LPL Financial is offering generous terms and an unprecedented streamlined process to National Planning Holdings (NPH) reps who agree to transfer their business to the nation’s largest broker-dealer.
LPL acquired NPH’s four independent broker-dealers from Jackson National for $325 million in August and agreed to pay Jackson a contingent payment of up to $123 million if a predetermined number of its 3,200 reps move their business to LPL.
Several observers said the speed and efficiency that LPL is employing to convert NPH reps is remarkably methodical and could set a precedent for future B-D acquisitions. If fewer than 72 percent of NPH reps move to LPL, no contingent payment will be required. LPL has also indicated it is willing to spend $100 million in “transition assistance” to NPH reps who join the nation’s largest independent brokerage firm.
But the disincentives for NPH reps to transfer B-Ds quickly are mounting, prompting complaints from some NPH reps that LPL is playing hardball and they are being strongarmed. In particular, reps at NPH are being given what many brokerage executives say is remarkably little time to decide whether they want to move their business to LPL or find another B-D.
LPL explains its new method to transfer accounts as an attempt to minimize disruption and help NPH reps retain clients, according to Bill Morrissey, managing director and divisional president for business development. He says that when a rep typically moves, only 75 to 80 percent of their clients follow.
The streamlined account transfer technique LPL is employing should increase that percentage figure as the firm plans to transfer 100 percent of accounts in a “tape-to-tape conversion overnight.” Clients who don’t want to move will be required to opt out.
Among independent broker-dealers, LPL has some of the most advanced technology in the business, so the move should be an upgrade for NPH reps. Still, several brokerage executives say this “tape-to-tape conversion” is a highly unusual process. It is typically used when one firm takes over a distressed or bankrupt firm with questionable finances and both parties agree that transferring the accounts expeditiously is in all parties’ best interests. Jackson National and the NPH firms have no financial problems.
LPL is also paying conversion costs, assuming all forgivable loans and deferred comp for NPH reps that move to LPL. For those who don’t, the loans and deferred comp plans will be terminated and become immediate taxable events.
All National Planning Corp. (NPC) and Investment Centers Of America (ICA) accounts will be taken over by LPL on December 2, though the reps at these firms must decide to leave LPL by the first week of November. Reps at the two other NPH firms, SII Investments and Invest Financial, will see their business transferred in February.
One third-party recruiter says there is nothing unusual about the incentives LPL is offering NPH reps, though the firm’s financial strength allows it to be very generous. This recruiter also notes few broker-dealers place a priority of facilitating the transfer of reps who decide to leave.