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Exclusive: Casady Outlines LPL’s Plans For Fortigent

Charles Paikert Contributing Editor February 21, 2012

Exclusive: Casady Outlines LPL’s Plans For Fortigent

LPL Investment Holdings is prepared to pour money into Fortigent - even if it means forgoing profits for several years - in order to eventually accelerate revenues and establish market leadership, LPL chief executive Mark Casady told Family Wealth Report.

LPL Investment Holdings is prepared to pour money into Fortigent, the high-end wealth management outsourcing firm it is set to buy in April - even if it means forgoing profits for several years - to eventually accelerate revenues and establish market leadership, LPL chief executive Mark Casady told Family Wealth Report in an exclusive interview at Fortigent’s annual winter conference in Savannah, GA.

Casady discussed LPL’s plans for Fortigent, including how the country’s largest broker-dealer, which has over $100 billion in advisory assets under management, intends to keep Fortigent’s highly-regarded leadership team on board, and why LPL bought the firm, which has about $50 billion in assets on its platform.

Asked what his near-term goals are for Fortigent, Casady said he is “happy to go into the red” investing “significant” amounts of money to bolster Fortigent’s technology and integrated platform capabilities. LPL, which normally spends about $50 million annually investing in technology, will spend around $65 million this year, Casady said, and is earmarking 20 per cent of the (still undisclosed) purchase price for Fortigent to invest in upgrading the outsourcing firm’s technology.

Casady said he sees the investment paying off over the long-term, boosting Fortigent’s top line and enabling the firm to put considerable space between itself and competitors who also want to provide research, reporting and technology platform outsourcing services to wealth managers catering to high-net-worth and ultra-high-net-worth clients.

Indeed, LPL’s willingness to invest heavily in technology and research and development was seen as a key to the sale. Asked if Fortigent was profitable, Andrew Putterman, the firm’s president and chief executive, said it was, “operationally.”

Management’s future

One of the biggest issues after the deal was announced was the future of Fortigent’s highly-regarded management team, including key executives like Putterman, chief technology officer Jamie McIntyre and senior managing director and firm co-founder Scott Welch.

In addition to standard five-year employment agreements tied to vesting, Casady said he believed strongly in long-term equity ownership as a “great incentive” for employees to stay and perform well.

Fortigent will operate as a separate company with Putterman as the chief executive, reporting and submitting budgets to board chairman Robert Moore, chief financial officer of LPL Investment Holdings. Putterman will also become one of 12 managing directors for LPL.

“It will be the same process as it is now,” Putterman said, “but under LPL I expect the board to be more strategic, to make quicker decisions to capitalize on opportunities and to allow us to hire more people and implement our vision more decisively.”


LPL and Fortigent are hardly the only companies making news in the red-hot outsourcing market, which is increasingly gravitating to providing wealth managers with operating environments for UMAs (unified managed accounts).

Envestnet, which has about $127 billion in total assets on its popular technology platform, has made two big acquisitions just in the past few weeks: buying research and due diligence specialist Prima Capital for $13.75 million in cash and overlay technology provider Tamarac for $54 million.

Casady dismissed Envestnet as competition for the high-end market and said that both it and Genworth, another popular outsource provider, were targeting a “mass affluent” market and were “not really” in the high-net-worth space. Putterman asserted that Fortigent was the “only” high-net-worth outsourcing firm in the market and had “no direct competition.”

Not surprisingly, Envestnet president Bill Crager disagreed.

"Fortigent is clearly looking at our space and has a strong interest in presenting their solution as favorably as they possibly can,” Crager said. “Our business serving high-net-worth advisors, multi- family offices, and single-family offices is growing strongly. And Tamarac will only accelerate that growth.”

With their new acquisitions, including LPL’s purchase last year of turnkey asset management platform provider Concord Wealth Management, both LPL and Envestnet are now considered to be better positioned to serve the high-end market that is increasingly using a UMA operating environment, but both companies also face challenges as a result.

Envestnet has to figure out how to position and further develop Tamarac, according to one industry executive, while LPL, which now finds itself with three different core overlay technologies, has to decide which one to use, and then transfer to its clients.

Banks and trusts targeted

Allaying the fears of Fortigent clients who see themselves as paying high fees for an exclusive service, Casady said he had no plans for Fortigent to go down market and no plans to make it available to the vast majority of nearly 13,000 advisors and brokers who use LPL’s platform. “I don’t see a mass market application [for Fortigent’s services],” he said.

On the contrary, Casady said he planned to target banks and trust companies as ripe markets to push Fortigent into an even higher-end market. Even though banks already account for a third of Fortigent’s clients, Casady said he thinks that business can increase even more now that Fortigent can offer its services along with Concord, which specializes in linking to trust company accounting systems.

Reporting business questioned

Looking at Fortigent’s strategic options after the deal is completed, some industry observers have questioned continued heavy spending in reporting, when the company is best known for its research and manager selection prowess.

“The reporting business requires significant capital expenditures in both investment in ongoing staff and licensing for bolt-on capabilities, with little operating leverage,” said industry consultant Jamie McLaughlin. “Fortigent can never be the leader in this space so why do it? Their manager search and selection platform distinguishes them, so why not invest in this intellectual capital where they have a market edge and stay on top?”

Casady responded that LPL had looked at the reporting market, and concluded that while Fortigent had the best system, it had “not moved as quickly” as it could have in a competitive space. But with more capital available to invest in improving technology, Casady said he believed Fortigent could solidify market leadership in 18 months.

Putterman noted that reporting represented fully half of Fortigent’s business. What’s more, he added, without combining reporting and research, Fortigent would not be able to offer what Putterman described as perhaps Fortigent’s most “powerful” selling point - an integrated platform that allows wealth managers to have everything they need in one place.

“You can’t determine the meaning of information without integration,” he said.

Luring brokers, freeing up advisors

One of the immediate benefits of the Fortigent acquisition, according to Casady, will be Fortigent’s ability to help lure the big-time brokers LPL is currently trying to recruit in an effort to boost the firm’s average payout, which has lagged behind industry leaders such as Commonwealth Financial Network and Raymond James Financial Services.

But he also noted LPL decided to buy Fortigent in the first place because even though the two firms served different markets, they shared common objectives of providing objective advice, offering open architecture, not selling products and making a point to keep up with technology.

Those similarities not only bode well for the two companies to bond culturally, he argued, but also provide a foundation for long-term success.

“By freeing the adviser up to spend more time with the high-net-worth client and focusing on the meaning of money in their lives and not just managing money, that has a big impact on their lives,” Casady said. “They tell their friends and it becomes a differentiator for the firm. We can broaden our appeal to a different group of consumers and get leverage other people don’t see.”


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