LPL Financial executives laid out their tech-focused growth strategies after releasing strong earnings Thursday and also said the firm has “reduced pricing” in the context of the overall industry movement to zero fees.
The independent broker-dealer’s net income jumped 23% and earnings per share 32% year over year to $132 million, or $1.57 per share, in the third quarter of 2019, beating estimates; revenue grew 6% from last year to $1.42 billion.
LPL also says recruited advisors brought in $8.7 billion in Q3’19 and $32.9 billion over the past 12 months. Its indie advisor headcount was 16,349 as of Sept. 30, up 188 sequentially and 175 from a year ago; its year-to-date retention of fees and commissions is 96.3%.
When asked about the “race to zero” on fees and commissions, President and CEO Dan Arnold told equity analysts that the trend “has a really small impact on our business … because we don’t operate in the self-directed [investor] market.”
That said, to “best position its advisors,” the firm has taken steps to adjust pricing in order to boost growth for its advisory platforms and reduce transaction costs, Arnold says.
These steps have involved an average investment of $15 million annually over the past three years, he adds, and will likely remain in place for 2020.
The CEO also stressed that lower industry pricing being rolled out by online brokerages most affects the firm’s RIA clients, who custody assets with LPL.
“It’s a smaller level of impact [than for the e-brokerages], and we absolutely have taken those data points and put them into our overall strategic considerations around how we reduce pricing to best support our advisors, and [it’s] a part of that prioritization stack,” he explained on the call.
Earlier in the discussion, Arnold highlighted three strategic priorities for the firm going forward. He and CFO Matt Audette emphasized that the firm intends to keep its yearly technology budget at about $150 million.
As investor expectations “evolve to include omnichannel, customized and personalized interactions, we aim to deliver an enhanced digital investor experience that will help our advisors win in the marketplace,” Arnold said.
This quarter, the firm is rolling out a mobile app so investors can “customize and personalize the display of their account information,” he adds. The app also lets them “measure progress relative to their goals in real time.”
The firm will introduce a new version of the app in 2020 that will include data on assets held at other financial companies and more self-service functions. “In the short run, this overall effort will enhance investor experience with deeper connections and more frequent interactions,” Arnold said.
Looking further out, LPL intends to build “a competitively differentiated experience … modeled after digital innovators from outside our industry and positions our advisors to increase client loyalty, attract new clients and increase share of wallet.”
Account Opening ‘in Minutes’
LPL also aims to make its advisor platform, ClientWorks, capable of more “personalization and flexibility,” so advisors can have a better service experience and boost the efficiency of their practices.
In Q3, the firm introduced an applications library of applications “much like consumers use the iPhone app store,” Arnold said. One app lets advisors view practice data and analytics in real time, for instance.
With testing of artificial intelligence and robotics, the firm finds it can activate accounts “in minutes” rather than 24 hours, according to the executive. “These initial experiments are triggering further exploration across the enterprise in an effort to more broadly apply the power of artificial intelligence and machine learning to enhance the client experience and the scalability of our model.”
Outsourcing: ‘A Really Good Trade’ for Advisors
Arnold says the firm is adding capability such as “outsourced business services, digitized workflows, advisor focus, capital solutions and lead generation.”
Over the past year, the firm has done pilot programs involving outsourced administration and marketing, chief financial officers and technology services with the goal to deliver them “with high quality at an affordable price and make them easy to use,” he states.
The Business Solutions, according to the executive, have been embraced by advisors like Jim Miller of Charlottesville, Virginia, who works with about $100 million of assets.
Using the outsourced CFO, Miller created “a new pricing strategy, built a segmented client-service model and identified better ways to manage his expenses,” Arnold said. “Now, Jim describes his CFO as one of the best resources he’s ever had and thinks of her as a member of his management team.”
The outsourcing services have about 600 subscribers and cost about $1,500-$2,000 a month. This means advisors can have a CFO for, say, about $20,000-$24,000 a year, he explained: “And [they] can get that expertise and only pay for the portion of the portion of the CFO that [they] need” vs. over $100,000 a year for a full-time employee.
This “ends up being a really good trade for them,” Arnold said. The offering “creates some incremental earnings contribution for us, from that incremental value, but the biggest gain comes from helping advisors grow their business.”