LPL adds a net 900 advisors as bank recruits fuel record

Even as low interest rates push down its earnings, the nation’s largest independent broker-dealer is growing from its massive recruiting push.

LPL Financial added $23.8 billion in recruited client assets and vaulted its headcount of financial advisors up by a net 909 advisors year-over-year in the first quarter to reach 17,672, the firm said in disclosing its earnings on April 29. And more are on the way: The firm’s figures came out after it had completed only one of two major bank-channel recruiting moves and before the close of its $300-million acquisition of Waddell & Reed’s wealth management business.

After LPL secured commitments from advisors serving 95% of the midsize wealth manager’s client assets, the expected annual EBITDA stemming from the Waddell & Reed deal rose to $80 million from $50 million and the purchase multiple fell to 5x from the firm’s original estimate of 6.5x, according to CFO Matt Audette. In addition to the record recruited client assets, the firm reached new highs in client assets ($958 billion), advisory assets ($497 billion) and organic net new assets ($29 billion). About $15 billion of the recruited client assets came from BMO Harris.

“Our continued progress on recruiting is primarily driven by the appeal of our model, our ongoing innovation for the future and the expanded flexibility of our platform,” LPL CEO Dan Arnold said in prepared remarks on a call with analysts. “At the same time, we further enhanced the advisor experience, through the continued delivery of new capabilities and technology as well as the ongoing modernization of our service and operations functions.”

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In that vein, the company is launching its seventh outsourced business service for practices, a digital marketing tool called “Client Engage.” The combined subscribers to the services topped 1,700 with $19 million in revenue, which is $9 million more than the previous year. At least 50 LPL advisors have signed up for the firm’s M&A Solutions subscription, and LPL plans to begin offering the consulting service to unaffiliated practices later this year.

The firm earned net income of $129.6 million on revenue of $1.71 billion, or $1.77 in adjusted earnings per share. The profit fell 17% due to the impact of lower interest rates tied to the company’s cash sweep accounts, but the firm’s EPS came in 30 cents above the Wall Street consensus. In a note after the firm’s earnings, JMP Securities analyst Devin Ryan increased the firm’s EPS estimates for 2021 and 2022 and maintained its rating of “market perform” for LPL.

“We characterize results as solid with favorable core business drivers heading out of the quarter and an additional boost to come with the Waddell & Reed brokerage transaction closing in the coming days,” Ryan said. “The macro backdrop has been supportive, and the firm has additional levers in the future as interest rates inevitably move higher.”