How LPL's biggest branch office added $3.5 billion this year by beating LPL itself with a key service
Private Advisor Group brought 22 compliance-minded advisors onboard this month alone to its RIA -- all with the blessing and help of its big IBD partner
Brooke’s Note: We saw it in the case of Ron Carson who converted his practice to an RIA and now with John Hyland (and his team). When one of LPL’s reps gets so big that it can compete with its own broker-dealer, the Boston and San Diego firm seems to take the right approach — helping where it can and getting out of the way, too. Such “coopetition” seems to bode well for all the parties and for an RIA business in which the customer’s interests are supposed to come first.
Private Advisor Group, the largest LPL branch office in the country, has nearly doubled its assets in the past year and is reeling in independent and ex-wirehouse advisors on a daily basis, thanks, in large part, to its soup-to-nuts compliance service.
The company will finish the year with $7.5 billion in assets under management, up from $4 billion a year ago. Last year the firm had about 150 advisors and this year they’ll finish with about 260, bringing on 22 advisors this month alone.
One big draw for advisors the firm’s strong compliance guidance. When advisors sign up with Private Advisor Group they have the option of using the company’s newly formed RIA and the firm’s in-house compliance team. The firm charges advisors less than 2% of their production to handle their office supervisory responsibilities.
Coast to coast
Earlier this year, Private Advisor Group changed its name from Morristown Financial Group, which was founded in 1997. See: LPL Financial wins more breakaway brokers by sacrificing a revenue stream.
“We thought Morristown was too geographic specific and Private Advisor Group has a cache,” says partner John Hyland. “We felt like it was a better fit. Three or four years ago, we were more of a regional firm with most of the advisors 40 or 50 miles away but that game has changed. We have advisors on the West Coast and all over the country.”
Hyland has taken on this business challenge while dealing with personal challenges. See: Eighteen months after the fight of his life, an advisor raises more money for a Leukemia cure.
Many advisors with Private Advisor Group have assets ranging from $30 million to $75 million and some have as much as $200 million in assets.
Advisors who recently joined Private Advisor Group acknowledge that the firm offers a higher payout than if they acted as independent advisors under LPL. The advisor payout, which ranges from 90% to 96% of a person’s advisory business, is based on production.
The reason for the price differential is because LPL branch offices can set their own pricing.
Private Advisor Group partner Patrick Sullivan says that one difference in compensation is that LPL charges an administrative fee on its corporate RIA and there is no administrative fee for advisors to use Private Advisor Group’s RIA.
In fact, Hyland adds that when advisors consider all of the assistance his firm provides, many decide to fold under his firm rather than become an LPL advisor on their own.
“We provide all of these services with compliance, transition, practice management and that’s all part of the pricing structure. If you compare that to LPL itself that’s a more competitive comprehensive structure,” Hyland says.
Team of rivals?
Despite the fact that Private Advisor Group technically competes with LPL for advisors, the nation’s largest broker-dealer says it’s supportive of the firm.
“We’ve been extremely impressed by the growth of their business. John Hyland and Patrick Sullivan and the team have leveraged LPL to build their RIA and we will be there to support their needs as they work toward exceeding their goals,” says Derek Bruton, managing director national sales manager for LPL.
Private Advisor Group ensures RIAs and hybrid advisors have procedures in place to comply with regulations from the Securities and Exchange Commission and FINRA. LPL is still responsible for higher-level compliance such as surveillance of accounts and branch exams.
Hyland and Sullivan take pride in their in-depth compliance assistance. Sullivan points out that his company provides daily trade review approvals and reviews daily annuity order entries as well as reviews for all new account applications. The firm also provides e-mail reviews and approval.
“It’s a critical issue,” Hyland says. “If you’re leaving a wirehouse and going to an RIA or a broker-dealer compliance is a scary process because you’ve never had to deal with it before. For us to offer that as part of our turnkey solution is really critical.”
Bob Junge, an advisor who is in the process of transitioning his assets to Private Advisor Group, says he was attracted to the ease of compliance. Junge left PNC three months ago and has transitioned about $12 million of his $55 million in assets and hopes to move over the rest soon.
“I get back-office support through Private Advisor Group as opposed to being totally independent,” he says. “It’s easier to get advertising approved through Private Advisor Group.”
Compliance assistance along with a larger payout made the move to Private Advisor Group an easy decision, says Ray Young, a former Securities America advisor managing about $160 million in assets.
“They’ll do the main compliance stuff for me and I have more freedom to work with clients,” Young says.
Completing compliance has become such a pain in the neck for advisors that firms who provide the service are offering a huge service, says Hovig Melkonian, director of compliance for RIA IN A BOX, Inc. and Lexington Compliance, based in New York.
“In the past, we used to tell our clients that you shouldn’t delegate the authority of compliance issues. But now the SEC is expecting firms to have assistance and compliance consultants.”
RIA In A Box charges anywhere from a basic consulting service of $99 to as much as $1,845 per month to completely run an advisory firm’s compliance program.
Nice and easy
In addition to the compliance assistance, Hyland says advisors are also attracted to his firm because of its transition support.
Advisors Paul Bartkowski and Ray Thomas left Merrill Lynch on Aug. 23 to join Private Advisor Group and are in the process of bringing over about $100 million in assets.
“They have an excellent transition team,” Thomas says. “They really made our transition smooth and easy.”
Another selling point is that they get to keep 100% equity in their own firm and don’t become owners of Private Advisor Group.
“Advisors can use different technology and all of their offices are different.” Hyland says. “We think that’s an important part of the model because most advisors want to have their own shop run their own way with their brand.”