Unlocking Real Value Blog

AK In The News: LPL Compliance Makeover Spotlights Manager Risk Controls

I  was quoted in an article in today’s GatekeeperIQ (A Financial Times Service) about the implications of some of the problems that LPL has been having on the compliance side recently – not the kind of news they want!

Some LPL advisors have come under scrutiny with some state regulators for selling non-traded REITs inappropriately, and the firm itself was recently sited for a huge compliance failure on its monitoring of emails.

What are the ramifications for LPL moving forward? First, they obviously need to fix these compliance deficiencies and demonstrate to both the outside world – the regulators – that they have their act together – and then the inside world – their own advisor groups – that this public relations nightmare will be put successfully behind them.

Easier said that done. LPL can fix the compliance issues and increase its communications and education to advisor groups. But they walk a fine line between satisfying the needs of the regulators and ensuring that they are following all applicable laws (as are their advisors) on one hand, and overreacting and making these compliance changes so burdensome that they lose a lot of advisors on the other.

Unlike traditional B/Ds that can mandate strict compliance to their advisors from the top down, LPL, as an independent, is in a little bitter of a tougher position. I think it’s fair to say that advisors at an LPL, most having likely already moved from a wirehouse or other independent, would be more likely to switch firms if things become untenable more quickly than traditional B/D advisors (who are more used to that type of compliance world.)

To quote from the article: “That culture also puts LPL in “a very tough position” in disseminating the home-office driven compliance overhaul, according to Andrew Klausner, founder and principal of AK Advisory Partners. “While on the one hand they do have to clean up their compliance procedures, they have to do so without over-burdening their advisors,” he says. While advisors at wirehouses and regional firms may be accustomed to product and procedure mandates passed down from headquarters, at an independent shop, such dictates can threaten retention. “If LPL were to try such tactics, I would imagine that they would see a large exodus of advisor groups to other independent sponsors.””

What do you think?

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