LPL Acquisition Underscores Need for Scale and Flexibility

At a time when broker/dealer margins are being tightly squeezed, the company estimates the transaction can generate $75 million to $100 million of “EBITDA accretion.”

Investment advisory and independent broker/dealer LPL Financial LLC, a wholly owned subsidiary of LPL Financial Holdings Inc., has acquired the independent broker/dealer network of National Planning Holdings (NPH).

According to an investor presentation shared by the firm, the transaction is structured as an asset purchase with an initial price of $325 million, but LPL “will also make a contingent payment between $0 and $123 million in the first half of 2018, which will be based on the level of NPH’s business that onboards onto LPL’s platform.”

These estimates are “primarily dependent on the level of onboarding of NPH client assets, and they also include amortization expense from onboarding assistance loans to NPH advisers.” And naturally the results are also contingent on the performance of the markets and client portfolios during the time of the ownership transition. 

“The demand for financial advice continues to grow, and the independent model is the fastest growing part of the industry,” says Dan Arnold, LPL Financial president and CEO. “This transaction adds to our scale, which we can leverage to provide LPL and NPH advisers with the capabilities they need, and the service they expect, at a compelling price.”

This move by LPL comes some five years after NPH signaled it would implement a greater focus on the employer-sponsored retirement plan advisory industry with the hire of Frank Hayn as vice president of retirement plans. Under Hayn’s direction, the NPH network has expanded its service offerings for advisers seeking to develop retirement plan and 401(k) business and has established support programs that have helped NPH representatives address evolving compliance requirements as they work with plan sponsors.

The transaction was signed and closed on August 15 following receipt of regulatory approval. Under the transaction structure, LPL will onboard NPH advisers and client assets onto its platform rather than integrating NPH’s operations, although NPH “will maintain its operations during the onboarding period.” LPL plans to onboard NPH advisers in two waves that it anticipates completing by the end of the first quarter of 2018.

Digging into the investor presentation shared by LPL, two clear objectives for LPL in the acquisition are to drive organic asset and gross profit growth and to increase adviser recruiting, productivity, and retention. Beyond this, LPL says it expects to “leverage scale to expand gross profit” and “capture cash sweep upside from rising rates.”

The document shows estimated onboarding costs of $40 to $60 million, “mostly complete by mid-2018.” Financing includes cash available for corporate use and may include additional debt.