Broker-Dealers

LPL Financial’s Dan Arnold is managing amid complexity

Robert Moore's successor as LPL president talks about his earlier career and the challenges facing the independent broker-dealer industry

Dan Arnold has been a member of the C-suite at LPL Financial for eight years, but a good number of the advisers at the nation’s largest independent broker-dealer are just getting to know him.

Mr. Arnold, 50, took over as president last month after the departure of Robert J. Moore, who had been the heir apparent to chief executive Mark S. Casady.

Mr. Arnold came to LPL from Uvest Financial Services Group Inc. after it was acquired by LPL in 2007. In this interview, which has been condensed and edited, Mr. Arnold talks about his earlier career and the challenges facing the independent broker-dealer industry.

IN: You’ve had a pretty varied background. You studied engineering as an undergraduate, developed corporate strategy and served as chief financial officer at LPL. Are you more left brain, right brain, or just an overall genius?

Mr. Arnold: I’m definitely not a genius. The greatest thing the school of engineering gives you is it teaches you how to deal with complexity. Regardless of what industry it is, I’ve used that skill set to take on a complex set of situations that have multiple dynamics associated with them, tease out what is really important and then help a team think through how best to achieve our goals.

IN: Your spent time at BellSouth Corp. and MCI Inc. Did you take anything away from that?

Mr. Arnold: That gave me my formative years starting to work. It gave me a real appreciation for logistics, understanding how to get from point A to point B in an effective and consistent way. It also taught me a lot about corporate America.

IN: That’s an industry that’s seen a great deal of deregulation and change brought about by technology. In the brokerage industry, it seems the trends are the opposite: an industry just starting to be disrupted by technology, in which the regulations are increasing.

Mr. Arnold: That’s exactly right. The purpose and reason for regulation is different in the two industries. What we do in this business matters greatly. When you focus on helping individuals achieve their life’s aspirations, goals and dreams, regulation is an important element of that. In the telecom industry, they were regulated more because of the sizable infrastructure and upfront investment that was needed and created a bit of monopoly. Technology and automation freed up that industry and freed up competition.

IN: What about the state of technology in this industry? Is the robo-adviser the way of the future?

Mr. Arnold: I don’t think necessarily that the robo-adviser is the way of the future. It just gives people another option and alternative [through] which to seek some form of financial advice. It’s another way for all of us who deliver advice to look for efficiency and automation in our own models, which ultimately, for the benefit of the investor, will help drive both costs and pricing of advice down over the long haul.

We’re all about enabling the adviser to succeed and maintain their competitive positioning in the marketplace, and we believe they’ll always have to be competitive from a pricing standpoint. We want to make sure they have the option to engage in the marketplace in whatever way they see fit for their practice. If that’s that traditional model they’ve always used, then we want to make sure that we empower and enable that. If they want to incorporate robo-type technology into their overall offering and complement what they do today, then we want to make sure we empower that.

IN: What was the key to the success of Uvest?

Mr. Arnold: We — a small group of leaders — came into a situation where it was a really interesting vision for the company, but the company had not executed very well. It had really struggled. In late “94, we came in with the opportunity to re-engineer that business model. We realized if we were going to succeed as a very small company, we had to go in and create a niche play. We tried to become the very best firm to support banks and credit unions as an enabling partner to help them offer investment services.

We had a couple things that were going for us. We were catching a good trend around banks entering the business at that time. Many community banks and mid-size banks, which was our area of focus, were not in the business yet, and so we were providing a new capability for them.

We also grew concentrically out from Charlotte, N.C., so we took a very regional approach and became a very significant player on the East Coast. As a growing firm, we knew we had to have resources in place to execute on our model. That gave us the ability to make the necessary investments on a regional basis first, and then we were able to go national. In the mid- and late 90s, we were in a bull market, and so you had increasing demand for investment services at the retail level, which was also helpful.

IN: What’s driving change in compliance and regulation?

Mr. Arnold: The business has become more complex. With automation and technology comes a whole new set of challenges around security, around disaster recovery and managing through disruptions. Another trend is the emergence of different types of models in the marketplace. Whether it’s a brokerage solution or an advisory solution, how do you ensure that you have a certain standard of care associated with it where you’re always, first and foremost, ensuring the protection of investors?

IN: What advice can you give from the corporate world to advisers hoping to build their businesses?

Mr. Arnold: Be clear about what your plan is and play to your strengths. As an individual business owner, you never have quite enough resources, and things are challenging. I became a very big proponent of outsourcing as a business leader. I recognized I could also ensure that we spent our time doing what we did well and levered other capabilities through outsourcing to do what we weren’t as adept at.

I very much look to the advisers for intel and perspective on what their needs are and where the business is trending. Then I look to solve for what those needs are. You don’t get all solutions perfectly right from the start and certainly collaborating with them to iterate and evolve them is important.

IN: When you were CFO, it’s very well documented, the company struggled at times, including quarters where you missed Wall Street’s estimates and drew tough questions from analysts. It’s not an easy experience, I’m sure.

Mr. Arnold: It’s a good developmental experience, and it does give you some seasoning.

Making sure you’re using three lenses — risk management, finance and client experience — to help optimize your decision making and to ensure you’re consistent about it is important.

On a personal level, certainly serving as the CFO gives you a different stakeholder group which you manage, and that’s the investing public.

Understanding the drivers of our financial performance and then ensuring that you’re giving the appropriate transparency around what’s occurring — that’s one of the things where we could’ve sharpened and improved what we did last year as the regulatory pressures and challenges were emerging. It’s tough to forecast that precisely, given the nature of what it is, but being clear around the challenges you face and how those will manifest themselves in financial pressure is certainly a good lesson, and, after reflecting on that, we probably learned how to do that better going forward.

(More: Read our full Top Independent Broker-Dealers of 2015 special report)