2018: A Year in Review
2018 was a watershed year for IFP. At the beginning of the year, we made the decision to do something exciting and risky — leave our current broker-dealer, LPL Financial, and create our own. That meant informing LPL of our intent and hoping they would work amicably with us. That meant informing our clients, the financial advisors in our network, of our intent and hoping they would follow us as they have for 18 years.
That meant going against the grain of the entire industry and doing something a hybrid firm of our size had never done before. That meant disrupting our profitable business, and possibly taking a step back, in hopes of taking 2 steps forward down the road. So here we are 12 months later, with our funding secured, awaiting FINRA’s approval of our broker-dealer application, and it’s never been a better time to reflect on the big year we’ve had. Let’s jump right in.
Back in February, a few members of our executive team drove down to Ft. Lauderdale to inform Dan Arnold and Andy Kalbaugh, LPL’s CEO and Managing Director, respectively, of our intent to form our own broker-dealer. Being one of LPL’s larger hybrid RIAs, we weren’t sure what to expect, but both gentlemen were cordial and authentic during our discussion. Everyone left the meeting with an understanding that both sides would work together on a mutual separation agreement.
A March regional meeting with our west coast advisors in San Diego, CA was the first of 6 regional meetings we held in 2018. With 25-30 advisors in attendance at each meeting, we announced our official intent to launch our own broker-dealer in the first quarter of 2019. What’s unique here is that many firms like us, when they decide to make such a change, do so abruptly and give their advisors little time to make a decision whether to stay or leave.
In every meeting we held, we made it clear to our advisors that they had almost a year to make a decision and that it was their choice to stay or go. That also meant our competition would have months to recruit our people, but we believe in what we’re doing and we knew it was only fair to give our advisors ample time to consider their options.
After a few months of back and forth, we signed a mutual separation agreement with LPL in April, allowing us to move forward with creating our own broker-dealer and seek capital infusion to do so, if needed. In addition, we started a hiring spree of sorts, understanding that an influx of talent would be necessary to properly run our new firm. As fate would have it, LPL had recently acquired a broker-dealer based in Tampa, so we had a reservoir of experienced talent come available just as we needed it.
To launch a broker-dealer you must file what’s called a new member application (NMA) with FINRA, our industry’s regulator. The approval of this application takes approximately 180 days and involves a very in-depth back and forth between FINRA and the firm. Interestingly, a few days after our nation’s Independence Day, we submitted our NMA to FINRA with the hope of making the first step toward our own independence as a firm.
In the midst of preparing for our broker-dealer approval and launch, hiring new staff, and taking on over 50 different projects to implement technologies, processes, and workflows, we decided we also wanted to launch a proprietary technology platform. So, in August, we released the first beta version of Advisor[X], IFP’s proprietary digital interface for financial advisors. We’re now several iterations ahead of that initial launch and will have a fully baked product ready for all of our advisors when the broker-dealer is live.
A few weeks ago, IFP’s executive team drove to Boca Raton to interview with FINRA, one of the last steps in the new member application process. We had a great conversation with the FINRA team members we met, and they told us we were one of the larger new member applications they had seen in a long time. We couldn’t have been happier with the meeting, and we’re currently working with FINRA on some final items to close out the application process.
We anticipated receiving FINRA’s approval of our application at some point in January, so we’re very much on track for the transition date we agreed upon with LPL, which is April 1, 2019. From now until then, we’ll be finalizing the systems, processes, and infrastructure that will allow us to move hundreds of advisors to our new platform.
One of the more important items we will also be finalizing is the equity ownership we’re sharing with our advisors. At other firms, advisors either have to purchase equity or not participate at all. We understand that the advisors who transition with us are the reason we’re in business, so we want to reward them with a piece of the firm. 15 percent of our equity shares will be divided among our advisors and gifted proportionally to those who transition to us in April.
Disruption Is Coming
Contrary to what our competitors are telling our advisors, we’re not creating a broker-dealer just to make our pockets fatter. We’re creating a broker-dealer because we have a vision of what the broker-dealer of the future should look like. Many of today’s independent broker-dealers are slow to evolve, ineffective when communicating, and out of touch with what financial advisors and their clients need and want.
Everything we do is with the advisor in mind. We’re providing 4 different custodians for advisors to choose from for their client accounts, which helps to drive down trading costs on each platform. We’re obtaining enterprise pricing for software and passing those discounts through to our advisors. We’re building a technology infrastructure that makes it easier for advisors to interact with our firm and conduct business.
And this is only the beginning.
I don’t expect anyone to believe or care about any of this just because I’m typing it. All I ask is that you keep watching. We will continually strive to build the financial advisor utopia, find innovative solutions to new and old ideas, and listen to what advisors want.
So, to the industry, our competitors, and our advisors: Keep watching. Disruption is coming.