4 Min Read
* LPL affiliate profits by selling compliance services
* Morristown Financial added 80 clients in past 14 months
* Sells through LPL Financial to independent advisers (In last paragraph, changes assets figure to billions)
By Joseph A. Giannone
NEW YORK, March 7 (Reuters) - Navigating securities regulations is expensive and time-consuming for financial advisers, but one independent New Jersey firm has made managing compliance and paperwork the cornerstone of its growth.
Morristown Financial Group more than doubled its gross revenue in 2010 to $25.1 million by performing record-keeping, reporting and other tasks for independent wealth managers who affiliate with LPL Investment Holdings (LPLA.O), the biggest U.S. independent broker-dealer.
Morristown, which also manages about $750 million of assets for its own clients through 27 advisers, is nominally LPL's largest branch since it holds the compliance reins of 170 advisers who manage about $3.8 billon of client assets. It added 70 new compliance clients last year and another 10 in the past two months.
"They leave their compliance and supervision concerns to us, so they can concentrate on their practice," Morristown partner and co-founder Patrick Sullivan said. "We found most advisers spent 25 percent of their time on office-management duties. It's a big cost."
The 14-year-old firm focuses much of its regulatory marketing on so-called breakaway brokers who are new to running their own businesses. It starts early in the process, pitching its efficiency in helping them transfer their securities licenses to a new firm and in expediting the transfer of client accounts.
Morristown can accelerate a normally three- to five-month transfer ordeal into as little as three weeks, Sullivan said.
In return for its services, the firm collects a percentage of advisers' annual revenue that in most cases totals less than 2 percent.
Morristown, an affiliate of LPL since 1997, got into the regulatory business to defray its burgeoning compliance and support expenses, Sullivan said.
The firm in January filed with the Securities and Exchange Commission to launch its own registered investment adviser(RIA), whose assets will be kept in custody with LPL Financial. It's part of the firm's push to attract "hybrid" advisers, a growing category of wealth managers who offer fee-based planning and investment services but seek an affiliation with a broker-dealer so they can continue to collect some commissions and sales fees.
Boston-based LPL, which has a network of 12,000 brokers and went public in November, has itself embraced the hybrid advisor marketplace. It has established its own RIA to custody the fee-based accounts of Morristown and other affiliates, putting it in competition with firms such as Charles Schwab Corp (SCHW.N) and Fidelity Investments, the leading custody providers for small investment advisers.
LPL added 22 RIAs with $6.2 billion of assets to its hybrid platform last year, giving it a total of 114 firms with $13.5 billion on its custody platform.
Schwab, by comparison, provides trading, technology and other support services to about 6,000 RIAs who managed $655 billion of client assets at the end of last year.
Reporting by Joseph A. Giannone, editing by Jed Horowitz