LPL’s AI challenge: Moving fast without overwhelming advisors

Unlike many executives in charge of technology at large wealth management firms, Gary Carrai of LPL Financial can look at advisors and say he’s sat in their seats before.

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Carrai came to LPL as part of its acquisition in 2012 of Fortigent, a wealth management and tech-services firm he had helped found roughly eight years before. Previous to Fortigent, he was an advisor at Lydian Wealth Management, an RIA in the Washington, D.C., area.

Now as chief product officer at LPL, a position he stepped into last year, Carrai is responsible for managing the technology used by both clients and advisors. Carrai said LPL advisors have told him that his past career experiences make it easy to convey to him not only what they want from tech but also how much innovation they can keep pace with.

“It’s because I’ve been there, so it’s not a long conversation,” Carrai said. “I’m able to pick it up maybe a little bit easier because it was practical to me back in the day.”

READ MORE: The 4 AI tools I use in my practice — and 3 questions to avoid ‘AI ick’ 

Like almost all big wealth managers, LPL has been looking for new ways to put artificial intelligence, machine learning and similar innovations to use by automating back-office functions that can take away from time spent with clients, assisting in market research and even giving advisors better insight into how they’re compensated. A big job at any firm, it’s especially big at LPL.

With its more than 32,000 advisors and more than $2.3 trillion in client assets, the San Diego-based firm is the largest independent broker-dealer in the U.S. by almost any meaningful measure. The fact that most LPL advisors operate as independent contractors, rather than direct employees of the firm, means they expect a great deal of latitude in how they run their businesses. 

LPL’s technology thus has to be accommodating to a wide variety of preferences and practice types. That makes it particularly crucial to have some understanding of how advisors think.

Carrai said he doesn’t think it’s altogether rare for technology heads at small firms to have career experiences similar to his.

“But I think it’s probably less common when you’re in the kind of role that I’m in at a large, Fortune 500, publicly traded firm with $2.3 trillion in assets,” he said. “That’s probably a little bit more of a unicorn.”

READ MORE: Clients put advisors on notice about sneaky AI use 

Carrai recently sat down with Financial Planning to talk about how AI is helping with routine tasks like opening new accounts, why technological advances aren’t likely to put advisors’ jobs at risk and why it’s important to introduce changes at a deliberate pace to avoid “innovation fatigue.”

This interview has been lightly edited for clarity and length.

Financial Planning: How is AI helping LPL become more efficient?

Gary Carrai: Think of how we’ve evolved the call center and the call center service person, where they’re getting real-time guidance from an AI that’s listening to a call [from clients] that’s coming in and you’re increasing the probability of answering the question and reducing the time it takes to deliver an answer.

Next would be for the direct use of advisors. That can be anything from meeting summaries to transcriptions. It could also be quick generative AI searches inside of our information library.

And we’re going to be launching later this year what we’re calling our flagship AI product. It’s based on supporting the different personas within an advisor’s practice that allow us to be able to not replace, but enhance, those roles where they focus more on value delivery.

FP: Is there an example of how AI is now saving advisors’ time?

GC: Look at something like new account opening. It’s a set of tasks and processes. You have to fill out your account paperwork, and you have to submit it. You’ve got to transfer securities or transfer money. You’ve got to make sure that it’s set up in things like your money-movement tool and your performance-reporting tool. 

There’s value to the client there. But that’s not advice. That’s more of a task-driven process. 

So now you apply AI, where all of that is either done for you through agents or prompted in a way where a lot of the administrative work is taken away, and you’re able to apply value over the top of it.

FP: How are you using AI and other technologies to help advisors better understand their compensation?

GC: We have completely modernized what we’re calling our commission and compensation system. 

For us, that was the ability to pull in different pieces of information that maybe didn’t exist in one location before — whether it was insurance information with annuities or direct business that might be held with a mutual fund carrier, in addition to what was on-platform — and then configure the reporting on top of that.

That allows an advisor or business owner to say, “OK, now I have a clear idea of how compensation is being derived and where my advisors might be discounting” — which is valuable if you’re in a leadership role.

Or is revenue coming from a certain platform? Is it being derived from certain products? All of that takes this commoditized technology and makes it just more strategic in how you either manage the business or, if you’re an advisor, how you run your portfolio.

FP: Is this system something all LPL advisors can use?

GC: We started this last fall with the national rollout, and we completed it about a couple months ago through all of our affiliation models.

And, just to be clear, the compensation could be different if you are a W-2 employee-based advisor versus if you’re an RA. So the ability to personalize that information was pretty critical. 

FP: A lot of firms draw a line at using AI to provide investment advice. What are your thoughts on that?

GC: I would say AI increasingly is putting the advisor in the best position possible to deliver the best advice in the most timely way.

But it’s still the advisor that’s pulling the trigger, and I’m not sure that that’s ever going to change. AI or technology generally may prompt you with, ‘Here is the most tax-efficient way of executing this trade for your client.’ But ultimately it’s the advisor’s judgment that then overlays that automation and makes the decision.

FP: Is there an example of how your past experience as an advisor has influenced your decision with technology at LPL?

GC: I was part of this decision to get a better trading and rebalancing system. This goes back about maybe six years, when I was in a different role within the organization.

Trading had moved from being a commodity to being a little bit more strategic. If you were managing a big book of business, you maybe at one time had 100 clients and 100 different allocations. But more advisors were moving to, ‘What if I just manage five or six models, and have those 100 clients fit into the models?’ 

That’s where the business was trending. As a result of that, you needed a strong ability to manage in a models-based way. 

At that point we had a decision: Are we going to build it or are we going to go out in the marketplace and buy it? We did the latter. We narrowed in on a pretty strong provider called Blaze [Portfolio.] 

We acquired the property, we acquired the talent, and ultimately integrated it to make it scalable inside of our operating platform that we call Client Works. We took something that I think was commoditized and maybe middle-of-the-road to what I consider to be industry-leading.

I think I maybe leveraged my background in understanding that shift from commodity to strategic. I think we were early on that. It was just understanding the demands of the advisor and how that shifting trend was going to impact their business.

FP: What are some of the perhaps underappreciated difficulties of making so many changes at once?

GC: I would say there is innovation fatigue that can happen in the client base. It’s a wonderful problem to have, where you’re developing so much that you have to ask: Is your client base able to absorb the innovation?

There is a major effort within our firm of what we call ‘go to market,’ where it’s not just delivering the capabilities. It’s delivering them in a way, with a level of training and support, that allows our clients to be able to absorb it, consume it and get value from it.

FP: What’s something you’ve had to be very deliberate about introducing to clients?

GC: We’re delivering this year a single relationship agreement. We call it a single contract. It’s common within the wirehouses. But we’re the first independent firm at scale to do this.

Ninety percent of our account types are part of this single contract. It’s one agreement, whether you have a brokerage account, an advisory account, it could be a rep as [portfolio management] advisor or it could be centrally managed. And if a client opens a new account a few months later, there’s a no-consent letter, but there’s no additional signing needed.

The change management with this is fairly significant. It’s the ability to pilot in stages and have your service team ready to answer questions when questions come in.

FP: Inevitable question: Do you think AI will take advisors’ jobs?

GC: AI is not taking jobs. Two reasons for that:

One, it’s going to allow advisors to take on more clients. So a third of all advisors are facing retirement over the next 10 years. The answer is automation, the ability to take on more clients per advisor.

The other one may be less discussed. I think it’s going to lead to an expansion of different things that you could do outside of maybe what you’ve historically done. So you think about wealth management generally. It’s the distillation of a lot of different practices. It’s investments. It’s tax. It’s insurance. It’s planning. It’s risk. It’s banking and lending. 

Often these involve different subject expertise. As the wealth manager, you’ve got a role organizing all of that. 

But if automation makes that a little bit easier, I think what could happen in five to 10 years from now, if not sooner, is you could start seeing a collapse of these professions. A wealth manager that may have never done tax before now has an easier ability to do that. And rather than having multiple conversations, if you’re the end client, with different professionals, you’re having one conversation with your wealth manager.