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When the COVID-19 pandemic hit in early 2020, many banks and credit unions had to physically close branch offices. And in an environment heavily dependent on lobby traffic, that negatively impacted the advisors and wealth management programs that sit inside those branches. As they lost that foot traffic, many institutions had to figure out ways to reinvent themselves, relying more on digital tools and virtual meetings to get new clients.
LPL Financial tried to partner with institutions to help them recover from the pandemic and go through those transformations. While the firm has served banks and credit unions for many years, it recently has made a more concerted effort to support these institutions, as it sees growth in this channel.
In June, the firm brought on Shawn Mihal, former president of Waddell & Reed Inc., the broker/dealer subsidiary of Waddell & Reed Financial, to lead institution services. And in early 2021, the firm launched the Institution Business Strategy department, led by Executive Vice President Kirby Horan-Adams.
Mihal says institutions are recovering; from Feb. 1, 2020, through Jan. 31, 2022, the firms LPL supports grew their assets under management by approximately 48% and revenue by 42%.
LPL currently serves about 800 institutions across 3,000 advisors, but if the firm adds the institutions from the pending CUNA deal, it could be up to 1,150 institutions and 3,500 advisors by the end of this year. Mihal also says the pipeline is strong, and the firm expects significant growth in this area.
“We have been dedicated to the institution space, but when we think about the future and how businesses continue to transform, the needs of those businesses will continue to transform and will change over time,” Mihal said. “My role was to come in and really help understand those businesses as transformations and help connect all those support and services that we have internally and make sure we continue to evolve to address the needs of our institutions and how they are becoming more complex here in the future.”
In his first media interview since joining LPL, Mihal recently chatted with WealthManagement.com about the b/d’s growth in the institutions space, the steps his team is taking to better serve that channel and the opportunities in the large institutions space.
The following has been edited for length and clarity.
WealthManagement.com: LPL has been in the institutions space for a long time, but recently has made a more concerted effort to serve this channel. What does that look like?
Shawn Mihal: We’ve been focusing on pulling in more of our internal partners to put deliberate approaches in how we engage with institutions. In early 2021, we organized an institution business strategy department that’s focused on how we think about the evolution of the institutional space and the needs of our institutions. So we are aligning with those institutions to understand where are they thinking about the next three to five years and what are tools and technology, the digital experiences, they need to cultivate those experiences for their clients and the journeys that their clients are on.
We’re also pulling in our business development folks in the institutional space. There’s a considerable amount of consolidation and acceleration of growth that’s happening through M&A; we’re looking to how we can partner with other institutions to help them in their M&A efforts and ensure that as they do those transactions that they’re getting a transition experience like no other in the business.
We’re also concentrated on how we support institutions with wealth solutions, and there’s been a transition in the industry toward more holistic financial planning. So in an industry where things tend to be a little bit more transactional-focused, we spent a considerable amount of time bringing in our resources and our wealth solutions teams to help our institutions as they transition through to more holistic financial planning.
WM: Why did LPL launch the institution business strategy department and what’s its role?
SM: LPL is the largest independent broker/dealer wealth management firm out there; as we thought about the types of digital support tools, technology and strategy, we recognized that specific needs may be somewhat different for our institutions than for our independent advisors. So that department was created to facilitate innovation and strategy for our institutions.
WM: How is LPL helping institutions with M&A?
SM: Our business development folks really work with the institutions so that they can lay out the groundwork of what transitions look like for those wealth programs to ensure that we are well aligned and can make the transition as smooth as possible. This is new business that’ll be coming into the organization, so if we think about one of our financial institutions that is with LPL and they’re acquiring a bank or a credit union that has a wealth program that is not with LPL, these are new assets that are in play and that we work very diligently to compete for. So we look at that as a new business opportunity to help the bank win that business.
WM: How does LPL try to serve institutions differently than independent advisors?
SM: When we think about the institutional experiences, those are probably areas where we try to differentiate a little bit. We’re spending a considerable amount of time on the relationship side to understand the differences between the institutions that we support and making sure that we are building and working with them to build their growth and strategy plans for the future. And then as we build those plans, we’re helping them connect to those internal resources.
We’re investing into those resources and tools. We are making significant investments into the technology with platform enhancements inside of our ClientWorks platform, making it easier to do business as it relates to more seamless transactional experiences for end clients. We’re also focusing on end client experience as well with our account view platform.
When we think about the tools that our institutions use, we are enhancing our annuity order entry tools and creating more tools and easier capabilities for institutions to connect their technology into our Account View tool.
WM: What does the wealth solutions team do?
SM: That team focuses on helping those institutions grow what we call “same store sales.” Helping those institutions understand what they historically have as far as the product portfolio goes but also opportunities for the future. So, whether that’s doing more in the way of securities business, insurance business, advisory, bringing in the financial planning components of it. They’re focusing on deepening the client relationships through financial advice and creating those opportunities for more of the advisory-based experiences.
WM: How have institutions been impacted by the pandemic?
SM: When the pandemic hit, we saw a considerable shift in how business was being transacted and the challenges associated with that, and then the resiliency of the institutions as they’ve had to think about their business model and pivot to meet clients where they need to be met. In 2020, many institutions had to temporarily close branch offices due to COVID. And when you have institutional experiences that were driven off of lobby-type traffic, that had impacts. So we were working with our institutions to pivot to more digital experiences, and as that happened through 2020, we saw a considerable rebound in the institution’s business.
As we’re seeing things today, it is pulling back into a balance of in-person and virtual interactions with clients. As that pivot has happened, it’s provided greater opportunities for institutions to broaden their perspective on how they engage with clients. In the last two years, we’ve seen incredible increases in net new assets, assets under management and overall revenues.
WM: On a recent earnings call, LPL CEO Dan Arnold said large financial institutions have become a new source of growth for the firm in 2021, with the addition of BMO Harris and M&T. CUNA Mutual Group will transition its wealth management business this year. What’s the opportunity in this space from where you sit?
SM: We think there’s a tremendous opportunity there as these financial institutions look at the cost and the competitiveness of the wealth management space and maintaining their own broker/dealers and investment advisors for their retail business. They see this, I think, as a great opportunity to outsource to a player of scale.
So LPL has built a scale business, which is able then to deploy into institutions like the BMOs and M&Ts. We believe that we’re well positioned to support those institutions and ultimately drive down their cost of transacting this business. So we see this as an ability for us to bring the scale play of LPL into institutions that are looking for opportunities that alleviate some of the cost and to compete in this space.
We can bring to market what we are investing into our wealth management platforms, and they can leverage all those tools as well as all the other resources that we bring to our institutions. So I think about relationships, business development, growth solutions, business solutions and innovation—all those are things that we’ll focus on in that institutional space that will help continue to drive the experience for those institutions, but also drive the experience for our other existing clients in the institutional space.
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