LPL Posts Lower Earnings on Record Net Revenue, Assets

LPL Financial (NASDAQ: LPLA) said its first quarter earnings and net new advisory assets were down from a year ago, but the firm also reported record net revenue and advisory and brokerage assets for the quarter. Despite the lower earnings, advisor productivity rebounded from the fourth quarter, and the broker/dealer’s advisor count is also up from the previous quarter.

LPL posted first quarter net income of $41.2 million, down 16 percent from the year-ago quarter, on record net revenue of $901.8 million, up 3.2 percent from a year ago. Total advisory and brokerage assets were $354.1 billion, up 7.3 percent from a year ago and up 7.2 percent from the fourth quarter of 2011. Net new advisory assets were $2.5 billion, down 32.4 percent from $3.7 billion a year ago.

Greg Cherry, senior analyst with Aite Group, said the results were somewhat disappointing, but he attributed the declines to the market environment. Investors are still risk-averse, pulling money out of equity mutual funds and pouring more into bond funds. “There’s still a lot of angst out there.”

But overall, LPL is growing assets and advisors. During the first quarter, LPL added 115 net new advisors and 554 net new advisors over the past year, bringing its total advisor count to 12,962.

The firm’s RIA platform also grew to 152 RIA firms from 115 firms a year ago. Assets under custody were up 74.8 percent over a year ago to $27.1 billion.

On a conference call Monday morning, Chairman and CEO Mark Casady said many of their new recruits have been wirehouse advisors whose retention packages from the spring of 2009 are maturing. Aite Group has predicted that 2012 will be a landmark year in breakaway volume as the golden handcuffs loosen at the wirehouses.

Cherry believes LPL is well-positioned to take advantage of that wave because its platform is similar to that of the wirehouses. Wirehouse advisors are use to strong capabilities with their back office and broker work stations, and LPL makes that transition to independence easier because of its strong capabilities.

Casady said the firm is also seeing increased interest from larger practices at other independent broker/dealers looking to move, a new phenomenon for LPL.

Advisor productivity is also improving. Chief Financial Officer Robert Moore said commissions per advisor were at $144,000 on an annualized basis, up from $126,000 in the previous quarter.

Casady said the firm benefited from particularly strong activity from advisors who joined LPL in 2011, who exceeded their expectations. He wouldn’t quantify that growth. Large branches also grew significantly faster than the smaller branches did during the first quarter, but that’s sustainable over the next several quarters, he said.

“With the strong volume of new advisors and the inclusion of larger-producing practices, the cost to attract new business has risen in absolute terms as a percentage of advisor production,” Casady said.

The firm has also been active in expanding its capabilities during the quarter. Just last week, the firm closed on its acquisition of wealth management platform provider Fortigent, which is expected to give the firm a stronger foothold in the RIA and high-net-worth space. The firm also recently announced plans to launch a new subsidiary, LPL New Venture, which will use rookie advisors to focus on a part of the mass and middle market. LPL also added tools for its retirement plan advisors, including an IRA rollover program and increased automation.

Casady said the Fortigent acquisition took people by surprise, but in a positive way. While the firm has less than 100 practices that are high-net-worth-focused, a lot of practices have a single high-net-worth client. Advisors can packaged Fortigent’s capabilities for that one client. Meanwhile, LPL can offer custody services for Fortigent’s prospects and clients.

“I think the industry stood up and took notice with the Fortigent announcement.”