“When a firm is acquired by or merges with another firm, the firm originating the accounts may seek the transfer of all of its accounts to the new firm using negative response letters,” said the notice.
Until LPL’s acquisition of NPH, Finra had not approved block transfers except in cases where a broker-dealer was going out of business or in significant distress, according to Jeff Nash, CEO and co-founder of Bridgemark Strategies, an independent merger and acquisition and advisor transitions firm for the financial advice industry.
“At the time, the policy was clear that when a broker-dealer goes out of business and accounts are abandoned, Finra will create protocols for a block transfer,” says Nash. “That process is now being governed by the broker-dealers, and the acquiring broker-dealer has said that we’ll do this for us, but not for anybody else.”
Jackson National’s request for the block transfers may be born of self-interest. The firm received $325 million up front as part of the sale of NPH, but may qualify for up to $123 million in additional payment from LPL if 72 percent or more of NPH’s business transfers over.
In some ways, LPL presents a special case for Finra. The broker-dealer prides itself on supporting the independence of its reps. At the same time, it is unique as a self-clearing firm.
Bill Morrissey, the LPL executive charged with onboarding the new representatives from NPH, said that the block transfer process is intended to ease the transition for advisors.
“The tape-to-tape transition process is one that will guarantee that the vast majority of an advisor’s business moves to LPL,” says Morrissey. “Typically, when an advisor goes through the transfer process, only 75 to 80 percent of their client accounts are moved successfully.”
Is LPL Becoming More Like A Wirehouse?
Some industry observers say that LPL has started to resemble a traditional wirehouse firm, but it does not offer the same cost-sharing benefits to its representatives. The use of block transfers to bring more representatives in appears to be part of a trend, says Nash.
“The industry is wondering if LPL is headed in the direction of the wirehouses by creating a virtual barbed-wire fence around their broker-dealer. This is a common practice with the wirehouses, but for years, LPL didn’t want that kind of fence. They just wanted to attract the best business by being the best firm out there,” says Nash.