Twenty-two years ago I had a lunch in San Diego with the President and insurance coordinator of Private Ledger, a small financial planning firm in San Diego.  This was before “financial planning” meant anything.   I was the new American Skandia National Sales Manager.  We had no A.M.Best ratings, nor any ratings from S&P.  Fitch did not yet rate insurance companies.  The only opportunity for distribution was with these new financial planning firms.  They were more entrepreneurial, understood separate accounts and wanted to offer the best products to their advisors.

This was followed by a dinner with Mark Lopez, an impressive young manager from FSC, whom had been recruited to the new Linsco Private Ledger.  American Skandia hoped for a selling agreement and we received one.   This was when the financial planning world was called the “3rd world”, or sometimes the “4th world”.   The financial planning industry was largely advisors who had recently moved from captive insurance carriers’ distribution entities.   These agents had previously been required to sell the products manufactured by their captive life agencies–companies like Prudential Insurnce, Mutual of New York, MetLife, and countless others.

The advisors wanted more choice and greater freedom to serve their clients. At the time, the average advisor was generally a smaller advisor.  The concepts of asset allocation, and fee for service were very new.  The nascent financial planning firms were looking for respect from mutual fund companies and insurance companies, and seldom received the respect they deserved.  They were not Merrill and they were not Smith Barney or Shearson.

American Skandia could not win distribution in banks, wirehouses and most regionals.  However, we could in financial planning firms.  We built our firm with Raymond James, FSC, CommonWealth Equities, and , of course LPL.  We were committed to all the same values that the financial planning industry pioneered.   We were offering non-proprietary money management and we did not believe in captive distribution, where our agents would be forced to sell our retirement solutions.   We chose to prove ourselves everyday, like the financial planning firms and their advisors.

Over the decades, we built our products around this new distribution model.  Financial planners built their practices around fees, so we led the industry in level load and no-load annuities. We built a no-fee variable annuity for LPL, Advisors Choice.  LPL led the industry in creating innovative platforms so that consumers could pay for professional advice based upon their assets and the investment success of their assets.

Financial planners built their practices around helping investors allocate across asset classes and anticipate the proper allocations through re-balancing.  So, American Skandia built an investment platform that was second to none.  LPL consistently was innovating to create asset allocation models and economic forecasting to help investors and their advisors chart the constantly changing investment waters.

Financial planners captured the ascendant personal computer world–distributed processing–and therefore technology emphasis was critical to serving this growing distribution channel.  So, American Skandia developed Assess Software, so that advisors could better communicate to their investors.  In essence, LPL’s existence was dependent upon this technological change, however they reversed it.  Their advisors created economic practices because of distributed processing, however LPL then created a self-clearing platform.  When Todd Robinson announced that they would do this, I doubt anybody other than Todd believed that they would accomplish self-clearing.  He did, they did and the investment experience has been very positively altered for their investors.

Most importantly, LPL refused to have proprietary product.  Financial advisors who worked with LPL gained their income for best serving investors–never was their a conflict between LPL’s proprietary product and investors’ best interests, because LPL refused to develop proprietary product.  In this critical vein they were ahead of nearly all other brokerage firms.  Their financial interests were never in conflict with the investors they served.   Ground-breaking ideas for the brokerage industry.

Finally, the economics which is derived from distributed processing and which is driving LPL Financial’s success is inherently pro-consumer.  When I first become a financial advisor in 1984, “wrap accounts”, the precursor to the basic LPL Financial business model charged up to 3.00% to consumers for all of the associated reporting and asset allocation support.   LPL’s innovation, and in fact the innovation of the entire independent broker-dealer financial service model is a radical change in economic sharing between the broker-dealer and the advisor.   At LPL Financial, I’ve read that the advisors retain approximately 90% of the total fees generated.   I cannot confirm these numbers and their specifics are not essential.  The key dynamic is that at LPL Financial, the advisor keeps a disproportionate share of the overall fees paid by investors.  This means that advisors can operate at much lower fees than some competing platforms.   I don’t know whether the proper cost of advise is 25 basis points or 300 basis points–and it is dependent upon the return being achieved over a benchmark indice.

However, I am certain that the LPL Financial model has resulted in lower fees and better service for investors.   This change has been transformative.  Sophisticated individual retirement advice is available to consumers today in greater quantity and at lower prices than at any time before in history.  Todd Robinson and LPL Financial deserve credit for this innovation.   For me, this is what justifies comparing the LPL Financial IPO to the great revolutionary IPOs of our age.

Along this path I became great friends with Jim Putnam, Mark Lopez, and Todd Robinson.  LPL Financial become our largest customer and we became their largest insurance retirement solutions provider.

Todd Robinson was a visionary extraordinaire.   He crafted a strategy that emphasized a higher value for the advisor and an exceptional technology platform.  Where-ever the American Investor was moving, Todd and his firm were there–often ahead of others–and always with a better platform for the best advisors and the new consumers.

During the period from 1988 to today, the American Retirement market was transformed.  Our nation moved from defined benefit pensions to defined contribution retirement concept.  Some can lament this evolution, however, it happened.  The long-term liability of the defined benefit plan became too much for private companies–and now it is apparent that it was also too much for public pension plans.

The bond market experienced the greatest bull market in it’s history from 1980 to today.    This historic fall in rates and rise in bond prices has transformed our concept of leverage and equity.   It is this precise bond bull market that is likely reached it’s apex today as the Federal Reserve attempts to jolt our economy out of its slumber.

The bond market bull market triggered a bull market in equities, which ran from 1982 until either 2000 or 2007.    This gave great confidence to the individual investor and for a time, the concept of advise seemed quaint and dated.  Then the market corrected in 2000 and all taxi-cab drivers were not financial wizards.  Individual investors regained their appreciation for the sophistication of professional advisors and the value they can add to tax planning, asset allocation, estate planning, life insurance needs and the entire complicated array of investment planning decisions.

LPL Financial came to embody American’s retirement planning evolution.   They attracted legions of advisors, and often the best ones.   Their decision to go public is as note-worthy as the IPO of Microsoft, or Apple computer–different industry, but nearly as profound.   Todd Robinson, and his management team–Jim Putnam, Bill Dwyer, Stephanie Brown, Dave Butterfield, Ester Stearns, Mark Lopez, Sheila Woelfel, Jon Eaton, Mark Casady, and many others have fundamentally reshaped the retirement planning industry and the financial advice industry.  The LPL IPO is truly the making of history.

In particular, it should be noted that the growth of LPL Financial after the sale in 2005 has been nothing short of spectacular.  Highly strategic acquisitions, exceptional organic growth, increased product access and tremendous investment in the core technology platform.  Mark Casady and his management team have not only made LPL Financial there own company, they have served as the catalysts for the most substantial growth in the company’s history.   In a matter of years they have passed all but a couple of firms with 100 year lineages.  In a couple more, they will likely pass everyone.  This is the nature of great ideas magnificently executed.  Mark Casady has clearly accomplished more than anyone’s expectations.

I also became friends with Ron Carson, arguably the most respected and emulated advisor in the United States.  Ron has been recognized by Barron’s Magazine, Registered Rep Magazine and others as one of America’s finest–or the finest financial advisor in the U.S.

Ron has been recognized for 19 years in a row as LPL Financial’s most recognized and respected advisor.   Ron now works with WealthVest Marketing to help train other advisors in his same commitment to placing the client first-always, while protecting their assets and working with them as feeling human beings.   There are no better advisors in the U.S. than Ron Carson.

Today, thousands of advisors follow Ron’s investment advice and his edicts for managing world-class investor/client relationships.   Ron represents the epitome of the best in financial planning, and for this excellence he has been rewarded with the trust of $2.5 billion in investor assets.  Ron was attracted to LPL Financial for these reasons and the reciprocal was true.   Their relationship truly defines the best in both.

Now, LPL, under Mark Casady’s exceptional leadership, is going public, after Todd’s private sale.  Their success is the success of the American Retirement Dream, and now the LPL IPO will be coming to market and I intend to be a buyer.  Everyone who wants to bet on America’s long-term success should be a buyer, because LPL reflects our ability to build wealth and manage it prudently.

The LPL Roadshow Management presentations can be found here:    The LPL stock offering is expected to price on November 17th, 2010.

Wade Dokken

President, WealthVest Marketing

LPL Profile from Forbes Magazine

LPL is the biggest brokerage firm you’ve never heard of. That is exactly the point.

These are ugly times in the stock brokerage business. Two years ago collapsing markets around the world dealt a lethal blow to Wall Street firms, killing off Lehman Brothers ( LEHMQ – news – people ) and Bear Stearns. Once mighty Merrill Lynch scrambled into the arms of Bank of America ( BAC – news – people ), now itself reeling from foreclosure woes. Goldman Sachs ( GS – news – people ) has hired a crisis public relations firm, presumably to help it persuade the public that it doesn’t epitomize greed and self-dealing.

To the average retail stockbroker the last few years have been a nightmare. Add to this an endless onslaught of digital competition from discounters and do-it-yourself websites and there is only one conclusion: Once great brokerage brands are in trouble. Investors simply don’t trust Wall Street anymore.

From this rubble emerges a little-known brokerage powerhouse named LPL Financial. Who? That is a good question, and it’s also exactly the point. It’s the biggest retail brokerage firm you have never heard of, and if its owners have their way, it will stay that way. Think of LPL as a franchisor for financial advisers, only unlike McDonald’s ( MCD – news – people ) the corporate parent stays in the background and takes orders from its franchisees.

The Boston-based, privately held brokerage firm has more than 12,000 financial advisers under its national umbrella–and not a penny’s worth of bailout money on its books. Unlike its big-name competitors on Wall Street, LPL doesn’t sell a single proprietary investment product nor does it own an investment bank that could be in conflict with its retail operations.

LPL franchisees go by names like Marks Group Wealth Management in Minnetonka, Minn.; James E. Bashaw & Co. of Houston, Tex.; and Pollack Financial Group of Upper Montclair, N.J. Their target customers are the “mass affluent”–people with investable assets from $100,000 to $1 million.

Growth has been steady. Net revenues have jumped at an 18% compound annual rate since 2005. For the fiscal year ending this Dec. 31, LPL will have revenues of about $3 billion and net income of $70 million. Its assets under management are modest at $293 billion, compared to Merrill’s $1.5 trillion. LPL is considering an initial public offering that, if completed, could place a $4.5 billion valuation on the firm.


LPL Financial is the creation of a former Smith Barney broker named Todd Robinson, who created the firm in 1989 by combining two smaller advisory firms, Linsco Financial, based in Boston, and Private Ledger of San Diego. In late 2005 Robinson and partners sold 60% of LPL Financial to private equity outfits Hellman & Friedman and TPG Capital, valuing the company at $2.5 billion. LPL is now being run by Mark Casady, 50, Robinson’s handpicked successor.

Robinson’s most important innovation was to create a culture in which the stockbroker was the one and only customer. “We treated our representatives like they were kings,” says Herb Morgan, chief executive of Efficient Market Advisors and former senior manager at LPL. This contrasts sharply to most big Wall Street firms, where brokers are at the bottom of the pecking order relative to investment bankers and traders. Happy brokers translate into growing revenues and, ultimately, happy clients.

Perhaps even more influential was the compensation structure. LPL offers advisers the chance to take home from 80% to 98% of the revenues they generate, versus 30% to 50% for firms like Merrill Lynch and Morgan StanleyMSnews – people ) Smith Barney. LPL advisers are independent contractors and, as such, pay their own expenses, including office space, computers, Internet, marketing, phone lines. “I look at LPL as a firm I’ve retained to do all my back-office work,” says Dave Armstrong, a Merrill Lynch refugee who’s now an LPL adviser in Alexandria, Va. with $250 million under management.

Make no mistake, this is a high-stakes battle. According to the latest number from Cerulli Associates, more than $10.4 trillion in retail assets are professionally managed. Yet assets under management at the top four brand-name brokerages dropped 16% to $4.75 trillion from 2007 through 2009, according to consultancy Aite Group. During the same period assets jumped almost 14% to $1.54 trillion at independent firms like LPL.

LPL ranks fourth in terms of sales force, behind Merrill Lynch,UBSUBS – news – people ) and Morgan Stanley Smith Barney. In terms of growth, it is dominant. While big firms continue to lose brokers, LPL attracts reps. In 2009 LPL added a record 750 advisers while rival UBS lost 18% of its adviser force. Overall LPL’s ranks have swelled from 3,569 to 12,017 in the last decade, a 237% increase.

Described by others as affable and unflappable, Mark Casady was brought in in 2002 as chief operating officer from Scudder Investments. The son of a minister, Casady was raised in the Midwest and has few of the qualities one normally associates with Wall Street hotshots.The company is clearly gunning for Wall Street firms still reeling from the financial crisis. Old wirehouse firms like Merrill are easy prey because their brand names are in decline. But LPL would also appear to haveCharles SchwabSCHW – news people ) and Fidelity in its sights, as it now offers services to both brokers and independent advisers who earn fees from assets under management.

Like Robinson, Casady goes out of his way to make sure his reps are happy. Says Houston’s James Bashaw, who joined LPL from UBS in 2001, “I won’t forget Robinson standing there [talking to advisers] while his assistant took notes of every conversation. Mark does the same exact thing. He doesn’t care if you do $100,000 in revenue or $1 million in revenue.”

Casady and others at LPL declined to comment for this story. In June 2010 LPL filed a preliminary offering statement with the intention of raising $600 million and creating an exit for its private equity owners, whose stakes are now 36.3% eac

Daniel Seivert, chief executive of Los Angeles investment banking firm Echelon Partners, worries that going public could spoil LPL’s winning formula. “They are a great company, but there are benefits to being private,” he says, noting that recruiters have begun poaching LPL talent. Only a small percentage of its reps stand to make a windfall on the IPO. Ironically the firm might have to answer to the same public critics that plague Merrill and Goldman on a daily basis.

via Move Over, Merrill –

Here is the link to the SEC Filing.