LPL recorded record revenue of $4.1 billion in 2013

Recruiting picked up in second half, but company missed its 400-500 net new adviser goal

Feb 11, 2014 @ 1:37 pm

By Bruce Kelly

With 2013's roaring stock market at its back, LPL Financial Holdings Inc. said Tuesday that it recorded record revenue last year of $4.1 billion, an increase of 13.1% from 2012.

Adjusted earnings per share also hit a new high of $2.44, an increase of 20.2%.

January's market drop, with the S&P 500 decreasing 2.9%, hasn't extinguished clients' interest in the broad market, Dan Arnold, LPL's chief financial officer, said in an interview Tuesday.

“Investor enthusiasm remains, although it has been impacted around the edges by volatility in the equity market,” he said. “It could be a slight head wind, but we haven't seen it yet.”

The firm saw strong sales of alternative investments, including nontraded real estate investment trusts, driving increases in revenue from commissions.

“Adviser productivity was driven by investor engagement, strong market conditions and, in particular, elevated levels of alternative investment sales, resulting in annualized commissions per adviser of $163,000,” according to a company statement.

In a typical year, the firm's registered representatives produce 8% of revenue from commissions on alternative investment products, including nontraded REITs, Mr. Arnold said.

With the increase in nontraded REIT “liquidity events” in the second half last year, that figure doubled, with alternative investments accounting for 16% of commission revenue on an annualized basis.

LPL expects commission revenue from nontraded REITs and alternative investment sales to fall back in the second half this year, but still remain higher than previous levels.

Because investors' demand for the yield that such products promise likely will remain strong, sales of alternative investments could account for 11% or 12% of annualized revenue in the second half this year, Mr. Arnold said.

A bellwether for the independent broker-dealer industry, LPL said that in the fourth quarter last year, its recruiting was on track with long-term goals, attracting 110 net new advisers for the three months ended Dec. 31.

After an industrywide slow patch in recruiting over the first six months of last year, recruiting rebounded in the second half and the company added 321 net new registered reps and financial advisers for the year, missing its annual target of between 400 and 500 net new advisers.

The company also said that it won't pursue a conversion to a bank holding company, which it had first discussed as a possibility last summer.

LPL instead will retain its “capital light structure and flexibility in our capital deployment,” it said in an SEC filing.

“Accordingly, we have raised our quarterly dividend to 24 cents per share [from 19 cents a share] and expanded the capacity of our shareholder repurchase plan by $150 million to a total of $218 million,” according to the company.

LPL also said that it created $5 million last year in annualized savings through its 2013 outsourcing initiative, incurring $27 million in total restructuring expenses of the $65 million anticipated.


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