The strategic relationship between Prudential Financial's retail wealth management arm, Prudential Advisors, and LPL Financial represents a massive transition and a major deal win.
Last week, the firms announced a transfer agreement to move some 2,600 discretionary financial advisor brokerage , registered investment advisory and custody businesses managing $50 billion in client assets to LPL by the end of next year . . According to the investor's statement, the companies are starting the process of transfer and training of consultants, which will last until they are hired in the fourth quarter of 2024. LPL expects $125 million in technology costs for the integration and another $200 million over time. Prudential is "fully modernized" by LPL, adding $60 million a year to LPL's $2.03 billion in annual earnings before interest, taxes, depreciation and amortization. This is 3% more than new recruits.
Many small companies in the industry can only dream of producing $60 million in company gross profit in a year, so the bottom line is clear. Murkier worries that economic advisors will receive retention bonuses and succeed as a group at LPL, which is inconsistent with asset management currently focused on fiduciary advisory functions rather than commission brokerage. Prudential's client assets are 25% advisor and 75% broker, compared to 53% advisor and 47% broker among 21,942 advisors.
"Obviously, our goal is to combine the best of both organizations and accelerate their businesses," Ken Hollings, LPL's executive vice president of corporate business development, said in an interview. The good thing about our partnership with Prudential is that they are interested and committed to growing their wealth management business and see this partnership as a way to accelerate the process.
Help with maintenance
Prudential did not grant any executive interviews or respond to any financial planning inquiries related to brokerage, RIA and custody transfers.
FINRA BrokerCheck, headquartered at Pruco Securities, a Newark, New Jersey-based insurance, pension and asset management brokerage, lists referral or evaluation agreements with Cambridge Investment Research, Leaders Group, Centaurus Financial and Equity Advisors. Wise representatives did not say whether the LPL transaction would have any effect on these fundamental agreements. Prudential's brokerage reflects its relationship with National Financial Services, a clearing and protection affiliate of Fidelity Investments, to process and manage client accounts. The change in custodian means Fidelity will lose a large amount of business to LPL.
Fidelity spokesmen declined to comment on Prudential's actions.
Marisa Amador, Prudential's director of communications, did not respond to an emailed inquiry about the brokerage's transition plan. Amador emphasized that Prudential's 1,099 or W-2 employees will remain under the LPL arrangement in exchange for transition support or other bonuses to retain thousands of advisers.
"Therefore, Prudential, not its advisors, will pay the costs of changing brokerage registrations," Amador said in an email. "Prudential is not talking publicly about compensation or bonuses. We will have more information about the future of contracts with Prudential Advisors and our broker-dealer when the transition is completed in the second half of next year."
LPL's Hallings addressed inquiries about endorsements or transition bonuses. According to Hullings, the investors in the deal had "no support for the transition in this strategic relationship" only to note that LPL would not directly pay Prudential. For new advisors, LPL offers several "various ways to help with capital or money" in addition to initial transition bonuses, he said.
Transition to LPL
According to Jody Papik, CEO of Cross-Search , an independent recruiting consultant, recruiting events where there are no changes to the new team often don't offer teams transition bonus offers. In any major hiring, merger and acquisition, or consolidation of multiple firms into one, some consultants decide to move on rather than stay, moving to a new firm . As for Prudential and LPL, replacing LPL protection with Fidelity will have a big impact on advisers' decisions, Papaik said.
"By changing custodians, advisors will really evaluate their relationship with Fidelity and decide how important it is to them," he said, adding that Fidelity is a "big name" in the industry and has relationships with "many brokers." -Distributors and Series RIAs” may serve as a potential landing point for some groups. "If they really relate to the brand, they will consider it."
LPL and Prudential will try to convince as many of their 2,600 advisers as possible to stay on during the transition. The strategic partnership with LPL will enhance Prudential's value proposition through LPL's "world-class technology platform and services as a registered broker-dealer and investment advisor," Amador said.
"Under this agreement, Prudential will continue to invest in our Discretionary Advisors business, expanding our retail asset management capabilities to drive growth," he said. "This strategic relationship is designed to enhance the already competitive value proposition that sets Prudential Advisors apart, including strong local advisor support, a strong leadership program, the trusted values of the Prudential brand and the agility to adopt an advisor-friendly business model. YOUR NEEDS. THEM. THEIR. NEEDS. THEM." "
The agreement with Prudential is for LLP. PPPPP" recruiting follows several major recruiting wins. Fidelity's tutoring transition serves as what the industry calls a "tape-to-tape" transition. Sensible customers receive notification messages, called acceptance letters, informing them of the change and asking all customers, like Hallings, if you have any. Questions or concerns, please contact your advisor or partner.LPL said it aims to "minimize" the impact of the 2024 move on advisors.
"The LPL has a history of change, especially in the recent past," Hullings said. "The main reasons for the long lead time are the size of the opportunity and making sure we get it right and provide a great experience for all stakeholders, especially consultants and customers."
The mix of brokerage and advisory businesses after joining LPL is "very similar to what we would typically find with a bank or credit union," Hullings said. Another similarity between Prudential and the former new hires is that Prudential's president of retail advisory and solutions, Brad Hearn, spent nearly a decade at LLLLLLL before joining the firm four years ago. Another former LPL brokerage services president, Rob Comfort, spent five years with the company before leading LPL's credit union services business in 2022. Mega client property activity .
Conflict issues
Prudential's life insurance and annuity products appeared on the shelves of LPL Advisors 34 years ago. However, this report highlights the differences between the companies, because while LPL has been a strong driver of independent activity for decades, Prudential and other insurers with asset management subsidiaries show more conflicts of interest in selling their own products .
In an ADV for Pruco Securities, under the trade name Prudential Financial Planning Services, the firm lists nine different "material relationships" under its umbrella, including asset management, insurance and annuity divisions. A large, interconnected financial services company.” This means the firm's advisers get paid more for selling Prudential products.
"When implementing your financial plan, your planner [Prudential Financial Planning Services] and its affiliates generally have a greater financial interest in selling Prudential's proprietary products than products and services," the brochure says. "If the planner's percentage of affiliate products is high in that product category, they may sell you an affiliate product."
In an interview, Hellings explained that LPL is "on a multi-year journey to break away from leadership in the independent industry and become a leader in the consulting market." When asked how the insurance company fits into LPL's independent culture, Prudential has a synergy in the business because "the insurance plan is a very important part of the financial plan."
"His advisors are good advisors, but they don't just sell financial products," Hullings said. "They really bring this culture of financial planning to life every day."
