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LPL Posts Higher Q2 Earnings, Flat Revenue

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LPL Financial (LPLA) said its net income rose 17% in the second quarter to $50.2 million on flat revenue of $1.09 billion. Its adjusted earnings rose 2% to $63.2 million, or $0.65 cents a share, from $61.8 million, or $0.61 per share – beating analysts’ EPS estimates by $0.01, though revenue missed expectations by about $10 million.

Its shares traded down 8% on Wednesday.  

Total assets in advisory and brokerage accounts rose 4% from last year to $486 billion. Hybrid RIA assets represented $112 billion, or 23% of total assets. Net new advisory assets were $18 billion for the past year.  

 “Our value proposition remains strong as demonstrated by solid asset growth, recruiting and gross profit expansion over the past 12 months,” said Chairman and CEO Mark Casady, in a statement.

The company insists that it is overcoming regulatory and compliance hurdles. It had costs of $6.7 million tied to these issues in Q2.

Earlier this year, for instance, the Financial Industry Regulatory Authority levied a $11.7 million charge against LPL for supervisory failures in the sale of complex products and ordered that $6.3 million be paid in restitution for failing to waive mutual fund upfront charges on certain retirement and charitable organization accounts.

“We have now made significant progress with industry, federal, and state regulators, and are close to resolving the remaining significant matters that we have been working on,” Casady explained. “While we operate in an industry that is complex and highly regulated, we believe we have built a compliance infrastructure that will mitigate future exceptions and will help lower annual regulatory charges beginning in 2016.”

Acting CFO Tom Lux adds that business growth, share repurchases of $85.8 million and “reductions in regulatory and promotional expense added $0.08 to adjusted earnings per share” in the second quarter. However, these factors “were offset by slower sales commissions and decreased cash sweep revenue, which combined to lower adjusted earnings per share by $0.04.”

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The company says net new advisory assets, excluding the impact of market movement, were $4.3 billion in Q2. These flows were mainly driven by “solid recruiting and advisor productivity,” according to the independent broker-dealer.

Hybrid RIA assets grew 36% to $111.6 billion, representing 359 hybrid RIAs vs 282 a year ago. Overall, LPL say it added 290 net new advisors over the past 12 months.

Revenue generated from its cash sweep programs fell 9% to $22.6 million in the second quarter, “primarily driven by a step-down of 13 basis points in the insured cash account (“ICA”) program fee, offset by 4 basis points of improvement in the average effective federal funds rate and an increase in cash sweep balances of $1.5 billion.”

The company has announced a number of managerial changes in recent months.

Matthew Audette, a former E-Trade executive, will become CFO on Sept. 28, while ex-TIAA-CREF executive Tom Gooley began serving as managing director of service, trading and operations on June 25. It tapped David Write in May as chief technology officer, a newly created position.


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