Articles Posted in LPL Investment Holdings

The U.S. Securities and Exchange Commission has barred John Leo Valentine from working in the financial services industry, but he can re-apply after two years. The adviser is the founder and president of Valentine Capital Asset Management.
According to the regulator, Valentine did not disclose to clients that he had certain conflicts of interest related to a commodities fund in which they invested.  The SEC contends that from ’07 to late ’11, Valentine recommended that clients, who were mostly retirees, purchase shares of Bridgeton Global Directional Fund, which invested in commodity futures contracts. After Valentine could no longer make commissions from the managed futures fund, he purportedly advised the investors to put their money in Valt, which was a commodities fund he created that allowed him to earn compensation.
However, said the SEC, Valentine did not tell clients that he had a financial incentive to recommend Valt instead of Bridgeton. After just a few months in operation, Valt’s clearing broker and custodian filed for bankruptcy related to a fraud involving the broker’s CEO, and Valt stopped almost all trading activity. In addition to the industry bar, Valentine must pay $140K in penalties.

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According to InvestmentNews, LPL Investment Holding Inc‘s recent IPO registration is clear evidence that the 4 wirehouse brokerage firms still dwarf the approximately 1,200 independent contractor broker-dealers when it comes to controlling client assets. LPL is an independent broker-dealer.

Currently, there are approximately 114,000 independent reps and about 55,000 wirehouse reps. Yet even though there are so many less wirehouse reps, they still are in charge of a larger pool of client assets than their independent counterparts. While wirehouse reps manage $3.95 trillion in client assets, independent reps handle about $1.8 trillion. This means that a wirehouse broker, on average, manages $71.8 million in assets, and independent reps manage about $16 million in assets.

Also, while both wirehouse and independent reps make about 1% in commissions and fees on client assets, wirehouse reps get a 40% average payout of the fees and commissions, while independent reps get about 85%. While the average independent rep makes under $134,000 annually, the average wirehouse rep makes about $287,000 a year.

LPL rep’s earn an average payout of about $155,360. Acquired by two private equity firms in 2005, LLP states in its IPO registration that due to its efficient operating model and scale, its payout to independent contractors far exceeds that of wirehouse firms. InvestmentNews says it is unclear how many of the $1 million plus-producing brokers joined LPL because they wanted the higher payout.

LPL is owned by private equity firms Hellman & Friedman LLC and TPG Capital. The brokerage firm has filed to raise up to $600 million in its IPO.

Related Web Resources:

Does LPL’s filing reveal an unspoken truth about indie B-Ds?, Investment News, June 21, 2010
TPG-Backed LPL Investment Holdings Files for $600 Million IPO, Bloomberg Businessweek, June 4, 2010 Continue reading

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