LPL CEO sees growth prospects in ‘post-DoL world’

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Despite uncertainty surrounding the fiduciary rule, LPL Financial will emerge stronger in the coming months, according to CEO Dan Arnold. The nation’s largest independent broker-dealer lost more than 200 advisers due to three major defections in the second quarter.

Changes like the Department of Labor rule will lead to “more adviser movement and opportunity for industry consolidation,” Arnold said Thursday during a call after LPL reported its second-quarter earnings. “We have been winning business by building on these themes.”

Client assets at LPL grew 11% year-over-year to $542 billion despite exits by three major offices of supervisory jurisdiction. The firm’s gross profits grew 13% year-over-year to $389 million, even with the net loss of 121 advisers this year.

The steep costs of efforts by LPL and its competitors to adjust their business models in order to comply with the fiduciary rule have not significantly affected the firms’ earnings and assets. Raymond James saw record revenue and profit growth in the past quarter. Ameriprise hit a record for client assets.

Concerns around the DoL rule were the “biggest driver” pushing LPL’s recruiting down for the quarter because “it just caused advisers to slow down on their decision-making,” Arnold said. “We’ve seen some reduction in that uncertainty. We feel good about growing through recruiting in the long term.”

Where the recruiting momentum is shifting now
This year has seen more moves, bigger moves and more expensive moves.

LPL has kept some recruiting momentum amid widespread pullback among wirehouses. Four Merrill Lynch advisers launched an independent LPL practice in April, and four Wells Fargo brokers started an indie firm with LPL as its broker-dealer last month. Arnold had called 2016 LPL’s best year ever for recruiting.

The firm’s headcount fell by 98 from the previous quarter to 14,256. However, it has grown by 63 year-over-year. Exits by Resources Investment Advisors, Carson Wealth Management Group and WealthPlan Partners removed $5.6 billion in assets and 218 advisers from LPL’s fold, according to CFO Matt Audette.

The OSJ losses reduced the broker-dealer’s net new assets to an inflow of $400 million, down from $1.3 billion year-over-year. They pose no further impact on LPL’s results going forward, though, Audette said.

Climbing advisory assets brought on by recruiting and market growth yielded the higher profits, he added. The firm saw outflows in new brokerage assets and inflows in new advisory assets for the ninth quarter in a row. Conversions from brokerage to advisory accounts hit $2 billion.

Earlier this month LPL announced a new investing platform for load-waived mutual fund offerings that would mandate uniform commission structures for more than 1,500 funds from 20 sponsors.

“The Mutual Fund Only solution is a great example of our commitment to preserving choice across both brokerage and advisory accounts in a post-DoL world,” Arnold said.

He cited the firm’s platform for separately managed accounts and its upcoming robo advice offering — which is slated for rollout next quarter — as other examples of the firm’s innovations. LPL is striving to help advisers get “more capabilities at a lower cost” to their clients, Arnold said.

“On the macro level, I think it’s reasonable to assume that prices will come down,” he said. “You’re seeing the entire ecosystem wrestling with that.”

The value of LPL’s stock has nearly doubled over the past 12 months to around $45 per share. Its price increased by about 1% in after-hours trading following the earnings announcement.

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Earnings Independent BDs Independent advisors Fiduciary Rule Investment products Recruiting Mutual funds Dan Arnold LPL Financial DoL