July 31, 2012

LPL Adds 223 Advisors as Profits Drop 13%

Company executives point to expensive acquisitions in Q2 and advisor growth in an uncertain market climate

LPL Financial's COO Robert Moore (left) and CEO Mark Casady on the company's IPO in November 2010. LPL Financial's COO Robert Moore (left) and CEO Mark Casady on the company's IPO in November 2010.

In a repeat from last quarter, LPL Financial (LPLA) reported Tuesday that quarterly profits were down although revenues were up. An added bright spot was the Boston- and San Diego-based independent broker-dealer’s addition of 223 net new advisors.

Profits for the second quarter dropped 13%, largely on investor uncertainty and low yields, the company said, with LPL reporting net income of $39.5 million, or earnings of $0.35 per share, which were $6.0 million lower than income of $45.5 million, or EPS of $0.40, a year ago. LPL earned $0.49 per share before charges and adjustments, but analysts had expected earnings of $0.56.

A 1.5% revenue rise to $908 million versus $894 million a year ago led to LPL’s first-ever quarterly cash dividend, of $0.12 per share. LPL credited the following for the revenue increase:

  • A 2.7% drop in commission revenue versus a year ago, to $447,243 from $459,882, as commissions per advisor declined 6.2%, offset by growth in advisor headcount.
  • A 1.5% increase in advisory revenue, primarily due to growth in net advisory assets over the last year.
  • Recurring revenues of 65.3% of net revenue compared with 62.4% a year ago.

LPLA stock was down 13.48% in early afternoon trading, at $27.73 per share versus Monday’s close of $32.05.

“Investors are exhibiting more cautious behavior in light of the uncertain market conditions, which manifests itself in lower investment activity and reduced trading. As a result, net revenues only grew 1.5% year over year," said LPL Financial Chairman and CEO Mark Casady in a statement. “At the same time, our performance has been impacted by our ongoing commitment to additional investment. This strategy is driven by our confidence in the strength of our underlying business and in our competitive position, but has placed further pressure on our bottom-line results this quarter.

Click for more of AdvisorOne's 2Q 2012 earnings coverage.In the earnings call, Casady pointed to an increase in “transition assistance” to support advisor growth, as well as added expenses from LPL’s acquisitions of open architecture firm Concord, alternative investment firm Fortigent and mass-market advisor Veritat.

Further growth expenses came from a $6 million conference in Q2 that LPL didn’t have in Q2 last year, said newly named LPL Financial President and Chief Operating Officer Robert Moore in a telephone interview with AdvisorOne after the earnings release.

“At this stage, the acquisitions are not highly profitable, they’re essentially break-even, so that puts pressure on margin as well as overall earnings,” Moore said.

He added that LPL’s organic investment in attracting new advisors has increased transition assistance by 41%, and the NestWise mass-market startup that has just folded in Veritat is unlikely to break even until 2014.

“The other investment is in our retirement planning, where we have identified compelling market opportunities and are investing in the IRA rollover aspect of retirement planning as well as in-plan advice,” Moore said. “Those are areas that led to elevated expenses, and when you have relatively soft top-line growth, that does translate into pressure on the bottom line.”

For the quarter, LPL’s addition of 223 advisors brings the total headcount of registered representatives to 13,185 from 12,962 last quarter and 12,660 a year ago.

Total advisory and brokerage assets rose to $353.0 billion for Q2, an increase of 3.6% from $340.8 billion as of June 30, 2011, and a decrease of 0.3% from $354.1 billion as of March 31, 2012. Net new advisory assets totaled $2.8 billion for the quarter, and advisory assets under management were up about 8% to $111.4 billion at quarter-end.

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Read more coverage of the Q2 2012 earnings season at AdvisorOne.

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