LPL Financial may be in its quiet period, but industry observers are happy to talk about the broader effects of the Boston financial services company's coming initial public offering.
LPL, which provides an integrated platform of proprietary technology, brokerage and investment advisory services to more than 12,000 financial advisers, filed its notice of the offering on June 4. The company cannot talk about itself until the stock has had a decent shot of finding its fair value on the market, a process that often takes 40 days to three months. While that's a long time to be in the dark for an LPL client bank or an adviser who works at one, industry observers don't seem at all worried.
"Principally, the IPO removes some uncertainty" for banks and advisers, said Ken Kehrer, research director of Kehrer-Limra. "The expectation is that the people who bought LPL were doing so to profit from that by selling the company one day. If it sold to another broker-dealer, there would be a disruption changing platforms and reps would leave. Now, that uncertainty has been removed."
It also has an implication for other firms, particularly Cetera, which the private-equity firm Lightyear Capital acquired last year. "Lightyear presumably is interested in doing the same thing — eventually selling it to another firm or doing an IPO," Kehrer said. "If LPL's IPO is successful, it strengthens Primevest's hand." Primevest, one of Cetera's three broker-dealer brands, works exclusively with banks and credit unions.
Dick Ayotte, CEO and founder of American Brokerage Consultants, doesn't expect either banks or advisers to notice much difference, although the IPO will make LPL easier to size up for banks shopping for a new third-party marketer. "It makes the company far more transparent than most of its competitors" because of reporting rules governing public companies, Ayotte said. "While some TPMs are subsidiaries of much larger public companies, it's hard to get their numbers because they just don't provide that data." Ayotte doesn't expect other TPMs to up their reporting standards in response, though.
If there's any potential negative for banks and advisers, it's that new pressures from analysts on LPL as a public company could cause it to cut its prices to better compete with other broker-dealers, said Gregory Smith, managing director at Novantas. "As a public company, LPL has to also meet the expectations of analysts, and its business model has to stand up to scrutiny, which might mean the price of planning and asset management fees might come down," he said. After what's being called the Lost Decade, investors are back where they started despite all the advice and asset allocation they paid for, and analysts might insist that LPL respond to those customer concerns. "Pricing pressures are broadening on what you get for what you pay a financial adviser," Smith said.
That's one small "what if" in a move everyone seems to agree is a positive for the firm and its advisers. "LPL's IPO could allow it to incentivize employees with stock and lead to more acquisitions in the coming years," said Denise Valentine, senior analyst at Aite Group, summing up general sentiment among industry observers.
"It's good news for LPL and brings a company to the forefront that already enjoys a solid reputation in its market," she said.