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LPL Sees 14% Jump in Q2 Profits, Topping Estimates

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LPL Financial (LPLA) said Wednesday that it boosted its profits 14% in the second quarter: The independent broker-dealer said its net income was $45.1 million, $0.42 a share, up from $39.5 million, of $0.35 a share last year.

Adjusted earnings were $65.9 million, or $0.61 per share, vs. $55.0 million, or $0.49 per share, a year ago–topping analysts’ estimates. Total revenue grew 12% from last year to $1.02 billion, with recurring revenue representing the majority–nearly 66%–of net revenue in the second quarter.

“Our second-quarter top-line results mark the strongest quarter in LPL’s history with net revenues surpassing $1 billion,” said Chairman and CEO Mark Casady in a press release. “We continued to build upon our strong momentum from the first quarter, driven by improving business fundamentals including increased advisor productivity, rising asset levels and excellent production retention … This resulted in adjusted earnings per share increasing 25% year-over-year …”

The number of financial advisors affiliated with the IBD grew by 224–or nearly 2%–year-over-year to 13,409. The firms added 32 reps in the most-recent period.  

Total client assets expanded 12% from last year and nearly 1% from the first quarter to $396.7 billion. Assets in fee-based accounts improved about 19% from a year ago and roughly 2% from last quarter to $132.4 billion.

Advisory assets in the company’s fee-based platforms were $132.4 billion at June 30, 2013, up 18.9% from $111.4 billion at June 30, 2012.

Commission revenue increased close to 14% year over year, “reflecting improved commissions per advisor and the addition of new advisors,” the company says, while advisory revenue grew 11.1%, thanks to “strong net new advisory asset flows and overall improved market levels.”

LPL Financial notes that it expects to spend some $65 million through 2014 for its Service Value Commitment restructuring program, which includes job cuts, outsourcing and technology investments; the company expects to have yearly savings of $30 million to $35 million beginning in 2015. It spent $12 million on the program in the first half of 2013 and should spend about $40 million this year on the restructuring efforts.

“This strategic initiative is focused on enhancing how we support our advisors … through improved efficiency and effectiveness,” explained CFO Dan Arnold (left) in an interview with ThinkAdvisor. “For advisors, it means they should experience improved accuracy and turnaround time, and we continue to make progress on this large, complex effort.”

RIA-Focused Growth

Assets under custody on LPL’s platform for independent RIAs jumped almost 67% from last year and 6% from last quarter to nearly to $50 billion managed by 215 affiliated independent-RIA firms, compared to about $30 billion and 166 independent-RIA firms a year ago and some $47 billion and 199 firms as of March 31.

“We believe we’re the only model in the marketplace that lets reps work as their own RIA and use a corporate broker-dealer on one integrated platform that drives efficiencies in their own practice and performance,” Arnold explained. “The attributes of that model are driving new assets and new practices to us.”

LPL Financial also saw “good growth overall in advisory assets of about $20 billion or 19%” on its fee-based platform, which lets reps use LPL’s corporate RIA for their fee-based business. “More and more FAs are moving a higher percent of their work to the advisory business and find value in the variety of our advisor solutions … to better serve their end clients.”

The percentage of assets administered by LPL on this platform now tops 36% vs. 30% about a year ago.

“We look at different opportunities in the marketplace and provide transition assistance to help all advisors affiliate with LPL … and determine what [arrangement] is best for them,” said Arnold.