One financial stock you shouldn’t start the New Year without!

Imagine you are 65 years old, and have just retired after 30 years working at a corporate job. You’ve had a 401k that was invested by a manager at your company, and you now need to convert those assets into a steady and safe stream of income. Where do you start?

If you’re like most American’s you begin the search for a financial advisor, and as the baby boomer generation is getting closer and closer to retirement, more and more retiree’s are looking for financial advisors, and as a result the advisor industry is one that has a lot of potential for future growth. The only real question is how do we as investors profit from this growth that will likely take place?

One firm that is widely reputed to be the gold standard for financial advisors is LPL Financial (Ticker:  LPLA). LPL is a provider of technology, brokerage, and investment advisory services to independent financial advisors. Instead of having a wirehouse sales mentality and proprietary products, LPL is a franchise model for the financial services industry. They take highly successful advisors from wirehouses that get paid out 20-30% of their commission, and help them open a firm in their name “Jim Jones Financial Advisors” and take a small cut of the profits, closer to 10%.

Not only are they the largest independent firm in the US[i] They are also are seen by many advisors as the best place to build your practice. As an advisor inside the industry it’s hard to explain how a big a difference it is to work at LPL vs. any firm that you’re an employee. Instead of focusing on the actual numbers of this company: P/E, Cash Flow, etc, I’m going to talk about, from a financial advisor’s point of view, why this will be the dominant financial advisor firm in the industry.

LPL Rest of Industry
90% of Commission paid to advisor 20-50% of Commission paid to advisor
Entrepreneur Employee or 1099 with a manager
Can sell any product Often forced to sell proprietary product
Answer only to themselves Have a sales-manager
Expenses of running an office Occasionally have expenses of running an office but is most often paid for by the company

Now imagine that you’re an advisor generating 500k in production per year. If you work at LPL you have a 80-90%Payout + $48,000 in fixed expenses. If you work in the rest of the industry you have a 20-50% payout with + $0 – $12,000 in fixed expenses. The very best and highest producing advisors will be drawn to a firm that allows them to act as entrepreneurs, while the rest of the industry has the lower producing and commission advisors who want the security of a big company to help pay their bills.

The firm is growing rapidly. Throughout the financial crisis LPL never had a net loss of advisors. In 2006 they had just 7006 advisors, and that has skyrocketed to 11,950 in 2009.[ii] Expect this trend to continue, and with it, LPL’s increasing profits and name recognition.

If you’re looking for a mid-cap growth stock in the financial service industry, LPL fits the bill.



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