Even before LPL Financial’s announcement that it was buying its industry rival Commonwealth Financial Network, the principals at Summit Wealth Group were headed toward the door.
Randy Morris, the CEO and founder of Colorado Springs, Colorado-based Summit Wealth, said he and his colleagues have in fact been working for about three months on starting their own registered investment advisory before announcing last week they were leaving Commonwealth. So those plans well antedated LPL’s announcement in late March of its intentions to buy Commonwealth for roughly $2.7 billion.
All the same, Morris said in an interview last week, the move is coming with “fortuitous timing,” in part because he and his colleagues were already finding Commonwealth a tad large for their liking. Commonwealth, which Summit has been affiliated with for nearly 25 years, has a roster of around 2,900 advisors. After LPL Financial completes its acquisition of its former broker-dealer rival toward the middle of this year, those all could be added to a headcount of nearly 29,000.
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Summit Wealth, meanwhile, numbers 23 advisors and 47 support staff members
“From my perspective, Commonwealth has done a very good job all these years, so I don’t have any ill feelings toward them,” Morris said. “But I will say, a regulatory environment with a broker-dealer that’s servicing 2,000 to 3,000 advisors is quite a bit different than a regulatory environment where you’re an RIA and you’ve got 23 advisors on your team.”
LPL’s pitch to retain advisors
Industry recruiters and other experts have said LPL may have a hard time convincing Commonwealth advisors that they’ll be just as happy if they go along with the acquisition and move to an even larger firm. That’s especially true since many of those advisors chose Commonwealth in the first place because of its promise of offering a smaller “boutique” setting.
LPL, for its part, has set itself the lofty goal of retaining 90% of Commonwealth’s headcount and of its roughly $285 billion in assets under management. In an interview in April, LPL CEO Rich Steinmeier said he’s “maniacally focused” on making sure Commonwealth advisors will feel at home at LPL.
Asked about Summit Wealth’s departure, an LPL spokesperson said, “As stewards of independence, we respect the choice of all advisors. We’re humbled and honored to be partnering with the many Commonwealth advisors who are recommitting to the Commonwealth community, retaining their well-respected service experience while benefitting from the additive value LPL brings to their continued success.”
Chances strong most Commonwealth advisors will stay
Jason Diamond, vice president of the recruiting firm Diamond Consultants, said LPL’s goal of retaining 90% of Commonwealth’s headcount and assets seems reasonable. He thinks there are two types of advisors who might be seriously considering moving somewhere else.
There are advisors who had previously left LPL to join Commonwealth and are now faced with the possibility of having to return. And there are those, like Summit Wealth, that were already taking steps toward forming an RIA.
Competition has been intense to recruit Commonwealth advisors who may lack enthusiasm about the coming transfer to LPL. Following the announcement of LPL’s plans, rival firms like Cetera Financial Group wasted little time making direct recruiting pitches to Commonwealth advisors suddenly made uncertain about their futures.
Diamond said he has no doubt that most Commonwealth advisors have been exploring their options. But LPL is also making a compelling case with generous retention payouts to advisors who do stick around.
In the end, Diamond predicted, the vast majority of Commonwealth advisors will go to LPL, even if just for a bit to see what it’s like.
“Most of them don’t have a more compelling option in the near term,” Diamond said. “Why not take the retention deal from LPL and get almost a free tryout? Otherwise, are you going to go to another big broker that isn’t really any different? Or are you looking at going to another small broker-dealer, that might just get bought out again?”
Rick Rummage, an industry recruiter and the CEO of The Rummage Group, said he thinks LPL may be shooting a tad high with its 90% retention goal but still thinks the vast majority of Commonwealth advisors will stay put through the acquisition. He said LPL is still battling a no-longer-deserved reputation for not being very good at transitions.
“It would be unwise to at least not look at your options,” Rummage said. “But LPL has improved dramatically in the last five years, and it’s a much better firm because of its capital investments and improving technology and staff. The reputation they had five years ago is not the reputation they should have today.”
The trend toward RIAs
Size considerations aside, Morris said his and his colleagues’ main reason for leaving Commonwealth was their desire to start a registered investment advisory. The bulk of the firm’s AUM — roughly $2 billion of the $2.3 billion it has under management — is already in fee-generating advisory accounts.
Morris is keeping a broker-dealer through an affiliation with financial services firm PKS Investments. He said it’s too early to say if Summit will shed the brokerage business and go pure RIA.
He and his colleagues do have an interest in building Summit Wealth further with mergers and acquisitions. Being a firm with both RIA and brokerage arms, he said, makes it easier to bring a greater variety of potential acquisitions into the fold.
“Being able to be hybrid still does provide us some value in the marketplace,” he said.
Morris said he likes the simplicity of the RIA business model — which typically charges clients flat fees set at a percentage of the assets they have under management. He also said having an RIA will give him and his colleagues greater say over the types of services and products they can offer their high net worth clients.
“Ultimately, we wanted control over as many aspects of our business as we could,’ Morris said. “Leaving the broker-dealer environment puts the control into our hands for the most part.”
Easing transition pains
Helping with the move is SEI, a financial services firm that provides support to advisory practices that break away from larger firms to form RIAs or go independent in other ways. SEI will serve Summit Wealth as a custodian charged with safeguarding clients’ assets and a provider of various investment products and management services.
Morris said Summit Wealth has 10 offices in five states and 3,500 clients. All of that is coming with them, in no small part due to the help of SEI, he said.
“The SEI team, they have all risen to the occasion and really provided a significant amount of transition assistance, as well as training,” Morris said. “We’ve had twice-a-week training sessions for the last almost eight weeks.”
Even though Summit Wealth’s departure is not a direct result of LPL’s decision to buy Commonwealth, Diamond said some of the recruiting fallout from that deal could become evident soon. Rummage agreed, noting that with independent broker-dealers ostensibly set up to allow for easy recruiting and departures, advisors who are really intent on leaving can do so within a matter of weeks, he said.
“There is no secrecy,” Rummage said. “So it’s really a matter of figuring out how many accounts there are and what types of accounts and then getting in touch with all the clients.”
