Prudential Financial Inc. is moving around $50 billion in client assets at its retail wealth management arm to LPL Financial’s custody from Fidelity Investments, according to an announcement on Thursday.
As part of the agreement, Prudential Advisors’ roughly 2,600 brokers will use LPL as their broker-dealer. The transition is expected to be completed late next year.
LPL expects to incur around $125 million in onboarding and integration costs but that the deal would provide an estimated $60 million in additional earnings when complete, according to an investor presentation accompanying the announcement. Around 75% of Prudential’s retail assets are in commission accounts and 25% are advisory, according to the presentation.
The move underscores LPL’s push to increase its assets by providing custody and other services to third-party banks, money managers and insurance firms that seek to reduce costs by outsourcing. At the end of the second quarter, LPL’s custody unit held around $230 billion in client assets with 1,000 agreements with outside institutions, and the firm said it sees an opportunity to serve $5 trillion in third-party assets.
“With this agreement, we are further investing in our Prudential Advisors business, while streamlining and reducing back-office resource demands,” Brad Hearn, president of Retail Advice and Solutions at Prudential, said in the announcement.
LPL, the largest independent broker-dealer by its nearly 22,000 brokers, managed $1.24 trillion in total assets at the end of the second quarter.
An LPL spokesperson declined to comment on the incentives that it had offered to woo Prudential’s retail business.
Fidelity’s National Financial Services (NFS) had provided Prudential with a range of perks including revenue sharing, research and preferred pricing in exchange for an exclusive clearing and custody agreement, according to a Form ADV filed in March with the Securities and Exchange Commission.
Prudential’s eight-year contract with NFS also included an early termination fee if it changed providers before July 2028, according to the Form ADV. Based on a review of the filing, the fee would likely be between $6 million and $8 million depending on when the deal formally ends.
Fidelity had also paid Prudential a bonus of as much as $3 million per year for positive net flows, according to the ADV. Prudential must pay back any credits that it received if the agreement is terminated before the eight-year term, according to the filing.
A spokesperson for Fidelity did not return requests for comment on specifics about the agreement or termination costs. A Prudential spokesperson could not immediately comment.
LPL touted in the announcement that it has been selling Prudential’s asset management products, including life insurance and annuities, since 1989.
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