LPL Financial is introducing new clauses in its service agreements with some of the larger registered investment advisor (RIA) practices that leverage its services. These changes are poised to reshape the landscape of the custody market significantly.
The firm seems to be consolidating control over the Offices of Supervisory Jurisdiction (OSJs) within its network. OSJs are substantial advisory groups affiliated with an independent broker-dealer that not only oversee but sometimes also acquire smaller practices within the same broker-dealer platform. LPL provides these OSJs with enhanced support, resources, and preferential pricing through its enterprise affiliation model.
LPL has begun notifying select OSJs about these updated terms, a move perceived by industry insiders as potentially making LPL a less attractive custodial option, potentially triggering a migration to competitors like Pershing, Fidelity, Schwab, and Goldman Sachs. The targeted OSJs are predominantly large, independent RIAs.
One industry expert commented, “Receiving this letter should be a clear sign to reassess your partnership with a firm adopting such a stance.”
The modifications include LPL’s new right to veto any sale exceeding a 10% stake in these firms to external investors. As these large OSJs increasingly engage in acquisitions, they have drawn attention from private equity firms similar to those investing in other RIA aggregators.
Furthermore, LPL now requires these specific OSJs to inform and obtain approval from LPL before relocating assets away from its platform.
An informed source anticipates that this will lead to a strategic "land grab," with some of the largest OSJs refusing LPL’s new terms and choosing to partner with alternative brokerage firms and custodians. LPL might counteract by extending attractive propositions to individual advisors and teams nested within these OSJs, aiming to retain them on its platform. This strategy, if successful, would fulfill what is perceived as LPL’s ultimate objective: to dismantle the large OSJs that have thrived under its banner yet are increasingly viewed as rivals.
LPL confirmed the revisions to the master service agreement in a statement, though it refrained from discussing the motivations behind the changes.
“Our revised MSA aligns with industry norms and enhances the flexibility our clients have in capitalizing on their business ventures, while still upholding their autonomy,” stated LPL.
Brian Hamburger, a prominent industry lawyer, mentioned he is advising most of the large OSJs as they evaluate their legal avenues. Hamburger acknowledged receiving the updated terms of affiliation with LPL but chose not to comment further.
