LPL, the largest U.S. independent broker-dealer by gross revenue, has beat analysts’ earnings forecasts for its third quarter, logging $3.71 in adjusted earnings per share for the third quarter of 2023, which it announced after the close of the market Thursday.

The analyst consensus estimate for the quarterly EPS had been $3.59 according to Zacks Investment Research.

LPL also said it added a net 462 advisors over the quarter and 1,360 year over year for a total of 22,404. That’s a 6% increase over the number last year at the end of 2022’s third quarter.

The company’s EBITDA declined 12% to $458.4 million in the third quarter from $518.8 million in the previous quarter but was still up 11% from last year’s third quarter.

The B-D’s total advisory and brokerage assets increased to $1.24 trillion, a 19% year-over-year increase.

Dan Arnold, the company’s president and CEO, said in a Thursday earnings call that advisor migration among firms, also called “churn,” had been flat and range-bound at around 5.5%, a stagnation the company noticed during the Covid-19 period, and he shared his perception that advisors are moving around more within the IBD space than coming from wirehouses as they traditionally did. He declined to say (when prompted by analysts) whether he thought recent troubles at Charles Schwab in its transition of advisors from TD Ameritrade would be an opportunity for LPL and its RIA platform to steal Schwab advisors.

Arnold said LPL’s total assets remained at $1.2 trillion for the quarter, about the same as in 2Q, “as continued solid organic growth was offset by lower equity markets.” Advisory as a percentage of total advisory and brokerage assets rose 53.5%, up 120 basis points from last year. Arnold said third-quarter organic net new assets were $33 billion, “representing 11% annualized growth.” Recruited assets were $31 billion, including $12 billion from advisors who have joined the LPL platform from Bank of the West and Commerce Bank. New affiliation models contributed $5 billion in the quarter, said LPL’s chief financial officer Matt Audette during the call. In August, Prudential Financial said it would move its $50 billion retail brokerage and investment advisory assets to LPL Financial from its current custodian, Fidelity, a transition that’s scheduled to be completed in late 2024.

One notable figure in the LPL release was the decline in client cash balances, which fell to $47.3 billion from $66.8 billion last year, a 29% drop. This is remarkable at a time when interest rates have risen. Historically, broker-dealers have been able to make huge profits on money parked in cash using short-term "sweep" accounts that are held at banks and for which broker-dealers get a fee. Though these sweeps are usually only for short-term money, the current higher rate environment has raised fears clients will start asking broker-dealers to put their cash into higher yielding money market funds. Moody’s Investors Service warned in an August report that LPL, as well as peers Raymond James, Oppenheimer and Charles Schwab, would all see slightly decaying revenues and earnings as clients moved cash out of sweep accounts.

LPL’s cash revenue fell from $378 million in the second quarter to $360 million during the third. Client cash balances as a percentage of total assets fell to 3.8% from 6.4% last year. Audette said that cash revenue has been affected by the company’s mix of fixed and floating-rate vehicles in its cash sweeps. The firm’s two sweep programs are its Insured Cash Account (or ICA) and its Deposit Cash Account (or DCA), which are used for different types of accounts.

Audette added, however, that the cash decline, “marked the smallest quarterly decline we’ve seen this year. Within our ICA portfolio, the mix of fixed-rate balances increased to roughly 65% within our target range of 50% to 75%. Our ICA yield averaged 318 basis points in the quarter, down 4 basis points from Q2, driven by a decline in floating-rate balances. As for Q4, based on where client cash balances and interest rates are today, we expect our ICA yield to decline by roughly 5 basis points due to the mix impact of lower floating-rate balances.”

Michael Elliott, an equity research analyst at CFRA Research, changed his outlook on LPL from "hold" to "buy" in March, saying that the investors had unfairly lumped the company in with troubled regional banks like the collapsed Silicon Valley Bank that were suffering from much different problems (especially mismatched durations in its fixed-income portfolios). He said that the cash sorting problem at LPL is slowing down.

“I don’t think the market is going to take the 5% decline in cash balances as a major negative,” Elliott said in an interview. “It was a pretty strong quarter for LPL. I think the Street will be pretty happy overall.”

One notable crimp in the company’s expenses was $40 million in regulatory charges for the quarter, part of LPL’s settlement with the SEC in its industry-wide crackdown on companies that had business correspondence stored on employees’ personal devices.

While LPL’s stock price was $221.93 at close on Thursday, it has swung from $271 to as low as $179 over the past 52 weeks.