ABSOLUTE GAME CHANGER: LPL announced that it is lowering its Strategic Asset Management Pricing (SAM) on a sliding scale to 0 basis points depending on an advisor’s assets under management (AUM). You might want to read that back to yourself slowly…ZERO.
Note: This fee is known by other names at other firms, including Global Admin Fee – GAF or Advisor Admin Fee…basically what you pay for the cost of doing business at your Broker-Dealer (BD).
We have a question for you: Do you know what you are paying at your current BD? It probably isn’t 0%, the average is 15 – 20%.
How does that apply to you? Example: If you are grossing $1m in revenue and your admin fee is 20%, that could be an expense of $1m over 5 years or money in your pocket…which would you prefer?
The other question we have for you, is your current BD providing you with $1m in value? If not, we can help you make an informed business decision.
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For a number of reasons, experts believe LPL’s move will cause advisors to start questioning the value they are getting from their current BD. In fairness, the challenge for advisors, however, still lies in identifying those new opportunities, finding their best fit, and uncovering the truth behind the numbers (even 0%). Some BDs think and maybe do provide the $1m in value. If they do then cost does not matter. Other BDs may provide more of a growth model, while LPL is presenting an expense model proposition.
The GAF is frequently misunderstood, obscured behind multiple terms, or even forgotten about by advisors who have been with their BD for a while and may have slept on incremental increases that amount to real money after many years.
As Chris Stacey, the COO of 3xEquity, the industry leader in facilitating career transitions within the wealth management space, told us earlier this year, “doing an apples-to-apples comparison isn’t easy because fees can be called different things across the industry. Furthermore, a new firm may present a rosier picture of what the GAF really is.”
LPL has to be doing lots of things right and now they are doing what every BD should do: treat their advisors as their clients first. This approach has paid off in many ways, with LPL’s annualized return on their stock over the past 5 years at 29.44%. For comparison, Morgan Stanley has averaged 16% (according to Morningstar).
LPL has thrown down the gauntlet, clearly stating its GAF, while also providing incoming advisors who have a significant book of business an incentive. Their new program is a sliding scale from 3% basis pts. on AUM to 0%, with levels set up to be achievable – this isn’t some unattainable carrot.
Will other firms follow?
“Other firms are not going to stand by and watch LPL claim such a competitive advantage,” said Stacey. “While they may not adopt LPL’s aggressive approach, they will likely try to mitigate that competitive advantage.”
In the short term, this move will likely create confusion for advisors, who are weighing a move to a new firm. Stacey noted that 3xEquity has been monitoring the differences in admin fees/GAF among BDs for years, meaning that it possesses proprietary intel about the industry practice.
3xEquity has developed proprietary tools to calculate the impact of admin fees. While a 0% admin fee may seem the pinnacle in terms of choice, the reality for an individual advisor may be different – making working with a transition consultant even more important.
Curious to learn how your fees stack up? Find out now.