Special Report

ThinkAdvisor LuminariesBrowse Coverage

LPL's Steinmeier: Who Are You Calling an IBD?

By Janet Levaux

Q&A January 09, 2024 at 03:32 PM

Share & Print

As head of business development for LPL Financial, Rich Steinmeier — like many other executives — had lots on his plate in 2023.

In the fourth quarter, the firm added tax planning services, a high-net-worth — or private wealth — channel and a new outsourced CFO program. It hired a new chief compliance officer, Jim McHale, formerly of Wells Fargo, and brought on Amy Philbrook from Robinhood to be its head of service.

LPL reported assets of $1.2 trillion in the third quarter, along with recruited assets of $31.2 billion. Its headcount stood at 22,404 financial advisors, up 462 from June 30 and a jump of 1,360 from a year earlier.

Steinmeier recently took a break from his busy schedule to look back at 2023 — with the firm and within the financial services industry. He also opened up about the challenges of leading a firm that's still seen primarily as an independent broker-dealer, despite its aggressive rollout of new advisor channels and services.

The executive, who worked earlier for UBS, Merrill Lynch and McKinsey & Co., weighed in on the "demanding expectations" the firm has for its leaders, turnover rates at the wirehouses and the need to "stay humble" by continuing "to listen to our advisors, and make sure that we are responsive to their needs."

Here are highlights of our conversation:

THINKADVISOR: When you look back at 2023, what was LPL Financial's top accomplishment, and what made it happen?

RICH STEINMEIER: It's pretty clear for 2023: We had our lowest advisor attrition in the history of the firm. I think it could be the lowest in the industry. We are sitting at right around 1% advisor attrition.

Unlike other firms that call it regrettable attrition, and have a caveat to only count [certain] people, I'm actually talking all-in attrition. All-in attrition at the firm is right around 1%. Again, that's the lowest we've ever had.

We also measure our net promoter score. In 2023, we had the highest score since we started recording it. So, we had the highest advisor satisfaction and the lowest attrition in the history of this firm — which is saying something.

How did we get there? The culture of this firm has always been very client centric — and when I say client, I mean advisor. Our client centricity has never wavered.

Our capability set, innovation and ability to meet advisors where they want to run their businesses are what we've been working on for several years. It's paid off in a material way, and advisors are seeing it.

They are seeing that they run their businesses the way they want to run them. They have world-class capabilities. They have a firm that is listening to them, that is evolving to meet their needs, and that really shows up every day to serve them.

It's very clear that that's our job. We're pulling through in lots of ways, and the proof for us is in the pudding. Very few advisors are leaving this firm, and the ones that are here are saying they're highly satisfied. That's a fantastic accomplishment that we are very proud of.

How do you see your role, and that of other LPL leaders, in driving that success?

It starts with knowing why we show up every day to work.

I've worked at a bunch of other firms. This firm is the most advisor centric; we call it client centric. Other firms call their clients the end investors. We make no claims to the clients of our advisors.

This is the most client-centric firm I've ever been a part of and been exposed to. As a point of reference, I'm not just talking about wealth management. I worked for McKinsey and Company for years and served dozens of companies.

Our strength is around who we serve, how we serve them and why. That's true of the management team here — from my boss, [CEO] Dan Arnold, on down. You can't work here if you do not deeply respect and want advisors to succeed and also believe in the power of advice delivered through advisors.

There's an entrepreneurial spirit that pervades the firm. We obviously serve entrepreneurs, and our firm aspires to emulate their entrepreneurial nature while being responsive and reflexive to them.

You could say there's a good number of folks who spin out of this place in the senior ranks. It's because we are very demanding in our expectations and around our need to serve those clients.

That's the singularity of understanding, and we've gotten to the point now where people come here because they self-select with that view.

That's why I joined the firm, because of the mantra and the culture. It's got some benefits, and that is really why we're strategically well positioned. If you come here, you are coming here because you believe deeply in serving advisors. That really shines through in how we make decisions.

By the way, we don't get everything right. We've got a lot of capabilities we're still building into. But it's not because we have any ambiguity as to who we serve.

What's a key challenge that you or the firm faced in 2023, and how did you overcome it?

This hits home to me because one of my roles is running recruiting for the firm. I joined here 5 1/2 years ago, and this firm was solidly viewed as an independent broker-dealer. We have worked really hard to expand our capability set to be a much broader, holistic wealth management partner for advisors in the industry.

While our capability set has evolved rapidly and expansively, our perception in the marketplace lags our capability set. So one of the biggest challenges we face as a firm is that we did mean something in the marketplace for over 30 years, which is being this leading independent broker-dealer, but we have really shed that skin.

We are a much broader firm today. We can serve advisors across the board. We have affiliation models that support almost all types of advisors and degrees of sophistication like W-2 models and private wealth models. We support banks, credit unions and insurance firms. We are a broad and leading wealth management firm.

Our perception for many in the industry still sits with that [earlier] kind of IBD, where [advisors] kind of try this or that on, and if it doesn't fit can move on from it.

That's a big challenge for us — reshaping how we're perceived in the marketplace as a broader, leading wealth management firm. We have to do that through influencers, having a more active brand campaign and actually winning by surprising advisors who change the perception of others they know.

That's why the net promoter score that I referenced earlier is so important. It's the voice of the advisors that are here, and it's the most credible voice in the marketplace.

Advisors who know someone who joined us, who view us differently or joined our W-2 model, our strategic wealth services model and some of these different newer models, they call back to those advisors still at their [earlier] firms and help change the perception.

There are two different ways you get the net promoter score. We work with a vendor who surveys our [advisor] clients, and then we get a score from them. We do our survey quarterly with an outside vendor. J.D. Power also does this survey work once a year, usually in the third quarter.

Overall, what do you see as the top wealth management industry issue for 2023, is it still important this year, and what is LPL doing about it?

As for what persists across 2023 and 2024, one of the things that we have identified is the need to solve for — because it's one of the industry's top challenges — is the abundance of retiring advisors.

Folks really want to be able to leave the industry, and so many folks have moved to independence. That's great. But the independent construct hasn't had a very robust set of solutions and support for those advisors wanting to monetize their life's work and have some options around that.

They are asking, "How do I keep my legacy intact? Maybe I want to sell, but I want to sell to the next generation. How is capital being provided? Does it have to be financed by the seller?"

So, let's say I'm retiring at 65, but now I won't get the spoils of my work all at once. I've got to finance that, and the team is buying it back. Or maybe my second-generation or G2 [colleague] is buying it back from me over a period of seven to 10 years.

This is an area that more and more folks are moving into for the retirement window. More robust solutions are required. You see a lot of innovation in the industry and also see a lot of misinformation. You see advisors not feeling fully informed to make the right decisions.

We view this as a tremendous opportunity to come with clarity, offerings, counsel and just plain help for our advisors and hopefully more broadly for advisors who want to make really good decisions to monetize their life's work.

If they are, it's important to them to keep their practice going without selling it to an aggregator who's just gonna roll it up and homogenize it. This should not be the only solution that they see.

We're working on a lot of solutions in that space, with the advisor at the center. We are asking how we come up with advisor-centric solutions that actually support them, starting with what their goals are vs. what our goals are.

Too many of the solutions in the industry today start with the firm's goals in mind and put the advisor second. So this is the area where we've done a lot of innovation in 2023, and we see it continuing to take shape into 2024.

What industry development most surprised you last year?

I was really surprised that the churn out of the wirehouses actually began to trend back down. So pre-COVID, about 3.5% of advisors would leave the wires every year, and during COVID that got up to about 7%.

I presumed that this would have stayed at around a 7% churn, because the genie was out of the bottle. It's very clear that advisors are choosing, and they don't need the support. They don't need to give up 60% of their pay.

They've learned that through the COVID years that all the infrastructure they thought was supporting them, they can do pretty well without it. I was surprised to see that that churn had trended back down slightly.

I think it's now in the 4.5% to 5% range. I would've expected that it would've stayed at an elevated range of around 7% and maybe even accelerated further. That was surprising to me.

Where do you think this situation at the wirehouses will go in 2024?

I would imagine [the churn] will stabilize at rates higher than the pre-COVID levels — in that 5% range.

The collective industry needs to do a sustained job at educating advisors on their choices and options. This is something we need to take a look at: When you thought that genie was out of the bottle and everybody got the punchline to the joke, the focus was on helping them get here vs. educating them on why it's better to be independent.

We need to go back to educating and influencing [wirehouse advisors] about why there's a dominant solution and it's moving to independence.

There's still a number of folks there who could really benefit in the way they serve their clients and the way they actually monetize their life's work.

In 2024, do you have a professional or personal New Year's resolution?

I am trying to sustainably live a healthy life. I ebb and flow dramatically in terms of this.

Recently turning 50 was not a big signature event for me, but it was one that made me think about a lot of things.

I used to hear people say about losing weight, "I walk, I go out, I drink water, and I walk my dog." Meanwhile, I was working out like a beast. Now I've realized that I can walk my dogs every day at 5 a.m., and I have replaced caloric drinks with water.

These are the lessons — there are small improvements. There are small choices that you make throughout the day, such as whether you take a steak or whether you take fish, or do you eat a salad at lunch or something that makes you feel a little bit better, like a hamburger.

At this point, I have to be conscious around making those decisions. Earlier, I had gotten myself to a place that was pretty unhealthy, and my family was like, "Hey. We want you here for the long run. Can you start making some better decisions?"

For me, it doesn't have to be all or nothing — such as going back to Orangetheory for the 5 a.m. classes six days a week. It's really about how we start making some decisions at the margin. It's about getting myself to have a sustainably healthy lifestyle that also allows me to [treat] myself with grace.

I'm not going to be a Division 1 athlete. My goal is to be able to play tag with my son, run around with my daughters and things like that.

So I'm focused on different goal setting around being more reasonably healthy and trying to sustain that over time versus having those big fluctuations in dropping weight and then gaining weight and then dropping weight again. I would prefer to just live a more healthy sustainable life.

What's your general outlook as we start 2024?

The great thing for us is that we're killing it here. We have set ambitious goals, and we are achieving those goals. We've made a lot of investments in making the firm much more flexible, making it more oriented to advisors and building capabilities that are world class so that we can go toe to toe with any firm in the industry and be credible to advisors.

Plus, we're generally becoming [more] understood in the industry and by advisors.

We're in the public market and aren't private equity owned, so we've got control of our destiny. There isn't going to be a change in ownership. It feels like the conditions for success in 2024 are pretty well set up.

We have to stay humble. We've got to make sure we continue to listen to our advisors, and make sure that we are responsive to their needs.

We're doing reasonably well, and it feels like 2024 should be another year in which there are the conditions for us to be really successful in terms of our support of advisors. I'm super excited. This is probably the most excited I've ever been going into a new year.

NOT FOR REPRINT