LPL sees more industry consolidation coming

LPL Financial, the biggest independent broker-dealer with 17,168 registered reps and financial advisers, sees more opportunity to grow through mergers and acquisitions, both by its advisers and at the corporate level.

“We do think the environment, as we look out for any number of reasons, including potential tax law changes, certainly drives more consolidation and activity on the M&A front,” CEO Dan Arnold said Thursday afternoon in response to a question during LPL’s conference call with analysts to review third-quarter earnings. “Whether that be at the adviser level or more at the corporate level, we see that the trajectory of activity trending up on both fronts.”

Firms like LPL provide financing for their advisers to buy or merge with other advisers’ practices. Arnold added that any deals would have to fit in three ways: strategically, financially and operationally.

The brokerage industry has been a hotbed of consolidation for the past 10 years. The costs of technology and compliance keep rising, while profit centers like charging commissions on stock trades are disappearing completely at some firms. Interest earned on clients’ cash accounts, once an easy way to generate profits, also has been greatly diminished.

Over the last decade, large firms have bought small or midsize broker-dealers, which have seen their profit margins erode. But recently megamergers, such as Charles Schwab’s acquisition of TD Ameritrade, have become more prominent.

LPL has been a recent buyer both of broker-dealers and service firms.

Earlier this week, it closed a $12 million acquisition of Chicago-based trading platform Blaze Portfolio in a move to expand its trading and rebalancing technology for the firm’s financial advisers. It also recently closed the acquisitions of broker-dealers and registered investment advisers E.K. Riley Investments and Lucia Securities.

LPL, a recruiting powerhouse, reported a year-over-year gain of 819 financial advisers at the end of September, an increase of 5%.

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