed while 12b-1 fees will disappear in 2018.
As LPL's growth has started to sputter, Arnold reportedly believes LPL can increase the firm's profits by reconfiguring its recruiting business and streamlining other cost centers. Payments to outside recruiters already have been cut and transition assistance, another target of cost-cutting for many B-Ds, could be next.
If, as many expect, LPL ends up buying National Planning Holdings from Jackson National in the next month, the addition of 3,500 reps generating about $900 million in revenues would give the firm a one-time revenue shot over the ensuing 12 months. LPL would also be able to eliminate overlapping expenses and drop the savings to its bottom line.
Just last month, LPL's top recruiter Bill Morrissey told Financial Advisor he sees major recruiting opportunities coming from insurer-owned B-Ds in the wake of the DOL rule.
Reaction to the new repricing plan among LPL's network of OSJs was mixed, according to sources. Some reportedly acknowledge they had an excellent deal for the last decade and say they will have to fundamentally reinvent their business models. Others, however, are up in arms and are likely to explore moving to other B-Ds.
But whether remain with LPL or consider moving, OSJs generally are not in a strong negotiating position because they have been dealt a weak hand by regulatory pressures including the DOL rule. They operate on microscopic margins, taking a few percentage points of revenue from their reps and B-D.
Furthermore, many leading independent brokerages such as Raymond James and Commonwealth Financial Network are not enamored with the OSJ model. The few firms that embrace this model, like The Advisor Group and Cetera Advisor Network, are owned by cost-conscious private-equity firms.