LPL/Mark S. Casady

AGE: 49

POSITION: CEO and Chairman of the board, LPL

LOCATION: Boston and San Diego

EDUCATION: B.S., Indiana University; MBA, De Paul University.

It would be tough to find anyone who was surprised by LPL's June S-1 filing with the SEC. But now that the firm has made its IPO announcement, the million dollar question is: How will investors respond to an independent broker/dealer with 12,000 reps and thin profit margins?

On the one hand, LPL's intent to become a public company is great validation for the independent broker/dealer channel. The channel is often mocked for being made up of lower producers who could not make the cut at wirehouses. But LPL's IPO, which has yet to be scheduled but may raise $600 million, could silence some of those critics. “This is a straight challenge to the wirehouse model,” says Danny Sarch, founder of Leitner Sarch Consultants, a financial services executive recruiting firm in White Plains, NY. “Wirehouses have long said they can't and won't make money off of lower producers. And here you have a firm going public with that exact group of producers and that exact business plan,” Sarch adds.

In the S-1 filing, LPL says it offers advisors the highest payout ratio among the five largest U.S. b/ds (ranked by number of reps). That, LPL believes, will give it a competitive edge in attracting and retaining advisors compared with the wirehouses whose payouts are substantially lower. In fact, its advisor base has grown from 3,596 advisors in 2000 to 12,026 as of March 31, 2010, representing a CAGR in excess of 14 percent.

But Sarch says LPL's recent rapid growth might be a problem in itself. “How do they grow from here? Investors aren't going to be buying the LPL of five years ago when it had just a few thousand reps,” he says. LPL has made clear that it expects to use all of the net proceeds from the offering to pay off debt to the private equity firms that have owned about 60 percent of the company since 2005. One other concern: Once it goes public, which cohort's interest comes first: the shareholders or the advisors? Legally, management works for the shareholders. “It's a fascinating situation. It would be more promising for investors to see [LPL] use some of the public money to attract producers of substance,” Sarch adds.