Two recent strategic decisions to boost assets advisers hold at LPL Financial appear to be paying off.
First, in an attempt to drive more assets to the company's in-house, corporate advisory and managed-money platform, LPL
almost a year ago announced a change in policy that would require new recruits to custody their first $50 million in assets at LPL.
More recently, LPL this spring said it was offering for a limited time
a new, unprecedented recruiting deal that paid new advisers a signing bonus based on the amount of assets they moved to the firm's corporate advisory platform. The offer, which will be off the table as of August 1, is in the form of a three-year forgivable loan that pays an adviser 50 basis points on assets under management transferred to LPL.
"We continue to see increasing use of our advisory, corporate, and centrally managed solutions, which enhances our return on assets," said CEO Dan Arnold on Thursday afternoon during a conference call with analysts and investors to discuss second quarter results. "Given the building momentum [for recruiting] in the second quarter and the interest generated by our temporary increase in transition assistance, we feel well-positioned with a solid pipeline entering the third quarter."
Unlike some of its competitors, large networks of broker-dealers such as Cetera Financial Group or Advisor Group, LPL Financial is self-clearing, meaning it runs the trading and clearing platform for its 16,049 brokers and financial advisers. That has been a key to its profitability, according to industry observers.
LPL advisers with their own RIAs can custody assets with LPL or a competing firm, such as Schwab Advisor Services or TD Ameritrade Institutional.
LPL has made no secret that a key to driving profitability at the firm is moving client assets from brokerage accounts, which charge commissions, to advisory accounts, which charge annual fees.
In a presentation at the end of May to investors at a conference held by investment bank Sanford C. Bernstein, the company noted that the firm saw a 10-basis point higher return on advisory assets than brokerage. LPL's corporate advisory platform was now driving most of the firm's asset growth, according to the presentation.
And the firm's centrally managed advisory platforms, which enable its advisers to outsource portfolio construction and trading to LPL, are even more profitable. The return on assets of such centrally managed portfolios is another 10 basis points higher than advisory, according to the presentation.
Durign the conference call Thursday, chief financial officer Matthew Audette said, "Looking at the mix of our advisory inflows, over 75% of our net new advisory assets were on the corporate platform, totaling $3.6 billion or a 9% annualized rate," said chief financial officer Matthew Audette. "Our centrally managed platforms continued to grow as well, with inflows of $1.5 billion or approximately a third of our net new advisory assets this quarter."
At the same time, Mr. Arnold noted during the conference call that LPL saw asset outflows of $1.5 billion over the three months ended in June from a small group of hybrid RIAs, which have the option of using outside custodians to hold client assets.
"You're likely to see that same level of outflows in both the next two quarters," Mr. Arnold said. "That said, I think we're obviously committed strategically to offering both the corporate RIA and the hybrid platforms. We'll continue to invest in both and make sure that our advisers can differentiate and win."
Meanwhile, LPL
reported earnings per share of $1.30 for the quarter, an increase of 76% when compared with the same time period last year. A combination of asset growth, an improved return on assets and expense discipline was responsible for its earnings growth, the company said.
Total brokerage and advisory assets, including the acquisition of $72 billion of assets from the purchase of the four National Planning Holdings broker-dealers, increased 22% to $659 billion.
