LPL hits record advisor headcount, aims for entire FA market

LPL hits record advisor headcount, sets sights on entire FA market

October 27, 2023 4:16 PM

The industry's top independent broker-dealer now has 22,404 advisors, a record-high headcount.

Despite a small slide in profits, LPL Financial had another healthy quarter in advisor recruitments and organic asset growth, and is looking ahead to domination of the entire advisor industry.

"This quarter we continued to see the appeal of our model grow due to the combination of our robust and feature-rich platform, the stability and scale of our industry-leading model, and our capacity and commitment to invest back into the platform," said Dan Arnold, the CEO and president of LPL, in an earnings call Thursday with analysts. He added that the firm's goal is to eventually "compete for all 300,000 advisors in the marketplace."

Arnold said the firm's strategy involves "horizontal expansion, where we look to expand the ways that advisors and enterprises can affiliate with us, and vertical integration, where we focus on providing capabilities that solve for a broader spectrum of advisor needs."

The firm repurchased $250 million in shares during the quarter and beat Wall Street expectations with adjusted earnings per share of $3.74, which was 5% above the analyst consensus of $3.57.

"We remain quite encouraged by the robust organic growth the company continues to demonstrate," analysts at JMP Securities said of LPL in a note on Friday. LPL appears significantly undervalued in the market, the analysts said, noting that it showed potential for "faster growth and higher capital return than the average S&P 500 company but a notable discount to the S&P's forward P/E of 17.4x."

"LPL is taking advantage of its elevated revenue in a period of above-normal interest rates to invest back into the business where it can move the needle on growth, but also deliver respectable results for shareholders," the analysts said, rating LPL "market outperform."

The analysts maintained that LPL could "continue expanding the organic growth rate from upper-single digits currently into the double digits over the next couple of years, which would put the firm at the top of the industry."

To see the main takeaways from LPL's third-quarter earnings, scroll down the slideshow. For coverage of the firm's second-quarter earnings, click here. For a look at the results from the first quarter, click here.

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Financials

Net income of $224 million fell 3% year over year, according to an earnings press release Thursday. The earnings were dented by a $40 million chunk that was taken out "in anticipation of a settlement with the U.S. Securities and Exchange Commission" related to an investigation into record-keeping violations at several broker dealers and RIAs, the firm noted in its release.

Revenue of $2.5 billion rose 17% year over year. In the same period, gross profit — a non-GAAP metric the firm uses that it claims is more reflective of earnings — rose 21% to $1 billion.

Financial advisors

The number of financial advisors rose to 22,404, as LPL added a net 462 advisors in the past quarter and 1,360 advisors over the past year.

Headcount rose 6% year over year, and 2% over the past quarter.

"With respect to our new affiliation models — strategic wealth, employee and our enhanced RIA offering — we delivered our strongest quarter to date recruiting roughly $5 billion in assets in Q3," reflecting the models' success in attracting new advisors, Arnold said. "We expect to see a sustained increase in growth within our new affiliation models."

Client assets

Total client assets of $1.24 trillion rose 19% year over year from $1.04 trillion, as the firm gained assets both through organic growth and acquisitions.

The firm brought in $33.2 billion in net new assets for the quarter, which included contributions from onboarding advisors at Bank of the West and Commerce Bank, according to Chief Financial Officer and Head of Business Operations Matt Audette.

However, total assets were unchanged from last quarter's $1.24 trillion, because of market declines, Audette said.

Guidance

In the fourth quarter "we plan to repurchase $200 million of our shares, keeping us on track to execute on our $2 billion authorization over two years," Arnold said.

The firm expects to raise its payout to 88% in the fourth quarter and projects a quarter-to-quarter 10 million decline in service and fee revenue. In late 2024, it also expects to onboard around 2,600 Prudential advisors who collectively serve around $50 billion of client assets, the firm said in its earnings release.

On Wednesday, the firm also announced its rollout of CFO Solutions, which allows advisors to outsource basic chief financial officer functions at an affordable price point. "We now have 13 solutions in our overall services portfolio, which many of them … could be relevant across our entire advisor base. We've got three more solutions that we will roll out in the near to intermediate term and another handful in incubation," Arnold said on the call.

LPL hits record advisor headcount, sets sights on entire FA market

Financials

Financial advisors

Client assets

Expenses

Guidance