Regulatory troubles have clobbered profits again at the country's largest independent broker-dealer.

LPL Financial's third-quarter profit slumped 11.6% to $33.3 million from $37.6 million for the year-earlier period, a casualty of increased regulatory expenses. The company, a perennial No. 1 on the annual FP50 ranking of the country's biggest IBDs, was forced to spend $23 million in regulatory expenses in the third quarter, $18 million more than it had anticipated. 

The additional regulatory expenses "represent the estimated costs of resolving and remediating matters of significance, including fines and restitution, into which we currently have line of sight," Dan Arnold, LPL's chief financial officer said in a statement.

LPL spent $32 million in charges related to the cost of fines and restitution for the nine months ending Sept. 30 - about twice the amount the firm spent on such expenses in the prior two years combined.


Advisory revenue was a bright spot for the firm, increasing nearly 14% for the third quarter compared to the prior-year period -- a gain the company attributed to sustained advisor productivity, market appreciation, and net new advisor growth. The firm added 347 net new advisors in the past year, including 70 advisors in the third quarter.

As a result, the firm recorded a record $4.8 billion in net new advisory assets, excluding market movement, in the third quarter.

By contrast, overall net revenue for the third quarter rose by just 3.4% over the same period last year, reaching slightly over $1 billion. 

LPL chairman and CEO Mark Casady attributed the firm's ability to haul in $17 billion in net new advisory assets over the past year to the "strength and diversity" of LPL's fee-based services, according to the earnings announcement.

However, low interest rates contributed to slower year-over-year revenue growth, the company said.


In the third quarter, "advisors focused investment activity on conventional asset types, such as mutual funds, providing additional exposure for investors to equities and fixed income," Casady said in the statement. "This contrasts with last year in the third quarter, when there was elevated reinvestment in alternative products driven by an unusually high number of liquidity events."

Both executives pledged to right LPL's ship by resolving its regulatory woes.

The firm is working to "improve its risk profile," Arnold promised, "by significantly expanding internal resources and enhancing our systems while working closely with our regulators."

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