Several factors have driven down financial advisor movement, and LPL Financial CEO Dan Arnold sees "interesting questions" for the firm to answer in that environment, he said.
In remarks during a question-and-answer session with analysts after
Still, moves in the industry have tapered off to about 5% or 5.5% of financial advisors from the historical churn closer to 7% due to "a bit of a hangover from COVID and just some of the change in complexity that was created as people work through that" and "a volatile market with a lot of geopolitical uncertainty that surrounds it," Arnold told analysts, according to
"Unfortunately, it's also a shiny penny that sometimes doesn't always lead to good productive outcomes," Arnold said. "As we get further down the road of assimilating some order to the house being flipped on its side in some cases and helping them really see where they can use technology really wisely to drive productivity with — again, either leverage tools or outsource risk management to lower their costs associated with a world that's getting tougher and tougher from a regulatory standpoint — where they really do think about, hey, 'How do I drive growth? And what do I need in my value proposition to do that? How do I leverage folks to do [that]?'"
If advisors can solve those "interesting questions" about technology, they can "move forward in a little more informed way and thus at a faster pace," Arnold added.
To see the key takeaways for advisors from LPL's fourth-quarter earnings, scroll down the page. For further reading, use the following links to coverage of its earnings for the
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Financial advisor headcount
LPL continues to add the equivalent of a midsize competitor's base of advisors every 12 months through recruiting and M&A deals. Its advisor headcount jumped 1,385, or 7%, year over year to a record 22,660 in 2023.
While incoming client assets of $80 billion actually ticked down by $2 billion from 2022, the quarterly total of $16.9 billion surged by 10% from the year-ago period. And alongside its other recruiting outreach this year, the company will add
The firm's Services Group drew 5,806 subscribers paying annualized revenue of $43 million for outsourced staffing and tools from LPL's corporate office. The revenue climbed 19% from 2022, while the subscribers grew by 1,327, or 30%.
Client assets
Total client assets soared by 22% year over year to $1.35 trillion in 2023 thanks to rising stock and bond values, organic net new assets of $25 billion and incoming recruits and acquisitions. For the year, incoming flows from organic expansion increased 9% to $100 billion.
"As we have discussed consistently, LPL is experiencing tremendous traction in its newer affiliation channels, and at the same time is still driving market share improvement in its legacy channels," JMP Securities analyst Devin Ryan wrote in a note. "Taken together, while the company is clearly enjoying 'organic growth success' at the moment, we believe the potential is even greater, particularly as we believe these newer affiliation channels have the potential to increase their absolute contribution toward the level (~$50B) noted for the legacy channels. As this acceleration occurs, we reiterate our estimate that LPL could move from upper-single-digit organic growth annually into the low-double digits. This would represent incredibly strong growth by comparative measures across the industry (where even mid-single-digit growth is considered quite solid)."
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Expenses
Every expense line enlarged by double-digit percentages in 2023 due to higher costs tied to business growth such as the fees paid to advisors and hiring more staff, interest linked with elevated rates and substantial charges for recruiting and regulatory matters. Expenses climbed 15% from a year earlier to $8.61 billion.
Promotional expense, which includes transition assistance payments and onboarding costs for incoming recruits, advisor conferences and organic growth investments, rose by 35% year over year to $459.2 million in 2023. LPL spent $20 million more on conferences in 2023 to pay the costs of larger attendance from its record headcounts of advisors and starting a new event specifically for large enterprises in its network.
Regulatory costs soared by 115% to $71 million, driven by LPL's previously disclosed case with the Securities and Exchange Commission over "an investigation of the company's compliance with records preservation requirements for business-related electronic communications stored on personal devices or messaging platforms that have not been approved by the company," according to a note
"The staff of the SEC proposed a potential settlement with the company to resolve its civil investigation," LPL said in the disclosure. "Under the SEC's proposed resolution, the company would pay a $50 million civil monetary penalty. … The company has not yet reached a settlement in principle with the SEC, and any settlement agreement remains subject to the negotiation of the civil monetary penalty and definitive documentation."
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Bottom line
For the year, LPL generated net income of $1.07 billion on revenue of $10.05 billion or $13.88 per share. Profit jumped 26%, revenue grew 17% and EPS increased 31%.
Remark
In his
"We view it as an important strategic opportunity, as the easier we can make it for advisors to change firms, the more it will drive up advisor movement in the industry, where we are well-positioned to benefit as the market leader in recruiting," he said. "And to help solve for that opportunity, we have developed several new transition capabilities and solutions including: a live testing environment for advisors to familiarize themselves with our platform before transitioning over, fully-automated stages of the onboarding process, and a suite of transition services that includes short-term admin, branding and bookkeeping support which help simplify the transition and onboarding journey and ultimately accelerate advisors' readiness and growth."
