If transitioning advisors were graded, LPL Financial would get an A-minus.

Company CEO Rich Steinmeier told journalists late last week that the firm is still on track to retain 90% of Commonwealth’s nearly 3,000 independent advisors in this year’s blockbuster acquisition that closed Friday. But since 90% was LPL’s stated goal, it could be considered as meeting 100% of what it intended: a solid A-plus, if indeed the numbers pan out. Since the time the acquisition was announced in March, however, there have been reports of advisors leaving — in some cases to start their own RIAs — as well as a race among competitors for the industry talent that went up for grabs.

Additionally, LPL reported earnings on Thursday that didn’t quite meet Wall Street’s estimates. As a result, its stock took a dive on Friday, going from a high of nearly $400 a share to $361, which is still up from the low point this year of $283. We’re not high school educators, but we’d call that a borderline C-plus.

Nothing to Worry About

There have also been plenty of industry reports of Commonwealth advisors who aren’t taking the LPL deal, and instead starting their own RIAs. Steinmeier seemed unfazed by the media coverage and potential loss of advisors during LPL’s earnings call Thursday. “Again, I would tell you even at 90% [retention], what you are going to see is announcements of folks that are going to leave,” he said. “But on balance, we think that center of gravity sits around 10% in spite of the fact that really it seems like each and every one of those stories is being amplified by the trades.”

While Steinmeier agreed Commonwealth advisors starting their own practices would be very much in their culture, he argued it would also create a lot of inefficiencies and extra work. “As an RIA, they’re responsible for their own regulatory compliance and risk management, in addition to running the responsibilities of the small business like tech and HR,” he said.

Steinmeier added that LPL sent a group of employees to Commonwealth’s annual wing eating contest and cornhole tournament. And if that’s not enough to show the new crowd that you’re cool, then what is?

While most advisors are poring over performance charts, others are polishing up their resumes.

An alarming 10% of the advisory workforce plans on switching firms this year through either individual decisions to leave or M&A deals, according to a new report from Cerulli, produced in partnership with 55ip. Whether it’s issues around culture, compensation, or a change of scenery, advisor moves are expected to continue to increase in the coming years. That’s compounded by a wave of retiring advisors that could leave the industry short about 100,000 new recruits over the next decade. While 10% is generally on par or lower than turnover rates for other industries, it could make an already cutthroat battle for advisory talent that much tighter.

“The combination of increased advisor movement and approaching retirements will create a dynamic situation worth monitoring closely,” said Kevin Lyons, senior analyst at Cerulli.

Baby, Please Don’t Go

While making career moves is generally a good thing, advisors still have a lot to lose. Changing firms can result in significant financial consequences, particularly due to the possible loss of clients and assets. The report found advisors at broker-dealers may have the most at risk:

• Advisors who switch between broker-dealer firms typically lose about 22% of their assets, which does not include normal client attrition.
• BD-based advisors who move to an independent firm can expect to lose around 18% of assets, while independent advisors moving to another indie shop generally lose about 11%.

“Recently, there has been a noticeable trend of financial advisors transitioning to independent practices to gain greater autonomy,” Lyons said, adding that many of these advisors cite access to improved technology as a driving factor. “As more advisors switch firms, transition support becomes increasingly critical in facilitating that process.”

Let’s Stay Together. Advisors are also worried about how they can port over client assets. A top deciding factor in leaving a firm is access to resources to help transition client portfolios, according to the report. Improved technology can also play a major role in their decision making, Lyons said. “Firms that support advisors with these resources will better retain talent,” he told Advisor Upside.

That sounds like a nice ad-dition.

The North American Securities Administrators Association proposed changing its advertising guidelines last week to align them more closely with SEC standards. The industry group — whose members are made up of state and provincial regulators — is looking to amend its rules to allow advisors to use testimonials, endorsements, third-party ratings and performance reports in marketing materials. Jurisdictions would still need to adopt the changes on an individual level, but the amendments could afford smaller, state-registered RIAs the same marketing opportunities that their larger counterparts have enjoyed for roughly the past five years.

“This is a welcome and necessary step toward regulatory harmonization,” said Kate Wulfken, director at Compliance Risk Concepts, adding that the current standards create unnecessary complexity for advisors and their compliance teams.

It Ads Up

The SEC updated its advertising rule at the end of 2020 in order to catch up with modern marketing practices, Wulfken told Advisor Upside. “The old rules really made it difficult for advisors, particularly internet-based advisors, to engage with their target audiences,” she said, adding that working with finfluencers was nearly impossible. However, only about half of the states have adopted similar regulations, according to data compiled by Wealthtender, a platform that connects people with advisors:

• In February, Texas became the latest state to adopt updated marketing rules.
• Holdouts include: California, Alabama, Maine, Pennsylvania, and others.

Critics say testimonials can be altered, or cherry-picked, and that can end up misleading investors. A code in California even called them potentially “fraudulent, deceptive, or manipulative.” But, Wealthtender CEO Brian Thorp said there’s no excuse for why states have not adopted the SEC’s rules. “To use the word fraudulent today when a California RIA invites clients to share how they feel about their experience online is anything but fraudulent,” he told Advisor Upside.

It Keeps Adding Up. Though SEC-registered advisors can use testimonials in ads, fewer than 10% actually are doing so, Thorp said, adding that those RIAs are winning new business as a result. “This is a once-in-a-generation opportunity for any advisor who does have the regulatory green light to collect online reviews,” Thorp said.