LPL Financial’s offering of liquidity and succession support to financial advisors three to seven years away from retirement is just the latest effort to attract assets to the broker-dealer in non-traditional ways. And most likely there’s more to come, according to a company executive.

LPL is eyeing other advisor demographics for similar treatment, said Jeremy Holly, the firm’s executive vice president for business development. 

In short, if a firm’s got enough assets to make it worth LPL’s while, then LPL wants to reel them in, he said. Since Dan Arnold became CEO of LPL in 2015, its shares have soared from under $40 a share to over $220, strengthening its financial poistion dramatically.

Currently, it has been able to compete aggressively against private equity-backed independent broker-dealers. Were it to start competing against private equity-financed RIA aggregators, its entry into that arena could jolt the market. 

“We're trying to solve for a need we see in the marketplace, both inside of LPL and outside of LPL. And I think we're in a position to solve it,” Holly said. “We have a lot of capital, and we have a really interesting model that continues to create cash flow that allows us to reinvest. We want to make sure we share that with not only our advisors but the external marketplace.”

LPL, the largest broker-dealer by gross revenue, is an aggressive recruiter and acquirer of advisor practices, so it should be no surprise that LPL’s next demographic target might be mid-career advisors. These are the ones Holly said are currently selling their businesses to firms like Mercer Advisors, Focus Financial or Hightower Advisors in order to obtain additional capabilities and offload some of the drudgery that keeps them from their clients.

The firm is working on building out the latest version of its Liquidity & Succession program, launched about 18 months ago for firms that were already affiliates of the LPL system and expanded in September to include non-affiliated firms.

“There's probably a version of Liquidity & Succession that focuses on not those at the end of their career, but maybe those in the middle of their career,” Holly said. “They're still focused on growth, but want to get back to what they love most, which is working with clients. Right now, it's a concept. I think we're working through what it could look like. The funny thing is we’re already getting interest from advisors that I would put in that category. So we probably should meet that need.”

The Offer of Liquidity
Through Liquidity & Succession, LPL buys 100% of advisor practices with revenue greater than $1.5 million, which roughly translates to assets under management of $200 million. To date, LPL has completed roughly 30 of these transactions, mostly internal, Holly said, adding that there are now external firms in the pipeline as well.

Once acquired, the practice is folded into the Linsco by LPL channel, an employee-advisor relationship where the advisor keeps its brand and client relationships and LPL supplies all of the necessary strategic and operational support.

“Whether it’s an existing independent LPL advisor or an external practice, we're buying the business, moving it into our employee channel, and making them employees of LPL. And the reason we do that is we can provide the most support that way,” he said. “A lot of folks are opting into this because they're looking to not only monetize their business, but also offload a lot of things. And the best place for us to do that is in our employee channel. We can remove most of the stuff from their plate with that in that structure.”

Holly said he expects LPL to lower the threshold for acquisition as the program matures. For now, Liquidity & Succession as a program should be appealing to large-team advisors across several segments, he said.

“I think this is applicable to the wirehouse advisor, to large teams there. This is a really unique offering when they're used to a sunset program at, say, one of the wirehouses today,” he said. “This is a very different unique offering to that. And actually creates quite a bit of an economic advantage versus the wirehouse sunset program.”

Independent broker-dealer advisors can benefit from the program if their broker-dealer doesn’t have the resources and capital to help with such a transition, Holly said.

“This could be very applicable to them just as it is for the existing advisors of LPL," he said. “And then I think there's great applicability in the RIA channel, for existing RIAs. There's a lot of consolidation happening. There's 15,000 independent RIAs out there, and they're continuing to consolidate. M&A is a big thing, and I think that this is applicable there as well.”

It also should be appealing on the valuation side, as the program promises a “market-competitive M&A transaction,” though it’s unlikely LPL will be the top bidder, Holly said.

“I think we end up landing somewhere in the middle of the lower half. We're not the most aggressive buyer out there. As a public company we remain pretty disciplined in terms of what we're willing to pay and what return profile we need,” he said. “But I will say even with that discipline, our vertical integration allows us to monetize these businesses a little differently than most. And it allows us to be competitive in the marketplace. We're not going to be the top bidder, but I think we're in the mix. Our deal structure is a little bit different. We’re not using any equity in the deal, it’s 100% cash, since we’re a public company. We like to say if you want some LPL equity, you can take cash and buy stock.”

The Offer of Succession
Moving from the liquidity side of the offering, Holly said, the succession side is equally compelling for advisor practices when the founder is ready to retire but the next generation isn’t quite ready to take over the business, either financially or operationally.

“Maybe it's a son or daughter, maybe key employees. The important thing here is that most of them can't afford these large practices. It would take a take a lot of debt, a lot of work for them, and a lot of times the seller would have to take a discount in order to get into the hands of the people they want,” Holly said. “We solve for those things. We allow them to get a fair market valuation and allow them to transition it to the next generation without burdening them with that debt.”

Such a transition happens through LPL’s Successor Advisor program, which is a 10-year program through which the next generation takes over the ownership of the client relationships and manages the client-facing part of the business for a payout that’s typically less than a standard LPL advisor.

“Then at the end of 10 years, we cede control of the business back to G2. Their payout increases to our current Linsco payout grid, and they have the flexibility to decide what to do with the business,” he said. “Our bet most will remain in the employee channel because they’ve gotten used to the support. But if they want to create an independent practice, create an independent RIA, they can go do that.”

Within the Liquidity & Succession program, 21 of the 30 or so businesses acquired are also tapping into the Successor Advisor program, Holly said.

Holly said he expects Liquidity & Succession to be a part of new-source sales efforts for LPL, considering there are some 300,000 advisor firms that at some point will want liquidity or help with a succession strategy.

“It's a tremendous opportunity, such a long runway to continue to grow,” he said. “We continue to move horizontally in our strategy, so we can support more of them. And we're trying to continue to develop vertically, so we can do more for them within their channel, in their segments. And there's still a lot of work to be done.

LPL now serves almost 22,000 financial advisors, including advisors at about 1,100 enterprises and at about 550 U.S. registered investment advisor firms nationwide, the firm said.