LPL Financial (LPLA) said late Wednesday that its net income in the period ending March 31 fell about 3% year over year to $53.1 million, though net revenue jumped close to 12% to nearly $1.1 billion. Adjusted earnings, though, rose 4% to $71 million, or $0.69 per share. These results missed analysts’ estimates.
Higher costs and lower recruiting results in the period were cited as reasons for the recent performance, and the company’s executives are upbeat on results for 2014.
“After a slow start to recruiting to begin the year, our business development team saw improving conditions in March,” said Chairman and CEO Mark Casady. “As a result, we finished the quarter with 53 net new advisors and are seeing positive momentum in our pipeline heading into the second quarter.”
The independent broker-dealer’s core general and administrative expenses were $162 million, up 11% year over year (but down 3% sequentially), according to CFO Dan Arnold.
“Expenses were at the high-end of our guidance this quarter primarily due to elevated regulatory and legal related costs, which we have indicated in the past as a potential cause of variability in our results,” Arnold said during a call with equity analysts.
“Overall we continue to track to 4.5% core G&A growth for the year, within our target range of 4% to 6% …,” he explained. “If elevated legal and regulatory expenses emerge as a persistent feature of the operating environment, there’s a potential that our core expense growth could increase towards the upper half of the range for this year.”
Also during the quarter, the company’s payout ratio to advisors grew 38 basis points to 86.4%. About half of that jump was tied to its rising stock price and the “marking to market” of the expense of its equity program for advisors, the CFO says.
Advisory and brokerage assets rose to $447.1 billion, a 13.5% year-over-year increase, in the latest period. “Notably, much of this growth is driven by the momentum in our higher-margin fee-based business, which generated a record $4.4 billion in net new advisory assets this quarter," Arnold said in a press release.
Likewise, the average assets managed by advisors jumped 13.5% to $33 million vs. $29.5 million a year ago.
Average yearly fees and commissions per rep are about $252,000 vs. $254,000 in the prior period and $230,000 a year earlier. Commissions per rep are about $156,000. Excluding alternatives, this figure is $152,000, which represents a 4% jump from last year and a 1% increase from the prior period.
The company has 13,726 affiliated advisors, up from 13,377 a year ago.
Assets under custody on LPL Financial's independent RIA platform grew nearly 50% to $69.6 billion from $46.7 billion as of March 31. These results include 265 independent RIA firms, compared with 199 independent RIA firms a year ago.
The company notes that its average cash balances grew to $24.2 billion from $23.1 billion 12 months ago, “primarily reflecting the growth in new accounts as existing advisors expanded their businesses and new advisors transitioned assets to LPL Financial."
Revenue generated by cash-sweep programs, though, fell roughly 24% to $24.0 million in the first quarter of 2014.
According to LPL, the rise in asset balances was offset by a 7 basis-point drop in the effective federal funds rate and the “fee compression on bank contracts in the insured cash account (ICA) program.”
Combined, these factors lowered the ICA fee in the first quarter of 2014 to 54 basis points compared to 78 basis points in the prior-year period.