LPL to reduce head count in 3Q

Part of broader outsourcing plan as firm continues to struggle to meet earnings targets

By Bruce Kelly

Feb 3, 2013 @ 12:01 am (Updated 1:45 pm) EST

(Thinkstock)

LPL Financial LLC plans to cut jobs in the third quarter as it grapples with rising costs and an inability to hit earnings targets.

The firm would not discuss how many of the firm's 2,900 employees are at risk, but in a letter last month to the independent broker-dealer's 13,000 registered representatives and investment advisers, chief executive Mark Casady alluded to the downsizing to come.

“Please also know that we value all of our employees and are taking great care to communicate in a proactive, transparent manner, and to treat anyone affected with the utmost respect,” he wrote. “We do not anticipate any jobs will be impacted until the third quarter this year.”

The move is part of a broader plan that includes some outsourcing, as well as allocating more dollars to technology.

LPL has struggled to meet earnings estimates in recent quarters, and like all broker-dealers, it has seen its bottom line severely crimped because of record low interest rates and sluggish trading activity since the financial collapse of 2008.

In July, LPL Investment Holdings Inc., LPL Financial's parent company, reported adjusted net income of 49 cents per share. That was 3 cents below analysts' consensus estimate.

MISSED GROWTH GOALS

The firm, which had its initial public offering in November 2010, hasn't been able to meet its 20% annual earnings growth target, said Brad Hintz, an analyst with Sanford C. Bernstein & Co. LLC.

He added that LPL hasn't made a core acquisition of another broker-dealer since the IPO, though it has made several ancillary purchases to expand its wealth management offerings.

LPL management could be running the company “perfectly” but still face head winds, Mr. Hintz said.

“For a management team, it's kind of embarrassing when you don't deliver what you promise,” he said.

However, LPL isn't alone. Wall Street titan Morgan Stanley hasn't been able to hit its growth targets, either, Mr. Hintz noted.

The company is “working to claw back higher expenses,” said Ed Ditmire, an analyst at Macquarie Capital.

LPL will release its fourth-quarter expenses when it announces earnings Wednesday, and he forecasts a 12% increase in annual expenses, compared with 2011.

By contrast, LPL's expense rate rose by 7% to 9% the previous two years, Mr. Ditmire said.

The company will focus on outsourcing back office tasks performed by employees who don't deal directly with registered reps and financial advisers.

In Mr. Casady's letter, he praised the potential gains to be had in outsourcing jobs.

“Our confidence in the benefits of outsourcing is grounded in evidence gathered from businesses that have completed similar initiatives, and through our own experience,” he wrote.

The company is working with Accenture, a global consulting and outsourcing firm, and Bain & Co., another consultant, in executing the shift of employees.

Executives at LPL lately have stressed how committed the company is to ramping up its technology.

New chief information officer Victor Fetter recently said in an interview that LPL intends to hire 75 IT workers this year.

The shifting of worker resources is an attempt to increase operating efficiencies and services for LPL Financial's independent-contractor reps and advisers, the company said.

“A singular focus on serving financial advisers and institutions has always been at the center of LPL Financial's culture,” company spokeswoman Betsy Weinberger said. “Our position of industry leadership — and our ability to support our clients' growth in a changing marketplace — requires that we continually refine our own business practices.”

LPL shares, after finishing 2012 virtually unchanged, have been on a tear, up 19% in January.

The S&P 500 was up 13% last year and another 5% in January.

bkelly@investmentnews.com Twitter: @bdnewsguy

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