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Can LPL live up to its new mission statement?

LPL Financial hopes to build the best advisor service in wealth management under a slew of new digital offerings and a new chief customer care officer set to join the firm this month, CEO Dan Arnold says.

The No. 1 independent broker-dealer “took an important step in this journey” in late 2018 by adopting the new mission statement: “We take care of our advisors, so they can take care of their clients,” Arnold said Jan. 31 on a call with analysts after the company announced its fourth-quarter results.

With 16,000 advisors to please and investors closely watching metrics like cash sweep yields, the firm faces challenges in meeting its goal. IBDs like Commonwealth Financial Network, Cambridge Investment Research and Kestra Financial also enjoy much better reputations for personalized advisor services.

Arnold has acknowledged problems cited by current advisors and those who left the firm over the shortcomings, with the CEO calling for a transformation of LPL’s culture last year. The company has a “large agenda” for its service model, including a shift to focusing on “customer care,” Arnold says.

Artificial intelligence and other technology will support the change, and the CEO also pledged to provide advisors with the tech required to turn prospects into clients easily, at no expense to them, under new digital tools stemming from an acquisition. Additionally, LPL is considering a new fee-only RIA offering.

LPL’s acquisition of the asset allocation software and proposal generation firm AdvisoryWorld last month for $28 million will also add a goals-based planning solution to the firm’s ClientWorks platform. Veteran customer service executive Dayton Semerjian will lead the service model change.

“Our aspiration is to deliver a differentiated service experience to our advisors that they can’t get anywhere else in the wealth management space,” Arnold said.

Planners ranging from sole practitioners to the largest OSJ enterprises welcomed the CEO’s comment that the firm's culture was not aligned with its strategy.
September 4

LPL’s quarterly net income soared 88% year-over-year to $120.3 million on $1.3 billion in revenue, resulting in adjusted earnings per share of $1.49, beating analysts’ EPS consensus by 12 cents. Revenue for the fourth quarter missed its expected total by $40 million, though.

Arnold unveiled the firm’s earnings with a notable preview of the service and technology upgrades, including a move away from traditional call centers to case managers “accountable for managing our advisors inquiries from start to finish.”

Semerjian will join the firm Feb. 28 from multinational software firm CA Technologies, replacing the retiring Tom Gooley atop LPL’s service, trading and operations unit. He brings 30 years of experience with stops at firms like Intel and Corente, which Oracle acquired in 2014.

The service upgrades acted as the “catalyst” for tapping Semerjian, CA’s senior vice president for global customer success, Arnold says.

“It’s clear that LPL is committed to making service a competitive advantage, including ingraining a service mindset into the culture,” Semerjian said in a statement.

Also next month, LPL will launch the new goals-based planning solution on ClientWorks with an eye toward advisory services and organic growth. LPL says its organic growth, as measured by net new assets, set records on both a quarterly ($5.9 billion) and annual ($14.3 billion) basis.

For the year, LPL also notched a record in recruiting, adding advisors managing some $27.3 billion in client assets in a 9% increase over 2017. The firm attracted advisors with $8.6 billion in client assets in the fourth quarter, compared to $7.8 billion in the year-ago period.

On the other hand, its headcount dropped by a net 65 advisors in the quarter to 16,109. For the year, the number of LPL advisors rose 6%, due to the firm’s acquisition of the assets of IBD network National Planning Holdings.

The exit of some 50 retirement plan-focused advisors to Ladenburg Thalmann’s Triad Advisors, the loss of about 30 others from hybrid RIA practices who opted to go last year and roughly 30 low producers deciding to leave at the end of 2018 led to the sequential drop, Arnold says.

In a reflection of fourth-quarter volatility in equities, LPL’s total client assets ticked up by only 2% year-over-year to $628.1 billion. On a sequential basis, client assets fell by 8%.

LPL advisory AUM

AUM at the firm’s closely-watched hybrid RIAs slipped by 3% from the year-ago period to $109.7 billion. In contrast, the corporate RIA has expanded by 8% year-over-year to $172.3 billion. An analyst asked Arnold about the growing support for fee-only RIAs at competitor BDs vying to tap into the sector.

LPL can already keep advisors who drop their brokerage licenses in its ranks through its existing RIA channels, Arnold noted. However, he says the firm is challenging itself on the question of how it could possibly “reposition it into a more compelling and competitive offering,” he says.

“We’re in the process of doing just that,” Arnold added, while hinting that more information is to come and that the firm thinks “it’s an interesting possibility that we should be considering.” Representatives for the firm said no additional details about the firm’s thinking were immediately available.

In a note following the earnings call, William Blair analyst Chris Shutler cited the net quarterly loss of 65 advisors and “narrowing spreads” on cash holdings as negatives. Organic growth, a solid recruiting pipeline, and a $5 billion rise in cash sweep balances in December were among the positives, he wrote.

Shutler pushed up LPL’s adjusted EPS estimate for 2019 by 4% to $6.47 and its 2020 estimate by 2% to $7.30.

“We are encouraged by LPL's progress and execution, but maintain our “market perform” rating for now as it feels like much of the low-hanging fruit has been picked (cost takeout, rate hikes, etc.) and the competitive and market environments are getting tougher,” Shutler wrote.

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