The Evolution of Independence: Empowering Advisors as CEOs

Marc Cohen:

Well, Conor, first of all, thanks for having me. I know we’ve talked about this for a while. I’m glad we were able to make it happen. LPL, so I’ve been at LPL for about six years now. I came over and joined the firm after a close to 16 year run in the independent advisor space, helping advisors go out and really find their independence. Worked with thousands of advisors over the course of that tenure who had found themselves in a captive environment at the wirehouse or banks or other traditional wealth management positions, and we’re looking for something a little bit different, a little bit more. And so I think what we were able to see was the evolution of the industry towards where it’s come a little bit closer to today. I had an opportunity to jump over and join the leadership team over at LPL and do that with a mission of trying to figure out how do we take LPL from what everyone has known this firm to be as a traditional independent broker dealer and be able to transform it into a progressive full service wealth management platform with a variety of different ways that we could partner with financial advisors, financial institutions to be able to deliver advice to all Americans.

Conor Delaney:

Awesome. I remember that when you first started at LPL six years, the transformation for the company has been amazing, but I remember the first conversation we had, I was walking through my town in Florida, get on the phone with you, and at the time I was younger, a little bit more of an edge about me, and I remember after the first conversation I was like, well, this isn’t going to be the typical engagement with LPL because this guy’s smart. There was a lot of smart people, but the team was bringing on these incredible leaders from different areas and different disciplines. It wasn’t just, Hey, let’s go get the top guy at this other financial firm. It was people across all kinds of disciplines and just bringing the top talent to the organization. So they bring you in. All of a sudden, I have to pivot. I’m like, well, I’m not going to be able to outsmart this guy because a genius. What was the thing that was the catalyst to take you from where you were, which was working with advisors sort of on the periphery, but it wasn’t doing what you’re doing now. What was the kind of main reason the driving force between you making that it was a career change, it was a change in location, what was the main thing that got you really excited about LPL?

Marc Cohen:

Yeah, so I mean having been in this industry 16 years already and watching what was going on in the space, I got an opportunity to be able to meet some of the most senior leadership at LPL through just some happenstance, some collaborative projects that we were working on for shared clients. And what I started to witness was the early days of what appeared to be a pretty substantial transformation of this firm. And that started with change of leadership in the middle of the last decade and started to progress through with a really very well articulated compelling strategy that was defining where the independent wealth management space could potentially be. From my standpoint, working in a small business my entire career up to the point of joining LPL in a small business, I think largest company was about 40 or so employees. Jumping from that to LPL at the time of 4,000 now on the precipice of 10,000 was a very, very big change for me.

But I always had something in my gut that said, I want a little bit more. And if you think about where I was coming from, not very different than you. I started in this business. I started in the independent wealth space as a 17-year-old kid and learned a lot over that journey. Here I am in my young thirties and I’m in a spot where I’m trying to figure out what are the next stages of my career potentially look like. And I wanted something a little bit more. I wanted something where I could have perhaps a broader influence and a broader impact. And when that opportunity came about where LPL was offering me a chance to be able to come in a pretty meaningful leadership capacity, and I saw what the transformation was already from a cultural standpoint inside the firm, it was at the time the best kept secret because me, others on the outside had no idea what was going on inside those walls, but you could already tell from the leadership that there was something special happening there. It didn’t hurt that my wife had been begging me for about two years to move to Southern California. She was tired of the New York area. And so you put those pieces together and here we are.

Conor Delaney:

Yeah, that’s awesome man. And I’ve always said if you listen to, it actually gives me a competitive edge when I’m talking to other folks that are considering going independent, where are they going to go? And what’s interesting is my pivot is always just look at the focus that the strategy that they’re bringing on the board, when you have that quarterly earnings call, everybody’s bringing their A game and with specificity what the direction in the strategy is of the firm. And I think that that is a huge competitive advantage versus other earnings reports where you’re not necessarily, or quarterly earnings calls where you’re not necessarily hearing as much intention about where they want to go. The intention of LPL make no mistake is to take over the world. It’s total world domination. That’s what I tell everybody. And so it’s a great time I think to be in the independent space. It’s a great time to be, for us to be a partner with you guys over at LPL l. And so let’s talk about the independent space. So

Marc Cohen:

I think Conor, you just said two things and I think it’s important to pull on. The first is you were talking a moment ago about bringing in top talent and then you’re just talking about strategy. And you’re right, we are all in on strategy and we kind of geek out over it and have a lot of fun and we’re fairly transparent about our strategy because we’re confident in who we are. We’re confident in our ability not only to develop leading strategy, but be able to then go and execute on it. And I think that’s an important component, but you’ve got that old adage about talent eating strategy for launch. I’d actually rather have both. And I think when you’ve got both, that’s what ends up allowing you to be able to push forward and run into the future and you put those components together within the framework and the context of a really compelling opportunity set that we’re all living into in the independent space.

When you think about the fact that you look at Siri or other independent research data, everything tells you that for the last 10 years, independent investors, consumers are more willing to pay for advice and they they’re looking for that advice from a human who’s able to bring human empathy to them. And you do that in an environment where advisors are increasingly saying, I want to do it in an independent construct, not within the rules of what has traditionally been the case in the wirehouses and other spots. You put those three pieces together, independent financial advice is going to thrive for plenty of time to come, and if you’re the leader in that space, you’re in a pretty good spot.

Conor Delaney:

Yeah, I agree with that. I think the other interesting thing is just looking at the change in mindset of the investor, as you alluded to, if you go back 15 or 20 years to the start of our career, some for me as an advisor, some of the headwinds was that we had to compete with these huge New York firms with their logo on the business card and the clients were like, Hey, with any hope this company over here is going to take me on as a client. So when the consumer’s mindset has shifted around the brand, the value of the brand, and so I was my father and I and my brother and my sister would be driving up the street. My dad saw a big white building, and in that building was Dean Whitter, I think at the time it wasn’t even Morgan Stanley yet, and he used to say one day they’re going to take us on as a client. And my point is that the industry has shifted that all of a sudden the client, the consumer who drives ultimately the behaviors of advisors and the firms that are affiliating them, the client has changed their mindset. They’re now in the mindset of I want to know the person. I don’t necessarily care as much about the brand that they’re hanging their hat with. Would you agree with that?

Marc Cohen:

I think it’s spot on, but I think there’s a few dynamics that lead to that. If you look at the way that these large institutions have evolved, their wealth management programs, they’ve steadily been increasing what the minimum account size is that an advisor’s allowed to be able to serve. The rest of it sweeps right into their call center type models because it’s greater profitability for them and they want the advisors focused elsewhere. So many clients who you’d consider Main street type clients, even those who maybe are emerging clients aren’t even in the position where to your point, they’re able to work with that advisor who’s sitting in that white building. You think about it on the other side, and I think what’s happened particularly over the last 10 years is with the emergence of the gig economy, think of Uber for instance, or other types of environments where you’re going on TaskRabbit and having someone come in and help you hang the pictures on your walls.

You don’t need to call a recognizable brand, a recognizable name to be able to get good service anymore. You know can get to the airport with Uber, and it’s probably a lot more convenient than having to call the local car service that’s been advertising on tv. And I think there’s a component of that where not only in wealth management but across our society, the mindset of a consumer has changed, has evolved into convenience, into personalization and into personal relationships and personal service. And so that I think is a lot of it. Now, there is a component where you need to be able to still be able to build meaningful confidence because when you’re dealing with someone’s wealth, it’s probably the second most important thing in their life behind their health, and most people when they’re going in for open heart surgery aren’t necessarily going to go to the bodega down the street.

They’re going to try and figure out who’s the credible resource that I can go and do this with? Same type of thing with their money. I think they’re going to look for some credibility. They’re going to look for security, especially in light of what’s happened over the last 15 years with various scandals that hit the cover of the Wall Street Journal. They’re going to want to make sure that they’re protected and that they’re in a convenient spot. And I think that’s what’s been really interesting and cool about the independent space when you’re a small advisory shop who’s able to serve and really do a tremendous job in your local environment, in your local community there and be able to build great relationships. But you could do it with the backing and on the platform of a larger organization selfishly in LPL for instance, with approaching $2 trillion of assets on platform and you could talk about what that security is that brings, I think that combination is what really unlocks tremendous opportunity for these advisors. You don’t have to go out there and hang the Dean Witter shingle. You can go out there and instead be in a spot where you’re promoting your own brand, you’re building your own experience, you’re defining what your own model is, but you’re doing it in a spot where you can confidently say, your money’s secure because I’m not holding it myself in my office here. It’s being held by a large institution.

Conor Delaney:

Yeah. Two things to follow up on that. One is this idea that if you have a piece of cardboard and you’re selling apples, you write on a piece of cardboard apples with an arrow that way people are like, oh, that apple’s fresh off the tree. That thing didn’t even hit the ground. But if you take that same piece of cardboard and you say financial advice that way, then the person’s like, you know what? I’m going to go somewhere else. So the brand doesn’t matter until it does. And in the local community that I think is one of the coolest things about those that were even before me in the independent space, they kind of trailblazed and cut that first track with an LPL or with some of these other shops of like, Hey, we will figure out how the independent space is going to be relevant.

But it’s super relevant now, and I think what we’re excited about in partnering with you guys is you have this whole gigantic independent sector and then you have LPL who’s got a big piece of the market share, and then you have an organization like goodlife that can still create that intimacy with the advisor and creating that right type of community. But then also we can backfill and support some of those things so that the advisor isn’t writing on a piece of cardboard financial advice that way. Totally. I think that that creates opportunity for us to partner together. It creates opportunity for the advisor that maybe didn’t have hope before. But here’s the other thing that I think is really cool. I was talking to our advisors about this yesterday. You and I and your organization, my organization have been able to create in our ecosystem a quarter of a billion dollars of new net worth for our advisors.

This dawned on me a couple of weeks ago. I was sitting there thinking, I’m like, we have taken people from owning their 401k and maybe owning the title of senior corner office dude to owning probably their largest asset. And I think that we’ve really under-discussed how much wealth the independent space has created, taken out of those big firms and created for people that really deserve it. The advisor that’s out there digging the trenches and stuff, it’s incredible. It’s humbling to think our organization in partnership with yours has created a quarter of a billion dollars of net worth for those advisors sitting in the other room.

Marc Cohen:

But let’s think about how we’ve done that because if you think back 10, 12, 15 years ago, the world was very, very different in the independent space. It really was very much like, I’m going to write apples on a piece of cardboard and hang it out there and hope that someone comes by

In a lot of ways, because the technology wasn’t where I needed to be. The branding and the support services weren’t where they needed to be. The reality is the advisors that were in the independent space at that point, they were trailblazers. They were out there saying, you know what? This doesn’t work for me anymore and the legacy construct, I need to go and find something different. I think somewhere around 2008, 2009, 2010, you started to see a little bit of a shift into who went independent because it wasn’t just about a, I don’t work there anymore or this construct didn’t work for me, or B, I’ve always wanted to be an entrepreneur and I’m going to go and I’m going to trailblaze and figure it out by myself. But rather, it started to be that with the emergence of new capabilities in the independent space, people started to look over the fence and be like, wait a minute.

There actually is some pretty green grass over there. That’s pretty interesting. And then with the continued investment in the continued growth there, I think what we started to see is a different profile of advisor who’s now come out and has taken on independence about themselves. It’s not someone who ever wanted to be an entrepreneur. For me, part of why I love this business, and I told you this story during that first conversation that you were talking about before, is I love supporting entrepreneurs. I love supporting small businesses, my grandfather, my father, it runs through my family and I love that concept, but to be able to do it in a spot where not only are you supporting an entrepreneur, but you’re also supporting an entrepreneur who oftentimes is supporting other entrepreneurs, that’s a really cool opportunity. And I think what we’ve done as an industry, when you look at LPL, when you look at the partnership and relationship we have with Good Life and other firms, what we’ve done is we’ve taken what the needs of the advisor are and we’ve really put them at the center of this and we understand where their needs are and how they’ve evolved.

The advisors who are coming out independent or have come out to be independent, it’s a lot for them to be able to chew off and be able to be a great advisor. That’s hard enough, but to be able to also go out and be a great CEO and do both of those things together and do it all by yourself, I mean, you’re a darn unicorn at that point.

And so what we’ve all been able to create is this environment of, I like to think of it as supported independence where you’re leaning in and you’re providing those advisors with a meaningful amount of personalized support, oftentimes at a localized level where it really is personalized. It’s not only saying, Hey, you know what? The digital systems are going to personalize for you, but you’ve got the people there that are rowing right alongside you. And I think that type of structure is really special. And so for us being able to scale this business to meaningful heights and to be able to partner with a firm like a good life or many others who are able to deliver and layer in and augment some of what LPLs scale based capabilities are with a personalized experience, I think that’s some of the secret sauce that allows these guys to be able to go out and thrive and then be able to build their businesses in such a way where they can command valuations and they can command the value in their business in the equity that they’re holding such that they’re achieving what you were just talking

Conor Delaney:

About. Yeah, yeah. I think one of the things that you said that’s so important is this idea that we’re not just giving advisors. This is like light bulb number two for me. We’re not just giving advisors a viable platform that’s table stakes. Although to your point 12 years ago, we were trying to prove and convince the advisor that this was a great platform even though it was significantly less than what it is today, but we’re raising CEOs, and that’s the thing. It’s like you’re not just saying, Hey, come here because we’re the best place for you to be a financial advisor. We’re saying, Hey, come here because we are the best place that you can be a financial advisor and then figure out what that equal balance is of on the business versus in the business. And that’s where I think the evolution of your tools, our workflows, those things working together will help to give those folks continued confidence that because an advisor, when they start that recruiting journey, I would submit that they’re saying, Hey, what’s the best place for me to go and be a financial advisor? But when they start to contemplate independence, then they’re like, Hey, I’m biting off a lot more than just being a financial advisor. So for me, that’s where the continued evolution of the tools and stuff are going to really come into.

Marc Cohen:

Totally agree.

Conor Delaney:

Yeah. So let’s talk real quick about investments. Walk me through, I know I’ve seen this slide, the continued investment that LPL L is making into the platform. How does that compare to what the rest of the industry is doing in the independent space? How does that compare against some of the peers and rivals on the wirehouse side? Where are you at in terms of the investment that LPL L is making into the platform?

Marc Cohen:

Well, let’s think about what we were just talking about. So the platform that LPL is building has to be able to go at and operate at scale, but we need to solve for two different things. We need to solve for, how do we help advisors deliver great advice and give them the investment products that are available and the ease of execution. And then on the other side, you need to be able to help ’em run a great business and be able to be that CEO you’re talking about. And so that’s really how we think about making our investments is across those two different buckets and how do we prioritize into that? So this year, and I would expect this to continue, we’re investing somewhere in the neighborhood of around a half a billion dollars into our technology platforms. You stack that up and by all accounts that we can figure out that’s the largest investment in the wealth management space regardless of who you’re looking at, some of the wirehouses included in there, other independent firms included in there, certainly the many of the technology providers and platforms that operate a pretty good scale included in there as well.

What we’re excited about with that is not only that it’s a big number because that’s pretty cool to be able to say, but more importantly, there’s two things. The first is that when you think about the investments that we’re making, the impact of those investments, the outcomes of those investments are pretty broad because we’re in a spot where we can not only support advisors who are already on the independent platform here at LPL, that’s a top priority is making sure that our existing clients are getting what they need. But we are also in a spot where advisors who are independent at other platforms can look at it and say, you know what? I got to swap out the engine in this car. I’m hitting the gas and it’s just not going where it needs to go. LPL has got a stronger value to be able to help me with that.

Cool. We can help the advisors come in out of the wirehouse. We can help advisors who are running their own RIAs. We can help large financial institutions with what their needs are. There’s so many different channels and applications for the investments that we’re making where the return is pretty impressive. The second piece of that though, when we think about how it is that we’re going at and driving this value is that we’re putting ourselves in a position where ultimately we’re catching up in some ways to a capability set where if you’re in the independent space for a long time, and we just talked a few minutes ago about the technology and other investments that have been made, the reality is you’ve never up to this date been able to replicate all of the value that you were able to get working inside the wirehouse with independence.

There was always a little bit of a trade off that you had to make even to this day. And I think what we see is the opportunity to be able to be the leading platform that can make the investment necessary to be able to allow advisors to have all of those tools that are necessary, but do it in a way where they have the choice of what do they want to use and how do they want to be able to use it and do it in an environment where they’ve got the autonomy and the control and the independence, no pun intended to be able to operate their business. And when we think about where we go going forward, that continued level of investment for us is super critical. And when you think about who our competitors are in the marketplace, we think that that’s part of what differentiates us.

When I get asked the question of who’s going to win in the next 10 years type of thing, well that’s what differentiates us is that continued ability to be able to invest because of the permanency of our capital to be able to make sure that we’ve got predictability and an ability to be able to do that. When you look at some of the firms that are private equity backed or have other financing sources that capital’s not going to be around forever. There’s going to be some turnover and some change and the sources of that capital are going to be in a spot where they’re going to look to monetize the return that they’re looking for. And so the fluctuations and some of the instability that comes from that I think is actually an opportunity for someone like us to be able to continue to widen the gap because of the consistency of our investment. That’s what I was just going to say. It’s

Conor Delaney:

Really that mode is getting wider and wider and wider because of the ability to make that investment every year. People have said to us over the years like, oh, why don’t you guys go out and be your own broker dealer? And when I get done laughing, I say to them, I’m like, guys, LPL will spend more money on toilet paper than what we would be able to spend on just putting a platform together. And so how would it even be possible to theorize this, especially in an environment where regulations are changing and becoming more and more every year? The idea of bolting onto somebody that I always say, I’m like, I have the biggest bully on the playground as my best friend, so that allows me to go around freely flowing around the playground, making all these other friends because I know that if anything gets messed up, I got these guys right behind me, which is such a cool thing. The other thing that you guys have been able to do despite the size that LPL has grown to is this access to leadership. The leadership team is transparent, they’re out front, they’re at conferences, they’re not of up in the high castle. Y’all are down in the field in the trenches with your people, and I think that’s one of the things that really, really changes.

Marc Cohen:

Well, I think we recognize as an organization that what’s really important for us is we want to be able to build a platform that has the ability to be able to service advisors of all different shapes and sizes and whatnot, and is in a spot where if you’re looking for independence in your business, LPL can be and probably should be a home for you and should be a home through the entirety of your career, we can shape shift with you. What’s important in being able to do that is as we continue to grow, we’re over 23,000 financial advisors on this platform and that number is going to continue to grow pretty meaningfully over the coming years. What’s important is that as a human, you’ve got a innate yearning for a sense of belonging. I know you do. I know I do. Everybody who’s listening to this has that innate yearning to be able to be in a community where they have a sense of belonging.

And so for us being able to prioritize the culture of this organization, be able to prioritize that sense of belonging and connectivity is paramount to us being able to continue to see success and it’s got to start from the top. We’ve got to be in an environment where everybody knows that if they send an email to me or they send an email to Rich or they send an email to somebody else at this firm, they’re going to get an answer. And they’re not only going to get an answer, but they’re going to get a personalized answer that’s going to make sense and it’s going to solve what they’re looking for and that we’re there, we care about that. We’re nothing if it’s not for those advisors. They’re very much at the center of this firm, but that personalized experience and that personalized community and connectivity is what’s going to allow us to be able to grow, and that’s part of what we need to solve for and be able to make sure that we’re very focused on as we continue to grow to larger numbers.

Conor Delaney:

Last question, actually two last questions. First question is what is the best idea that you have for new advisor best idea you have for an advisor that might be looking at the last couple of years of their career?

Marc Cohen:

So I’m going to start backwards. So advisors that are looking at the sunset is getting a little bit closer for them. To me, I think they need to be doing a little bit of introspection. We’re in a really unique environment where private equity capitals come into the wealth management space in a really meaningful way and has created some pretty interesting disruption, and that’s not bad disruption. They’ve turned this industry up on its head a little bit and it’s created a massive amount of consolidation and transactions that have occurred. If I’m that advisor, it’s easy for me to be able to go and chase multiple and Chase valuation, but part of what I think they need to be thinking about is what’s the legacy they want to be able to leave because there’s so many different ways to be able to go in and cash in on the business that they’ve built as you were alluding to earlier, but there’s very few ways that they’re able to sustain a legacy and they’ve come out to independence and they’ve built something that’s really special.

How is that something that you can perpetuate and find a way to be able to get that off to the next generation who can perpetuate that experience and could sustain your brand and the ethos of what you’ve built? And that’s not easy because every study will tell you that somewhere in the neighborhood of 80% of retiring advisors who are approaching retirement advisors would love to be able to transition to an internal successor, yet close to 10% of them or so actually think that that internal successor can pay them what their business is worth. And so there’s a gap there, but there are solutions that are out there that allow you the opportunity to be able to sustain and perpetuate the ethos and the brand and the culture of what you’ve built, the experience that you’ve built so that when you’re walking down the grocery store aisles a few years from now and you happen to bump it to your client, they’re saying, Hey, congratulations.

I’m glad you’re doing well, and by the way, so am I, and thank you so much for what you did in your transition. They’re not kind of turning around and looking the other way even though they were a long client of yours because they’re thinking in their head, what did you do to me? As for the folks that are coming into this space, we need you. This industry is clearly aging. We’ve talked about that for a long time, and there’s a lot of those folks who are on the outs. There’s not enough that are coming in the front door. And I think that for us, being able to position ourselves in a spot where we can help those advisors be able to learn how to be able to come in and be able to service client accounts and then be able to then grow into being able to go and be that breadwinner and go out and sell, that’s what’s important.

And so I think hooking yourself up with mentors and being in a spot where you’re able to learn from some of the other advisors who have been in this career, in this industry for so long, I think is super important. And as we’re looking at the trajectory towards retirement for so many of those, there’s not a long time for that to be available. And so I think soaking up as much as possible and you might be able to be rewarded in a manner similar to what I was just talking about as that person retires. Awesome.

Conor Delaney:

Awesome. Last question, and this is going to be recorded for posterity, so we have to make sure we get this right. I’m not asking you for your opinion, I need to know your fact. Big couple weeks coming up. Big couple weeks. Okay. So we’re going to get into something extremely sensitive, extremely personal. Real quick for the last question here, Yankees or Dodgers,

Marc Cohen:

I hope neither. It’s never happened before where there wasn’t a World Series winner, but I dunno, maybe something lightning starts once, right? So as you well know, I am a New

Conor Delaney:

Yorker,

Marc Cohen:

Diehard Mets fan.

Conor Delaney:

Yeah, but you’re

Marc Cohen:

A New Yorker. I am a New Yorker coming home. I grew up as a diehard Mets fan and what my father ingrained in me as I was a child was that my two favorite teams were the Mets and whoever was playing the Yankees. And so that leaned you towards the Dodgers, except the Dodgers just wiped the floor with my boys. And so I can’t root for them either. So I’m kind of in a tough spot.

Conor Delaney:

Awesome, man. Well thanks so much. This is awesome, and just looking forward to the continued partnership with you guys. This has been great. Yeah,

Marc Cohen:

Conor, thanks for all you do. I

Conor Delaney:

Really appreciate it. For sure. Thank you for tuning in. We’ll see you next time. Sweet man.