LPL's Casady, Moore Relay Strategy on Recruiting, Revenue, RIA Custody Growth

Casady repeats goals of adding 400 new reps a year, 20% EPS growth

During LPL Financial’s first earnings conference call for analysts on Tuesday, CEO Mark Casady reiterated the company’s plans to add an average of 400 new representatives a year to its advisor ranks, which at year-end totaled 12,444, noting that it had fallen short of that goal in 2010 when it added a net 288 advisors due to broader economic conditions.

Responding to a question from an analyst on whether LPL had lost any reps going RIA to Schwab Advisor Services, Casady (left) said LPL had lost no advisors to Schwab. In fact, he said, LPL’s RIA custodial platform had “won” three advisors from Schwab in both 2009 and 2010 to its custody platform, which by year-end could count $13 billion assets, up from $7.33 billion at year-end 2009.

No one has an offering like LPL,” Casady said, referring to its broker-dealer, clearing and RIA custody platform. “Raymond James has a clearing operation and is a strong company that does many things well,” Casady (left) said, “but it’s not integrated.”

CFO Robert Moore said in a separate interview with AdvisorOne on Tuesday that the RIA custodial platform served to both retain current LPL advisors and attract new advisors. “We started at zero in the fourth quarter of 2008” on the platform, he pointed out, and that in addition to its strong growth, the initiative was “representative of our capabilities,” noting that the company brought in $8.5 billion in net new advisory assets in 2010.

Providing more insight into LPL’s quarterly and annual results (see separate story on its results announced late Monday), Moore said that one-time charges of $241 million for the year were attributable to LPL going public, which it did on Nov. 18, 2010. The great majority of those one-time charges—$220 million—was expense related to the conversion of restricted shares to common stock for LPL advisors under a long-standing compensation plan. There was also $6 million in one-time charges, Moore said, in employee taxes related to the exercise of certain stock option grants, plus legal, audit and printing expenses.

There are ongoing financial benefits to the company from going public, Moore pointed out in the presentation, including net cash proceeds to LPL of $37.2 million and tax benefits totaling $237.3 million.

In the analysts’ presentation, Casady highlighted that net revenue for the company was up nearly 12% for the year, driven by “double-digit growth” in advisory fees,

trail-based commissions and asset management fees. He also reported “significant growth in advisor production,” noting that 61% of LPL’s 2010 revenues were recurring. He mentioned as well that in addition to its brokerage, clearing, RIA custody and banking operations, that LPL was now the “largest 401(k) consulting firm in the U.S.—serving over 25,000 plans.”

Moore said that going public has been a “net positive,” since it removed the uncertainty over when and if the company would go public—“that box has been checked”—and also because “it’s a point of opportunity to talk to prospective advisors and clients about what we do and who we are.” In the presentation, Casady agreed that going public “helps advisor explain their relationship with us,” mentioning that LPL has a 96% retention rate among its current rep force. He added that he thinks of the company as “an all-weather growth stock.”

In addition to ongoing planned growth in reps, Casady said the company was confident it could maintain its targeted growth of 20% in adjusted earnings per share growth over the next five years, though he stressed that, like advisor force growth, the 20% figure would be an average.

As for the kinds of advisors that LPL is recruiting, during the call Casady said  LPL remained proud of being a BD that accommodates “a $200,000 producer in Des Moines,” and while recruited reps usually were commission-based, once onboard, LPL guided them down the fee pathway.

As for another item of interest to advisors—payouts—and whether LPL might consider raising them, Moore said “we have the highest stated published payout grid in the industry; we raised them in 2006 and don’t feel any need to alter them.”

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