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LPL Financial (Nasdaq: LPLA) announced third quarter net income of $36.4 million, or 39.3 percent higher than the year-ago quarter, and net revenue of $882.9 million, a 16.2 percent increase from a year ago. But the real buzz during this morning’s earnings conference call was around the firm’s acquisition pipeline, which LPL chairman and CEO Mark Casady said was strong.

Casady couldn’t comment on the size of the pipeline, but said if the firm were to buy, it would likely be an “adjacent” business, or an add-on to its core business. It would likely be similar to the acquisition of National Retirement Partners, which LPL has positioned as its retirement plan business.

“We love that adjacency model where we’re able to bring our scale to a sub-market, if you will, in financial planning,” Casady said.

The firm is not looking to add scale to its overall core business, and Casady said the firm has actually turned down a few acquisitions like this, such as buying another b/d and bringing it onto their platform.

“Those really have to be the right product mix, they have to be the right compliance underwriting, we have to feel good about liabilities, because there’s no particular reason for us to do a scale-based acquisition now that we’re the size that we are.”

Greg Cherry, senior analyst with Aite Group, said this could be a good move for LPL if it’s an acquisition in the retirement space, given the number of baby boomers coming up on retirement. There are also gaps in the value propositions that some firms are offering retirees, Cherry said. It seems as though LPL is looking to beef up those capabilities, he added. “I found that interesting versus looking around to further build on their core capabilities.”

But Tim Welsh, president of Nexus Strategy in Larkspur, Calif., said LPL doesn’t need to buy another broker/dealer because they can just recruit away the best producers that are leaving imploding firms, such as Securities America. Welsh believes LPL could make an acquisition to build out its RIA custody business, which he says is more profitable than the broker/dealer side. This could include an alternative asset platform, a separate account money manager, or a technology platform. “That’s where the puck is going.”

Advisor Count Up, Assets Down
During the third quarter, LPL managed to add 136 net new advisors, up from 106 new FAs in the second quarter of this year. For the 12 months ending Sept. 30, 2011, the b/d has brought on 598 net new advisors, excluding the 206 who joined through the acquisition of NRP and the attrition of 22 as a result of the UVEST Corporation conversion. Casady said he expects to lose about 100 advisors due to the UVEST conversion, but it’ll be FAs with lower production than other LPL advisors.

“Our advisor pipeline remains strong, as the appeal of an independent business partner for advisors and their clients is only reinforced by current market conditions,” Casady said. “The bigger tailwinds right now are that the wirehouse retention packages that went in in middish-2009 are starting to wear down; you’ve also got some pretty significant changes occurring in management at a number of wirehouses, as we know. We also have a number of independent firms that are having some pretty serious financial issues, or have had transaction activity and that tends to stir up the pot.”

The firm also reported 97 percent production retention for the quarter. Advisor commissions and fees were up 18 percent year-over-year, said Robert Moore, chief financial officer.

Total brokerage and advisory assets were up 7.9 percent from the prior year quarter to $316 billion but down 7.2 percent from the second quarter, which Moore attributed to “lower valuation levels.” Net new advisory assets were $3 billion for the quarter, bringing total advisory AUM to $96.3 billion.

The firm also stressed growth in its hybrid RIA platform, which saw assets under custody grow to $20.2 billion and 142 RIA firms, compared with $11.6 billion and 105 RIA firms for the third quarter of 2010.

Casady attributes the growth in the hybrid space to the platform’s capability of integrating RIAs’ commission- and fee-based business.

“There’s no other custodian, there’s no other broker/dealer in America that can do that for that practice,” Casady said. “That’s why we’re winning business.”