LPL Financial’s second quarter earnings came in at $3.88 of adjusted earnings per share, beating estimates of $3.71 per share and adding another strong quarter to the firm’s books.
Total assets increased to $1.498 trillion, a 4% increase from last quarter and 25% year-over-year, thanks to both organic growth and buoyant equity markets, firm executives announced in its Q2 earnings call yesterday, adding that LPL held fast to a 98.4% asset retention rate.
In addition, the firm grew by 578 net new advisors, and average total assets per advisor grew to $63.8 million, a 13% increase from the second quarter of last year. Total clients grew 2% from Q1, to 8.6 million from 8.4 million.
President and CEO Dan Arnold attributed the appeal of LPL to advisors to its “robust and feature-rich” platform, stability and scale of the firm and the commitment to continue to invest in the platform.
He said the second quarter was marked by solid performance as LPL continued to execute its strategic plan, including the onboarding of Prudential Financial and Wintrust Financial, which will bring $66 billion in AUM to the firm by early 2025, and the off-loading of two OSJs that were not well aligned with LPL’s strategy and will record an outflow of $20 billion.
In organic growth, total Q2 net new assets were $29 billion, which represented 8% annualized growth. And over the past 12 months, the firm has brought in total net new assets of $104 billion.
At the same time, Q2 recruited assets were $24 billion, and the total 12 months added up to a record $93 billion in recruited assets for LPL.
Arnold said that LPL’s objective is to become the leader in the advisor-centered market, and to do that the firm has two strategic categories—horizontal expansion and vertical integration.
For horizontal expansion, LPL will continue to find and offer new ways for advisors and institutions to affiliate, Arnold said, so that LPL is competing for the entire universe of 300,000 advisors. In the second quarter, that resulted in $19 billion in new assets coming through recruiting in LPL’s traditional independent model, a new quarterly high, he said. And through the firm’s new affiliation model, strategic wealth, employee and enhanced RIA offering, another $4 billion was recruited.
Another $1 billion of recruited assets came through LPL’s bank and credit union relationships, Arnold said. LPL is also on track to close the acquisition of Atria Wealth Solutions later this year, which will add 2,400 advisors and 150 banks and credit unions, managing about $100 billion in assets.
In one area of change, LPL is continuing with its plans to divest itself from two large OSJs that were not able to align their offerings to advisors with LPL’s vision of what they should be, Arnold said. These two firms represent $20 billion in client assets, which have started to leave the platform this month.
Vertical integration is the delivery of technology, capabilities and services to advisors so they can differentiate themselves to existing and perspective clients.
One area where LPL is active, Arnold said, is in developing new trading capabilities that will allow advisors to “deliver a differentiated client experience.” The firm is rolling out a new system, ClientWorks Rebalancing, which will enable advisors to rebalance models across multiple client accounts at one time, he said.
“Our aspiration is to help more advisors run models-based practices and ultimately turn trading from an administrative function into a strategic asset,” he said. “Initial feedback on ClientWorks Rebalancing has been positive and we’re seeing solid early adoption.”
No Change To Cash Sweep Rates
CFO and head of business operations Matt Audette said that client cash revenue was $361 million, down $12 million from Q1, due to client cash balances declining.
The topic of cash sweep pricing has been top of mind in the industry for the last few weeks, as investors fled sweep accounts for better-priced vehicles including money market funds. Firms like Wells Fargo and Morgan Stanley took large hits on their net interest income and in response boosted their pricing on cash sweep accounts, costing $350 million for Wells Fargo.
LPL, however, will not be changing its cash sweep rate. “As for the firms that have made changes, they have different business models and monetization practices, so we can only speculate as to the issues they may be facing,” Arnold said. “As it relates to LPL, we continuously strive to ensure that advisors have choice in the tools and products they use to serve their clients.”
LPL’s advisors have access to a range of products for cash, including the sweep deposit program, money market funds, certificates of deposit and fixed-income funds, he said, adding that advisors are not given incentive to keep client assets is the sweep deposit program.
“In all, we feel good about the strong complement of cash solutions we provide,” he said. “In that spirit, we do not have plans to change our pricing.”
He added that LPL’s approach to cash sweep rates is dynamic, offering rates from 35 to 220 basis points based on household AUM. “That typically puts us in the top half of the marketplace,” he said, adding that in the future pricing would be reconsidered if it helped LPL’s advisors serve their clients better.
However, he continued, the issue of cash sweep pricing has not been a priority to advisors.