After record net new assets, how LPL aims to boost them even higher

The No. 1 independent broker-dealer recruited nearly 200 more advisors while reeling in record net new assets and boosting its profit by 23%. But LPL Financial aims to bulk up its recruiting and organic growth even further, CEO Dan Arnold says.

In a call with analysts after LPL reported third-quarter earnings, Arnold specified the company’s main growth opportunities. For one, he said he credits the business development team for driving recruiting gains and said LPL would boost its investments in that area. Additionally, LPL is offering advisors services at a discount to hiring more employees at their practices.

Analysts and industry experts have questioned whether fee compression or a different regulatory environment could undermine growth. In the call, Arnold addressed them both.

Commission-fee cuts by self-directed platforms came after LPL has already been absorbing lost revenue of around $15 million annually from slashing RIA prices. And he argues any return of the fiduciary rule would likely help LPL.

Organic growth is “a big priority for us and we're encouraged by the progress we've made over the last couple of years,” Arnold said. “But we absolutely have a focus and an aspiration to grow the results from here.”

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The firm — which has corporate offices in Boston, San Diego and the Charlotte area — took in net new assets of $7 billion even before its Aug. 1 acquisition of Allen & Co. At a price of more than $30 million, the M&A deal brought in 36 employee advisors managing $2.9 billion.

Client assets also expanded, rising 6% year-over-year to a record $719.3 billion in the quarter. Advisory assets under management jumped by 10% to $337 billion — or 47% of the share, up 220 basis points from the year-ago period.

Some 600 advisors already subscribe to LPL’s new business solutions services for administration, marketing and CFO needs, according to Arnold. He compared the price of an outsourced home-office CFO — $1,500 to $2,000 per month, or $20,000 to $24,000 a year — to hiring a full-time, six-figure CFO.

“That ends up being a really good trade for them,” Arnold said, noting it brings LPL incremental earnings as well. But, he added, “The biggest gain comes from helping that advisor grow their business.”

LPL added a net 188 advisors in the quarter to boost its headcount to 16,349, which is more than any brokerage firm other than Edward Jones. Compared to the previous year, the headcount grew by 175 advisors, or about 1% year-over-year.

Still, recruited client assets managed by advisors who have committed to affiliating with LPL slipped by $400 million year-over-year to $8.7 billion in the quarter. The firm reeled in $32.9 billion in recruited assets on a trailing 12-month basis, though, for its third straight quarter above $30 billion.

LPL’s strategy revolves around support for recruiting by offices of supervisory jurisdiction, better referrals and more data and analytical tools for the business development team. LPL is also increasing its capital solutions, launching more advisor affiliation models and providing greater lead generation.

The approach could enable the number of incoming representatives and its organic growth to soar even higher, Arnold said.

“Those are some of the oars we have in the water that are trying to ultimately drive that number up from where it is today,” he said of the recruited client assets. Arnold pointed out that the company's trailing 12-month recruited client assets were about $7 billion lower in the year-ago period.

The firm earned net income of $131.7 million on revenue of $1.42 billion, which is $1.71 per share on a non-GAAP basis. The EPS figure surpassed analysts’ expectations by 10 cents and surged by 30% from the year-ago period.

One analyst raised the possibility that a Democrat could win the White House and bring back the fiduciary rule. LPL has already prepared for the vacated rule and SEC Regulation Best Interest, so it’s “done the vast majority” of what would be needed, Arnold said.

LPL would maintain the choice of brokerage or advisory accounts, though it would see more migrations from the commissionable accounts, he said. More industry consolidation would also “likely be positive” for recruiting and potential M&A deals, he added.

“It has some interesting possibilities,” Arnold said. “There could be an opportunity to accelerate market-share growth in a scenario like that.”