Recruiting Loans Climb at Ameriprise, LPL
March 3, 2021
By Jake Martin, AdvisorHub
Recruiting loan balances at Ameriprise Financial and LPL Financial continued their ascent in 2020 as the firms sought to build their sales network in independent and employee brokerage channels.
Ameriprise ended 2020 with $715 million of recruiting loans on its balance sheet, according to its annual report, a 10.8% jump from 12 months earlier. The Minneapolis-based firm originated $171 million in such loans in 2020, up nearly 25% from the end of 2019 and up 69% from $101 million two years earlier, according to the report.
The increases in the hiring bonuses reflect the surprising strength of broker movement across the industry during the pandemic year and the particular ability of independent broker-dealers to attract brokers from employee channels. LPL is the biggest broker-dealer with more than 17,000 independent contractors. About 7,800 of Ameriprise’s almost 9,900 advisors are independent.
“Competition is greater than it has ever been on the IBD side, as broker-dealers clamor for a shrinking pool of quality producers,” Jon Henschen, a recruiter who specializes in independent firms, said in an email. “Larger amounts are being offered on forgivable notes because it gets advisors attention and is a motivator.”
Ameriprise has emerged as one of the most aggressive recruiting firms, although it does not break out how much of its broker loan balances are attributable to its employee versus its independent channels. It stepped up its employee channel offers in 2018 to as much as 320% of the trailing-12 month revenue recruits were producing at their former firms.
An Ameriprise spokeswoman declined to comment on the recruiting loan balance or its offers to advisors.
Independent broker-dealers allow brokers to keep from about 70% to 90% of the fees and commissions their clients generate, compared with about 30% to 50% that employee-model brokers keep. But the independent firms also have been less aggressive with signing bonuses.
LPL, however, has opened its wallet and expanded its affiliation options to feed its growth appetite and leverage scale advantages. End-of-year recruiting loan balances were up 24% to $419.2 million as of December 31 from 12 months earlier, according to its annual report filed last week
LPL typically offers upfront “transition bonuses” of 30 to 50 basis points of the assets brokers joining its core independent channel are expected to move from their former firms. But recruiters said the offers have increased, reflecting the continuing popularity of independence and the desire to attract disgruntled independent brokers from firms that are being or have been recently acquired.
Recruiting loan balances have also risen at selective regional and national firms. Outstanding loans at Morgan Stanley, the largest wirehouse as measured by its nearly 16,000 brokers, climbed to over $3 billion as of year end 2020. The balances are 8.7% higher than 12 months earlier, and the first increase Morgan Stanley has reported in eight years.
UBS Wealth Management USA, which has fewer than 6,000 brokers in the U.S., had $1.87 billion in recruitment loans to financial advisors outstanding as of year end 2020, down 9% from $2.05 billion a year ago. Like Morgan Stanley, UBS re-entered the recruiting market last year, although recruiters have said it has been less aggressive and has focused on salaried private bankers and bank-based brokers rather than grid-based producers.
Independent broker-dealers offer brokers payouts of about 70% to 90% of the fees and commissions their clients generate—compared with about 30% to 50% that employee-model brokers keep—although recruiting bonuses remain significantly lower than employee-model firms that generally pay 100% to 300% in combined front-end and back-end T12 bonuses.
Advisor loans amortize over a term of up to 10 years at both LPL and Ameriprise, according to their annual reports, which is in line with employee-model firms.
LPL finished 2020 with 17,287 advisors, up nearly 5% from 16,464 the prior year, according to its annual report. Over the same period, average total assets per advisor climbed 12.5% to $52.2 million from $46.4 million.
Ameriprise had 7,805 independent contractors in its “franchise” channel as of the end of 2020, up a net 65 over 7,740 the year before. Its 2,117 employee-channel brokers were down from 2,131 at the end of 2019.
