LPL’s Moore Says BD Is a ‘Positive Attractor’ for Advisors: Q4 Earnings

CFO of largest IBD tells AdvisorOne flat Q4 is due to market volatility

LPL's CFO Robert Moore (left) and CEO Mark Casady in Times Square after their IPO in 2010. LPL's CFO Robert Moore (left) and CEO Mark Casady in Times Square after their IPO in 2010.

LPL Financial’s parent company, LPLA, reported late Tuesday that fourth-quarter net income was $39.4 million and that revenue rose 1%, to $828.7 million. In 2010’s fourth quarter, LPL Investment Holdings reported a loss of $116 million, or $1.20 a share, due primarily to a $220 million charge taken in the fourth quarter that year related to its IPO in November 2010.

For all of 2011, LPL Investment Holdings reported net income of $170.4 million on an 11.8% increase in net revenue to $3.5 billion.

In an interview with AdvisorOne on Wednesday on the results, LPL CFO Robert Moore said, “The mix of business was quite constructive; reflecting the progress that our clients–advisors” have made. “We are a growth business,” Moore said, and while revenue was essentially flat in the fourth quarter, “there were heavier headwinds due to market volatility,” which led LPL reps to move clients away from trading and more into cash—and while “we actively managed our expense base, we did incur some expenses in new business development” efforts that would have a longer-term benefit to advisors and the company.

“We’re signaling clearly that we will, more often than not, opt for incurring the expense” of such programs, Moore said, despite keeping a sharp eye on expenses.

For the year, LPL added 549 net new advisors, the company said, excluding the attrition of 146 advisors that came from the conversion of the bank-focused division UVEST Financial reps onto LPL’s clearing platform that was completed in 2011. 

When asked whether those new advisors came from wirehouses or other independent BDs, Moore answered, “All of the above.” While he said the company doesn’t disclose the “actual attribution across the various channels, yes, we are a positive attractor from across the industry,” including from insurance companies, other independents, from regional brokerages, and the wirehouses.” Moore suggested LPL will continue to see recruits from all those channels, but also that “we know how to move the value chain in terms of more complex practices.”

LPL’s announcement in early January that it would acquire Fortigent fits into the LPL strategy to both attract new advisors and retain existing ones. “When we talk about wirehouses, that’s one part of the strand” of advisors who are attracted to LPL. “We’re moving along a continuum that’s extremely well defined.”

Another part of that strategy is the continued growth of LPL’s RIA custody unit. “We grew by 32 RIA firms and our asset base is now $22.7 billion,” Moore noted, representing “68% growth year-on-year” in assets under custody. He called the RIA unit another important strand: “The custody business is one we can naturally compete in.”

Moore said LPL is “ well positioned to be able to do both,” meaning serving practices with high-net-worth clients but also existing LPL practices with lower-net-worth clients. “Those existing core advisors have been growing, and as they grow, they may contemplate opening their own RIA.” With its custody business, LPL believes it has a good chance to retain those growth-oriented advisors.

In its earnings release, LPL said that in 2011 it had repurchased 2.6 million shares of its common stock for $89 million under two programs approved by its board. “We have additional capacity under the share repurchase program,” he said, to buy back more shares in 2012. “We wanted to mitigate dilution in terms of our share option program we have with employees and advisors. We completely mitigated that dilution in 2011.”

Since LPL also has a deferred compensation plan for certain employees and advisors that terminates in Q1 of 2012, he said, “embedded in that is a certain amount of dilution, so we’ll take care of some of that” this year, he added.

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