LPL CEO foresees more fiduciary 'disruption'

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LPL Financial is “on track” to comply with the fiduciary rule, regardless of possible further delays, executives said during a conference call following the firm’s first-quarter financial results. Looking ahead, the company says it anticipates the rule’s impact will continue to roil the advisory industry.

“We expect the rule to create disruption that will lead to movement of both advisers and assets in the coming months and years,” CEO Dan Arnold told analysts on the call.

LPL, the nation's largest independent broker-dealer with over 14,000 advisers, reported that profit slipped 4% year-over-year to $48.2 million. For the same period a year ago, the firm posted profit of $50.4 million.

Arnold and CFO Matthew Audette attributed the decline to a one-time loss of $21 million for early retirement of debt in the firm’s March 10 refinancing.

"This quarter, we strengthened our balance sheet by refinancing our entire debt structure," Audette said in a statement. “We believe our updated capital structure positions us well to fund future growth.”

Net revenue ticked up 3% year-over-year to $1.04 billion due to growth in asset-based and advisory revenues. Brokerage and advisory assets grew 11% year-over-year to $530 billion.

Arnold, who took over Jan. 3 from former CEO Mark Casady, called the quarter a “solid start to the year.”

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While the firm reported a net drop of 23 advisers to 14,354 from the prior quarter, headcount was up by 261 from the same period a year ago. LPL’s brokerage force far eclipses that of rivals Ameriprise (9,668) and Raymond James (7,222).

LPL executives expect to lose 210 advisers in the first half of the year from exits discussed in its last earnings call, Audette told analysts.

The firm also granted its new chief stock options worth $4.8 million following a debt refinancing.
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Three major defections by large offices of supervisory jurisdiction in December and January accounted for the changes to LPL’s headcount. Resources Investment Advisors, Carson Wealth Management Group and WealthPlan Partners left the company’s fold.

LPL and the OSJs reached a “mutual conclusion” that the relationship was “not a good fit,” Arnold said during LPL’s last earnings call. The exits cost the firm about $2 billion in lost assets, Audette said at the time. Both expressed confidence in LPL’s prospects Thursday.

Though the fate of the fiduciary rule is unclear, the company said it is moving ahead with compliance.

The company’s changes to its commission structure in response to the rule, many of which began Jan. 1, also showed up in LPL’s first-quarter results. Commission-based revenue fell 4% to $421.2 million.

The company’s spending on regulatory compliance for 2017 will more closely resemble the $17 million total from 2016 than the $34 million LPL spent in 2015, Audette predicted Thursday. Compliance expenses fell 16% to $5.3 million from $6.3 million.

The company repurchased 567,000 shares of its stock in the first quarter at a cost of $22.5 million, or around $39.68 per share. The value of LPL shares shot up 12% Friday morning to $43.29 a share in early trading following the earnings announcement.

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Earnings Independent BDs Fiduciary standard Fiduciary Rule Mark Casady Dan Arnold LPL Financial