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LPL Financial (Nasdaq: LPLA) has announced plans to acquire Rockville, Md.-based wealth management platform provider Fortigent, a move which executives and industry consultants say shows LPL’s commitment to the RIA space. Fortigent provides turnkey asset management, performance reporting, technology and manager research and due diligence to RIAs, banks and trust companies, as well as to breakaway brokers who serve high-net-worth clients.

“Certainly the RIA space continues to be one that is high-growth, one that we have existing advisors in and certainly an attractive proposition for advisors going forward in the future, and our partnership with Fortigent really just cements that commitment to that complimentary set of skills required to compete effectively there and grow,” said Robert Moore, chief financial officer at LPL. “Our ability to attract RIAs in the future will certainly be enhanced by the presence of Fortigent.”

“The crux of this is an effort by LPL to expand its channel distribution strategy further into the RIA market,” said Chip Roame, managing partner of Tiburon Strategic Advisors in Tiburon, Calif.

The Deal
The terms of the deal were not disclosed. Andrew Putterman, president and CEO of Fortigent, will continue to lead Fortigent, reporting to Moore. Putterman said the firm would remain autonomous and its brand and identity would be maintained. He also said that the partnership would provide Fortigent with more resources for building out its capabilities and technology.

“With the combination of our research and our technology and their resources, we can actually increase the evolution of our platform,” Putterman said. “We can make it better; we can make it broader; and we can make it deeper.”

“[A Fortigent managing director] told me that it is very important to the leaders of Fortigent to keep Fortigent as Fortigent,” wrote Barry Glassman, president of Glassman Wealth Services, on his firm’s website. “Based on conversations I’ve had with them leading up to the deal, I anticipate that what we enjoy most about working with Fortigent should not change.”

As to whether the deal would provide Fortigent with stronger financial support, Putterman said the firm is financially secure and has had great financial support from Affiliated Managers Group, which partnered with the firm in 2010. LPL would only add to that investment started by AMG.

According to San Francisco-based David DeVoe, who ran Schwab Advisor Services’ M&A consulting business for RIAs before launching DeVoe & Company, his own consulting firm, last year, Fortigent obtains access to LPL capital that it could use for a range of projects for future growth, including technology, marketing, or a larger sales force.

Both companies have similar cultures in the sense that their management teams “are very analytical and very cerebral, and have a very strategic approach to planning,” DeVoe says. But there are differences, too. The average Fortigent investor client has about $7 million in assets. The average LPL investor is much smaller, with less than $500,000 in assets, DeVoe estimates.

What’s in it for LPL?
LPL has been eyeing potential acquisitions for months. In October 2011, LPL chairman and CEO Mark Casady said the firm’s acquisition pipeline was strong and that any acquisition would likely be an add-on to its core business. Some expected it to be another broker/dealer, but in October 2011, Tim Welsh, president of Nexus Strategy in Larkspur, Calif., called it, predicting that LPL would likely acquire a firm to build out its RIA custody business. At the time, he said it could include an alternative asset platform, a separate account money manager or a technology platform.

According to Welsh, if you want a bigger bite of the advisor value chain, you’ve got to look at products, and that’s exactly what LPL is doing with Fortigent. Fortigent is known for having a large footprint in the high-net-worth space, he added, and this opens up avenues for LPL to go after bigger advisors and bigger clients.

John Furey, principal and founder of Advisor Growth Strategies and former managing director of strategic business development for the institutional enterprise at Charles Schwab, estimates that the average Fortigent advisor has about $500 million in assets, versus about $10 million for the average LPL advisor.

Among other things, the Fortigent deal allows LPL access to its performance reporting system, said DeVoe. Fortigent is able to take investor client data from a broad range of simple and complex assets across multiple custodian platforms and calculate values on a quarterly or even monthly basis, “and present it in a way that’s very digestible for a client or an advisor,” he says.

“RIAs demand more sophisticated vendor relationships than IBD reps,” said Roame. “They are more likely to do their own portfolio accounting, their own portfolio management, to serve high-net-worth clients, to deploy alternative investments, etc. RIAs demand more sophisticated research and more sophisticated performance reporting, whether from vendors for them to do in house or through outsourcing providers.”

And Fortigent has a strong reputation in the upscale RIA market, Roame said.

“There’s the potential that LPL can modify that platform and offer it to their broader base, which would ultimately help them compete more effectively against, say, a Genworth or another provider in the space,” DeVoe adds. That won’t happen soon, he says. “I think there is that potential synergy over the longer term. Right now I don’t see anything that indicates that Fortigent would either be focused on or immediately able to modify their platform to enable the mass of LPL to use it.”


Furey also wonders if LPL sees the opportunity for distribution to its broader rep base, not just fee-based advisors. In a statement, the firm said: “LPL Financial advisors who target and service primarily high-net-worth individuals will have the option of partnering with Fortigent just as they did prior to today’s acquisition.”

At the end of the day, Fortigent is a boutique and unique platform that’s not easily replicated, Furey said. He calls it a “crown jewel acquisition,” bringing a new form of credibility to LPL’s claim that they’re serious about getting into the custody space.

But that doesn’t mean that RIAs are going to leave other custodial platforms in droves for LPL’s. In fact, Moore stressed that Fortigent advisors would continue to have the flexibility to custody wherever they want. Furey says if LPL wants to attract RIAs to its custodial platform, it’ll have to show how the acquisition of Fortigent makes it unique from other custodians, and that takes time.

The deal could certainly help with the retention of its existing advisors who do more fee-based business, Furey said. Ron Carson, for example, who launched his own RIA Carson Wealth Management Group last year, recently scrapped his plans to launch his own b/d to stay with LPL. Fortigent gives advisors the research backbone to make them more competitive with high-net-worth families or institutional clients, Furey added.