LPL Financial, independent broker/dealer powerhouse, has not been recruiting as many financial advisors as it would like. So said Chief Executive Mark Casady on a conference call with analysts Tuesday to discuss the firm’s earnings report, LPL’s first since it went public last November. But Casady was optimistic about future recruiting. He also left the door open to new acquisitions.
Though the firm managed to rack up strong revenue and profit growth last quarter and in fiscal 2010, it did not meet the annual recruiting target of 400 net new advisors that Casady had set. (Casady leaves some wiggle room, of course, describing the number as an average that LPL isn’t likely to hit every year.)
LPL reported 12,444 advisors at year’s end, which is a total increase of 494 advisors for the year, or 4.1 percent year over year. But only 288 of these were individually recruited to the firm. The rest came on as part of LPL’s acquisition last summer of National Retirement Partners, an independent advisor network with expertise in 401(k) plan management—and that doesn’t count.
On the call, Casady said the recruiting weakness was apparent in the first three quarters of the year but didn’t affect LPL’s ability to hit earnings targets—an average of 20 percent annual adjusted growth in earnings per share over the next three to five years. LPL doesn’t provide revenue or earnings projections. But things are looking up for future recruiting. “The pipeline for new business development remains healthy, and it appears conditions are normalizing,” he told analysts.
Advisory and brokerage assets stood at $315.6 billion at year-end, up 13 percent. The NRP deal added about 3,800 clients and $564.3 million in assets. Advisory assets on LPL’s fee-based platforms were $93 billion at year-end, up 20.5 percent from a year earlier. Net new advisory assets were $8.5 billion for 2010, up 21.4 percent; asset-based fees rose by 16.3 percent for the year. (Read the company’s earnings release here.)
LPL also reported growth on its hybrid RIA platform. Assets under custody reached $13.5 billion at year-end with 114 firms, compared to assets of $7.3 billion and 92 firms at the end of 2009.
Casady left the door open for more acquisitions. Including NRP, the firm has announced five acquisitions since 2004, representing more than 3,500 advisors. “We continue to see interesting things in the marketplace that we want to explore,” he told analysts. LPL also is using its cash to pay down debt with an eye toward obtaining an investment-grade credit rating in the future. Last month it paid off $40 million in loans, which it expects will reduce annual interest costs by $1.5 million to $2 million.
What do advisors have to be happy about at LPL lately? For one thing, the average payout rate last year was 86.3 percent, up 50 basis points from 2009. Casady also said that dually registered firms are particularly attracted to LPL’s service model.
“We are the only custodian and broker/dealer that can combine all the business activities of that advisor’s practice, both their registered activities under the FINRA license and their activities under their SEC license as an RIA. Meaning that we can pull together all their statements, all their performance reporting, all their website activities. And the custodians don’t offer that. What they offer is a wonderful set of services, no doubt, and some really great technology solutions. But the advisor’s left with all those tools on essentially a self-help basis, not unlike what the brokerage model is anyway. If you don’t know how to use the tools, you’re in trouble. In our world, you can outsource all that as an advisor to LPL at essentially the same price. That’s a good deal.”
LPL Investment Holdings, the parent company, reported a fourth-quarter net loss of $116.6 million, or a loss of $1.20 a share, on revenue of $820 million. For the comparable quarter a year earlier, it had net income of $18.6 million, or 19 cents a share, on revenue of $734.9 million. Excluding charges of $222 million related to LPL’s initial public offering, the company had adjusted net income last quarter of $44.7 million, up 6.2 percent.
For fiscal 2010, LPL had a net loss of $56.9 million, or a loss of 64 cents a share, on revenue of $3.11 billion. For fiscal 2009, it had net income of $47.5 million, or 47 cents a share, on revenue of $2.75 billion.
