With profits up 94%, LPL tests beefed-up recruiting offers

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LPL Financial nearly doubled its profits from a year ago following a massive acquisition, but it isn’t stopping there: During the firm’s quarterly earnings announcement Thursday night, LPL laid out two new strategies aimed at organic growth.

The nation’s largest independent broker-dealer plans to improve its services for advisors in up to 100 ways while pushing to attract more new ones into its fold by boosting its recruiting offers, CEO Dan Arnold says.

“We have a structural advantage over our competitors, as the combination of our scale and self-clearing capabilities makes assets on our platform more valuable,” Arnold said during the earnings announcement.

“We also have a strong balance sheet that positions us to invest in organic growth,” he continued. “As a result, we are testing the impact of a temporary increase in recruiting transition assistance for advisor practices that would use more of our services.”

LPL added 953 advisors with $36 billion in client assets from National Planning Holdings in the second half of its Aug. 15 acquisition. The final purchase price came in at $325 million, LPL said, which means the firm retained less than 72% of NPH’s business and owes no further contingency payment.

However, the No. 1 IBD has paid an additional $97 million in forgivable loans and cash assistance to the incoming group of 1,894 advisors, plus $36 million in other onboarding costs. More than $70 billion in client assets have come in from NPH’s four IBDs, with an expected ultimate total of $75 billion.

The sizeable retention comes alongside a group of some 1,300 advisors with around $35 billion assets who opted for rival firms over LPL. A major hybrid RIA practice, Bill Hamm’s Independent Financial Partners, is also leaving, and, excluding the NPH crop, LPL’s headcount fell by 84 advisors to 14,173.

Arnold pledged a strong push to keep some of IFP’s 520 advisors, along with the bulked-up transitional offers to advisors at other firms. He attributed the net loss of advisors to low-producing advisors who didn’t renew their licenses, and he has said that LPL is open to making more acquisitions later this year.

In addition, some $100 million in spending on technology this year will help home-office staffers in San Diego, Boston and Charlotte deliver what Arnold calls “100 wins in 100 days” for LPL’s 16,000 advisors. One such win last month cut 80% of the steps advisors must take to make a trade on LPL’s platform.

“Over time, we expect wins like these will have a compounding effect that can enhance our advisors’ experience, simplify our operating environment and support long-term growth,” Arnold said, noting goals around improving the firm’s services and procedures and enhancing its ClientWorks software.

The firm’s net income jumped 94% year-over-year in the first quarter to $93.5 million on $1.24 billion in revenue. The $1.01 in earnings per share for the first three months of the year easily beat analysts’ estimate of $0.78.

LPL’s total headcount of 16,067 advisors has grown beyond that of the largest wirehouse firm, Morgan Stanley, which reported a brokerage force of 15,682 advisors in its first-quarter earnings. Employee brokerage Edward Jones still boasts a higher total than LPL, with 16,095 advisors amid record recruiting.

The completion of the second wave of NPH advisors will shift the firm’s recruiting focus back to other firm’s advisors. Arnold did not discuss the details of LPL’s beefed-up transitional assistance, which he says is temporary with the potential to become permanent if it’s successful.

A spokesman for LPL said the company does not disclose the substance of its recruiting packages. The firm’s offers amount to up to 50 basis points on advisory assets, according to a note by analyst Chris Shutler of William Blair, who stated the same levels as earlier media reports.

In a Q&A with analysts, Arnold discussed another major transition taking place at the firm — the loss of Hamm's practice. Hamm’s move to leave his BD of more than a decade to launch a new one under IFP will take up to a year. The Tampa, Florida-based hybrid RIA, which has $9.5 billion in assets under management, represents the biggest exit from LPL since Ron Carson left for Cetera Advisor Networks last year.

“IFP was a unique situation where we were not strategically aligned with them. Consequently, we mutually decided to part ways,” Arnold said.

“In the meantime, we’re working with their advisors to help them understand their choices associated with affiliation,” he continued. “And we believe we have a compelling offer to stay with LPL, so we’ll see how that plays out over the next 12 months.”

Wall Street’s price targets place the value of LPL’s stock at an average of $76.50 per share, compared to its current price of roughly $64.00. Still, Shutler expressed some doubts about LPL’s outlook, noting its growth “would not look all that exciting,” if not for the NPH deal and rising interest rates, he wrote in the note.

“The bull case rests mainly on LPL rolling up the broker-dealer industry, in our opinion, but we do not see additional large-scale deals coming as inexpensive as NPH and the M&A thesis is no secret,” Shutler wrote.

“Ultimately, our long-term concern is that the company is not strategically well positioned in an advisory world that is increasingly moving to lower fees, digital advice married with holistic financial planning, and fee-only business models.”

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Earnings Independent BDs Independent advisors M&A Fintech Recruiting RIAs Dan Arnold LPL Financial National Planning William Blair & Co.