LPL Financial ended a difficult fiscal year on a high note.

The nation’s largest independent broker-dealer reported a 56% spike in fourth-quarter earnings, driven in part by a 16% jump in its asset-based business.

CEO Dan Arnold, presiding over his first earnings call since replacing Mark Casady at the beginning of the year, described 2016 as “a good year for growth” in a conference call with analysts.

The IBD had its “best recruiting year ever,” Arnold said, adding 192 net new advisers in 2016 for an industry-leading total of 14,377. The company’s net income for the year climbed 14%, Arnold noted, to $192 million. Looking forward, he said the firm would use excess capital for recruiting and on new technology.

Net income rose to $41.7 million, or 46 cents per share, in the quarter ended Dec. 31, up from $26.8 million, or 28 cents per share, a year earlier. Total net revenue dipped slightly to just over $1 billion.

THE BAD NEWS: DEFECTIONS AND FINES

LPL CEO Dan Arnold called 2016 a 'good year for growth.'

The weeks and months leading up to the earnings report were not as cheery.

The IBD was hit by two major defections. Carson Wealth Management left LPL’s platform to custody with arch-IBD rival Cetera Financial Group, headed by ex-LPL president Robert Moore. Resources Investment Advisors, another heavyweight OSJ, also is no longer affiliated with LPL.

In addition, LPL faced an unwelcome compliance issue late last year, after assuring Wall Street that its longstanding regulatory woes were in the rear view mirror. Secretary of the Commonwealth of Massachusetts William Galvin ordered LPL to pay up to $3.7 million in restitution and fines stemming from an investigation into sales of unsuitable variable annuities by one of the firm’s former top producers in Boston.

Arnold took the departure of Carson and Resources Investment Advisors in stride, telling analysts that alignment with some clients was simply “not a good fit” and that the decision was a “mutual conclusion.” Matt Audette, LPL’s CFO told analysts the defections cost LPL around $2 billion in lost assets, mostly from brokerage accounts.

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Excess capital in 2017 will be spent on recruiting, new technology and shareholders.

The financial impact of the losses will be seen in the first- and second-quarter earnings this year, he said.

‘PROACTIVE APPROACH’ TO FIDUCIARY RULE
LPL will continue to take a “proactive approach” to the fiduciary rule, Arnold said, despite the uncertainty surrounding the rule’s fate in the wake of President Trump’s directive to the Department of Labor. “We will continue to move forward regardless of the outcome of the rule,” Arnold said.

Implementation of a fiduciary standard is a matter of “not if but when,” Arnold said. When that happens, he added, the industry will see “disruption, consolidation and adviser churn” and LPL wants to be “poised” to take advantage of the opportunity.

LPL wants to grow its core business in 2017 while remaining disciplined on expenses and boosting shareholder value, Audette said. Excess capital, he added, would be spent on beefing up the company’s recruiting efforts, spending on new technology and returning money to shareholders.

In his last earnings call, Casady, who has been with LPL for 14 years, told analysts that he was confident that the company had a “solid foundation for its next phase of growth.”


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Charles Paikert

Charles Paikert

Charles Paikert is a senior editor at Financial Planning. Follow him on Twitter at @paikert.