“Thawing” market conditions helped LPL Financial realize a surge in net new advisors in the fourth quarter and the company is confident it can continue.
The San Diego-based company added 427 advisors in the fourth quarter to give it a total of 12,444. Robert Moore, the company’s chief financial officer, said that 206 of those advisors were added as a result of LPL’s acquisition of National Retirement Partners, but the 227 net new advisors added organically represent a “very very very good” boost on a quarterly basis.
“We have indicated over time that adding 400 net new advisors annually is a good operating assumption,” he said in an interview Tuesday morning. “That translates into 100 per quarter. So, on a quarterly basis we more than doubled that in the fourth quarter.”
Moore said the surge in advisors was caused by “thawing” economic and market condition.
“Through the first three quarter of last year, the entire industry saw a subdued level of advisors in motion relative to our expectations and previous historic conditions,” he said. “But the fourth quarter saw a lot of people coming out of that. Between that, and improvements in our sevice offering, things can together quite nicely for us in the quarter in terms of attracting advisors.”
LPL expects to added 100 to 150 net new advisors in the first quarter, Moore said.
“Based on our pipeline and expectations going forward we suggest more normalizing conditions going forward,” he said.
In its first public earnings results since going public late last year, LPL reported late Monday that fourth-quarter net income increased 6.2% from a year earlier to $44.7 million, or 42 cents per diluted share.
Net revenue rose 11.6% to $820 million. Without charges related to its initial public offering and other adjustments, LPL had a fourth quarter net loss of $116.6 million, or $1.20 a diluted share. Analysts expected adjusted earnings of 40 cents per share on revenue of $796.8 million.
LPL’s net new advisory assets increased 21.4% to $8.5 billion from a year earlier. As of Dec. 31, the nation’s largest independent broker-dealer had 315.6 billion in total assets under management, up 13% from a year earlier.
Moore said the growth was driven by market conditions and a surge in assets from advisors LPL added in 2008 and 2009. “They have ramped up their businesses and brought in additional advisory assets to our platform.”
“Historically we have added new 500 advisors per year and we plan to add net new advisors of 400 on a going forward basis,” Mark Casady, LPL’s chairman and chief executive officer, said during the January interview. “That is part of the mixture of how we will create growth for the company.”
LPL, which is the third largest broker-dealer by headcount and the fifth largest by revenue, has grown into a powerhouse of a financial services company over the past decade. Its advisor base has grown from 3,596 advisors in 2000 to 12,017 as of Sept. 30, representing an annual growth rate of 13.2%. In 2009, it added 750 advisors net new advisors.
Casady said 2010 was “a little bit slower” as 128 net new advisors joined the company through the first three quarters the year.
The majority of advisors that joined LPL in 2009 came from wirehouses, according to Casady, but 70% of the advisors that joined the firm last year came from other independent firms. On average, advisors joining LPL had at least seven years experience.
The company also plans to continue to look for ways to grow its business through acquisitions. Casady said. Over the last decade, 80% of LPL’s growth has come organically and 20% has come from acquisitions. Casady said the company continues to look for acquisitions that “make sense,” but most purchases going forward will be “add-on” deals.
“Most of our acquisitions in the past have been to add scale, but we are really through that phase,” he said. “Going forward we’ll look for add-on services. … We want to find services that we can bring to our advisors.”
He said LPL has the excess capital to make deals without using any stock to make acquisitions.
LPL made news in November when it raised $445 million from its initial public offering, but Casady said he doesn’t think the IPO “really matters one iota” to advisors.
“I mean it is nice. … But [advisors] come to us because we can offer more efficiency and more capabilities than anyone else in the industry bar none,” he said. “You can’t go to a custodian and get the efficiency of the platform we have, you can’t go to another broker-dealer.”
Moore said Tuesday that LPL feels good about its “overall performance in 2010 and the trajectory going into 2011 remains encouraging.”
He said the company wants to continue to be an “industry leader” and an “innovator.”
“We feel very good that this ‘more of the same’ strategy will allow us to stay on our trajectory and help us maintain our leadership position,” he said.
