LPL Financial

Jefferies Initiates LPL Coverage With Buy Rating

The analysts see opportunities for LPL to grow its fee-based advisor channel and newly created independent employee channel.

Analysts at New York-based investment bank Jefferies are now covering LPL Financial, and announced a buy rating for the independent broker/dealer and $96 a share price target. (It’s currently trading at about $84 a share.)

In a research note, equity analysts Gerald O’Hara and Daniel Fannon pointed to two significant opportunities for the firm’s future growth: the $5 trillion fee-based advisor channel and $4 trillion independent employee channel.

“The advisory opportunity is the most meaningful near-term opportunity in our view,” the analyst note said. “With $3 of every $4 of wealth management assets going into fee-based business (both industry-wide as well as LPLA), this market is only going to continue to grow. LPLA's value proposition of freeing up the advisor to focus on clients becomes increasingly meaningful as those businesses grow. LPLA's current mix of 46.4% advisory as of 2Q19 is up from 43.7% just two year ago and likely to continue grinding upwards with an average of $1.6 billion in brokerage assets transferring to the higher fee advisory business over the past four quarters.”

This year LPL announced plans to develop new fee-only and employee models, which CEO Dan Arnold said would more than double the size of its addressable market.

The IBD recently closed its acquisition of Allen & Company, a Lakeland, Fla.-based brokerage it brought to seed its new employee model. It retained all 33 advisors during the transition.

“While the fee-based segment is largely an extension of existing offerings, the employee channel is new in that LPLA will offer business services such as payroll, HR, real estate, etc. So while the pay-outs won't be as high (almost 90% for the trad'l independent), it will still offer the ability to own one's own business and make decisions accordingly,” the analysts’ note said.

By expanding its addressable market, LPL will broaden its opportunity from 25% of the wealth management market to over 60%.

Other attractive characteristics cited in the report included LPL’s scale, the migration of assets from commissions to fees, its opportunity in the fee-only space, its $1.2 billion in available capital for mergers and acquisitions, and the firm’s $46 billion centrally managed portfolios. The firm has made some big changes to its centrally managed platform, including recently making its Advisor Sleeve technology available to its network. Advisor Sleeve allows advisors to trade their own models like a strategist on the platform.  

An LPL spokeswoman did not immediately respond to a request for comment. 

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