February 6, 2013

LPL Beats Q4 Estimates, Outlines Outsourcing Plans

The independent broker-dealer added more than 500 reps last year, giving it 13,352 affiliated advisors in the fourth quarter of 2012

LPL Financial (LPLA) said Wednesday that its fourth-quarter earnings declined to $36.9 million, or $0.34 a share, from $39.5 million, or $0.35 a share, a year earlier. Earnings improved to $0.50 per share, though, when one-time charges and other items are excluded.

Equity analysts had estimated that the independent broker-dealer would have produce earnings of $0.48.

Net revenue improved about 14% to $944.2 million from $828.7 million a year ago. This beat analysts' 4Q’12 expectations of $918.2 million.

“We feel good about the results of the fourth quarter, given the uncertainty of the economy and political environment,” said LPL CFO Dan Arnold (left), in an interview with AdvisorOne. “We are also proud with … the core revenue growth given the tough conditions and are excited to be continuing that trajectory in 2013.”

Outsourcing Moves

In its earnings release, LPL Financial said that it is planning to spend $70 million to $75 million through 2014 on outsourcing of back-office and other functions, information technology and related restructuring of its operations. By 2015, the company expects to save about $30 million to $35 million a year as a result of these steps.

The measures, which are part of the Service Value Commitment program, cost LPL $11 million in the second half of 2012. It says it should spend $6 million to $8 million on these measures in the first quarter of 2013 and about $39 million to $42 million for full year, when it should recognize about $6 million in total savings.

Advisor Headcount

LPL said that as of Dec. 31, it had 13,352 affiliated independent advisors. This is an increase of 182 from Sept. 30 and 505 from a year ago.

Client assets in fee-based advisory programs rose 20% year over year to $122.1 billion in the fourth quarter, while overall client assets at the brokerage rose 13% to $373.3 billion. Commission revenue jumped 15.6% from a year earlier.

These results were achieved thanks to “the continued attractiveness of the independent model and LPL’s market-leading solutions,” said Arnold.

The hybrid-RIA platform, he noted, helped draw new reps to LPL and boosted assets in this channel 80% year over year in the fourth quarter. This segment represents about 20% of the newly recruited FAs in 2012—or 101 advisors.

In terms of recruiting in 2013, “The underlying activity and pace is similar to last year,” Arnold said. “The pipeline is strong, and we expect the hybrid [results] to be as strong or stronger than last year.”

The company will continue to consider acquisitions in the wealth-management arena, he adds, though it will not be moving into the high-net-worth segment any time soon.

“Strategically, our focus is on other segments in the marketplace," the CFO said. "The ultrahigh-net-worth segment is a unique offering with different economies of scale.”

Check out AdvisorOne's Q4 Earnings Calendar.

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