LPL has “no plans” to make changes to its pricing on cash solutions, including to its cash sweep programs, according to CEO Dan Arnold.
Arnold announced the firm would stay the course on cash sweeps during the firm’s second-quarter earnings call. The decision comes even though numerous competitors have announced changes to their sweep programs, with presumed higher regulatory scrutiny and recent litigation against LPL regarding its deposit sweep policies.
LPL's stock price was down 6.11% as of 2:25 p.m. Friday due to concerns over the cash sweeps program.
“We have been evaluating the announced changes to better understand the impetus, magnitude and competitive implications,” Arnold said. “As for the firms that have made changes, they have different business models and monetization frameworks than ours, so we can only speculate as to the issues they may be addressing.”
Several firms, including Morgan Stanley, Bank of America and Wells Fargo, revealed during earnings calls in recent weeks that they were making changes to their sweeps program.
In the earnings call, Arnold speculated that some of their competitors had different potential conflicts of interest due to their affiliated banks and that their monetization programs with cash sweep solutions differed from the IBD.
“To the extent that we’re compelled to make changes in respect to the cash sweep program, because of our scale … we have great flexibility in how we think about our options and alternatives from a pricing standpoint,” Arnold said.
Cash sweep options are also facing scrutiny from regulators and in the courts. Last December, Wells Fargo revealed the Securities and Exchange Commission was looking into the cash sweep options the firm offered advisory clients, according to Reuters.
An alleged LPL client also sued the firm in California federal court last week, seeking class-action classification on behalf of other customers and alleging the firm violated its fiduciary responsibilities to advisory clients.
In the suit, Daniel Peters argued that LPL funneled cash from his accounts into cash sweep programs that boosted LPL revenues at customers’ expense. According to Peters, LPL’s cash sweep programs were set up to ensure the firm always received most of the interest on the cash holdings, compared to what a client would get if their cash were placed in a typical money market fund or bank savings account.
“In effect, (LPL’s) brokerage operation has effectively become a lawful conduit for its unlawful programs—costing the plaintiff and members of the class a substantial amount of money,” the suit states. LPL would not comment on how litigation like Peters’ suit would impact its decision-making on its sweep accounts.
According to the Q2 earnings, LPL had a “solid” quarter, beating earnings estimates. Total assets increased to $1.5 trillion, up 21% from the prior year. LPL claimed record recruiting of $24 billion in assets during the second quarter, a record when discounting periods where they onboarded large institutions. The advisor count also climbed to a record high of 23,462.