LPL Investment Holdings reported an 11.8% increase in revenues to $3.5 billion for 2011 while generating net income of $170.4 million for the year. However, the nation's largest independent brokerage firm also noted that advisors and their clients were adopting a more cautious posture in regard to volatile financial markets, and that, combined with record low interest rates, resulted in flat revenues and modest profit growth in the fourth quarter.
Because of a series of one-time charges in 2010-many associated with the firm's initial public offering in the fourth quarter of that year-LPL provided a non-GAAP measure, adjusted earnings, to make year-to-year comparisons easier. Adjusted earnings for 2011 rose 26.6% to $218.6 million from $172.7 million the previous year.
For the fourth quarter, net revenues climbed by 1.1% to $828.7 million from $820 million in the same period one year ago. Adjusted earnings rose 9.3% to $48.8 million from $44.7 million in last year's fourth quarter.
Commission revenue increased 8.2% for the full year but declined 5.2% in the fourth quarter. Fully 80% of the growth for the full year came from new sales activity, while the rest coming from "market movement."
Revenue from advisory activity advanced 19.4% from the prior year, fueled by new advisory asset flows. For the fourth quarter, advisory revenue climbed 11.0%.
Assets under custody on the LPL Financial RIA platform, a relatively new business for the firm, surged 68.1% to $22.7 billion from $13.5 billion at the end of 2010. LPL now provides custody services to 146 RIA firms, up from 114 firms one year ago.
"While we view 2011 as a very successful year both in terms of supporting our advisors and our financial performance, we measure ourselves over the long-term and remain committed to evolving the business to deliver leading technology and services to our advisors. We firmly believe with this focus we can continue to produce long-term growth for our shareholders," said LPL's CEO Mark Casady.
LPL's chief financial officer, Robert Moore, noted that advisors remain highly engaged with clients, but have taken a more cautious view of the markets reflected by an increase in cash holdings and lower transaction levels. "The payout ratio predictably grew at a slower rate in the fourth quarter, but the total production expense rate exceeded expectations as rising market valuations notably increased advisor deferred compensation plan and share-based compensation expenses," he said.
"We also invested in our future growth by continuing to provide transition assistance to attract new and larger practices to the LPL Financial platform. Our new business pipeline has remained strong, and we continue to experience success in attracting advisors and financial institutions from all channels in the industry who value the breadth of our services and our focused business model," said Moore, who noted LPL added 549 advisors last year.