LPL Profit Soars Despite Mixed Results from Big Acquisition
LPL Financial ‘s first-quarter profits rose 94% on a jump in advisory assets but the biggest independent broker-dealer on Thursday reported only middling success with its integration of National Planning Holdings.
The company’s net revenue of $1.24 billion in the first quarter jumped 20% from a year ago and its profit hit a record $94 million. Its core engine of growth, hiring new brokers, slowed, however, as it focused on persuading brokers from NPH’s four firms to remain with the company.
It ended the quarter with 16,067 independent contractors, making it the second largest U.S. brokerage firm as measured by sales force behind Edward Jones & Co.’s 16,095. Excluding the 1,894 NPH brokers who joined over the last few quarters, LPL had a net loss of 84 advisors during the quarter. On a conference call with analysts, Chief Executive Dan Arnold said many of those who left were “low” producers who exited the industry.
LPL’s recruiting of NPH brokers just missed the 2,000 target it predicted three months ago. Its final tally represented 59% of the roughly 3,200 who had been working at the Jackson National Insurance-owned NPH broker-dealers.
The new brokers brought over 63% of the $120 billion of customer assets NPH firms were managing.
Asked on the call what LPL learned from the NPH experience, Arnold said he was proud of the rapidity of the two-wave integration process but said the firm needs “to improve retention rates as well as the quality of the onboarding experience.”
LPL ended the first quarter with $647.5 billion of customer assets, up 22% from a year earlier —with a $69.4 billion boost from NPH brokers. Net new assets, excluding those from NPH, were $2.9 billion, as legacy customers added $6.9 billion to fee-based advisory accounts but withdrew $4.1 billion of brokerage account assets.
Wealth management firms have been urging advisors to focus on fee-based rather than commission-based brokerage accounts, and LPL said that it ended the quarter with a healthy 47% of customer assets in fee-based advisory accounts.
Arnold said LPL will invest more than $100 million on technology this year to improve its platforms, and expects to attract new advisors to its RIA custody platform by offering them 50 basis points of assets they bring over. It also plans a reduced eight-basis-point administrative fee for customer assets kept on its advisory platform and will introduce a no-transaction fee mutual fund platform in July.
Asked on the call to confirm reports that it is losing Independent Financial Partners, one of its largest registered investment advisor affiliates, Arnold confirmed that the Tampa-based firm has given notice and expects to form its own broker-dealer over the next 12 months or so. IFP has more than 550 advisers managing around $12 billion of assets on LPL’s platform, but
LPL Chief Financial Officer Matt Audette said the returns of IFP are “a little lower” than on what the company gets from the average LPL advisor.
He also said that LPL hopes to convince many IFP advisers to keep their affiliation.
“We believe that we have a compelling offer to stay with LPL,” Arnold said.