LPL profits soared in Q1 on higher interest rates

LPL profits soar by 153% as firm unveils another giant incoming bank

April 28, 2023 1:34 PM

A stable of 85 financial advisors with $7.8B in client assets will join LPL Financial's Institution Services arm later this year as part of BMO Financial Group's acquisition of Bank of the West.

Between the incoming wealth management programs from Bank of the West after BMO purchased that firm for $16.3 billion and from Commerce Bank, LPL expects to add $11 billion in client assets in the second half of 2023, CEO Dan Arnold said on April 27 in a call with analysts after the firm disclosed its first-quarter results.

Profits soared by more than 150% compared to the year-ago period as the company raked in interest income and client cash yields while adding a combined $34 billion in assets from recruiting and organic growth.

The threat to regional banks amid two institutions' failures last month "certainly would create incremental demand as we go forward" for a giant brokerage, registered investment advisory firm and custodian like LPL, Arnold said in response to an analyst's question about large enterprises in that channel.

"It does reinforce our value proposition for enterprises and, in particular banks, that that type of disruption may be a catalyst for exploring different strategic options or alternatives for different business lines, as an example, wealth management," Arnold said, according to a transcript by Seeking Alpha."Our capital-light model allows us to play offense and continue to invest back in the platform in order to enhance and further differentiate our reach, and others perhaps can't do that in these disruptive markets."

While Ameriprise picked up a major recruit in Comerica Bank last month and Advisor Group acquired the bank-based teams of Infinex Investments in 2022, LPL has made the largest splash among institutional programs with Commerce, BMO, Financial Resources Group Investment Services, M&T Bank, CUNA Brokerage Services and People's United Bank.

Industry News

LPL profits soar on cash earnings, influx of 1,400 financial advisors

February 3, 2023 12:54 PM

To see the key takeaways for advisors from LPL's first-quarter earnings, scroll down the slideshow. For further reading, use the following links to coverage of its earnings for the fourth quarter, third quarter, second quarter and first quarter of 2022.

Recruiting headlines

Earlier this month, LPL picked up its sixth out of seven incoming recruits or M&A additions in 2023 with at least $1 billion in client assets, in the form of a hybrid RIA called CG Advisor Network agreeing to move its ranks of 74 advisors and $3.1 billion.

Between LPL's custodial arm, employee brokerage and Strategic Wealth channel, the firm recruited teams with about $3 billion in assets during the first quarter out of a total of $13 billion. In the past 12 months, LPL has recruited advisors with $85 billion in combined client assets.

Financial advisor headcount

The number of advisors working with LPL in some capacity jumped by a net 1,430, or 7%, from the year-ago period to a record 21,521.

LPL has sold a new high in 4,944 Services Group subscriptions to advisors outsourcing tasks to the corporate office, which boosted the number of paying customers by 1,415, or 40%, and the program's annual revenue by 26% to $38 million.

Client assets

Despite lower stock and bond values than a year ago amid inflation, rising interest rates and concerns about a recession, LPL's client assets ticked up by 1% to $1.18 trillion. Organic net new assets surged by 18% year over year to $20.8 billion in the first quarter.

Client cash assets in bank sweep programs boost the bottom lines of firms like LPL and its rivals by providing the brokerages with most of the interest rate yield and leaving clients with a small portion after the firms "sweep" the holdings into outside bank accounts automatically.

In the first quarter, clients' overall cash assets fell by 12% to $54.6 billion, but the holdings in bank sweeps grew by 19% to $49.9 billion. In turn, LPL's gross profits from client cash more than quintupled to $438.6 million, while those from net interest income and other sources climbed 150% to $20.1 million.

Expenses

Costs increased 4% year over year to $1.97 billion in the first quarter, driven primarily by compensation expenses for the larger base of advisors rising 22% to $233.5 million. Interest expenses tied to the higher rates grew by 44% to $39.2 billion, while promotional costs for advisor events and recruiting rose by 13% to $98.2 billion.

Remark

The firm "delivered a solid result against a complicated macro backdrop" in the first quarter, JMP Securities analyst Devin Ryan wrote in a note after the earnings call. Ryan maintained LPL's current rating of "market outperform" after the results.

"We would characterize the first quarter as a respectable start to the year for the company," Ryan wrote. "However, with so many irons in the fire around its growth focus, including numerous newer initiatives that are gaining momentum, we believe the firm's best days of organic growth are still ahead of it despite its already leading size and scale."