RIABiz

Why a $1-billion Fidelity RIA is placing LPL at the heart of its 401(k) business

2013-05-22T10:57:46-07:00

Ingham Retirement dropped Sentinel Securities for LPL and is also becoming a retirement plan vendor to many LPL reps

Jennifer Ingham: The B-D relationship is needed because in the RIA world of investments for corporate retirement plans. many funds still pay some sort of revenue sharing.

A Miami-based advisory firm that manages $1 billion of mostly 401(k) assets has added LPL Financial as its third RIA custodian and primary broker-dealer — and is getting perhaps hundreds of millions of assets sent its way in the bargain.

Ingham Retirement Group made the big Boston and San Diego-based broker-dealer part of its custody triad along with Fidelity Institutional Wealth Services and Schwab Advisor Services.

The move came in conjunction with the firm dropping Reading, Mass.-based Sentinel Securities Inc. as its broker-dealer to make LPL its provider of transaction-related services. Sentinel, an affiliate of Sentinel Benefits & Financial Group, also of Reading, did not respond to a request for comment.

Fiduciary care

The choice of a broker is somewhat ancillary to the custody decision but still plays a critical role in making the machinery of a 401(k) business work, according to Jennifer Ingham, vice president of sales and product development at Ingham Retirement Group.

“The B-D relationship is needed because in the RIA world of investments for corporate retirement plans, many funds still pay some sort of revenue sharing, whether it be 12(b)-1’s or shareholder servicing fees.” See: How the new 12b(1) fee restrictions could transform the financial advisory industry.

Still, she emphasizes that the use of these old-school methods is part of a very new-school effort to bring fiduciary care efficiently to 401(k) participants. See: Do 401(k) assets require all fiduciary care all the time?. When any of our plans have these investments in their lineup, those payments must flow through a broker-dealer relationship, and then they come to us to reduce the clients’ fees for the received amount. Because Ingham is a fiduciary, this revenue is returned to the plan in the form of fee reductions pursuant to the DOL 'Frost letter.’.

Linked through SalesForce

Retirement plan mechanics aside, the LPL-Ingham deal also comes with the sweetener of having LPL funnel significant assets in Ingham’s direction.

“[The Ingham-LPL deal] has worked in a very short period of time and we’re working with 15 to 20 [LPL] advisors and $100 million of [new] assets,” says Kenneth Ingham, president and chief executive of Ingham.

Still, Ingham will not use LPL for custody of retirement assets, which represent about 90% of its holdings. LPL, for the most part, does not keep 401(k) assets under custody. See: LPL to Wall Street types: We’re in phase three.

The switching of brokerage horses from Sentinel reflects the fact that LPL provides a variety of 401(k) capabilities that will help his firm grow, according to Ken Ingham.

Ken Ingham: We’re working with 15
to 20 [LPL] advisors and $100
million of [new] assets.

“They’re making a huge investment in their 401(k) infrastructure [at LPL],” he says. LPL stood out for bringing all different aspects of servicing 401(k) plans into one place for him as the advisor. This includes benchmarking software for all the plans, links to record keeping, customer relationship management software, investment due ...

An attorney explains where the 'trail goes cold' in PBS' 'Retirement Gamble'

2013-05-21T21:29:57-07:00

Just where the line is between a legal and illegal 401(k) plan is important to know

Brendan Little: Litigation serves as an important deterrent by identifying and penalizing those service providers that are responsible for the egregious fees.

Brooke’s Note: In watching the PBS Frontline documentary, largely about the 401(k) business, you can’t help but feel a sense of helplessness creeping over you. What you despair of is that many hands wash each other in the 401(k) business, the brokerage business, the mutual fund business and even in Washington where those businesses can lobby effectively. What Brendan Little explains in this column — and not without a decent dollop of self-interest that the lawyer acknowledges with good humor — is that it’s not as if consumers or plan sponsors are without legal remedies to call upon. Nor are they completely without the power to divine when their rights are being trampled. This article is a good primer for people who might want to know how to take advantage of the law. It’s also a good heads up for advisors who’s just as soon not get sued.

A recent “Frontline” documentary by PBS highlights the harm done by excessive 401(k) plan fees, but largely ignores the underused legal remedies that are already available to 401(k) participants and plan sponsors under the Employee Retirement Income Security Act of 1974.

“The Retirement Gamble” aired on April 23. Its author and director Martin Smith’s unflattering review of the retirement savings industry in America received significant press coverage, mainly, for publicizing the harm done by the fees charged to 401(k) plans. And rightly so: “Frontline” pointed to a recent AARP study that found 71% of mutual fund savers were not even aware that they were paying any fees at all. See: What RIAs must know about hidden, and excessive, fees in serving as fiduciaries to a 401(k) plan.

Others far more versed in the industry have provided excellent feedback on the documentary’s content. RIABiz’ article (See: The PBS 'Frontline’ 401(k) documentary names suspects but leaves out major culprits of the theft of the American retirement) provides an especially thorough and fair summary of the documentary’s value, in my opinion. (Editor’s note: Flattery will get you everywhere.)

For those that have or sponsor a 401(k) plan, and haven’t seen the “Frontline” report, it’s definitely worth the watch just to see the staggering effect that high account fees can have on an individual’s retirement savings.

Is it safe?

One fair criticism is that the documentary gives little attention to the many excellent 401(k) plans out there. See: Why brokers from Nationwide, LPL, Merrill Lynch and others are giving RIAs a cut of their 401(k) action. Sure, there are plans that actually do charge 2% or 3% in fees. The majority of 401(k) plans charge less and can provide an excellent savings vehicle for many individuals. The trick, many experts agree—and it is not an easy one—is figuring out whether a plan is “good” or “bad” in comparison with other available options.

As an attorney who follows the 401(k) industry, this is where the trail seems to run cold in the PBS documentary. OK, some 401(k) fees can be harmful. But how does one tell when the fees cross the line between reasonable compensation for a valuable service and excessive profits taken from unsuspecting investors? See: 10 most influential individuals in the 401(k) industry affecting RIAs in 2012, Part 2.

It’s really a two-part inquiry—one financial, the other legal. The financial aspect involves determining whether a 401(k) plan is a good investment for an individual and how to allocate between the plan’s investment options. This is the realm of financial advisors and has been well covered. The latter aspect involves a trip into the complicated and highly technical federal law known as ERISA.

As the name implies, ERISA is meant to protect and regulate employee retirement plans. It requires that plan sponsors fulfill certain fiduciary duties, e.g., that they act prudently and solely in the participant’s best interest. These duties extend to the service provider(s) that administer the plan in certain cases. In short, ERISA is supposed to make employee plans safe. See: RIAs join move to right a 401 ...

How to get going on Twitter

2013-05-21T10:52:24-07:00

This social media can be the most intimidating to start but it can be the best and most effective, too

Aaron Klein: On a heavy day, tweet eight to 10 times. Most days, tweet once or twice.

Brooke’s Note: I was maybe the last of my generation to get a driver’s license. I knew that any moron could do it. After all every one of them that I knew was hot-rodding around town. But still there were a world of things to learn and I didn’t want to stop and figure them all out. I think Twitter is a bit like that. Anybody can do it — easily. But many people don’t know where to begin — or they are like the Massachusetts drivers of the information highway and should have their tweeting privileges revoked. In an act of empathy and — there-are-no-stupid-questions pedagogy — Aaron Klein has written a column that I think is a key primer for any Twitter or would-be Twitter user before they warble out their next tweet.

It seems like every industry conference I’m invited to, someone is exhorting advisors to get active on social media. That’s largely because advisors need to rapidly build an authentic relationship of trust, and demonstrate their expertise and influence, if they’re going to win new clients.

Twitter is one of the best ways to do that. It’s an easy way to share thoughts, ideas and links, is readily found when a client Googles your name, and can be a high-ROI way to demonstrate expertise. See: What to make of Sallie Krawcheck’s emergence as a Twitter-sphere celebrity.

But of all the social networks, Twitter can be the most intimidating for the uninitiated. It can seem a bit arcane or simplistic at first glance, and the 140-character count may seem daunting. But once you dive in and really connect with it, it often becomes an advisor’s favorite network for its speed and ease of engagement.

In fact, while Twitter is set up as a social network, it’s actually far more of an information network for me — I never go to the home page of news websites any longer. Twitter is where I discover what’s happening in my world. See: RIAs use Twitter to reflect on the life and legacy of Steve Jobs.

Here are a few tips that I’ve developed for my friends to help them get going on Twitter — needless to say, they work for financial advisors just as well.

1. You, not your firm

Set up a good profile. Use a nice photo, use your real name, and write a quick bio that gives context to who you are. You can check out my Twitter profile here as an example.

People like to follow people much more than they follow firms or brands. So you’re much better off being John Smith, president at Amazing Financial Advisors, than you’ll ever be tweeting under your firm’s name. Case in point: I have about 5,000 followers and my company has about 400. See: Sallie Krawcheck talks tough — and with disarming openness — online about the glass ceiling and lip gloss.

2. Where it’s @

Follow 40-50 people who are active, influential and engaging tweeters. Pick people who are posting about things you’re interested in. Follow a few smart advisors like jdbuerger cfctremont or michaelkitces. A few great resources for advisor technology are billwinterberg and @fintechie.

How do you know if someone on Twitter is active, influential or engaging? When I glance at somebody’s Twitter page, I quickly assess that by looking at three variables. How long since their last tweet? How many people are they following? And how many people follow them?

If they haven’t tweeted in two weeks, they’re probably not active (unless the last tweet is about an off-the-grid vacation). If they follow more than 800-1,000 people, they probably aren’t reading Twitter themselves and won’t engage. And if they follow more people than are following them, they’re either just getting ...

LPL to Wall Street types: We're in phase three

2013-05-21T17:48:48-07:00

At a Merrill Lynch forum, the IBD's CFO explains that Phase I was the mass accumulation of advisors and Phase 2 was about RIA-ification

Dan Arnold: Now that our footprint's in place [we're] moving into the third phase of our strategy in 2013.

LPL Financial is shifting its focus toward building 13,000 mini-empires — and dialing back on adding critical mass for its own sake.

The largest of the independent broker-dealers, based in Boston and San Diego, began its self-identified third stage of maturity this year after completing a five-year stretch of its second stage.

During that 2008 to 2012 period the company largely focused on branching out into the RIA and defined-contribution plan business, according to its chief financial officer, Dan Arnold. He made the case during the Bank of America Merrill Lynch 2013 Smid Cap Conference held on May 7 at the Four Seasons Hotel in Boston. See: LPL shows flashes of its new image at Financial Masters 2013.

“[It was] more about expanding our capabilities to attract a more diverse set of advisors,” he says.

By the book

The stages of development have the fingerprints of the big owners of the firm, Hellman & Friedman LLC and Texas Pacific Group, which bought a majority stake in 2005, according to Chip Roame, managing principal of Tiburon Strategic Advisors LLC.

“I see a private-equity mentality being executed: diversify the channels, generate more revenues from multifaceted channels, earn high stock multiples,” he says. “What I hear [Arnold] saying is that they are now satisfied with their channels and they are going to focus on recruiting into those channels and helping each advisor grow their book.”

Roame says that the ways that LPL can help an advisors grow are somewhat limited: “I’d be blunt about what those opportunities are. First, source consumer clients — perhaps as part of the recent LPL brand building program. And second, help them with staffing and succession issues.” See: LPL’s marketing destiny got reshaped by a dark horse in a dark room.

Chip Roame: I see a private-equity
mentality being executed.

Beyond traditional independents

This LPL mentality shift was sensible in light of what a purer recruiting approach produced, according to Mindy Diamond, principal of Diamond Consultants.

“I’m guessing that post-2008, LPL, like a lot of other broker-dealers, wound up recruiting a lot of disgruntled wirehouse folks, but not those that really had a burning desire to be entrepreneurs. Seems like now, they are focusing on recruiting those that truly want to be independent, and are heading in that direction for the right reason.”

Arnold’s comments seem to support that view.

“Instead of just traditional independents we now attracted the advisors who were affiliated with financial institutions [e.g., bank broker-dealers through UVEST Financial Services].” We attracted those that actually wanted to operate their own RIA and custody their assets on our platform as well as use our broker-dealer. We acquired a firm who had specialized capability set in the retirement services space specifically in the qualified [plan] place that positioned us as a market leader to consult on 401(k) and 403(b).” See: What post-mortems of 401(k) and 403 ...

Pershing and BNY Mellon unveil a unified, 'dream' RIA and bank custody unit

2013-05-20T16:07:25-07:00

The idea is to create one service experience for assets held in both bank and brokerage accounts under a single advisor -- with Mark Tibergien calling all the shots.

Mark Tibergien: It's been a dream of ours.

Brooke’s Note: It seems like every time that we write about some grand integration, I get e-mails from people who say they looked under the hood and, lo-and-behold, it’s not really all that integrated. See: Fidelity is bidding its HybridOne brand farewell. I understand from Gabe Garcia and Mark Tibergien at Pershing that the combining of the BNY and Pershing custody units is not fully complete and that interested parties should stay tuned. Nonetheless, what has been developed in the past 18 months is already a major advancement and one that puts it ahead of competitors for aggregation of service and viewing of accounts from both the banking and brokerage side of the business. And it doesn’t hurt that the bank in question is BNY Mellon. Still, I’ll keep checking my e-mail inbox.

For as long as Mark Tibergien has been in his job, he has been hearing it: If only you could find a way to bring the worlds of BNY Mellon and Pershing together as one offering for RIAs.

“It’s been a dream of ours,” says the chief executive of Pershing Advisor Solutions LLC.

Bank of New York Mellon Corp. has cachet as a Fort Knox custodian where the very rich feel very certain their assets aren’t going anywhere. Pershing has its own cachet among advisors for understanding their more specific needs.

The so-called dream of putting Pershing Advisor Solutions and BNY Mellon’s Wealth Management Advisor Custody Group into one custody sandwich was announced yesterday. It means that advisors won’t have to choose between the different custody models and that business development, relationship management, client service and technology will all be a single client experience, according to the company. All the employees dedicated to each of those areas in the two former silos are now cross-trained for the (formerly) sister unit.

The integrated bank and brokerage offering will also allow advisors to realize operational efficiencies by eliminating duplicative efforts while being supported by BNY Mellon, with its more than $26.2 trillion in assets under custody.

Chain of command

The new offering will exist under the PAS brand though the Office of the Comptroller of the Currency will oversee banking assets and the Securities and Exchange Commission will regulate brokerage assets. From a viewing and service perspective, the assets will be consolidated in Pershing’s NetX360 through BNY’s Private Workbench. See: Pershing puts RIA custody on desktop of thousands of IBD reps.

The 30 people who perform those various duties for RIA clients under the BNY brand will now be consolidated under Tibergien’s command. Peter Berg, who oversaw BNY’s RIA business, now reports to Tibergien. See: BNY Mellon’s new RIA custody unit will collaborate [and compete] with Pershing Advisor Solutions.

Tyler Cloherty: They’ve been in the
running a long time and haven’t
been able to gain much momentum

Making all of this happen took a solid 18 months of work and maneuvering and came about only because of an initiative by BNY Mellon CEO Gerald Hassell to realign the corporation around markets — in this case RIAs — rather than products or service offerings.

From theory to practice

The combined unit has 500 advisors with $110 billion of assets. There are currently 22 RIAs who are doing business with both Pershing and BNY. But Pershing is betting that those assets, and the number of shared RIAs, could go up substantially under the consolidated unit. Of the ...