Advertiser Disclosure

Investing

Understanding Binary Options

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Binary options are a simplified form of options trading. Options trading can be a little difficult to understand, but essentially when you trade options, you are buying or selling contracts that give you the right, or the obligation, to make certain asset trades in the future. Binary options remove much of this complexity, allowing you to bet on whether the value of an asset will be higher or lower than a target price by a given deadline. Simple, right? Let’s take a closer look at how binary options work and whether they make sense for your trading strategy.

What are binary options?

Binary options — like all options — are a financial instrument based on the value of an underlying asset. This underlying asset can be a stock, a bond, a currency exchange rate or the price of gold. When you buy or sell binary options, you’re making a bet about the future price of the underlying asset.

Let’s say the price of gold right now is $1,450 an ounce, and you think it will be higher than $1,500 by the end of the week. You could buy a binary option with a strike price of $1,500 and a deadline of Friday at 5:00 p.m. If the price ends up higher than $1,500 on Friday at 5:00 p.m., you would make money. If the price ends up at $1,500 or lower, you lose money.

How are binary options priced?

Binary options are priced between $0 and $100. Their value is based on how likely the underlying asset will be above the strike price by the option deadline. If the actual value of the asset is above the strike price at the deadline, then the option is worth $100. If it’s below the price, then the option is worth $0.

Before the deadline, the value of the option will fluctuate between $0 and $100, depending on how likely the final result looks. If it looks very likely that the final price will be above the strike price, then the option price will be closer to $100. If it looks unlikely, the price will fall closer to zero. If you own a binary option and want to get out before the expiration date, you can sell the contract to another investor at the current market price.

How do you buy and sell binary options?

When it comes to trading binary options, you can be either a buyer or a seller. Let’s go back to the example of gold going up to a value of $1,500. Imagine that the option currently trades at $45 — that means you’d pay $45 to bet that the price will end up higher than $1,500 by the deadline. If the price ends up higher, you’ll receive $100, giving you a profit of $55 (100 – 45 = 55.) If the price ends up at or below $1,500, your option value falls to $0, meaning that you’d lose your $45 investment.

On the other hand, if you think the price of gold will not be above $1,500, you could take the opposite position by selling the $45 option to another investor. This person would give you the money upfront, and if the price ends up below $1,500, you keep the $45 profit. If the price ends up above $1,500, you need to pay the option buyer $100, so your loss is $55.

Where can you trade binary options?

Since binary options are a newer, more specialized type of investment, you won’t find them with just any online stock broker. One way to make these investments is through the North American Derivatives Exchange (Nadex). This exchange is supervised by the Commodity Futures Trading Commission, a government regulatory agency.

There are other online websites that allow binary option trading, such as Binary.com and IQ Option. But Braden Perry, a former enforcement attorney at the Commodity Futures Trading Commission (CFTC), warns you have to be careful.

“Many internet-based platforms have surged into the market, and with that surge, the opportunity for fraudulent promotional schemes, overstatement of returns, and the failure to pay out for the wins have increased,” said Perry. “Furthermore, some actors are using manipulative software to rig the system, so winning bids end up losing.”

As he recommends, before opening an account with a website, you should check their registration and disciplinary history through BrokerCheck or the Background Affiliation Status Information Center, two databases run by regulatory agencies. You could also perform web searches to determine if your potential broker has been accused of wrongdoing.

What are the fees for trading binary options?

The fees for trading binary options depend on the broker or trading platform. They may charge a flat transaction cost, like $1 for each contract that you buy or sell. They might also charge a fee when they pay out the $100 earnings at a contract’s expiration deadline, known as a settlement fee. Once again this could be $1 per contract, charged to the investor who made the correct bet on the option.

Another way brokers can make money is by using a bid-ask spread, which means the price to buy an option is higher than the price to sell an option. For example, it costs $45 to buy but you would only receive $43 by selling. The $2 difference goes to the broker or the trading platform.

Finally, the broker/platform could charge additional miscellaneous fees for other actions, such as setting up your account or processing withdrawals.

Advantages of binary options

  • Simple to understand: Binary options are pretty straightforward compared to other options trading strategies — either your price prediction comes true and you make money, or it doesn’t and you lose money.
  • Fixed risk: Going into each trade, you can calculate exactly what your loss would be in the event that your prediction was wrong. With some other trading strategies, like short selling a stock, your possible loss is potentially unlimited; with binary options, it’s a fixed risk.
  • Higher potential returns: Investing is generally a tradeoff between risk and return, where higher risk investments tend to have a higher potential return. Since binary options can be relatively risky, they are also potentially lucrative. Due to the higher risk the typical returns on investments are much higher than foreign exchange trading — typically 60% to 90%, compared to 10% for forex.

Downsides of binary options

  • High risk: With the “all-or-nothing” payout system, you can lose money very quickly when trading binary options if your predictions turn out badly. This simplicity may be a downside for new investors, who could lose a lot of money through inexperience.
  • Bad market actors: You need to be careful about which trading platform you use. Binary options are a relatively new investment and still not regulated as closely as more established markets, so the opportunity for fraud can be higher.
  • Broker limitations: There could be limits on how much you can invest per trade. Only some brokers allow big investments, restricting them to clients with large balances. If you want to make larger investments, you may need to sign up with multiple platforms as you could go over the maximum limit on just one.

Who should trade binary options?

Binary options are a better fit for investors with a high-risk tolerance, those more willing to lose money in the short-term in exchange for making a larger profit in the future. If you’re scared about the idea of short-term losses, binary options are likely not a good fit.

In addition, you need to be willing to put in lots of research for your binary option trading decisions. You are competing against other investors, including Wall Street professionals, who are only accepting your buy/sell moves because they bet the opposite will happen and they’ll make money off you. It’s a tough market and takes hard work to make a profit.

Even if binary options sound like a good fit for your personality, Nicholas Hofer, a CFP® and President of Boston Family Advisors, still believes you should think twice before getting started: “I wouldn’t recommend this strategy for traditional investors as it’s more like gambling.”

He thinks binary options are a misuse of what options should be used for, as a hedge against risk and losses. “Unfortunately,” he noted, “‘hedging’ is now often viewed as a way to generate alpha [above market returns] rather than a way to reduce risk.”

Learn more about binary options

If you’d like more help to learn about binary options, there are online courses and bootcamps that can give you trading strategies and tips. You could also hire a financial advisor to help set up your options trading account and give you recommendations for trades.

The complicated part is not understanding how binary options work, but rather how to make good predictions. That means studying up on market trends, closely following financial news and learning everything you can about potential trades so you can make better predictions than the average investor.

If you do decide to move forward with trading binary options, make sure to do so responsibly — only invest money you can afford to lose. With research and some luck, you can make money quickly through binary options. But if you aren’t careful, you can lose it just as fast.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

David Rodeck
David Rodeck |

David Rodeck is a writer at MagnifyMoney. You can email David here

Advertiser Disclosure

Investing

Wealthfront Review 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Wealthfront is a robo-advisor for beginner investors who don’t have the time or money to devote to hands-on investing but who still want to save for the future. Wealthfront’s automated platform designs a portfolio of low-cost, exchange-traded funds (ETFs) that maximizes your returns while honoring your own level of risk tolerance. And with a minimum investment requirement of only $500, there’s a low threshold for entry.

Wealthfront also guides your financial planning. It examines where you are now, helps you set goals and ensures you stay on track to hit your investing objectives. Additional key features include automatic rebalancing and tax-loss harvesting, plus college savings plans.

Wealthfront
Visit WealthfrontSecuredon Wealthfront’s secure site
The bottom line: Wealthfront is an easy-to-use robo-advisor for novice investors.

  • Low fees, automatic portfolio rebalancing and tax-loss harvesting.
  • Save for retirement and college in one place.
  • Free financial planning.

Who should consider Wealthfront?

Wealthfront doesn’t allow its clients to choose the assets that make up their portfolio until they reach an account balance of $100,000. This makes the robo-advisor a good option for beginners who know they should be investing for the long term but aren’t looking for in-depth portfolio customization. It’s also a good choice for investors looking for a robust tax-loss harvesting strategy, and anyone looking to save for education expenses, since it offers a 529 plan.

The site is also a good checkpoint for anyone seeking basic financial planning, since Wealthfront offers free financial guidance on retirement, college savings, home purchases and the decision to take time off to travel. This is not, however, the robo-advisor for someone who wants access to a human advisor or anyone who’s interested in a socially responsible investing portfolio.

Wealthfront fees and features

Amount minimum to open account
  • $500
Management fees
  • 0.25% annual advisory fee on investments
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
Portfolio
  • Wealthfront offers 12 asset classes
Automatic rebalancing
Tax loss harvesting
Tax loss harvesting detailWealthfront offers daily tax loss harvesting for taxable accounts for no additional charge.
Offers fractional shares
Ease of use
Mobile appiOS, Android
Customer supportPhone , 24/7 live support, Email

How does Wealthfront invest your money?

Wealthfront uses Modern Portfolio Theory (MPT) to choose a portfolio for you with the maximum expected return for your chosen level of risk. The site uses software to design a diversified mix of investments across “relatively uncorrelated asset classes,” based on your risk selection. The strategy seeks to maximize long-term returns. Each of Wealthfront’s asset classes is represented by a low-cost, passive ETF.

Wealthfront’s investment team currently utilizes the following asset classes:

  • U.S. stocks
  • Foreign developed market stocks
  • Emerging market stocks
  • Dividend growth stocks
  • U.S. government bonds
  • Corporate bonds
  • Emerging market bonds
  • Municipal bonds
  • Treasury inflation-protected securities (TIPS)
  • Real estate
  • Natural resources

Wealthfront builds your portfolio from ETFs that minimize cost and tracking error, offer enough market liquidity and minimize the lending of their underlying securities. To ensure adequate diversification, no asset class can contain more than 35% of your total allocation. Based on your risk score, Wealthfront assigns portfolios with target annualized volatility ranging from 5.5% to 15.0%.

The platform uses software to monitor and periodically rebalance your investments, while also taking care to minimize any tax impact. Its rules-based strategies aim to deliver more value than buying and holding an index fund:

  • Tax-loss harvesting: Designed to reduce your tax bill by capturing investment losses after market movements.
  • Stock-level tax-loss harvesting: Once your account reaches $100,000, Wealthfront captures losses on individual stocks within an index.
  • Risk parity: Aims to increase your risk-adjusted returns through an enhanced asset allocation strategy. Customers must have $100,000 to activate this strategy.
  • Smart beta: designed to boost your expected return by weighting the stocks in your portfolio more intelligently. Available to clients with $500,000 or more in their account.

Note that Wealthfront’s risk parity strategy comprises a separate investing methodology than its standard model, and clients must opt in. It allocates capital across multiple asset classes, also known as mean-variance optimization. Applying the Risk Parity model complicates tax-loss harvesting and limits the ability to borrow against the portfolio value for other purposes, so Wealthfront limits participation to 20% of larger accounts.

Financial planning features

Wealthfront offers free, automated financial planning features. There’s no phone call — customers link their other financial accounts to Wealthfront, which then analyses them for you and offers advice. The more you link, the better view the automated platform has of your financial life, and the better the advice it can provide. You can explore various scenarios to see how they might affect your end goals, and update your plans accordingly. Bonus: You don’t have to have a Wealthfront account to use this feature.

This mobile and desktop tool — the Path — offers advice about retirement, buying a home, covering college costs and even the equation of whether you can take time off to travel:

  • Retirement: Wealthfront will show you how your retirement picture changes depending on your savings level, choosing a different retirement age or adjusting other near-term goals.
  • Buying a home: Wealthfront uses your location, net worth, credit score and debt-to-income ratio to estimate the mortgage you’d qualify for and suggest what you can afford to purchase. By changing variables like your timing, location and home size, you can see how the advice adjusts.
  • Covering college costs: Once you choose a college for your child (Harvard aspirations?), Wealthfront uses Postsecondary Education Data System data to project the total cost you can expect to pay, even factoring in estimated financial aid. Then the system will suggest a realistic monthly savings goal.
  • Time off to travel: Wealthfront’s engine will help you determine how you can comfortably take time off to travel while staying on track for financial goals by doing things like working remotely, subletting your home or varying the details of your trip to affect the cost.

Wealthfront Cash Account

The Wealthfront Cash Account is a high-yield savings account that earns 1.78% APY. It’s a competitive interest rate in the field of online savings accounts, but it’s not as accessible as many competing cash management accounts. There is no option to withdraw funds or make payments from the account via check or ATM card (although the site states that debit cards are coming soon) — you can only get money into and out of the account via ACH transfer to and from a separate checking account. Transfers take one to three business days.

Funds saved in the Wealthfront Cash Account are swept into multiple accounts at partner banks. The partner banks provide FDIC insurance coverage up to $1 million on the funds (or $2 million if you have a joint account).

Despite the strong interest rate, other robo-advisor cash management accounts offer more perks. The Betterment Everyday Cash Reserve account offers a two-way sweep feature that automatically optimizes your account balance based on your spending patterns. SoFi Money pays slightly less interest, but the account comes with debit card access so you can use it to make purchases and withdraw money from ATMs.

Strengths of Wealthfront

  • Low fees: Wealthfront charges just 0.25% for digital portfolio management, which is competitive. That means if you have $10,000 invested, you’ll pay about $25 per year in fees. Wealthfront’s underlying investments are also low-cost ETFs with expense ratios ranging from 0.03% to 0.13%. That said, Betterment also charges 0.25% for portfolio management, and SoFi offers the service for free.
  • Low-cost 529 plan: Wealthfront offers a 529 college savings account with fees ranging from 0.42% to 0.46% per year, making it one of the lowest cost advisor-sold 529 plans.
  • Continuous rebalancing. Wealthfront has no schedule for rebalancing, it monitors your portfolio and rebalances as your allocations drift from their original target mix.
  • Free financial planning help. You can link your other financial accounts to Wealthfront, giving you an overall picture of your finances in one spot. The platform offers targeted automated advice on retirement, college savings, buying a home or taking time off to travel, based on your financial info, which may be just enough help for the novice saver.
  • Robust tax-loss harvesting: Wealthfront offers tax-loss harvesting for all clients — and stock-level tax-loss harvesting for larger accounts — using losses to offset ordinary income or investment gains to minimize your overall tax bill. In a taxable account, this can make a big difference. Not all competing robo-advisors offer this service for no additional charge.

Drawbacks of Wealthfront

  • No human advisors: While you can talk to a professional about your investment account, and Wealthfront offers only automated advice on life goals like retirement and college savings. If you would prefer a human to talk you through your options, Wealthfront may not be your first choice. For slightly higher fees, you can get access to digital portfolio management and human advisors, such as with Vanguard Personal Advisor Services (charging 0.30%) or Betterment’s Premium plan ( 0.40%).
  • No fractional shares. The ability to purchase fractional shares minimizes the amount of uninvested cash is sitting in your account, optimizing your long-term returns. Wealthfront doesn’t offer fractional shares, while Betterment and SoFi both do.
  • Minimum investment: Wealthfront’s minimum of $500 isn’t steep, but it’s not $0, which is the minimum investment for Betterment , SoFi and Ellevest. If you don’t yet have $500 to throw at your investing future, you may want to start with another platform.
  • No socially responsible investing portfolio. Many robo-advisors offer the option to invest in a socially conscious portfolio. Wealthfront only offers the ability to exclude companies you don’t wish to invest in once your account is large enough for Stock-Level Tax-Loss Harvesting ($100,000) or Smart Beta ($500,000). Investors interested in SRI should look toward Betterment or Wealthsimple, which offer SRI portfolio options.

Is Wealthfront safe?

Though no investment is guaranteed as “safe,” Wealthfront focuses on investing in ETFs, index funds that are widely considered to be low risk, even for the most conservative investors.

Wealthfront is also a member of SIPC, insuring your securities up to $500,000 for each account, and Wealthfront’s cash account is protected with FDIC insurance. They don’t have any complaints under the Consumer Financial Protection Bureau and have $20 billion in assets under management. View Wealthfront on FINRA BrokerCheck.

Wealthfront review: Final thoughts

Starting out in investing can be overwhelming, and it can be hard to know where to begin. If you have $500 to invest, Wealthfront will jump-start the process for you, diversifying your portfolio and minimizing expenses and taxes. The robo offers robust tax-loss harvesting and rebalancing features. There is no SRI portfolio for socially-conscious investors, but there are college savings options, so you’ll have to decide what’s important to you.

The lack of a human advisor isn’t for everyone, but you still get easy-to-manage tools, including financial planning advice on big life goals. You can trust that your money will be secure, and this robo-advisor will do all the work for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate here

Advertiser Disclosure

Investing

Review of LPL Financial

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

LPL Financial is the largest independent broker-dealer in the United States based on gross revenue. Dually registered as an investment advisor, the firm supports a network of over 16,000 affiliated advisors who operate their own businesses. LPL Financial is based in Boston, and it also has offices in San Diego and Fort Mill, S.C. The network of advisors it supports are located throughout the country. The firm’s advisors oversee nearly $159.1 billion in assets under management (AUM).

All information included in this profile is accurate as of January 23rd, 2020. For more information, please consult LPL Financial’s website.

Assets under management: $159,099,423,965
Minimum investment: Varies by service and portfolio type
Fee structure: Percentage of AUM, hourly fees, fixed fees and commissions
Headquarters:75 State Street
22nd Floor
Boston, MA 02109
617-423-3644
www.lpl.com

Overview of LPL Financial

LPL Financial was founded in 1989 after the merger of two smaller brokerage firms, Linsco and Private Ledger. With 16,109 advisors and 17,205 licensed insurance agents on its staff, LPL has $159.1 billion in assets under management LPL Financial is owned by LPL Financial Holdings, a publicly traded firm.

Advisors often choose to affiliate with LPL to tap into the firm’s technology, investment research and business building support, for which the firm earns a fee. LPL advisors maintain their own relationships with clients and negotiate their own fees and service offerings independently. LPL does not sell any of its own proprietary financial products, so advisors are free to recommend whichever investments and financial products they believe are in their clients’ best interests.

What types of clients does LPL Financial serve?

LPL Financial’s advisors serve mostly individual investors. In addition, the firm serves:

  • High net worth individuals
  • Trusts and estates
  • 401(k) plans
  • Individual retirement accounts
  • Pensions and profit-sharing plans
  • Charitable organizations
  • State and municipal entities
  • Corporations

The minimum amount of assets required to work with an LPL advisor varies depending on the service you receive. LPL does not have a minimum asset requirement for its financial planning, consulting or research services. For customized investment advisory plans, the investment minimum is up to the discretion of the advisor and is detailed in the client agreement.

Clients who opt to use one of the firm’s portfolio programs will be subject to minimum requirements that vary by program. Minimums start as low as $5,000 for Guided Wealth Portfolios and go up to $250,000 for Personal Wealth Portfolios (see more details on these options below).

Services offered by LPL Financial

LPL’s financial advisors offer the full gamut of financial planning and advisory services, such as budgeting, financial projections and selling insurance, though not all advisors offer every type of service. Among the services LPL advisors may offer are:

  • Investment advisory services and portfolio management
  • Wrap programs
  • Financial planning
  • Insurance
  • Retirement plan and pension consulting
  • Selection of other advisors
  • Workshops and seminars
  • Brokerage services

In addition to the services that LPL advisors provide directly to clients, when advisors affiliate with LPL, they get access to a range of services to help them build and manage their businesses. This includes business building ideas, compliance and technology support, investment research and the execution of trades.

How LPL Financial invests your money

Because LPL’s advisors work independently, investment approaches and strategies vary from advisor to advisor and client to client. Advisors can offer customized investment advisory services, and LPL also provides advisors with programs for investing client funds.

One option offered by LPL is the Strategic Asset Management program, which allows a high level of customization so clients can choose to exclude certain investments or emphasize others. The program offers access to a full range of investment options, including mutual funds, exchange-traded funds, equities, fixed income and alternative investments, such as non-traded real estate investment trusts and non-traditional exchange-traded funds.

Advisors who want to take a more hands-on approach with their high net worth clients can use a separately managed account wrap program from LPL called Manager Select. With this program, LPL reviews and recommends outside institutional portfolio management firms for inclusion.

For advisors who don’t want to create customized portfolios, there is also the option to invest clients’ money in one of LPL’s model portfolios. These portfolios — which include Personal Wealth Portfolios, Model Wealth Portfolios, Optimum Market Portfolios and Guided Wealth Portfolios — are professional asset allocation strategies that are created, managed and monitored by LPL. Mutual funds and ETFs make up the investments within these portfolios, but the exact mix will depend on a client’s responses to an online questionnaire about their financial goals, investment horizon and risk tolerance.

Portfolio NameInvestment Strategy
Strategic Asset Management
($25,000 minimum)
Open architecture program that allows advisors to invest client assets in mutual funds, ETFs, individual equities, variable annuities and other investments.
Manager Select
($50,000 minimum)
Separately managed wrap program for high net worth clients that uses LPL-researched and monitored institutional portfolio managers.
Personal Wealth Portfolios
($250,000 minimum)
Asset allocation investment program that combines mutual funds, ETFs and investment models for high net worth investors.
Model Wealth Portfolios
($10,000 minimum)
Program that uses strategic asset allocations to take advantage of market opportunities that will persist for the next 3 or 5 years; designed for more aggressive investors.
Optimum Market Portfolios
($10,000 minimum)
Suite of model portfolios that invests in up to six mutual funds from the Optimum Funds family.
Guided Wealth Portfolios
($5,000 minimum)
Digital investment platform for low-balance investors.

Fees LPL Financial charges for its services

It’s up to LPL advisors to determine how to charge for their services. Advisors use several fee models, including a percentage of assets under management, hourly fees, fixed fees and commissions. Fees are negotiated between clients and their advisors and detailed in the client agreement. All fees are paid directly to LPL, and LPL then shares a portion with the independent advisor representative.

That said, the firm typically charges for financial planning consulting services on an hourly or per plan basis, which is a flat rate. The maximum hourly fee that LPL advisors will charge is typically $400 per hour, while the maximum flat fee is typically $15,000.

For customized advisory services, LPL typically charges based on a percentage of assets under management. A client’s rate will be set out in their agreement with the firm. LPL states in its Form ADV that the maximum rate it generally charges is 1.50%.

For clients who opt to participate in one of the programs offered by LPL that’s laid out above, they will also pay a fee based on a percentage of assets under management. The maximum account fee is generally 2.50%.

Along with the account fees, clients may pay other miscellaneous administrative or custodial-related fees and charges. Clients are notified of these fees when they open an account, and LPL provides clients with a list of fees on its website.

LPL Financial’s highlights

  • Awards and recognition: LPL advisors consistently appear on top advisor lists. In 2019, for example, 65 LPL advisors ranked among the best advisors in their states in Forbes’ list of Best-in-State Wealth Advisors. Deborah Danielson, an advisor based in Las Vegas, ranked No. 3 in her home state on Barron’s list of 1,200 Top Financial Advisors in 2019.
  • Advisors for all types of clients: Because LPL has a vast network of advisors across the U.S., clients are likely to find an advisor whose specialty matches their needs. In addition to one-on-one advice with advisors, clients can also tap into technology-assisted portfolio management platforms similar to what they might find at a robo-advisor.
  • Inclusive workplace: Human Rights Campaign gave LPL a 100% score in its Corporate Equality Index as one of the “Best Places to Work for LGBT Equality.”

LPL Financial’s downsides

  • Advisor defections: Over the last few years, several big RIA firms have left LPL, citing the firm’s lack of service to their advisor groups. These groups included Retirement Benefits Group, which managed $10 billion, and Resources Investment Advisors, which oversaw $5 billion.
  • Potential conflicts of interest: Some LPL advisors are dually registered, meaning that they are able to charge fees for financial advice as well as for products they recommend, such as 12b-1 fees, paid to cover distribution costs for mutual funds. This could incentivize advisors to sell certain products. One way that LPL has attempted to mitigate these potential conflicts is to credit back certain fees to client accounts, thus eliminating the financial incentive.
  • Numerous disclosures: Over the years, LPL has been fined on several occasions for failing to supervise its brokers carefully, leading to sales of inappropriate and complex investment products.

LPL Financial disciplinary disclosures

LPL has had a long history of disciplinary disclosures, many of which are centered around the firm’s failure to properly supervise its brokerage practices. The firm has been ordered to pay fines and restitution as a result.

Among the most serious instances of wrongdoing, LPL was fined $26 million in 2018 for failing to establish and maintain reasonable policies and procedures to prevent the sale of unregistered, non-exempt securities to its customers.

In 2015, the firm was fined $11.7 million for “broad supervisory failures” in a few key areas, such as non-traditional ETFs, variable annuities, non-traded real estate investment trusts and other complex investment products. The firm was ordered to pay an additional nearly $1.7 million in restitution directly to clients who had bought non-traditional ETFs.

LPL Financial’s onboarding process

Advisors have their own onboarding process when they sign on new clients. LPL has recently streamlined its sign up process by reducing the number of fields clients must fill in and introducing a progress bar.

If you are interested in working with an LPL advisor, you can find one near you by searching on the firm’s website. You can either search for a specific advisor by name or take a look at the advisors in your area.

Is LPL Financial right for you?

With LPL’s vast network of affiliated advisors, potential clients should be able to find an advisor who can address their needs. However, LPL’s size does bring downsides — indeed, the firm has faced numerous disciplinary actions in recent years. Further, some of LPL’s advisors are dually registered as brokers and receive commissions for sales, which could create potential conflicts of interest. Some investors may prefer a smaller, more intimate advisory practice with fewer potential conflicts of interest and a more personalized feel.

Before choosing a financial advisor, it’s always important to do your research and compare several options to ensure your advisor is the right fit for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Ilana Polyak
Ilana Polyak |

Ilana Polyak is a writer at MagnifyMoney. You can email Ilana here