LPL buys 20% stake in Independent Advisor Alliance branch

In one of only a handful of deals by the firm taking a minority stake in a hybrid registered investment advisory firm and office of supervisory jurisdiction, LPL Financial invested in the Independent Advisor Alliance.

LPL purchased a 20% stake in Charlotte, North Carolina-based Independent Advisor Alliance, a branch and RIA with $16.8 billion in client assets under supervision and 226 financial advisors, for an undisclosed price on Dec. 15, IAA CEO Robert Russo told Financial Planning. The deal followed LPL's acquisition earlier this year of a controlling majority of Financial Resources Group Investment Services and other signs of LPL's rising flexibility in working with OSJs, which are networks of independent advisory practices.

"We've been in this process for probably close to two years," Russo said. "We had a lot of different options, and, at the end of the day, LPL just made the most sense for our advisors and our firm. It gave our advisors some certainty and the ability to control their future. LPL's goal is to retain advisors. Doing it with LPL versus maybe an outside party made them understand that there was no ulterior motive to the deal."

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The transaction will not give LPL any seats on IAA's board, and the firm never considered selling a majority as part of its due diligence process, he noted. Russo's team aimed to ensure that there would be no cost increases for the advisors and zero disruption to their teams and clients. IAA plans to deploy LPL's capital toward growth by in turn making its own minority investments in advisory practices in its network.

LPL is trying to "support what we're doing, rather than drive what we're doing," Russo said.

"They like, obviously, what we've done in the past," he said. "LPL doesn't want to get in the way and change that. They just want to be behind the scenes and be a partner." 

IAA operates from corporate offices close to one of LPL's three main campuses in Fort Mill, South Carolina, and the firm has expanded to its current size from only seven original advisors at its launch in 2013. 

OSJs, which are third-party companies, provide streamlined services to the advisors through their own staff and from brokerages and other vendors. Large OSJs such as IAA, Financial Resources, Private Advisor Group, The Financial Services Network and Integrated Partners are rapidly expanding companies in their own right that use LPL's brokerage and custodian as part of a complex collaboration with advisors, giant independent wealth management firms, fund companies and other service providers. LPL has acquired minority positions in hybrid RIA-OSJs only three other times, according to the firm.

"LPL looks for opportunities to invest in firms and institutions focused on enabling advisors to deliver great advice whose leaders drive a culture aligned to that goal," Rich Steinmeier, LPL's divisional president of business strategy and growth, said in a statement. "IAA's long-standing commitment to empowering advisors to be independent business owners aligns with LPL's advisor-centric strategy and long-term growth plans, and Robert and his team exhibit the leadership and drive to utilize this partnership to further strengthen their support of advisors."

The firm's investment in IAA represents its latest bet on OSJs and, in general, the firm's ongoing approach in trying to work with as many advisors as possible under any circumstance. The firm has launched an array of new types of affiliation models and outsourced services in recent years while making acquisitions large and small and winning giant incoming recruits such as Prudential Financial's retail wealth management business. In the third quarter, LPL's advisor headcount jumped by 1,360 advisors, or 6% year over year, to a record 22,404.  

At a Goldman Sachs investor conference earlier this month, CEO Dan Arnold described organic growth as "one of the key tenets of our overall strategy" and one that is "steeped in the opportunity around what [are three] really durable structural trends" in wealth management.

"You have this ongoing demand for advice, you have the ongoing preference to receive that advice from a financial advisor and then finally, you have this trend towards doing this type of business in the independent model," Arnold said. "And we sit at the intersection of all those, and we believe in a rather unique place. So that fuels that strategy to invest back into our platform to create capabilities necessary to help these advisors differentiate and win and run thriving businesses, and to ultimately create the flexibility of affiliation models so that we could potentially serve any of the potential 300,000 advisors that are out there. We won't win them all. We'll keep trying to, but we should be in those conversations."

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The firm and other brokerages are also responding and adjusting to the ongoing threat of the shift led by advisors and clients flocking to RIAs, according to Jim Cahn, the chief investment and business development officer for Plymouth, Minnesota-based Wealth Enhancement Group. His firm, like Independent Advisor, maintains its own RIA while using LPL's corporate advisory, custodian and brokerage arms as an OSJ. Wealth Enhancement blazed the path for hybrid RIA-OSJ enterprises securing outside investment through a series of at least four different private equity transactions dating back to 2007. Today, the firm has nearly $72 billion in client assets as one of the most active acquirers in the industry. Wealth Enhancement's enlarging footprint comes predominantly from its fiduciary RIA, but the firm has kept its ties to LPL, too.

"Having a relationship with a broker-dealer is really critical," Cahn said. "We don't want to have to have a firm that joins us tell their clients that, 'I can't help you any more with this product or service.'"

Russo's firm is taking a different trail from Wealth Enhancement and hundreds of RIAs changing hands each year by selling a stake in IAA to LPL rather than any potential private equity investors.

"If people are looking for a place where they know where they'll be 10 years from now, we're a great option," he said. "A lot of private equity is going to change hands in the next five to 10 years, and wherever they go may look very different from when they started there."