July 1, 2022

As LPL Financial Expands, Scrutiny of Its Practices Intensifies

The company, LPL Financial, has 13,300 brokers, 6,500 offices, 4.3 million customers — and a growing list of problems with regulators.

At a time when many big-name brokerage firms are losing market share, LPL executives in San Diego have guided the company out of obscurity to become the nation’s fourth-largest brokerage firm — after Wells Fargo, Morgan Stanley and Merrill Lynch — and the largest in much of rural America, where it specializes.

Now, as investors weigh whether to jump aboard the stock market’s record-breaking rally, LPL is one of the biggest firms trying to connect them with stocks, bonds and other products. But the low-cost model that has aided LPL’s explosive growth has brought with it shortcomings that point to the difficulties regulators face in overseeing far-flung financial advisers.

As LPL has expanded, state and federal authorities have censured the company and its brokers with unusual frequency. LPL brokers have been penalized for selling complex investments to unsophisticated investors, for speculative trading in customer accounts, and, in a few cases, for outright stealing from clients.

“LPL is on our radar screen more than any other firm,” said Lynne Egan, who oversees securities regulation in Montana. Last fall, Ms. Egan brought a case against LPL, accusing it of failing to supervise a broker. She said her office is preparing to bring another case against the company, involving multiple brokers.

In the last year and a half, state regulators in Illinois, Massachusetts, Montana, Oregon and Pennsylvania have penalized LPL for failing to oversee its brokers properly. Brokers at the company have faced the most common industry reprimand more frequently than brokers at its large competitors since the beginning of 2012, according to a review of data from the Financial Industry Regulatory Authority, or Finra, the industry’s self-regulator.

Executives for the firm declined to comment for this article, but a spokeswoman, Betsy Weinberger, said in a statement that LPL had taken “steps to enhance our overall platform, including investing in our compliance process and oversight capabilities to support our growth. We remain steadfast in our commitment to serving investors and doing the right thing.”

Ms. Weinberger said the company increased its risk and compliance budget 5 percent last year and 11 percent this year.

LPL was created in 1989 through a merger of two older brokerage firms, Linsco, of Boston, and Private Ledger, of San Diego. It grew to national prominence after 2005, when two large private investment firms, TPG Capital and Hellman Friedman, bought LPL and financed a number of acquisitions from California to New York. LPL went public in 2010, and its stock has been up slightly since then.

LPL’s rapid growth, and the problems that came with it, reflect forces that are changing the way millions of ordinary Americans interact with Wall Street. Since the financial crisis hit in 2008, prominent firms like Merrill, which long catered to individual investors, have lost brokers and customers.

Many investors have turned instead to independent brokerage firms like LPL. Unlike employees of the industry giants, LPL brokers are essentially contractors. They get LPL e-mail addresses and come under LPL compliance but pay for office space and staff.

For LPL and its brokers, it is a lucrative arrangement. With overhead costs relatively low, the company can pass a large percentage of commissions and fees — upward of 80 percent — back to its brokers. LPL has said that such a model is also an advantage for investors because the company does not have its own investment products, like the mutual funds created by the big banks, that it wants to push onto its customers.

But analysts say that the high commissions leave LPL less money for compliance and can attract brokers interested in skirting the rules. Brad Hintz, an analyst at Sanford C. Bernstein, said that LPL’s management had done a good job expanding the company and improving its compliance technology, allowing brokers with high standards to do well. But he said the scattered nature of its offices was an Achilles’ heel that exposed the company to lawsuits and regulatory risks.

“If the Indians run off the reservations, you have no one guarding the borders,” he said.

Article source: http://www.nytimes.com/2013/03/22/business/as-lpl-financial-expands-scrutiny-of-its-practices-intensifies.html?partner=rss&emc=rss

Health Spending Held Down by Recession

The recession, which lasted from December 2007 to June 2009, reined in the growth of health spending as many people lost jobs, income and health insurance, the government said in a report, published in the journal Health Affairs.

Lingering effects of the recession throttled back the explosive growth of health spending, which totaled $2.6 trillion, or 17.9 percent of the economy, in 2010, according to the government’s annual snapshot of health trends.

Health spending normally grows much faster than the economy. But in 2010 growth rates were similar, so that health care accounted for the same share of total economic output in 2009 and 2010.

“U.S. health spending grew more slowly in 2009 and 2010” than at any other time in the 51 years the government has been collecting such data, said Anne B. Martin, an economist in the office of the actuary at the Department of Health and Human Services.

While the recession crimped spending by consumers, employers and state and local governments, the federal government picked up the slack.

Federal health spending shot up 40 percent in three years, to $743 billion in 2010, from $530 billion in 2007, the report said. Some of the growth resulted from an increase in Medicaid enrollment and a temporary increase in the federal share of Medicaid spending, authorized by the economic stimulus law of 2009.

Medicare spending, for older Americans and the disabled, grew in 2010 by 5 percent, the smallest rate of increase in more than a decade, the report said. The main reason was a slowdown in spending for the managed care program known as Medicare Advantage.

Although some provisions of President Obama’s health care overhaul took effect in 2010, government economists said they had had little impact on the overall level of health spending and, in some cases, simply shifted payments from one source to another.

One of the more remarkable findings in the report is that increases in the volume and intensity of health care services made only a tiny contribution to the growth of health spending in 2010. In the past, this factor, reflecting increases in the number and complexity of procedures, was often cited as a major reason for higher health spending.

In 2010, the study said, hospitals reported a decline in admissions and slower growth in emergency room visits and outpatient visits. Likewise, it said, doctor’s office visits declined, and spending for doctors’ services grew just 1.8 percent, to $416 billion in 2010. Total health spending averaged $8,402 a person, up 3.1 percent from 2009, the report said.

Doctors often prescribe drugs during office visits, and the decline in visits helped slow the growth of drug spending, as did the use of lower-cost generic medications. The number of prescriptions filled rose just 1.2 percent in 2010, and total retail spending on prescription drugs also grew 1.2 percent, to $259 billion, the slowest rate of growth in a half-century, the report said.

For the first time in seven years, total private health insurance premiums grew faster than insurers’ spending on health care benefits, the administration said. Premiums totaled $849 billion in 2010, while spending on benefits totaled $746 billion. The difference includes administrative costs and profits.

The White House said the gap showed that the new health care law was needed to “keep insurance companies in check.” Under the law, insurers must disclose and justify premium increases larger than 10 percent.

In 2010, Ms. Martin said, “total spending on private health insurance benefits grew at the slowest rate in the 51-year history of the national health expenditure accounts.” Private insurance spending slowed, she said, because fewer people had private insurance, insurers shifted some costs to subscribers, charging higher co-payments and deductibles, and some subscribers switched to health plans with lower premiums.

Article source: http://feeds.nytimes.com/click.phdo?i=3aaf5771c9ce9b72395a123710284f1d