Add Osaic president and CEO Jamie Price to the list of industry executives who think LPL Financial has overpromised with its plans for buying Commonwealth Financial Network later this year.
In an interview on Tuesday, Price said many Commonwealth advisors have responded to the news that their firm would be acquired by LPL in a deal valued at $2.7 billion by going out and talking to other firms, “as should be expected.” To forestall Commonwealth advisors from jumping to industry rivals, LPL has offered assurances that it will not touch features deemed essential to Commonwealth’s small-firm feel, including its array of support services for financial advisors.
That pledge, Price suggested, is unrealistic.
“Look, anybody that was going to buy Commonwealth, by definition, was going to upend their culture,” he said.
“The advisors there are particularly good advisors,” he added. “And Commonwealth, I think, created a very unique culture, which is going to go away as such in any deal like this.”
READ MORE: LPL’s Steinmeier sees few ‘credible’ rivals for Commonwealth advisorsOsaic buying CW Advisors, a firm with $13.5B fee-only AUMEven before LPL stepped in, Summit Wealth was leaving CommonwealthLPL’s Steinmeier ‘maniacally focused’ on making Commonwealth advisors feel at homeOsaic contends with ‘bumps and bruises’ on consolidation journey
‘Synergies don’t just fall from the trees’
Price isn’t the only executive from an LPL rival to question the independent broker-dealer’s promises. In an “open letter” posted to the internet on Monday, Cetera Wealth Management President Todd Mackay said LPL has talked a lot about preserving what makes Commonwealth special.
The trouble, Mackay said, is that LPL also needs to achieve hundreds of millions of dollars in “synergy savings” for LPL to buy Commonwealth at its stated target of eight times the firm’s EBITDA (earnings before interest, taxes, depreciation and amortization). With that financial goal in mind, Mackay posed a series of questions that he called on Commonwealth advisors to ask themselves, including: “Will the back-office team you’ve come to rely on be consolidated?” and “Will the Fidelity/NFS custody and clearing model you’ve optimized for be replaced?”
Commonwealth advisors currently custody clients assets — or hold them for safekeeping — at Fidelity Investment’s National Financial Services subsidiary.
“Synergies don’t just fall from the trees; they have to be harvested by making tough decisions and consolidating into existing, scaled, unified processes, and offerings,” Mackay wrote. “The fact is that LPL cannot achieve the synergies it has touted without consolidating technologies, eliminating clearing and custody choices, and dramatically reducing headcount.”
A spokesperson for LPL said, “It’s clear some firms are trying to buy their way out of the chaos, complexity, and stagnation that comes from joining them. We are honored to partner with Commonwealth advisors on ways they will maintain the integrity of the Commonwealth community, and we remain confident that we offer the best long-term value proposition for them and for Commonwealth.”
Mackay’s letter concludes by offering Commonwealth advisors who join Cetera transition assistance equal to as much as 150 basis points — or 1.5% — of their assets under management. He also promises advisors that they’ll be able to choose to continue custodying assets with Fidelity, or to obtain the same services from BNY Pershing or from Cetera itself.
Cetera, Osaic top the list of credible suitors
LPL CEO Rich Steinmeier, for his part, has shown little concern over these sorts of public appeals. LPL has a goal of retaining 90% of Commonwealth’s 2,900 advisors and $285 billion in assets. In his latest earnings call, Steinmeier said he sees few “credible” rivals for Commonwealth advisors while repeating his pledge to keep the firm’s brand, service associates, culture, community and other defining attributes.
Price confirmed that Commonwealth advisors have been in touch with Osaic since learning of the impending purchase by LPL.
“I think they are doing their homework and talking to all sorts of players on the street, including us,” Price said. “We’re not the only people, obviously, that they’re out searching and talking to as they make their decision on what to do.”
Phil Waxelbaum, the founder of the recruiting firm Masada Consulting, placed both Cetera and Osaic at the top of a list of independent broker-dealers that have at least a chance of recruiting some Commonwealth advisors away from under LPL. Other contenders include Kestra Financial, Raymond James and Wells Fargo Advisors Financial Network, or FiNet, the firm’s channel for independent advisors.
But in Waxelbaum’s discussions with industry executives, the largest group of Commonwealth advisors he has heard of exploring a move to an LPL rival had a headcount of about 250. That means no outside firm seems to be in a position to simply pull a large part of Commonwealth’s business out from under LPL’s feet.
Waxelbaum said he has heard various rival executives cast doubt on LPL’s chances of hitting its 90% retention goal. But barring disaster — like a system crash while Commonwealth clients are being moved over — Waxelbaum said he likes LPL’s chances.
Waxelbaum noted the Commonwealth deal is the first large acquisition Steinmeier has undertaken since taking on the CEO role, which he stepped into in October.
“I think Rich Steinmeier, as the new CEO of a public company with significant board backing, is going to do what it takes to make this a success, operating on the basis that failure is not an option,” Waxelbaum said.
The Commonwealth advisors who are most likely to leave are those who had already been at LPL before and aren’t enthusiastic about returning and those who simply have a distaste for “big” firms. Most advisors at Commonwealth, Waxelbaum predicted, will take LPL’s retention offers with the understanding that they can pay the money back and leave at a future date.
“There are advisors operating on the basis that if I hear the train coming and it’s not coming the way I want, the opportunities to leave will still be there,” he said. “And they are right. They will be.”
Osaic’s declining advisor headcount
Osaic itself has seen an acceleration of departures amid a large internal restructuring that brought together nine formerly separately operated broker-dealers under its own brand. In a recent “Advisors on the Move” report, the industry analyst Steven Chubak of Wolfe Research found that Osaic is down a net total of 186 advisors from the start of this year to the first week of June. That came in second only to Bank of America, the parent company of Merrill, which was down 293 advisors so far.
Price said Tuesday that he and other Osaic executives always knew some advisors would decide to leave during the firm’s internal consolidation process, which it has labeled its “Journey to One.” Despite Osaic having relatively high attrition numbers compared with other firms in the industry, Price said the rate of departures has actually lagged behind what he and his colleagues expected.
“Coming out of Journey to One, I actually think you’ll see our attrition rates come back even to our pre-Journey to One numbers,” Price said. “And they didn’t go down as much as we anticipated they might going through that 18-month process.”
The biggest gainer in its net advisor total, according to Wolfe Research’s report, was LPL, which added roughly 500 advisors up through the first week of June. Even before LPL announced its purchase of Commonwealth in March, LPL had been bolstering its headcount with a series of big acquisitions and recruiting deals.
LPL completed its acquisition of the brokerage and advisory firm The Investment Center’s wealth business in the first quarter and is now moving over assets from its purchase last year of the broker-dealer network Atria Wealth Solutions. LPL has also inked deals to provide custodial, advisory and brokerage services through its institutional division to the wealth units of Wintrust Financial and Prudential Financial.
Price: There’s more to success than headcounts
Price said he’s happy to let rivals like LPL trumpet their headcount gains, saying he sees few advantages to being the biggest firm in the industry. Price said he’s much more attuned to performance measures like “same-store sales,” or the ability of current Osaic advisors to increase their revenue production by bringing in new clients or more assets from existing clients.
“You will watch LPL certainly talk about their headcount number,” Price said. “We’ve talked a lot more about asset growth, wallet share, same-store sales growth, and whether or not our advisors are becoming more productive because they’re on the Osaic platform. So there is not as much focus for us on the headcount side.”
LPL’s purchase of Commonwealth will push its total advisor tally toward 30,000 and its asset tally toward $2 trillion. Osaic, by contrast, has affiliations with more than 11,000 financial professionals and $700 billion in assets under administration.
But Osaic is by no means small. With nearly $4.43 billion in annual revenue in 2023, Osaic came in third last year in Financial Planning’s annual IBD Elite ranking of the largest independent broker-dealers. That put it behind only Ameriprise, with $6.45 billion in annual revenue, and LPL, with $10.05 billion.
The advantages of not self-clearing or self-custodying
Price drew another distinction between Osaic and firms that, like LPL and Cetera, have their own clearing systems for client assets. Price said he believes the business of self-clearing is becoming steadily less profitable.
“And therefore massive scale is necessary to win in the clearing game,” he said.
Price said Osaic has used its own size and heft to win favorable clearing and custody relationships with BNY Pershing and Fidelity. Those deals offer something, he said, that’s “very close to self-clearing economics.”
Meanwhile, Osaic has no incentive to try to get most of the advisors it recruits to change their custodial and clearing relationships. Since Pershing and Fidelity already provide those services to large swaths of the industry, many new recruits to Osaic find they can simply allow their clients’ assets to stay put.
That’s particularly an advantage as Osaic seeks to build out its channel for supporting registered investment advisors looking to work with a larger partner. Osaic announced a large addition to that business line Tuesday with its plans to buy Boston-based CW Advisors, a serial acquirer of RIAs with $13.5 billion under management.
One appealing part of the deal, Price said, is that the incoming advisors won’t have to go through the arduous process of “repapering,” or filling out the paperwork needed to move from one custodian to another. (LPL has said it plans to repaper the majority of Commonwealth clients who come over to it using “negative consent,” a process that assumes they accept a change in custodians as long as they don’t voice any objections.)
Price said Tuesday that Osaic’s lack of a self-custody and self-clearing business “puts us in a differentiated spot.”
“It allows us to have more flexibility and play into the custody models at which almost all of the RIAs are at,” he said. “Not having to repaper off of a Fidelity custody program onto a clearing platform with a brokerage company, I think, is a big advantage of ours.”
