Before joining the firm in 2002, as Chief Operating Officer, Mr. Casady was Managing Director, Mutual Fund Group for Deutsche Asset Management, Americas – formerly Scudder Investments. He joined Scudder in 1994 and held roles as Managing Director – Americas; Head of Global Mutual Fund Group; Head of Defined Contribution Services; and was a member of the Scudder, Stevens and Clark Board of Directors and Management Committee. Prior to that, Mr. Casady held roles at Concord Financial Group as Institutional Sales Manager; and at Northern Trust as Vice President – Investments, Strategic Business Planner and Head of Global Custody Operations in their London office. He has also served on the Executive Committee of the Investment Company Institute Board of Governors.
LPL Financial Services is the nations leading independent brokerage firm with offices in Boston, Charlotte and San Diego. LPL provides financial advisors with best-in-class technology, comprehensive training, unbiased research as well as non-proprietary investment products and wealth management services to over 13,000 advisors nationwide.
Mr. Casady received his Bachelor of Science at Indiana University in 1982 and his MBA from DePaul University in 1984. Mr. Casady holds NASD 7, 24, 63 licenses.
Q. Do you agree with the notion that LPL is becoming what Portfolio Managers call a “category killer” – a la Starbucks or Home Depot?
A. I should only dream about that! I guess the way I would say it is… Why does it work so well, right? Why is it we’re growing so much and what is it that’s causing our Advisors to have so much success? They’re growing tremendously and we’re a reflection of that. We are in a bit of a sweet spot with the combination of getting scale and then giving that back to Advisors in the form of capabilities – new technology etcetera and in the form of lowering prices – lowering their cost. That is causing us to be in a very virtuous cycle of growth and our hope is that we can capitalize on that in a way that lets us continue to support them even more and help them grow even more. If that becomes a category killer, then so be it.
Q. As you grow, how do you maintain your high quality service levels and not outrun your air cover?
A. It’s a good question. We do two things: one is, we very, very zealously review service levels so every week we review how we’re doing in the service areas, what’s working and what’s not working, where do we need to add more resources, so we have a very good feedback mechanism that tells us just how well we’re doing that. Then we respond to it by taking action if we find something isn’t working the right way. Secondly, I think we can respond to any particular need by anticipatory planning, then hiring and training, and, as I said, by watching what’s happening in the system. The real key for us is how to keep the culture consistent over time as we get larger. There we’ve done a tremendous amount of work on cultural training classes and what I would describe as orientation review for existing employees and for new hires, and for acquired companies’ employees to make sure we’re all on the same page as to what it means to be a rep-focused firm. That I really think has been the key for us, to get that kind of training systematized and getting our corporate values written down and being able to share them and talk about them with employees. This gives us, ultimately, the right service environment. And then zealously watching it to make sure that we do well by the Advisors who are with us today and the ones who join us in the future.
Q. What are the challenges in serving both the mass-market rep versus the high-end, million dollar revenue rep and the multi-million dollar teams? It doesn’t seem to me that there’s any sort of independent firm that has figured that out yet. Maybe in the wirehouses they figured it out and have that kind of market segmentation, but can you really be a world class provider to the mass-market rep and the multi-million dollar team?
A. Well, you know they all need the same thing. They all need to have complexity managed in their offices and technology is a great way to do that. So they then decide the relative complexity of their practice, either through its size or the type of customer they serve, and then the range of products or services they offer them. So we built out a technology that can handle someone managing a very complex practice by type of client and by the array of things they use with that client – platforms, services, or products – and then basically Advisors pick and choose what they want out of that. As a result, we tend to build it for high complexity and high-touch services and if somebody needs something different than that it is pretty straightforward for them to use it. A measure we look at is, can we profitably do that? So I think we have no problem doing it from a technology and service standpoint, because we’ve already proven that. I think the issue from my standpoint is can we do it profitably. Where I point to is that if you look at our relative profits on a pre-tax margin basis and absolute dollar amount (the pretax margin is a way to equalize it) we’re probably the 3rd or 4th most profitable broker dealer on a pre-tax margin basis across the public entities that are out there. So whether its Merrill Lynch’s reporting of its Private Wealth Client business, or Morgan Stanley’s or Raymond James’, we’re going to be roughly the 3rd or 4th most profitable on a pre-tax margin basis out of a total of 9. If you look at our average production per rep, we are number 9. We couldn’t be more number 9 than anyone else. The next one up is double our size on average production.
Q. Meaning you have no place to go but up.
A. That means that therefore, we can serve a lower volume Advisor successfully and do so profitably and that’s what allows us to do it. It’s sort of self-reinforcing that if we can do that profitably, then we can definitely figure out how to do it from a differentiation of service or technology and that’s an important thing to think about.
Q. You’ve been in the financial services business all of your adult life, with Northern Trust and then on the product side with Scudder for a number of years, and now the last couple of years you’ve really been observing the Financial Advisor world very, very “up close and personal”. What common behavioral characteristics have you observed that the really successful, the absolute best Financial Advisors – what do they seem to have in common?
A. That’s a great question. The thing that is universally true is the best do one thing extremely well: they connect with their clients and really coach them in the same way you might describe somebody coaches you well if you have a personal trainer, or your doctor coaches you well to be mindful of choices in health. The best relationship we have on a professional basis, whether the professional is a doctor, lawyer or your Financial Planner, is one in which they really connect with you on a very personal level and it’s a coaching relationship. So it’s not about whether my portfolio went up X percent – because almost anybody can do that for you. It’s the fact that you made me save. The fact that you’ve made me recognize that I have four kids who have to go through college, or the fact that you helped me plan for that or plan for retirement or whatever it is and then you coached me through the years that I didn’t particularly want to save. Or you helped me through the moments when the market was going haywire, and therefore let me stay focused on my long-term goals and not just get distracted by short-term ones. That, by far, describes the most successful Advisors we have here and the most successful people I’ve seen in this side of the business, or wealth management more generally. It’s not just about the facts and figures; it’s about the fact that they’re life coaches in many respects, centered on the financial lines.
Q. Who have been your business mentors along the way, and what have you learned from them?
A. I’ve learned a great deal from a lot of different types of mentors over the years. In the earlier days of my 26 years in the industry it would have been very basic coaching types of things: how do you manage people, how do you set goals, set standards. John Sokolowsky is a guy I worked for at Northern Trust and John was my manager for 7 out of my 26 years – the longest manager I ever had. He was incredibly helpful on how to manage a process, how to systematize it, how to manage people, how to be full of common sense when you do these things so I benefited greatly from John’s insights. Then someone like Dan Pierce from Scudder – Dan had a great line that I always liked: “In this business you have to have the mind of a capitalist and the heart of a social worker”. You have to have this combination of compassion and intelligence that makes the job interesting and fun, because you know you’re doing well for people. I think I really learned that feel of how to coach somebody and how to think about the wider aspect than just the money from Dan. Todd Robinson was, of course, incredibly helpful; I worked for Todd for 5 years. Todd really, in some respects, awakened a part of me that is pretty entrepreneurial and very business-focused and just really helped with, what choice are you trying to make? How do you simplify very complex sets of issues down to one or two key elements and then what is your basis for making that decision. Incredibly helpful on what I would describe as business principles, even though obviously I’d had plenty of experience joining LPL. In some respects, Todd, for me, reawakened that more entrepreneurial nature that I’d had before when I worked for a small company called Concord Financial Group, which was in start-up mode and we took it public and sold it to Bisys. It was a very entrepreneurial situation, then I went to Scudder which is a big place and a lot of fun and had a lot of growth, but not nearly as entrepreneurial a place as LPL.
Q. Some people would say that Todd Robinson took an enormous risk in hiring you in that you really weren’t steeped in the Independent Contractor/Financial Advisor or really retail management world. Would you agree with that?
A. Absolutely I’d agree with that. I think that he took an enormous risk. The reality is that, other than serving Advisors, right through the Kemper Funds particularly, I would not describe myself as terribly knowledgeable in providing financial advice. I’d always been around it; at Northern Trust I was in Private Wealth Management my first few years there, but I’m more a business person than I am anything else so yes, I think he took a big risk. I think he took a big risk in terms of cultural fit, too. I don’t think it was obvious coming out of the Scudder situation that I would necessarily have all the same business skills that he needed when he led the company. And I think frankly that’s what surprised him. I thought what I’d achieve is to become President and COO and I’d be really thrilled to be able to do that and have a lot of fun with it and so forth. He’d be Chairman of a public company and CEO of a public company; maybe at some point he’d want to do something different. But I never anticipated that he would retire. So I think frankly we surprised both our selves. For me, it was a risk because Todd is an entrepreneurial guy and so I viewed it as a risk that I could come here and for whatever reason if our personalities just didn’t mesh, and for as close as a relationship that we would have had to have for me to be COO or President – if our personalities didn’t mesh well or if we didn’t see things the same way, I’d be gone. So I always viewed it is as, OK, this is a good place to go, and I hope it works because I like the business and I had admired the business for many years before I joined, and then once I got here – every day, even now, I still think what a great business this is. It’s just an amazing company. So I think those are the risks we took in joining together. I think it was the right time for both of us. I put a lot of it to luck. I’ve had people who’ve been very kind to say, you must be so smart, or whatever else and you know, I’m the luckiest guy on earth. That’s my deal.
Q. You certainly had good timing.
A. I have great timing. I don’t know why, but I’ve always had very good timing.
Q. Why ask why.
A. Someone called me the Bill Belichick of the financial services world, which I thought was pretty good.
Q. That’s definitely a compliment. What are the core tenets of your management philosophy and how do you get the best out of your people?
A. I’m a big believer in transparency in decision making. Let’s all be very straightforward about what we’re looking at, how we’re trying to make a decision. In my experience, if the same set of smart people look at the same set of facts, they usually come to the same conclusion. It takes politics out of an organization if you have transparency. That’s a key part of it for me – lots of transparency in terms of information and how decisions get made and so forth. The second thing is delegation; I think that for us to be successful as we’ve grown and get larger still is that you can’t have a centralized spot – every decision should not travel through the CEO’s office. So we’ve been working really hard over the last two years particularly on pushing decision making into the organization in a much broader way.
Q. But it’s a challenge because really good people don’t necessarily like to take their helmet off and let someone else run the plays, right?
A. Yes, do I have moments of reign and desire for control? Absolutely! But I’m pretty good about being consistent; I’m a pretty consistent manager, having learned that from Sokolowsky, and so once I’ve put my head around the fact that one of the things I need to do (which is a more recent phenomenon in the last year or so) is to have more people take bigger parts of the company to run and see how they do. What I need to do, really, is be a good portfolio manager –my job is to make sure the resources are where they need to be, that we’re bringing on the type of talent that we need to bring on, and that we’re building a good set of businesses. As you know, LPL was 95% maybe even 98% focused on Independent Advisors, a great business, but we need to have a broader range of clients. It’s good for everybody that we do that and it’s inevitable for every company that you need to expand into new types of clients.
Q. In a business sense and the context of the businesses you’re running right now, what keeps you up at night?
A. That’s a tough question because not much keeps me up at night. What kept me up at night a few years ago, of course, was the regulatory environment. That was tough. If you’d asked me that 3 years ago, I’d say regulatory uncertainty, which we had plenty of. I’m not worried about regulatory uncertainty now because we have more certainty and clearer directions as to what we’re supposed to do. The trick is to follow those directions well. I always worry about what is happening in the environment from an economic standpoint; our business definitely benefits from good markets and those kinds of things so I tend to worry a little about that, but I can’t really affect it so I don’t worry about it too much. I always worry about competitors, what are they deciding to do, how are they deciding to do it, is there something they are doing that we should be doing; what Andy Grove would call the paranoia, which you need to have. That’s probably the biggest issue because in a vibrant industry like we’re in, there are some really good ideas that people come up with and as a market leader, we have to constantly innovate and constantly find ways to bring good value to our customers and continue to set the bar higher for everyone else. In a tough industry, everyone does that to each other. It’s not a bad thing.
Q. Do you think the advice business is kind of getting like the Life Insurance business or the Asset Management business where you really need to have scale to even enter the business right now? I know there’s a thousand small BDs out there right now but I don’t know that I’d want to start a small BD to compete with you guys simply because I think I have better technology, or some other perceived edge.
A. I just think we’re in a phase for this part of the industry where scale matters and we believe that’s one of the key themes over the next 5 years, and not even today. I think scale matters today but it will be even more critical say 5 years from now. In order to get to the size we want to get to and have the resources we want to have, that’s one of the reasons we move quickly when we find out about opportunities like Uvest and the Pacific Life BDs because we see it as a chance to get scale pretty rapidly. So yes, I think absolutely, it’s a time in the industry where you’re going to see consolidation and you’re going to see the benefits of having more scale. We did it explicitly with a production bonus change where we tried to show the market we can be a service leader and a technology leader and also be a price leader as a broker dealer, with up to 98% payout that we announced last year and have implemented this year. What every Advisor has done with the money we’ve given them, which is great, is they put it back in their business and will have higher growth rates as a result. So in some respects it’s altruistic, it’s a nice thing for us to do, but the main reason we do it is that it would allow Advisors to put more in their business and achieve greater growth for themselves and ultimately for LPL. So those are all benefits of scale that are going to be tough to get if you’re materially smaller than, say, among the top 10 today.
Q. If LPL were to be an automobile, what brand and make would you classify it as?
A. That’s a great question – we went through that with the ad agencies and it was very funny. It’s interesting because we would say a BMW or something along those lines. They asked that question of Advisors who weren’t with us and, believe it or not, they came back with a Chevrolet or something.
Q. Mass market.
A. Yes. And we thought, wow, that’s interesting, because we of course think of ourselves as a Cadillac or BMW, meaning that it wasn’t the exclusivity in nature of that kind of vehicle, but it’s the quality of that vehicle. So I would tend to answer we’re a Cadillac or BMW as to capabilities, but we probably are a Chevrolet in terms of access of Advisors. The point being it was fascinating for us to think, wow, is that the image people have of us? And we thought that was something we’d like to have change a bit, to have Advisors know us and understand that the kind of service they can get really is second to none. So we have to work on that.