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LPL Financial Boosts Net Income as Advisor Growth Slows

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LPL Financial’s parent company said Tuesday that the firm had net income of $26.1 million in the third quarter of 2010, or 26 cents a share, compared to a loss of $1.5 million, or 2 cents a share, in the third quarter of 2009.

The total number of financial advisors affiliated with the company as of Sept. 30, 2010, was 12,017, down slightly from 12,027 last year and 12,066 in the second quarter of 2010. This puts it behind Morgan Stanley, Bank of America-Merrill Lynch and Wells Fargo Advisors, but ahead of UBS-Americas.

LPL Financial, however, says it added 128 new financial advisors to its ranks in the past 12 months, excluding attrition in the fourth quarter of 2009 related to the consolidation of certain affiliates.

In addition, the firm does clearing, advisor platform and technology work for some 4,000 advisors affiliated with insurance companies. The company, led by CEO and Chairman Mark Casady (left), filed for its first public offering on June 4.


Growth Issues

“Because the markets are so crazy, the number of advisors moving firms is down” across the broker-dealer industry, said Chip Roame, head of consultancy Tiburon Strategic Advisors, in a phone interview. “It’s just not a good time for advisors to tell their clients they’ve going to make a move.”

In addition, LPL Financial has been busy acquiring National Retirement Partners, which has about 350 advisors, for $27 million this summer, and further integrating advisors from the three Pacific-Life broker-dealers it bought in 2007 for $100 million.

“It’s not so bad that LPL isn’t boosting its FA headcount with more recruiting, since the firm may be spending its time and energy helping existing advisors do a better job,” Roame explained. Since the firm continues to boost profits, such a strategy may make more sense at this time, he adds.

The firm’s net revenue for the third quarter increased 8.2% to $760.0 million from $702.3 million in the year-ago quarter. The company said it had strong growth in its fee-based and asset-based revenues, combined with modest growth in commission and transaction based fees.

Net revenue in the latest quarter, however, was down from second-quarter net sales of $790 million.

For the first nine months of 2010, net revenue increased 13.8% to $2.3 billion, while net income was up 106.4% to $59.7 million.

“The challenge for LPL Financial is to maintain the access and accessibility to home-office staff and resources that its financial advisors crave despite the fact that it is a firm with 12,000 advisors,” said New York-based executive search consultant Mark Elzweig (left) in a phone interview.

Like other firms, LPL Financial has had a series of layoffs at its head offices over the past two years or so, experts point out.

But advisors, especially those that have left a wirehouse firm to go independent with LPL Financial, need as much access to home-office personnel as they can get to support the growth of their practices, Elzweig says.

“LPL may pride itself on a comprehensive platform, which it says is akin to that of the wirehouses. However, independent advisors want access to the home office, too,” he explained.

Asset Update

Total advisory and brokerage assets were $293.3 billion as of Sept. 30, 2010, up 9.1% over last year. In the second quarter, assets were $276.9 billion.

Advisory assets in the company’s fee-based platforms were $86.2 billion for the third quarter of 2010, up 18.7% from $72.6 billion in the year-ago quarter. LPL noted in a press release that this growth outpaced the average growth of the S&P 500, 10%, for the period.

Net new advisory assets were $6.3 billion during the 12 months ended Sept. 30, 2010, “reflecting strong new business development in 2009 due to the extraordinary industry and market conditions,” LPL said in a statement.

In addition, assets under custody in the firm’s hybrid RIA platform, grew to $11.6 billion as of Sept. 30 vs. $6.2 billion last year. These operations now include 105 RIA firms.

Asset-based fees increased 15.1% due to growth in record-keeping, omnibus processing and other administrative fees, though commission and transaction fee growth slowed due to “softer client activity stemming from the equity market correction near the end of the second quarter of 2010 and the continued uncertainty in the capital markets,” the company said in its earnings release.