How LPL lured advisors from Raymond James, UBS and Ameriprise to its hybrid RIA platform

Call it part breakaway and part midlife crisis but David Kaufman knew that his 24-year career as an advisor with Ameriprise needed to end— and that a new one as a hybrid RIA was in order.

“Frustration was growing,” says the CEO of Flagship Harbor Advisors of Boston. “ ... I was there half my life. There’s a lot more freedom at LPL.”

Kaufman, 46, and his 12-advisor team joined LPL Financial in December as a new kind of recruit: He moved his assets onto LPL’s RIA-hybrid platform. His $125 million (transferred thus far from Minneapolis-based Ameriprise) of assets under management are currently split evenly between fee and transaction business – a bifurcation of compensation that LPL’s technology makes him with.

Right and left hand

“It just seems like the left hand and the right hand know what the other is doing,” he says.

Ameriprise declined to comment.

Kaufman’s move to LPL turns out to be part of a notable trend under way at the Boston and San Diego-based giant of the independent broker realm. It’s finding a way to leverage – not battle — the growing proclivity of advisors to hop on the RIA bandwagon.

LPL added 22 advisory firm with $6.2 billion of assets firms to its hybrid RIA platform in 2010. This brings its total to $13.5 billion with 114 advisory firms, up from 92 firms with $7.3 billion of assets at the end of 2009. This represenets an 85% jump.

“The robust growth makes us one of the top RIA custodians in the industry today,” says Derek Bruton, San Diego-based national sales director and managing director of LPL. See: LPL’s hybrid RIA platform is fast off the mark and names new leaders for 2010.

Derek Bruton: We’re winning the big
teams; that feels good.

LPL’s RIA custody unit still sits country miles behind the better-known RIA custodians like Schwab Advisor Services, Fidelity Institutional Wealth Services, TD Ameritrade and Pershing Advisor Solutions, whose assets range from more than $650 billion down to about $84 billion.

But it does put it nearer the next tier of contenders like RBC Advisor Services and Trust Company of America, which each have about $10 billion. And considering LPL’s leap in assets, it may be the fastest growing custodian among those with critical mass.

Coveted size

The better news for LPL is that the mass of assets flowing on to the platform it launched in 2008 are coming from outside custodians and broker-dealers. The wins are of a coveted size.

“We’re winning the big teams; that feels good,” Bruton says. He mentioned that many teams have more than $130 million of assets.

One big advisor who joined the LPL hybrid platform in 2009 is Lori Watt, a former Raymond James rep, who started her Waukesha, Wis.-based firm, Investors Advisory Group, 25 years ago. She has a 20-person team including 10 advisors and 10 support staff with about $250 million of assets under advisement.

“We’ve been an RIA for 25 years but we only used it for financial planning fees. This allowed us to better use what we had in place.”

Artistic ambitions

Kaufman says that client’s portfolios can be managed in more customized fashion.

“It’s the flexibility to be the artist,” he says.

Some of Watt’s practice is still transactional, but she liked how LPL’s technology straddles both fee and commission side of the business and also incorporates eMoney, the IBD’s choice of planning software.

Laurie Watt: We’ve been an RIA
for 25 years but we only
used it for financial planning fees.

Mike Di Girolamo, senior vice president and managing director, responsible for the Investment Advisors Division of Raymond James Financial, says that his staff understood that Watt left Raymond James in part because of a change it made in payout on variable annuities. The change is more investor-friendly but may net an advisor fewer revenues. At the time, Watt depended on VA revenues for a significant portion of her production, he says. LPL and Raymond James are intense rivals.

See: Why Raymond James is getting an LPL advisor’s wealthiest new clients.

Di Girolamo says that his company integrates SunGard for its planning software and that both his product and eMoney have their adherents. Watt says eMoney flows information more easily to clients, in part because it’s tied in to both fee and transactional assets at LPL. After Watt left, Raymond James added Albridge to its platform to give clients a better-aggregated view, DiGirolamo says.

Alternative assets

Watt says she’s now 70% fee-based and that most of those assets are in LPL’s Strategic Asset Management program. She also makes good use of alternative investments for high net worth investors.

Di Girolamo says that his company is intentionally tough in how it screens alternative investments on its brokerage platform but that Watt could have utilized Raymond James’s RIA platform for greater freedom in choosing alternative investments. See: Raymond James shows it’s serious about winning bigger RIAs

Meanwhile, another big Midwestern advisory practice owner chose LPL’s hybrid platform as it jumped from UBS for a different set of reasons. Marks Group Wealth Management of Minnetonka, Minn., came aboard at the start of 2009 with $250 million and it now has about $350 million – about 97% fee-based.

But the 3% transactional business is the straw stirring the drink, according to Ben Marks, president of the firm. It cultivates clients from the big local Fortune 500 companies of the Minneapolis area including: 3M, General Mills, Medtronic and Target. The ability to sell restricted stock in these firms on behalf of clients is very important. It also invests heavily in the shares of these companies on behalf of clients.

RIA custodians like Schwab Advisor Services or TD Ameritrade Instituional help RIAs to use broker-dealers for these kinds of needs.

Self-defeating?

But Marks, who has eight full-time employees including four full-time advisors, finds such arrangements to be self-defeating.

“It would defeat the purpose of the hybrid model if we were to custody with other brokers,” he says. “(The efficiency of having one relationship) allows us to spend more time doing client-facing activities and researching local companies.”

Marks believes that LPL will continue to experience great success in competing for hybrid advisors against some of the big RIA custodians who have partnerships with broker-dealers.

“The guys coming from wirehouses…that’s just way too foreign for them – doing trades away at another broker-dealer.”