LPL focus on smaller acquisitions bears fruit

Back in April 2022, LPL Financial Holdings Inc. CEO Dan Arnold said the largest independent broker-dealer, which had recently wrapped up the purchase of 900 financial advisors from Waddell & Reed Financial Inc., was shifting gears and targeting smaller firms to acquire.

“It’s smaller broker-dealers and [registered investment advisors] that may be an opportunity and interesting perspective to support our overall growth agenda,” Arnold said at the time, adding that the challenging financial markets of 2022 created opportunities to make such deals.

Since then, LPL has executed on that strategy.

Last summer, it said it was acquiring the retail business of Boenning & Scattergood, a Pennsylvania broker-dealer and RIA with 40 advisors who managed $5 billion in client assets. And just this week, LPL said it was buying the wealth management business of Crown Capital Securities, a California-based broker-dealer and RIA with 260 financial advisors and $6.5 billion in assets under its roof.

But finding the right brokerage firms for LPL to buy takes time and expertise in an industry that has seen more than a decade of fast-paced consolidation and is now in full competition with RIAs for firms and advisors.

"The challenge for us is that you have to find a quality franchise" when considering acquisitions, Rich Steinmeier, managing director and divisional president for business development at LPL, said in an interview this week. "We’re in many more conversations than deals. It's hard to find a clean franchise like Crown Capital or Boenning & Scattergood."

LPL's acquisition last fall of one of its largest branch offices, meaning advisors already affiliated with the firm, puts its push to acquire a variety of kinds of firms even more in focus.

"We'll continue to use [mergers and acquisitions] as a complement to our organic growth," said Arnold, using a term that refers to increasing the fees and revenue of advisors already registered with the firm, in a conference call Thursday afternoon with analysts to discuss LPL's second-quarter earnings.

The firm reported total net new assets of $41 billion in the quarter, which were split almost evenly between organic and recruited assets, with $22 billion from the former and $19 billion from the latter.

LPL isn't likely to slow down anytime soon, one analyst noted.

LPL Financial Holdings "recently acquired Crown Capital Securities and expects to continue seeing strong advisor recruiting momentum moving forward," according to a research note Friday from Michael Elliott, an analyst at CFRA Research. The firm's head count of financial advisors rose 5% year-over-year, with LPL reporting 21,942 at the end of June, compared to 20,871 at the same time last year.

LPL's total advisory and brokerage assets increased 16% year-over-year to $1.24 trillion, according to the firm. And it reported net income of $286 million in the second quarter, a 78% increase compared to the same period last year.