LPL’s earnings bounce back, but commission revenue continues to erode

LPL Financial Holdings Inc. reported flat first quarter earnings on a year-to-year basis Thursday, but they were a vast improvement from the previous quarter.
LPL, which operates the nation’s largest independent broker-dealer, reported net income of $50 million, or 56 cents a share, compared with $51 million, or 52 cents a share, in the first quarter of 2015. The most recent quarter earnings were nearly double what the company posted in the fourth quarter of 2015, when it earned $27 million, or 28 cents per share.
LPL has struggled of late. On Feb. 12, the day after it released its fourth-quarter earnings, the company’s shares plunged 35%, dropping to $16.50, an all-time low. Shares have bounced back since then — they closed Thursday at $26.07 — but are still below their initial public offering price of $30 a share in November 2010.
During the first quarter, commission revenue at LPL continued to erode. Broker-dealers in general have seen revenue from commissions slipping in the face of the Department of Labor’s new fiduciary rule, which has put the sale of high commission products such as variable annuities and nontraded real estate investment trusts under a microscope.
LPL commissions for the quarter were $436.7 million, down 17% from the year-ago quarter and 6% from the previous quarter. The company’s total commission and advisory revenue, known as gross dealer concession or GDC in the industry, was $756.2 million, a decline of 4% from the fourth quarter of 2015.
LPL last October said it was going to borrow $700 million and spend $500 million of it buying back its stock. Its interest expense increased to $24 million, up $5 million from the previous quarter.
(See: LPL Financial’s problems keep piling up )
During the most recent quarter, it appears that LPL had a better handle on its regulatory problems. In 2014 and 2015, the company spent $70 million on regulatory fines and customer restitution. In the first quarter of this year, regulatory expenses were just $1 million.
The company also said last year it was working to reduce the rate of growth in expenses. Core general and administrative expenses were $4 million lower in the first quarter than in the fourth quarter, and the headcount of advisers increased 39 to 14,093.
“We are pleased that our diverse gross profit streams and tight expense management delivered strong financial results despite the extremely volatile environment in the first quarter,” said Mark Casady, chairman and chief executive officer, in a statement. “It was a good start to the year.”
“After preparing over the past year, we now have the final Department of Labor rule in hand,” Mr. Casady added. “We need to carefully review the rule as we finalize our plans, but we are now working to implement the rule for our advisers, their clients, and our company. We are looking forward to introducing new services designed to support advisers through the DOL transition and as they continue to grow their practices.”

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