LPL Financial last month reported a record amount of assets recruited to its platform last year. In a recent filing with the Securities and Exchange Commission, the firm revealed that those assets came with a cost — recruiting bonuses on its books soared to $233.3 million in 2018, a 46% increase over the year before.
Recruiting bonuses are typically called "forgivable loans" in the brokerage industry; while they are structured as loans, the adviser does not pay the firm back out of his pocket. Rather, he works the loan off over time by meeting certain productivity goals and in exchange, the firm "forgives" the loan.
The loans are forgiven over a three-to-eight-year period, provided the adviser remains licensed with LPL Financial, according to the firm's 2018 Focus report, an annual audited financial statement that is filed with the SEC.
LPL's increase in forgivable loans is significant as the firm last year ratcheted up its recruiting efforts. At times it offered one of the best deals in the recruiting market, and mid-year it hired a new head of recruiting, Rich Steinmeier, from UBS Global Wealth Management.
At the start of last month, LPL reported it had recruited $27.3 billion in brokerage and advisory assets in 2018.
"The increase [in forgivable loans] correlates to the record-breaking year we had in recruiting," noted Mr. Steinmeier in an email. "And it also reflects a shift from providing mostly cash to mostly loans to align with advisers' preference."
"That amount of assets is a staggering number, so the amount of forgivable loans is not surprising," said Jodie Papike, president of Cross-Search, a recruiting firm. "LPL said it was going to make a big push in the market and be aggressive."
Last April, LPL said it was focusing recruiting on advisers at select firms, and the offer was in the form of a three-year forgivable loan that pays an adviser 50 basis points on assets transferred to LPL, a potentially far more lucrative structure for the adviser than traditional recruiting deals.
Like other independent broker-dealers, LPL traditionally offered advisers a traditional recruiting package of 25 to 35 basis points based on the previous year's production of fees and commissions.