LPL Financial Holdings reported the strongest quarter in the company’s nearly three years as a public company, with net revenues topping $1 billion for the first time. LPL’s board of directors also announced the company’s quarterly dividend would be raised 40% to 19 cents per share.
But the recruiting slump of the country’s largest independent broker-dealer continued in the second quarter, as LPL added only 32 net new advisors for a total of 57 so far this year -- a pace that falls well short of the company’s target of adding 400 to 500 new advisors annually.
Net revenue rose to $1.019 billion for the second quarter ended June 30, up 12.2% compared to net revenue of $907.8 million for the second quarter of 2012. Net income rose 14.1% from the same period last year to $45.091 billion. Adjusted earnings per share increasing 25% year-over-year to $0.61 per share for the quarter.
LPL’s stock was up 1.46% at $37.51 in midday trading on Wednesday.
Mark Casady, chairman and chief executive of LPL Financial, credited “improving business fundamentals including increased advisor productivity, rising asset levels and excellent production retention,” for the company’s strong second-quarter performance.
LPL chief financial officer Dan Arnold says the firm’s recruiting problems are part of a “macro-industry” trend.
After being scared off by the financial crisis, investors are “re-engaging” with the market, Arnold said. As a result, he says, financial advisors are more focused on working with clients and less inclined to consider switching firms.
Arnold acknowledges that it will be difficult for LPL to reach its recruiting goal of 400 to 500 new advisors by the end of the year, but does say that the recruiting pipeline has been picking up and that the firm had an 8% increase in leads for new advisors in the second quarter, compared with the sluggish first quarter.
The company will also be investing more in its recruiting efforts, Arnold says.
Veteran executive recruiter Danny Sarch agrees that recruiting has been slow industry-wide -- but also says part of the problem is LPL itself.
“There’s more competition for advisors, and advisors and brokers have many more choices now,” says Sarch, president of Leitner Sarch Consultants. “But the high-end guys don’t consider LPL, who are seen as catering to the lower-volume producers. And it’s harder for LPL to appeal to advisors considering going independent, because as LPL has grown, that’s contrary to what they’re looking for.”
In a conference call with analysts, Casady said LPL was looking at broker-dealer acquisition opportunities -- but has not been “all that interested” in the properties it has evaluated so far this year, either because of the asking price or “the type of brokers they are.”
Both executives also emphasized LPL’s commitment to bringing in fresh blood to help the company grow. Arnold cites two recent examples: last week’s hires of former SEC regional director David Bergers as managing director for legal and government relations and Michelle Oroschakoff, most recently the global chief risk officer of Morgan Stanley’s Wealth Management division, as LPL’s chief risk officer.
Arnold said in a statement that the second-quarter results reflect LPL’s “ongoing commitment to the efficient deployment of our capital resources.” LPL’s refinancing of its credit facility allowed it to expand its share repurchase program and buy back 1.4 million shares for $52.8 million this quarter. LPL also invested $18 million in capital expenditures and paid $14 million in total dividends, Arnold noted.
LPL’s total advisory and brokerage assets rose 12.4% year over year to $396.7 billion, as advisory assets in the Company's fee-based platforms climbed 19% to $132.4 billion.
Net new advisory assets, which exclude market movement, were $3.7 billion -- driven, the company said by strong advisor productivity and the growth in assets managed by independent RIAs.
Commission revenue increased 13.7% year over year, reflecting improved commissions per advisor and the addition of new advisors. LPL now has 13,409 advisors -- up 1.7% from the second quarter of 2012.
Advisory revenue increased 11.1%, driven by strong net new advisory asset flows and overall improved market levels.