Like other firms in the advice business, LPL Financial recently reported its fourth-quarter and full-year results.
But unlike many rivals, the largest independent broker-dealer also highlighted a long list of details both on the sources of its recent growth and on the strategies and programs that it expects to propel further expansion.
First, the latest key performance indicators: Its financial advisor headcount stands at 16,464 vs. 16,109 a year ago, a jump of 355; it added 115 net new advisors in the fourth quarter of 2019.
Total client assets are $764.4 billion vs. $628.1 billion a year ago; net new assets were $8.8 billion in Q4’19 vs. $5.9 billion in Q4’18. Assets from recruited advisors in Q4’19 topped $10 billion, bringing LPL’s full-year total to $35 billion.
Advisors affiliated with the independent broker-dealer have an average of $46.4 million in client assets and about $246,000 in yearly fees and commissions — up 19% and 5% year over year, respectively.
President and CEO Dan Arnold, speaking with equity analysts late Thursday, said net new assets from existing advisors grew close to 4% in 2019 vs. about 2% in 2018.
The IBD reported fourth-quarter earnings of $1.53 per share, up 13% from Q4’18. Net income improved 5% year over year to $126.7 million, as revenues rose 10% to $1.45 billion.
Here’s what the firm has in store for the future:
1. More Ways Advisors Can Join
As for future growth, the IBD’s “first strategic play involves winning in our traditional independent and institutional markets while also expanding our affiliation models,” Arnold said.
As for its latest new affiliation models, its premium offering for RIAs — launched in Q3’19 — “has been well received and generated good feedback from prospective advisors,” according to the CEO.
“We now have our first couple of committed practices, which we expect will join over the next few months, and we are encouraged by our growing pipeline of interested advisors,” he said.
The IBD exec also said one affiliation model LPL is in the process of building is “focused just 100% on an RIA-only firm.”
Overall, LPL plans to go to market with a new affiliation model in the second quarter and with another one “later this year,” according to Arnold. “We are receiving good feedback with respect to the value proposition associated with those programs, … and … we feel good about the results from last year and our pipeline as we move forward.”
2. Race to Zero
As for pricing, which the firm hopes will help its advisors stand out in the field, LPL has been adjusting its advisory platforms and transaction costs. In Q4’19, it introduced a no-transaction-fee ETF offering on its corporate and hybrid advisory platforms.
“In 2020, we are taking the same approach in light of the continued secular industry trends towards advisory solutions and lower retail trading commissions,” Arnold said.
3. Enhancing the Client Experience
The firm also intends to create “an industry-leading service experience that enhances our ability to attract and retain advisors,” he added. This effort includes “intelligent routing of their inquiries and case management for complex issues.”
Over the past two years, the CEO says, this focus helped the firm boost its advisor satisfaction level — as measured by Cogent Syndicated’s Net Promoter Score (or NPS) — by 45 points.
In the fourth quarter, LPL tried out an interactive voice-response system and expanded the scope of its case management team to include all advisors.
4. More Outsourcing Methods
To help advisors run and grow their practices, LPL is moving to offer more outsourced business solutions, digitized workflows, advisor-focused capital solutions and lead generation, according to Arnold.
As for business solutions — including services like virtual CFOs — LPL “ended the year with 650 subscribers, which was up 500 over the year,” the executive said. “I think we see that as a really positive trend.”
Overall, he added, the IBD was “in that developmental phase, where we were continuing to build the foundation and the infrastructure to scale in a really thoughtful and effective way” in Q4’19.
But LPL now is in “more of an operational phase where we are really focused on scaling … [a]nd I think we began to make that transition in this year,” Arnold said.
Plus, LPL is “seeing positive trends coming from those that are using these services today” and “seeing [the business solutions] help [it] attract new advisors.”
5. Giving Advisors Growth Tools
The IBD is about halfway through its plan to automate advisors’ six primary workflows — the tasks that now take up about 80% of advisors’ time, LPL says. For instance, the firm has integrated some customer relationship management solutions and resources from Salesforce and Redtail into its platform.
In Q4’19, it integrated three financial planning tools used to turn prospects into clients — its own goals-based planning solution and resources from MoneyGuide and eMoney.
“We wanted to be better, and we have challenged ourselves to innovate new ways of which to help our advisors increase the growth of their practices,” Arnold said. “So this is where we are focused on business solutions as a lever to do that, digitizing workflows.”
In addition, he said, the new advisor capital solutions LPL is working on “are ways to go really deep to help advisors with tools that will help them transform how they operate their businesses and heighten the probability they are able to grow their same-store sales.”
6. Boosting Retention
“If you look over the last two years, retention has gone up from 95% to 96.5%. That’s a good trend. There is good momentum there,” Arnold said.
Along with the IBD’s “transformation of our new service model,” he said, “[and] the baseline work we were already doing around enhancing our technology, improving policies and procedures, you end up, we think, with an interesting opportunity of which to improve and enhance retention over time.”
7. A One-Two Punch
“When you put all of those multiple orders together,” the CEO stated, “we are encouraged by the opportunities to continue to enhance our organic growth and improve … that [net new assets] capture over time.”
Furthermore, the IBD still sees an attractive recruiting climate and “advisors in search of a higher level of capabilities that will help them run their businesses,” he said. “And so those trends obviously make up … what we would see is again a pretty solid environment.”
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