December 6, 2016
by Danielle Verbrugghe, FUNDfire
LPL Financial’s longtime CEO Mark Casady is set to retire early next year. The firm’s current president will replace him.
Casady will retire from the CEO role effective January 3, 2017, according to an announcement from the firm. Dan Arnold, the current president of LPL, will become president and CEO at that time, and will join the board of directors. Casady will continue as non-executive chair of the board until March 3, 2017.
The leadership change comes as LPL Financial is preparing to help its advisors comply with the new Department of Labor (DOL) fiduciary rule for retirement advice, which is set to take effect in April 2017. LPL was reported to be considering a sale, ahead of the onset of the new rule.
The announcement means that a sale is unlikely to take place in the short term, wrote Citi analyst William Katz in a research note to clients.
“We doubt Mr. Casady would decide to walk away if [LPL] was in discussions regarding a potential sale,” Katz wrote.
Casady had originally joined LPL in 2002, and led the company through years of rapid growth through recruiting and acquisitions to become the industry’s largest independent broker-dealer.
Casady also oversaw firm efforts to build out a hybrid registered investment advisor (RIA) platform, and to build out its own internal investment advisory programs. LPL was the seventh largest managed account program sponsor, with $205.6 billion in total managed account assets, at the end of the third quarter, according to Cerulli Associates data. The firm had $502 billion in overall brokerage and advisory assets in the third quarter, according to earnings data.
But as LPL grew, it also suffered numerous regulatory compliance problems, as infrastructure and compliance systems failed to keep pace with the growing army of independent brokers. The firm, in recent years, has taken steps to beef up compliance resources.
But regulatory challenges have persisted. Earlier this month, Massachusetts’ top securities regulator charged a broker with variable annuities sales fraud, blaming the home office for supervisory failures and calling the firm’s review process “paper-thin,” as reported by sister publication Ignites.
The new DOL fiduciary rule is also set to greatly increase the regulatory and compliance burden the firm, and its advisors, face.
The new regulation is expected to pose major challenges to the independent-broker-dealer industry. Independent broker-dealers may stand to lose $250 billion, or 11% of client assets, and $4 billion, or 22% of revenues, by 2020 because of the rule, a research report from A.T. Kearney projected.
LPL and Casady are also facing scrutiny over a share buyback program from 2015, that took place after LPL was targeted by activist investor Marcato Capital Management, and was said to benefit one shareholder, private equity firm TPG, at the expense of other shareholders. A Michigan pension is suing LPL and Casady over the issue, claiming that the firm made false and misleading statements about fourth quarter performance and allowed TPG to sell its shares at an artificially inflated price, as reported. LPL bought 4.3 million of its shares from TPG priced at $43.27, according to the report.
In the months after the buyback, LPL’s stock price collapsed, bottoming at $16.50 on February 12 after a disappointing earnings report. The shares have subsequently recovered most of that value, but still remained below the price of the buyback as of Monday afternoon.
Before LPL, Casady was a managing director of the mutual fund group of Deutsche Asset Management, Americas, formerly called Scudder Investments. He had been head of the global mutual fund group, and head of defined contribution at Scudder. Before that he had held roles at Concord Financial Group and Northern Trust.
Arnold has been president of LPL since March 2015. He originally joined the firm in 2007 through the acquisition of UVEST, a broker-dealer, which he had led as president and COO. Before taking on the president role last year, Arnold had held a number of leadership roles at LPL including CFO, head of strategy and divisional president of the institution services business.
Arnold isn’t likely to “rock the boat,” at LPL, Katz wrote, in the Citi analyst note.
“We believe Mr. Arnold is respected within the industry, and do not expect any meaningful advisor attrition from the announcement,” Katz wrote, maintaining a neutral rating on the stock.
Katz wrote that he expects the firm’s stock to underperform in the short term as “hopes around a potential sale get washed out of the shares.” In the longer term, removed uncertainty over a potential sale could help advisor recruitment, he wrote.
LPL’s stock fell 3.68% yesterday to close at $39.48.
While a management change may signal a lack of stability to advisors, it could also assuage concerns about repeated compliance problems at LPL, says Jon Henschen, president of Henschen & Associates, a recruiting firm focused on the independent broker-dealer market.
“It doesn’t bode well for stability, but perhaps this change of the head can change the course of their compliance history which has not been going well since they went public,” Henschen says.
Numerous compliance related regulatory charges against LPL and associated bad headlines have raised advisor concerns about the brokerage, Henschen says.
“At their last conference with LPL, Mark [Casady] reassured the advisors at the conference that they were through the regulatory mess and that its smoother sailing going forward,” Henschen explains. “But since that conference there has been more compliance issues.”
Recent regulatory scandals, such as the recent charges over variable annuity sales, have “reflected poorly on their compliance control over their own reps,” Henschen says. “The continued [regulatory] run-ins could have been the tipping point for Mark.”
A LPL spokesman attributed Casady’s departure to a personal decision to spend more time with his family. The spokesman said that Casady nor Arnold were available for an interview yesterday.