LPL advisers are raising fees

SAN FRANCISCO — Financial advisers across the country who use Linsco/Private Ledger Corp. as their broker-dealer are raising prices, mostly for new clients.
Although the company does not set or keep track of what its affiliated advisers charge, LPL advisers are “absolutely” hiking fees, said William Morrissey, executive vice president of branch development for the nation’s largest independent broker-dealer, which is based in San Diego and Boston.
Sparking the movement to higher fees is a practice-management effort the firm launched last year to boost practice profitability, said several LPL advisers and Mr. Morrissey.
LPL advisers are not unique. Price hikes are gaining momentum industrywide, according to Mark Tibergien, managing partner of Moss Adams Advisory Services, the consulting division of Seattle-based accounting firm Moss Adams LLP.
“I probably spoke before 70 audiences of advisers last year, and I always asked how many have recently raised prices. At least a third raised their hands,” Mr. Tibergien said.
Registered investment advisers who use Schwab as a custodian of assets are on a similar track, said Charles Goldman, chief operating officer of Schwab Institutional in San Francisco.
“About 75% say they are raising prices” to fend off profit margin compression, he said after recently visiting RIA offices across the nation.
Yet these findings don’t jibe with the observations of executives at LPL’s broker-dealer competitors.
“We rarely see our [1,100] advisers raise fees,” said Jim Guy, chief marketing officer at Cambridge Investment Research Inc. in Fairfield, Iowa.
“We’re not seeing the type of price increases you described [among LPL advisers]” from the ranks of independent advisers using Wachovia Securities Financial Network, said Tony Mattera, spokesman for Wachovia Securities LLC of Richmond, Va.
LPL brokers may be realizing price increases later than Wachovia’s brokers because LPL advisers were later in adopting wealth management services, he added.
Creating benchmark
A program provided by LPL may have contributed to the price-raising phenomenon among its advisers, Mr. Morrissey suggested.
The broker-dealer last year introduced a business consulting program where management experts evaluated individual practices and provided reports to advisers encompassing pricing comparables for similar firms.
“We created a way to benchmark,” Mr. Morrissey said.
“They gave us objective data,” said Candace Bahr, registered principal for Bahr Investment Group, an LPL affiliate in Carlsbad, Calif., that manages $132 million.
“Not that that drove our decision, but it gave us the confidence” to raise prices by 0.5 percentage points to 1.75% for the first $1 million of assets under management, she said.
“LPL’s been a help in the process” of executing a price hike, said Keith Tyner, managing principal of Gimbal Financial, an LPL affiliate in Fishers, Ind., that manages $325 million.
“The [LPL] report caused my co-workers to confirm my hunch” that people in the firm were spread too thin to provide the best service,” he said.
Gimbal Financial is raising its price to 1.3%, from 1%, for the first $1 million of assets under management.
“I was hitting the breaking point,” Mr. Tyner said, explaining that the higher fees will pay for hiring additional service personnel, while discouraging inappropriate prospective clients.
Indeed, providing high levels of service can exhaust advisers, who should be compensated for their efforts, said LPL adviser Thomas F. “Tif” Joyce, principal of Joyce Financial Management, a Sebastopol, Calif., firm that manages more than $80 million.
From the client’s point of view, he said, “it’s cheap insurance to tack on [0.25%].”
Mr. Joyce said he is charging 1.5% on accounts that formerly were charged 1.25%. He also is charging an upfront fee for initial planning.
“Stuff we used to give away, we’re charging for,” Mr. Joyce said.
Raising fees to 1.4%, from 1.1%, last year on assets up to $2 million was “the best thing we’ve ever done,” said Kelly Campbell, chief executive of LPL affiliate Campbell Wealth Management in Fairfax, Va., which manages $130 million.
“Advice is a commodity unless you go the extra mile, but the extra mile is expensive,” he said.
Upgraded service
One reason LPL advisers’ are able to charge more for their services now is that the broker-dealer has revamped itself in the past few years, Mr. Morrissey said.
“It comes down to advisers’ getting their arms around the wealth management platform,” he said.
But one competitor said he believes that there may be other explanations for why LPL advisers can raise prices when competitors are holding steady or lowering prices.
“Our advisers charge 1.25% to 1.35% [on average], so perhaps we were [already] priced higher than our competition,” said Michael J. DiGirolamo, managing director and senior vice president at Raymond James Financial Services Inc. in St. Petersburg, Fla.
Some advisers are reluctant to raise fees, because they hear everyone talking about fee compression, Mr. Tibergien said. But that really isn’t the case.
“We’re not facing fee compression” in the advisory industry, Mr. Tibergien said. “We’re facing [profit] margin compression.”