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Higher offers and revamped recruiting yield record results for LPL

LPL Financial topped $30 billion in recruited client assets in the past 12 months — and CEO Dan Arnold says the firm aims to ramp it up even further.

Tech-enhanced efficiencies in the firm’s outreach to prospective recruits and higher transition assistance offers led to the record influx, Arnold said May 2 in a call with analysts after the firm reported first-quarter earnings.

The two factors “bode well” for making LPL’s recruiting “more repeatable and sustainable,” he said. The No. 1 independent broker-dealer also expects to retain a little more than half of the roughly 500 advisors at Bill Hamm’s exiting hybrid RIA and $8 billion of its $12 billion in total client assets, according to Arnold.

LPL client assets

Arnold cites price as a key strategic lever — LPL found success in advisors adopting a no-transaction-fee mutual fund platform in recent years — the firm is also slashing its ETF ticket charge on select funds to $5 from $9. ETFs are in a “race to zero” fees amid long-term cost compression in asset management.

Cutting LPL’s fee by 44% later this year would land roughly neutral on the IBD’s books due to product sponsor revenue, Arnold said. Advisors would receive “simpler and lower advisory pricing for their clients” through the fee reduction, he said.

“We believe our investments in capabilities are helping advisors with what matters most to them: driving growth, creating scalability and lowering their costs,” Arnold said. “This makes our platform an increasingly compelling place for existing and prospective advisors to thrive, which in turn benefits our growth.”

Asked for further details on the cuts to ETF fees, LPL spokesman Jeffrey Mochal said in an email that they would roll out in the second half of the year in advisory accounts held in the corporate RIA or with hybrid firms.

Planners ranging from sole practitioners to the largest OSJ enterprises welcomed the CEO’s comment that the firm's culture was not aligned with its strategy.
September 4

LPL’s headcount rose by a net 122 advisors year-over-year to 16,189 representatives — a larger force than any other IBD or wirehouse. Recruited assets from incoming reps also nearly doubled from the year-ago period to $7.1 billion.

Improvements to sales processes and new ways of using data and digital technology to target recruits display how LPL has “continued to evolve and transform” its business development team, Arnold said. Aligning transition assistance with financial returns has also helped.

Arnold agreed with an analyst who described the industry’s record consolidation as a recruiting opportunity. The firm is trying to “build the fundamentals and foundation” so the pipeline isn’t reliant on “any sort of circumstance out in the marketplace, like a transaction that created a short-run or episodic opportunity.”

Two fewer trading days than the previous quarter and lower asset balances at the end of the year due to equity values made the firm's productivity numbers “a little bit counterintuitive,” CFO Matt Audette said in response to an analyst’s question about the metric. The higher headcount coincided with lower collective productivity among advisors.

Annualized commission and advisory fees per advisor slipped by 1% year-over-year to $227,000. On the other hand, assets per advisor ticked up by 5% to $42.2 million in the quarter.

About $500 million in client assets left LPL in the first quarter with Hamm’s move to launch an IBD, according to Arnold. He predicts that around $3.5 billion will flow out in the second quarter with Independent Financial Partners. Hamm has disputed Arnold’s figures in prior quarters.

LPL’s retention of about two-thirds of IFP's client assets with a little more than half of the advisors “would suggest we retained, on balance, the more productive advisors,” Arnold said. “So we think, all in, that’s a pretty good outcome.”

Total client assets surged by 6% year-over-year to a record $684 billion after fourth-quarter volatility pushed them down. The corporate RIA’s assets under management jumped by 14% to $191.8 billion, while AUM at hybrid RIAs increased by 4% to $120.1 billion.

“You actually are beginning to see strengthening and growth returning to our hybrid model,” Arnold said. “You’re seeing a less nois[y] environment and our investments in our platform will, we believe, support growth going forward in that channel.”

For the quarter, LPL earned net income of $155.4 million — a 66% bump year-over-year — on revenue of $1.37 billion. Earnings per share of $1.93 on a non-GAAP basis beat analysts’ consensus by 34 cents, and the revenue figure outpaced expectations by $20 million.

The “puts and takes” of client cash sweeps display “some of the natural hedges within LPL’s model, which we believe is a good thing,” analyst Devin Ryan of JMP Securities wrote in a note after the earnings call. Ryan maintained LPL’s “market perform” rating.

“While there is clearly an incremental cost to expanding technology capabilities, increasing headcount, and offering pricing improvements to both advisors and clients, we also think these investments are critical to enhancing the long-term organic growth trajectory,” Ryan said.

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