LPL Financial: Onboarding Partner Assets and Higher Cash Balances to Maintain Growth

Director

Michael Wong

LPL Financial provides an advisory and brokerage platform for advisors, broker/dealer services for financial institutions, and resources for practice management. At the end of 2023, advisors on LPL's platform served over $1.3 trillion of wealth management assets in the United States. LPL aims to offer services to all advisors regardless of business model. For example, advisors can be licensed with LPL Financial, giving LPL responsibility for managing risk and compliance, or they can operate as a hybrid Registered Investment Advisor using LPL Financial for custody, trading, and administrative support. LPL has also launched a new employee model that allows advisors to fully outsource practice management.

LPL’s capacity to grow its business relies on both the recruitment of new assets and ongoing retention and monetization of existing assets. Production retention, which measures the percentage of advisor-generated revenue maintained from the previous year, has recently been over 95%. This indicates to us that LPL’s services have a high level of stickiness and that maintaining advisor affiliations is an important aspect of the business. Acquisitions of advisor networks have also been a source of growth, with the 2017 acquisition of NPH for $325 million, the wealth management business of Waddell & Reed in 2021 for $300 million, and agreement in 2024 to acquire Atria Wealth Solutions for over $800 million showing that LPL is willing and able to buy growth outright when it makes sense to do so.

While lower interest rates are a headwind for the financial sector, we still forecast LPL growing gross profit in the mid- to high-single-digit percentage range for the foreseeable future. We believe the growth will be from onboarding about $150 billion of client assets related to Prudential and Atria, which is more than 10% of client assets LPL had on its platform at the end of 2023, and client cash balances increasing from recently low levels.

Business Strategy & Outlook

We give LPL Financial a Narrow Morningstar Economic Moat Rating, because the broker/dealer benefits from strong switching costs, evidenced by high retention of advisors on its platform and the stickiness of investor assets. The company is able to provide resources to advisors that its smaller competitors are often unable to match. Assets under management, or AUM, retention has averaged in the mid- to high-90% range over the previous several years.

The percentage of advisors switching to a new broker/dealer has decreased over the past decade, and LPL’s ability to retain advisors is generally better than the industry average. In 2018, 6.5% of advisors changed firms compared with over 10% a decade ago. Though LPL is also affected by this systematic churn, recruitment of new advisors to the LPL platform has offset advisor losses in recent years. People are often reluctant to switch advisors because of their relationships with them, uncertainty about the potential cost/benefit trade-off, and inertia with financial management decision-making. Because of this, LPL benefits from stickiness of both its asset and client base. While there is a high level of competition for top advisor talent, LPL has been willing to invest to remain competitive by improving its technology offerings and services. LPL’s strong market position, best-in-class payout, and advisor resources contribute to its meaningful switching costs, which should allow LPL to generate excess returns to shareholders over the next decade.

When evaluating LPL Financial’s ability to attract and retain assets, it’s important to recognize the differing trends of advisory and brokerage asset growth. Net new organic advisory assets, which represent growth of “all-in” investment management accounts, have consistently grown at annualized rates of 6% to over 10%. Advisory assets have also been steadily growing as a percentage of total client assets, with advisory assets at 54% at the end of 2023 compared with less than 40% before 2016. In contrast, net new brokerage assets have been declining significantly. This decline in organic brokerage asset growth won’t necessarily reduce overall brokerage assets in the long term because of market effects.

We think LPL is well positioned to maintain its advisory base and marginally improve market share. Its ability to retain advisors during the recent separation of Independent Financial Partners provides evidence that associating with LPL is appealing for advisors. IFP was an Office of Supervisory Jurisdiction that announced in March 2018 its intention to build its own broker/dealer business and drop its affiliation with LPL. At the time, IFP had $9.5 billion of assets under management, which accounted for about 3% of LPL’s total AUM. LPL retained a majority of the at-risk assets. Though LPL probably offered heavy incentives for advisors to stay, including better payouts and cash bonuses, these costs can be worth the expense if the advisors remain with LPL for a long time. The discrepancy between the 50% of advisors retained and 70% of total AUM indicates that LPL was able to retain the higher-producing advisors, which suggests that retention efforts have been largely successful. For LPL, the risk of large OSJ exits from the platform is a bigger danger than systematic churn, and the relatively successful IFP retention efforts show that LPL can withstand unforeseen advisor departures with limited damage.

As part of its growth strategy, LPL acquired the advisors associated with National Planning Holdings in 2017. LPL needed to convince NPH’s advisors to move to LPL following the acquisition, since advisors are generally able to select their broker/dealer affiliation at will. The terms of the deal were structured with a purchase price of $325 million, and a contingent payment of up to $123 million based on the number of assets and advisors that move from NPH to LPL. Ultimately, LPL was able to convert about 60% of NPH advisors and fell short of its target of 70%. Though LPL was not required to fork out a contingent payment as part of the deal, we think that LPL likely overpaid for the right to integrate the NPH advisor network and that management overestimated its appeal to NPH advisors. With management indicating that mergers and acquisitions are more likely than not, we think LPL will need to show evidence of better advisor conversion following these types of acquisitions, and we like the option of contingency payment deal structures to reduce uncertainty around conversion efforts.

LPL's acquisition of the wealth management business of Waddell & Reed in 2021 went quite well. Retention of client assets was about 99% compared with the 70% that LPL modeled for the transaction. Estimated run-rate EBITDA was revised to be over $90 million compared with over $50 million when the deal was signed.

We believe LPL has the scale and resources to continue to make gains with advisor recruitment, and LPL should be able to absorb fee pressure to maintain its position as a broker/dealer of choice for advisors over the next five to 10 years. We acknowledge that LPL operates in an industry that faces uncertain regulatory conditions and a shifting business model that increasingly emphasizes acting in investors’ best interest. We think LPL's position as a market leader will not go unchallenged, but it should be able to adjust and adapt to changes. On balance, we think LPL will continue to use its scale and industry position to generate consistent net new advisor recruitment in the coming years, and we think LPL's ability to retain sticky financial assets warrants a narrow economic moat rating because of the benefits received from a high level of switching costs.

Narrow

Economic Moat

LPL Financial Hlds

LPL Financial Holdings, Inc. serves independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow their practices. It provides objective financial guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions. The company was founded in 1989 and is headquartered in San Diego, CA.

Earnings data Q3 2020

Earnings data Q4 2020

Earnings data Q1 2021

Earnings data Q2 2021

Earnings data Q3 2021

Earnings data Q4 2021

Earnings data Q1 2022

Earnings data Q2 2022

Earnings data Q3 2022

Earnings data Q4 2022

Earnings data Q1 2023

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Earnings data Q2 2024

LPL Financial Hlds reports record earnings, eyes high net worth market

LPL Financial Hlds reported strong financial performance, with significant asset growth, record EPS, and robust same-store sales. The company's strategic focus on empowering advisers and enhancing client experience through various plays is driving growth and differentiation.
While challenges exist in executing strategic plays effectively, managing expense growth, and optimizing leverage ratios, LPL Financial Hlds has opportunities to further expand its service offerings, target high net worth clients, and grow its fixed rate portfolio.
By capitalizing on opportunities to enhance capabilities, target specific client segments, and invest in technology, LPL Financial Hlds can continue its growth trajectory and strengthen its position in the advisory market.
The company's commitment to financial stability, shareholder value, and strategic investments positions it well for future growth and market leadership, despite challenges in execution and market dynamics.
Overall, LPL Financial Hlds' focus on empowering advisers, enhancing client experience, and driving growth through strategic investments and service enhancements sets a positive trajectory for continued success and market expansion.

LPL Financial Hlds reports stellar Q1 results, eyes growth opportunities

LPL Financial Hlds (LPLA) delivered strong financial performance in Q1 2023, driven by robust asset growth, high retention rates, and doubled adjusted EPS.
The company's strategic focus on empowering advisers, expanding market presence, and optimizing revenue streams positions it for continued success and growth.
While facing challenges in liquidity management and client transitions, LPLA has opportunities to capitalize on market trends, drive growth, and enhance profitability.

LPL Financial reports robust Q2 performance and strategic growth plans

LPL Financial's Q2 performance reflects strong growth in assets, net new assets, and adjusted EPS, supported by a record retention rate and strategic initiatives.
Despite challenges like decreased gross profit and client cash revenue, the company's focus on innovation, acquisitions, and shareholder value creation remains strong.
Opportunities lie in leveraging M&A, expanding services, and delivering value proposition to drive future growth and market leadership.
With a solid financial position, growth strategies, and commitment to serving advisers, LPL Financial is poised for continued success and value creation in the financial services industry.

LPL Financial reports record Q3 recruitment success and strategic growth

LPL Financial's Q3 performance showcased strong asset growth, recruitment success, and increased EPS. The company faces challenges in managing promotional expenses and market transitions but is well-positioned to capitalize on opportunities for growth and innovation.
With a strategic focus on horizontal expansion and vertical integration, LPL Financial aims to sustain its strong asset retention and recruitment momentum. The partnership with Prudential and readiness to comply with regulatory changes position the company for future success.

LPL Financial Hlds reports robust Q4 earnings, eyes M&A growth

LPL Financial Hlds delivered strong financial performance in Q4, with notable increases in assets and EPS. The company's strategic initiatives to enhance digital capabilities and simplify adviser onboarding are driving growth. While facing challenges in G&A expenses and industry complexities, LPL Financial Hlds is well-positioned to capitalize on M&A opportunities and industry trends.

LPL Financial reports strong Q1 performance and eyes growth opportunities

LPL Financial's Q1 2024 earnings call highlighted robust financial results, strategic acquisitions, and a focus on delivering shareholder value. Despite facing challenges in basis points improvement and increased expenses, the company remains optimistic about organic growth opportunities and regulatory alignment.

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

CHARLOTTE, N.C., Dec.  12, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that Herbert Financial Group has joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. The firm reported its advisors served approximately $500 million in brokerage and advisory assets*. They join from Centaurus Financial.

LPL Financial Welcomes Herbert Financial Group

CHARLOTTE, N.C., Dec.  11, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced financial advisors Greg Hadel CFS and Sean Aikmus CFP® have joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. They reported having served approximately $165 million in brokerage and advisory assets*. They join from Woodbury Financial Services, part of the Advisor Group network of broker-dealers.

LPL Financial Welcomes Hadel Financial Advisors

Advisors able to trade ETFs for free  State Street Global Advisors, Invesco, WisdomTree named inaugural partners

LPL Financial Launches No-Transaction-Fee, Exchange-Traded Fund Network

Is LPL Financial Holdings (LPLA) a great pick from the value investor's perspective right now? Read on to know more.

Is LPL Financial (LPLA) A Good Pick for Value Investors?

CHARLOTTE, N.C., Dec.  04, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that financial advisor Pat Gilmore CFP® has joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. He reported having served approximately $125 million in brokerage and advisory assets*. He joins from Sagepoint Financial, part of the Advisor Group network of broker-dealers.

LPL Financial Welcomes Financial Advisor Pat Gilmore

CHARLOTTE, N.C., Dec.  03, 2019  (GLOBE NEWSWIRE) -- Leading retail investment advisory firm and independent broker/dealer  LPL Financial LLC  today announced that its annual “Outlook 2020” is now available in an  interactive digital  version or by downloading this  PDF . The report, “Bringing Markets Into Focus,” contains investment insights and market guidance from LPL Research for 2020, a year that will bring a highly charged U.S. presidential election and a possible breakthrough in international trade and policy discussions. These and other critical factors outlined in the report are likely to influence the longest running bull market in U.S. history.

LPL Financial Research Publishes Outlook 2020

CHARLOTTE, N.C., Dec.  02, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced the launch of a new account opening tool designed to cut down the average time it takes an advisor to open a new account—from nine to four minutes, which could create hours of efficiencies gains each month.

LPL Financial Advisors Expected to Save Hours Each Month Using New Account Opening Process

CHARLOTTE, N.C., Dec.  02, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that Gatewood Wealth Solutions has joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. The firm reported having served approximately $550 million in brokerage and advisory assets*. They join from Northwestern Mutual, where they were among the top producing and fastest-growing teams.

LPL Financial Welcomes Gatewood Wealth Solutions

CHARLOTTE, N.C., Nov.  26, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that Canal View Financial Advisors has joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. The advisors reported having served approximately $350 million in brokerage and advisory assets*. They join from Ameriprise Financial.

LPL Financial Welcomes Canal View Financial Advisors™

CHARLOTTE, N.C., Nov.  21, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that financial advisors Blake Henry and Laurel Jackson Callaway of Railroad Investment Group have joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. They reported having served approximately $100 million in brokerage and advisory assets*. They join from Raymond James.

LPL Financial Welcomes Railroad Investment Group

CHARLOTTE, N.C., Nov.  21, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced the release of its first corporate sustainability report, detailing progress towards environmental, social and governance (ESG) goals.

LPL Financial Publishes Its First Sustainability Report

CHARLOTTE, N.C., Nov.  19, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that RD’s Financial Strategies has joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. The San Jose, Calif.-based team has aligned with The Financial Services Network, an enterprise firm offering support and resources to LPL-affiliated financial advisors. They reported having served approximately $200 million in brokerage, advisory and retirement plan assets*. They join from Avantax Investment Services, part of Blucora.

LPL Financial and the Financial Services Network Welcome RD’s Financial Strategies

CHARLOTTE, N.C., Nov.  13, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that financial advisors Kenneth Small CFP® and Natalie Jump have joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. They reported having served approximately $135 million in brokerage and advisory assets*. They join from Securities America, part of Ladenburg Thalmann’s group of broker-dealers.

LPL Financial Welcomes Financial Advisors Kenneth Small and Natalie Jump

Steadily rising brokerage and advisory assets will support LPL Financial's (LPLA) top-line growth in the quarters ahead.

LPL Financial (LPLA) October Brokerage & Advisory Assets Up

SAN DIEGO, Nov.  12, 2019  (GLOBE NEWSWIRE) -- Leading retail investment advisory firm and independent broker-dealer  LPL Financial  LLC, a wholly owned subsidiary of LPL Financial Holdings Inc. ( Nasdaq: LPLA ), today released its monthly activity report for October 2019.

LPL Financial Reports Monthly Activity for October 2019

CHARLOTTE, N.C., Nov.  12, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced financial advisors Cris Arnold, David McIllwain, Charlotte Martin and Brenda Speer have joined LPL Financial. The advisors have aligned with Independent Advisor Alliance (IAA), an enterprise firm offering support and services to advisors leveraging LPL Financial’s broker-dealer and corporate or hybrid registered investment advisor (RIA) platforms. The team reported having served approximately $240 million in brokerage, advisory and retirement plan assets*. They join from FSC Securities, part of the Advisor Group network of broker-dealers.

LPL Financial and Independent Advisor Alliance Welcome Nashville Area Team

SAN DIEGO, Nov.  07, 2019  (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (NASDAQ: LPLA) today announced that its wholly owned subsidiary, LPL Holdings, Inc. (“LPL Holdings”), has secured commitments to reprice its term loan B, increase the size of its revolving credit facility from $500 million to $750 million, extend the maturity dates applicable to its term loan B and revolving credit facility, and make certain other changes to its existing credit agreement. In addition, LPL Holdings announced the pricing of its offering of $400 million in aggregate principal amount of senior unsecured notes (the “senior notes”).  As previously announced, LPL Holdings intends to use the net proceeds from the senior notes offering, together with cash available for corporate use, to pay down its existing term loan B to approximately $1,070 million and to pay fees and expenses related to the senior notes offering and the credit agreement amendment.

LPL Financial Announces Pricing of Leverage-Neutral Transaction Amending Senior Secured Credit Facilities and Offering Senior Unsecured Notes

CHARLOTTE, N.C., Nov.  06, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that Hege Financial Group has joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. The advisors reported having served approximately $275 million in brokerage and advisory assets*. They join from Lincoln Financial Securities.

LPL Financial Welcomes Hege Financial Group

CHARLOTTE, N.C., Nov.  05, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that financial advisor Christopher Sweeney has joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. He reported having served approximately $125 million in brokerage, advisory and retirement plan assets*. He joins from Ameriprise Financial.

LPL Financial Welcomes Financial Advisor Christopher Sweeney

CHARLOTTE, N.C., Oct.  30, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that financial advisors Michael Kennedy and Christopher Bott with Pacific Pension & Benefit Services have joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. They have aligned with The Financial Services Network, an existing LPL firm, and reported having served approximately $200 million in brokerage and retirement plan assets*. They join from Royal Alliance, a member of the Advisor Group network of broker-dealers.

LPL Financial and the Financial Services Network Welcome Pacific Pension & Benefit Services

SAN DIEGO, Oct.  30, 2019  (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (NASDAQ: LPLA) today announced that its wholly owned subsidiary, LPL Holdings, Inc. (“LPL Holdings”), intends to reprice its existing $1,470 million term loan B, increase the size of its revolving credit facility from $500 million to $750 million, extend the maturity date applicable to its term loan B and revolving credit facility, and make certain other changes.  Additionally, LPL Holdings announced that it intends to offer approximately $400 million in aggregate principal amount of senior unsecured notes due 2027 (the “senior notes offering”).  

LPL Financial Announces Proposed Leverage-Neutral Transaction Amending Senior Secured Credit Facilities and Offering Senior Unsecured Notes

CHARLOTTE, N.C., Oct.  28, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced financial advisors Don Petricic, CFP® and Tom Phillips, CFP® have joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. They reported having served approximately $120 million in brokerage and advisory assets*. They join from Woodbury Financial Services, part of the Advisor Group network of broker-dealers.

LPL Financial Welcomes Petricic & Phillips Financial Group

LPL Financial Holdings Inc. (LPLA) CEO Dan Arnold on Q3 2019 Results - Earnings Call Transcript

CHARLOTTE, N.C., Oct.  23, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that three financial advisors with Maxwell Financial Management have joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. The group reported having served approximately $240 million in brokerage and advisory assets*. They were formerly associated with Advisor Group’s FSC Securities Corp.

LPL Financial Welcomes Maxwell Financial Management

CHARLOTTE, N.C., Oct.  21, 2019  (GLOBE NEWSWIRE) --  LPL Financial LLC , a leading retail investment advisory firm and independent broker-dealer, today announced that financial advisors Thomas Varga Jr., CPA, CLU, ChFC and Chris Varga have joined LPL Financial’s broker-dealer and corporate registered investment advisor (RIA) platforms. They reported having served approximately $150 million in brokerage and advisory assets*. They join from Cadaret Grant.

News for LPL Financial Hlds Stock (LPLA)