LPL offers stay bonuses to Waddell & Reed advisers

LPL Financial is rolling out its stay bonuses to 900 plus Waddell & Reed Financial Inc., just days after the company said it was buying the wealth management business, with advisers being offered between 30% and 50% of their prior year’s fees and commissions to sign on, according to several industry sources.

Commonly referred to as a “stay bonus” in the brokerage industry, such deals are common when one broker-dealer buys another with the intention of keeping as many advisers as possible in their seats. LPL has a long history of deal making and acquisitions, and the bonus comes in the form of a seven year note.

For a Waddell & Reed adviser who generates $1 million annually in revenue, or gross dealer concession as it is called, that is a bonus of $300,000 to $500,000.

LPL began courting the Waddell & Reed advisers just two days after the $300 million acquisition, which is expected to close by the middle of next year, was announced on Dec. 2. And, in a scrum to recruit advisers, LPL is facing competition from rivals, with Ameriprise Financial Inc. among those making the most aggressive offers, sources said.

Waddell & Reed‘s wealth management business has recently struggled and lost advisers, and LPL has been a destination for many of those, so that should be an advantage to the firm, observers noted.

LPL is likely to see the retention percentage of 80% to 90% or higher of Waddell & Reed’s advisers, said Casey Knight, executive vice president and managing director at ESP Financial Search, a recruiting firm that works with LPL.

Along with the bonus compensation, those advisers would also feel the benefits of a “tape to tape” transfer of client accounts to LPL’s platform from their prior firm’s, Knight said. “It’s all automated,” he said. “Most of the clients’ accounts will move automatically, unless they opt out.”

Broker-dealer mergers and acquisition are large, complicated and often messy, and hanging onto 90% of the acquired firm’s reps and advisers is a lofty target. In its last major acquisition, the 2017 purchase of the network of National Planning Holdings broker-dealers, the retained close to 1,900 of 3,200 advisers, or about 60%.

The wealth management arm of the struggling Waddell & Reed Financial encompasses 921 registered reps and financial advisers and $63 billion in client assets. The deal is expected to close by the middle of next year and will cost LPL about $300 million.

“We’re proud of the offer, and we think they are a special group of advisers and match the type we would love to be associated with,” said Rich Steinmeier, managing director and head of business development for LPL, in an interview Wednesday morning.

Waddell & Reed has been overhauling its business for some time. Until several years ago, the broker-dealer’s business model relied primarily on its brokers and advisers selling the parent company’s proprietary, actively managed mutual funds. 

He added that LPL is creating a Midwest service center in Kansas City, Kansas, and staffing it with many Waddell & Reed employees. “There is a history of significant Waddell & Reed advisers who left and chose to move to LPL,” Steinmeier said. “Their culture marries to the one with LPL.”

In an email, Manish Dave, Ameriprise’s senior vice president of experienced adviser recruiting, wrote the firm is “having good discussions with reps across the industry” but did not comment about offers to Waddell & Reed advisers.

LPL’s purchase of Waddell & Reed’s wealth management group is an unusual, two-step transaction. LPL will purchase the business, but only after Macquarie Asset Management closes its deal for the outstanding shares of Waddell & Reed, which was also announced Wednesday after the market closed.

Macquarie Group is acquiring all of the outstanding shares of Waddell & Reed for $25 per share in cash representing total consideration of $1.7 billion. LPL and Macquarie are also entering a long-term sponsorship agreement as part of the transaction.

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