Under its freshly ousted CEO, LPL Financial had plotted one of the most rapid growth paths ever seen in the wealth management industry.
Now, with chief executive Dan Arnold being shown the door following misconduct allegations, the question becomes: Can LPL keep it up?
Phil Waxelbaum, an industry recruiter who works with LPL and is the founder of Masada Consulting, said LPL, like every successful company, must some day confront the difficulties involved in a CEO transition. The sudden announcement of Arnold’s departure was certainly more abrupt than is typical, but it raises many of the same issues.
LPL announced Tuesday that its board had fired Arnold after an investigation conducted by an outside law firm found that comments he had made to employees violated the firm’s code of conduct. Arnold resigned his position on the firm’s board the same day.
The resulting uncertainty was reflected in LPL’s stock price, which fell nearly 5% in after-market trading and was slow to recover on Wednesday. Waxelbaum said he understands why there are market jitters, but it’s important to remember that the strength of LPL extends beyond a single person.
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“This is a company that is executing against its business model brilliantly,” Waxelbaum said. “They have a plan. The people who were in charge of those plans are well tenured and strong stewards of their businesses. So this, for the moment, is nothing more significant than if Dan was on a safari. Now the question becomes: In 90 days, can the machine still run as well?”
Turning to Steinmeier
To steady the ship, LPL has named Rich Steinmeier as its interim CEO. Steinmeier joined the firm from UBS in 2018 and served as divisional president of business strategy and growth in those first six years before being appointed chief growth officer in May of this year.
Those positions had him working as closely as anyone with Arnold on the expansion plans that have pushed LPL to the forefront of the industry. LPL has indicated no plans yet to remove the word “interim” from Steinmeier’s title and will no doubt vet more than one candidate for the top spot. But Waxelbaum said Steinmeier is clearly the person to beat.
“It’s going to be a high bar, because Richard’s results have been spectacular,” he said. “So you’ve got to bet on him as the favorite, right?”
Arnold’s big shoes
That’s not to say Arnold will be easy to replace. LPL’s results during his time as CEO have been spectacular by almost any measure.
Arnold joined LPL in 2007 and was with the company when it held its initial public offering in 2010. He served as chief financial officer from 2012 to 2015, then as president, and added CEO to his title in 2017.
During Arnold’s time at the helm, the firm’s stock price increased by almost 550%. Other results have been just as impressive.
LPL reported $239 million in net income and $615 billion in assets under management by the end of 2017. By 2023, the income figure had climbed to $1.07 billion and the AUM number to $1.35 trillion. With more than $10 billion in revenue last year, LPL ranked as the No. 1 largest independent broker-dealer as measured by revenue in Financial Planning’s latest IBD Elite listing.
LPL has also more than doubled its advisor headcount in the past five years, partly through recruiting and partly through a series of large acquisitions. Its recent purchase of Atria Wealth Solutions, completed on Tuesday, promises to push its headcount figure over 23,000.
And Arnold has been rewarded handsomely for his efforts. Last year, he brought in nearly $17 million in compensation awards. His total haul was up 23% year-over-year, most of it coming in the form of stock incentives.
Analysts predict calm seas ahead
Waxelbaum is far from the only one who thinks LPL is likely to be able to continue on its course post-Arnold. Steven Chubak, an analyst covering the broker-dealer industry for Wolfe Research, said in a note released Wednesday that, “We anticipate no change in strategy and a fairly seamless CEO transition.”
Chubak said he and his team have seen no evidence that Arnold’s firing was “reflective of pervasive cultural issues” and that it “appears more idiosyncratic.” He also expressed hope that Steinmeier would be named the permanent CEO, writing, “Steinmeier has been the primary architect of [LPL’s] growth strategy in recent years, and the strong relationships he has fostered with [LPL’s] advisors / enterprise partners has been instrumental to the company’s success.”
Similarly, a team of analysts at JMP Securities wrote that Arnold’s firing appears to be an “isolated incident” rather than the result of broader flaws in LPL’s business. The analysts, led by Devin Ryan, praised Steinmeier and predicted there would not be big disruptions from the changes in the firm’s C-suite.
“Advisors primarily operate as independent entities, and they should not expect any change to their level of service, support with clients, technology, or economics, factors that impact their everyday business prospects and customer relationships,” the researchers wrote. “Furthermore, Mr. Steinmeier is well regarded, and we believe represents a comforting choice, as he has played a key role in recent strategy, and we would not anticipate any material strategic shift at the company, particularly given the current momentum it is experiencing today across channels.”
Forfeited severance
And with Arnold having been fired with cause, the JMP analysts said they expect his departure to have no real consequences for LPL’s bottom line. In an SEC filing Tuesday, LPL said Arnold is now disqualified from receiving severance benefits. It also said his ability to exercise certain options to purchase company stock is subject to a potential settlement agreement.
“The balance of Mr. Arnold’s equity awards under the Incentive Plans have been forfeited,” according to the filing.
With Arnold no longer at the reins, Waxelbaum said LPL can only do one thing. Fortunately, he said, the firm has the pieces in place that have made it the dominant player in the independent broker-dealer industry.
“My opinion, from doing business with these people and having a relationship with these people, is that they are extraordinarily well prepared to continue their business model and to continue to execute at the highest level,” Waxelbaum said. “There’s nothing here that tells me there’s any reason for us to still be having this conversation 100 days from now.”
