Even as LPL commits to keeping Commonwealth Financial Network mostly intact after buying it later this year, it is pruning its executive and back-office ranks in its home office and its Atria subsidiary.
LPL earlier this month filed a so-called WARN notice — which refers to the Worker Adjustment and Retraining Notification Act of 1988 — with the state of California announcing plans to lay off 70 employees at its home office in San Diego in August. As with most layoffs in the wealth management industry, the workers losing their jobs won’t be financial advisors.
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Rather, the terminations will occur largely in the leadership ranks, hitting vice presidents and other types of managers. Employees in roles ranging from marketing to engineering and customer service will also be affected.
Difference between Atria acquisition, Commonwealth plans
LPL’s WARN notices come amid a flurry of similar layoffs plans for the firm’s Atria Wealth Solutions subsidiary, a broker-dealer network it acquired last year. Atria in recent months has filed notices with state regulators announcing plans to lay off employees in California, Texas and New York.
All told, 82 people will lose their jobs in San Diego County and 55 in the Greater Houston area by July 4. Meanwhile, 31 employees are to be laid off in Syracuse, New York, and one in New York City by Aug. 1.
An LPL spokesperson drew sharp distinctions between the reasons for the different sets of layoffs. In the case of the firm’s home office, the plans relate to a recurring need to review the business to ensure “that we are prioritizing investments across the firm in areas that have the greatest impact on our business and clients.
“Following an extensive analysis, we’ve identified areas where we can simplify and streamline how we operate,” the spokesperson said in an email. “This action represents less than two percent of our overall firm and while we have eliminated roles in some areas, we continue to grow and expand in others with more than 360 open roles.”
With Atria, by contrast, the layoffs come as part of a longstanding plan to bring the formerly self-standing network of broker-dealers into the much-larger LPL fold. LPL Chief Financial Officer Matthew Audette told analysts in an earnings call in May that the firm is still working to move Atria’s business over.
“Over the past 18 months, LPL has partnered with Atria to transition over 250 employees into roles at LPL that match their experience and career aspirations,” the LPL spokesperson said in an email. “More recently, LPL established a personalized application process that welcomes Atria employees who wish to join LPL to apply for open roles.”
The job cuts at Atria present a strong contrast to LPL’s plans for its latest big acquisition — Commonwealth Financial Network. When LPL announced in March plans to its former independent broker-dealer rival in a deal valued at $2.7 billion, it immediately made promises to keep the acquired firm essentially intact.
Corey Kupfer, a lawyer specializing in merger and acquisition work for registered investment advisors, said LPL’s differing approaches to acquiring Atria and Commonwealth can be traced to differences in the firms themselves. Even though they’re close in size — Atria had 2,400 advisors at the time LPL announced its purchase plans for it, whereas Commonwealth had 2,900 — they stand apart in other ways.
Many advisors have joined Commonwealth because of its promise of providing them with a small-firm setting free of some of the downsides of a large firm like LPL, whose advisor headcount is approaching 30,000. LPL has pledged to leave those distinctive attributes undisturbed. Atria, by contrast, is a broker-dealer network made up of various firms such as Cadaret Grant, CUSO Financial Services and Western International Securities cobbled together over the years.
“It’s very different from Commonwealth,” Kupfer said. “Commonwealth has a particular culture and particular environment, and there was a much higher risk of losing advisors if those promises to keep all that weren’t made. It’s very different from the Atria model. They had more leeway to make cuts on the Atria side without risk of losing folks.”
Some job losses likely at Commonwealth
That said, Kupfer said it’s highly improbable that LPL’s purchase of Commonwealth will come with no job losses. Kupfer said he thinks LPL will be very careful to preserve people in client-facing roles or who provide direct support to financial advisors. But there are undoubtedly certain back-office functions that LPL can perform just as well through its corporate office and doesn’t need to have duplicated at Commonwealth, he said.
“They’re not going to fire anyone’s assistant,” Kupfer said. “But whether it’s people in compliance, whether it’s in marketing, whether it’s in operations — the people they don’t directly deal with — the behind-the-scenes people, that’s where we’ll see some efficiencies or cost savings.”
M&A deals have been on a tear in the brokerages industry in recent years. In a report released on Thursday, the Securities and Exchange Commission found that the number of broker-dealers declined by 30% from 2010 to 3,340 firms by 2024. At the same time, the industry saw its assets under management increase by roughly $1.7 trillion.
“These results show a trend of industry consolidation, with a declining fraction of market participants responsible for a larger asset pool by the end of the sample period,” according to the SEC’s report.
Jeff Nash, the CEO and co-founder of the recruiting firm Bridgemark Strategies, agreed that there will likely be some non-client-facing jobs cut at Commonwealth, but likely to a far lesser extent than at Atria.
“Most of my clients are people merging into a larger organization,” Nash added. “And it often comes up that there are certain people who are no longer needed in the new scenario. Sometimes it’s people who are really close to retirement and it’s a blessing. But acquirers are usually really careful to protect client-facing positions.”
LPL’s lofty goals with Commonwealth
Rival firms have cast doubt on LPL’s ability to meet its promises to Commonwealth advisors while still hitting its financial targets for the purchase. LPL has said that it expects its $2.7 billion purchase price to come out to about eight times Commonwealth’s EBITDA, or earnings before interest, taxes, depreciation and amortization.
But various analysts have pointed out that figure relies on some pretty heavy assumptions. Devin Ryan, an analyst at the investment bank Citizens JMP, wrote in a research note in early April that LPL can’t hit its EBITDA target without realizing $200 million in added revenue from taking assets Commonwealth now custodies — or holds for safekeeping — at Fidelity moving them into its own custody business. Without that additional revenue factored in, LPL is actually paying more than 20 times Commonwealth’s current EBITDA of roughly $120 million a year, Ryan wrote.
LPL has set itself an ambitious target of retaining 90% of Commonwealth’s roughly $285 billion in brokerage and advisory assets. The firm likes its chances for success in part because of its ability to use “negative consent” — moving most Commonwealth clients’ assets over as long as they don’t object, rather than having to secure their positive agreement.
Industry rivals have been quick to cast doubt on whether LPL can really meet its twin goals of retaining what makes Commonwealth special while also hitting its financial targets. In the second part of an “open letter” calling on Commonwealth advisors to consider his firm, Cetera Wealth Management President Todd Mackay wrote that “synergies don’t just fall from trees.”
“The fact is that LPL cannot achieve the synergies it has touted without consolidating technologies, eliminating clearing and custody choices, and dramatically reducing headcount,” Mackay wrote.
LPL has pushed back vigorously against the notion that it’s being overly ambitious with its plans for Commonwealth. An LPL spokesperson said in a previous statement that, “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.”
