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DOL Fiduciary News: November 14, 2017

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Brokers’ Firms Sell for 50% of Advisor Firms That Follow Fiduciary Rules

Financial Advisor; November 13, 2017

You really can put a dollar figure on investor trust.

That’s a lesson some brokers are learning the hard way when their businesses sell for significantly less than the investment advisor firm down the street. In several particularly newsworthy transactions this year, brokers netted less than half of what similar advisors have commanded—in part, experts say, because brokers aren’t governed by fiduciary rules that require them to put their clients’ best interests first.

Brokers’ sales prices are slipping. Case in point: LPL Financial’s recent acquisition of National Planning Holdings, a deal which paid the indie broker-dealer significantly less than 1x its one-year revenues. That is half or even less than the sales prices advisor firms are commanding, said Michael E. Kitces, a national consultant and co-founder of XY Planning Network, which provides technology, compliance and training for 535 independent advisors.

“When LPL bought out National Planning, they got paid 70% of one year’s revenue and that’s only on a contingency deal [that hinges on 72% of assets being transferred to LPL],” Kitces told advisors, regulators and advocates at TD Waterhouse’s Advocacy Leadership Summit in Washington, D.C. on Friday.

On average, brokers’ books of business are trading at 1x revenues compared to advisor firms, which are fetching 1.5x to 2.5x revenues, Kitces said. 

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