| NEW YORK, March 12
NEW YORK, March 12 LPL Financial Holdings
, one of the fastest-growing U.S. broker-dealers, has
terminated employment agreements for its top executives but
sweetened some of their benefits and paid two of them $500,000
apiece for giving up the contracts.
The disclosures were made in a regulatory filing on
Wednesday that also reported a 32 percent jump in compensation
to $6.14 million for longtime LPL Chairman and Chief Executive
Mark Casady and a 21 percent hike to $3.12 million for President
Robert Moore in 2013.
LPL's decision to eliminate employment contracts for
Casady, Moore and Chief Financial Officer Dan Arnold as of Feb.
24 had nothing to do with executive performance but was meant to
align the firm "more closely with market practices" and
eliminate compensation discrepancies with other executives, the
proxy statement said.
For agreeing to undo their contracts, Arnold and Moore were
each granted a special restricted stock grant valued at
The moves come as so-called independent broker-dealers such
as LPL have been growing at breakneck speed even as they
stumbled in supervising sales and compliance procedures.
The Financial Industry Regulatory Authority last May imposed
$9 million in fines and customer restitution against LPL for
pervasive technology lapses that prevented it from monitoring
the emails of the almost 14,000 brokers who buy compliance,
marketing and product services from the company.
On Wednesday, FINRA fined two other independent firms that
compete with LPL - Triad Advisors and Securities America -
$650,000 and $625,000 respectively for failing to supervise
brokers who gave inaccurate account statements to customers.
LPL and the two firms settled without admitting the
allegations, but LPL has since increased up its technology and
Casady has admitted to having sacrificed controls for growth in
His board of directors has not held it against him. In the
company's proxy filing Tuesday, the compensation committee said
Casady had exceeded his performance target "as the company
continues to transform its operating model and related
expenses." LPL's adjusted earnings of $259 million last year
were above its $250 million plan, it said.
An LPL spokeswoman did not respond to a query as to why the
53-year-old Casady, who has been with LPL since 2003, did not
receive a stock grant. Last month, however, he was given new
stock options worth $3.1 million that vest over three years,
down from the five-year period LPL used to require for such
LPL's board also rewrote the company's severance plan so
executives get higher immediate compensation if they are
terminated for reasons such as takeovers. It also lowered the
age at which executives can retire with immediate access to
deferred benefits from age 65 to age 55 if they have worked at
LPL for 10 years.
Though little known to the public, LPL's almost 14,000
brokers make it the fourth biggest broker-dealer in the U.S.,
slightly behind Bank of America's Merrill Lynch. It and
other independent firms allow their brokers to keep much more of
the fees and commission they earn from clients than traditional
firms such as Merrill and Morgan Stanley, but the brokers
at the independent firms pay for most of their overhead.
Though independent broker-dealers have traditionally focused
on brokers who sell insurance and other products to middle-class
Americans, LPL in recent years has aimed at hiring higher-end
brokers with clients who have more than $250,000 to invest or
who service corporate retirement plans.
Since it operates on thin profit margins because so much
revenue is kept by brokers, LPL depends on continually growing
its franchise to increase fees and commissions. The company
missed its hiring target in 2013 due to "an industry-wide
slowdown" in recruiting in the first half of the year, the proxy
statement said, though it credited Casady with keeping broker
production levels high.
In a presentation last week, however, the firm said
recruiting in January and February remains below target due to
"disruptive weather" conditions this winter.
LPL, which first offered shares to the public through a
stock offering on Nasdaq in late 2010, was controlled until
March by two private equity firms. A fund owned by one of the
firms, TPG, continues to be its biggest shareholder owning 13.1
percent of its common stock.
Shares of LPL, which rose 68.9 percent over the past 12
months, were up 34 cents to $53.63 in afternoon trading on