LPL Financial Beat Earnings, But Net Income Fell Due to Higher Regulatory Costs


LPL Financial Holdings

reported Thursday that its net income fell 21% year over year due to higher expenses, including a $40 million charge related to an SEC investigation into employees’ use of unauthorized messaging apps to do business.

However, its earnings per share rose and its stock rose 1.4% in mid-day trading Friday before falling back with the broader market. LPL Financial (ticker: LPLA) stock was trading to near $225 a share, below it’s 52-week high of $271.56.

LPL, which is the nation’s largest independent broker-dealer, has been growing steadily in recent years through recruiting, acquisitions, and by landing deals to serve as the wealth management platform for other financial institutions. For example, in August, LPL Financial announced it would serve as the wealth platform for


LPL said it expected to bring on Prudential’s 2,600 financial advisors and the approximately $50 billion of assets they oversee in the latter part of 2024.

The company’s adjusted earnings per share increased 19% to $3.74, beating analysts’ consensus of $3.58. Net income was $224 million compared with $232 million for the third quarter of 2022.

William Blair analyst Jeff Schmitt said in a Friday research note that the highlight for LPL this quarter “was increasing organic growth levels as newer affiliation models continue to gain traction.” LPL has shown particular success in the large enterprise channel where it continues to announce strategic outsourcing partnerships,” including most recently with insurer Prudential, he wrote. Schmitt rates the stock outperform.

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The company also completed onboarding of the wealth management businesses of Commerce Bank and BancWest Investment Services, of which $3.9 billion and $6.9 billion, respectively, transitioned to LPL’s platform.

LPL CEO Dan Arnold said the company is gaining traction with the enterprise business, noting that the more clients LPL lands, the more credibility it has in the marketplace. “I think those wins reinforce our value proposition,” Arnold said during the company’s earnings call Thursday.

LPL CFO Matt Audette told analysts that expenses would rise about $125 million in the coming quarters as LPL makes investments in its platform to accommodate Prudential’s advisors. “The investments we are making will not only help Prudential’s advisors and their clients, but also help our existing advisors,” he said.

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LPL reported third-quarter expenses rose 6% to $2.2 because of higher legal and regulatory costs. Total revenue rose 2% to $2.5 billion. 

JMP Securities analyst Devin Ryan said the Prudential deal may position LPL to grow its wealth management business serving insurance companies.

“This marquee enterprise win sets the company up for more opportunities, particularly in the insurance channel,” Ryan wrote Oct. 27.

Ryan rates LPL’s stock outperform and has a price target of $290.

Like other wealth management companies, LPL Financial has been buffeted by cash sorting because of higher interest rates. Cash sorting is a process by which clients move uninvested cash from low-paying accounts to higher-paying options, such as money-market funds.

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Total client cash balances were $47 billion, a decrease of $3 billion sequentially and $19 billion year over-year, according to LPL. Client cash balances as a percentage of total assets were 3.8%, down from 4% in the prior quarter and down from 6.4% a year ago, the company said.

Audette said the company is seeing signs that cash sorting is abating, though he cautioned that cash levels could go lower.

LPL said total advisory and brokerage assets increased 19% year over year to $1.24 trillion. Total organic net new assets were $33 billion, representing 10.7% annualized growth, according to the company.

LPL said it had 22,404 advisors at the end of third quarter, up 462 sequentially and 1,360 year over year.

The San Diego-based company offers multiple affiliation options for advisors, and said it is winning more business for its RIA custody platform. The custody sector is dominated by a handful of players:

Charles Schwab

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Fidelity, and

Bank of New York Mellon

Pershing. Schwab had a majority of RIA assets as of 2021, according to research firm Cerulli Associates. Schwab is in the process of integrating hordes of TD Ameritrade advisors and clients, and some advisors have said their transition was marred by technical glitches and other issues.

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Analysts asked LPL executives if the company saw an opportunity to peel off RIAs from Schwab. Arnold declined to comment specifically on Schwab. Speaking broadly, he said LPL has invested in its platform and business development team.

“When market opportunities arise in the short run, we are agile and nimble and can capitalize on those opportunities,” Arnold said. “That’s how we think about going to market; we want good differentiation and have a good team that can tell our story. When transitions occur in the marketplace in general, opportunities may occur around the transition of assets from one custodian to another or one broker-dealer to another.”

Transitions can sometimes create disruption and opportunity, Arnold said. “We want to be well positioned and prepared to capitalize on pre and post conversions when opportunities may occur,” he said.

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