LPL Financial plans to experiment with offering its business solutions services to advisors outside of LPL, said CEO Dan Arnold, on the firm’s fourth quarter 2020 earnings call.
The firm’s business solutions portfolio, launched over two years ago, is a suite of services that advisors can outsource to LPL experts for a monthly subscription fee, including consulting on business growth and strategy. At the end of the fourth quarter, LPL had 1,400 monthly subscriptions, double the level it was a year ago.
“As a reminder when we started business solutions over two years ago, we saw the opportunity to help advisors find better alternatives for certain local services that cost in excess of $1 billion a year,” Arnold said. “Our hypothesis was that we could provide higher-quality services at a lower cost and free up additional time for advisors to spend on more valuable activities, including serving their clients and growing their practices.”
The firm has also expanded the portfolio to include additional services. It includes LPL’s CFO Solutions, which will pair advisors with an LPL employee with expertise in finance and accounting to perform a diagnostic of the financial health of the business and work with the advisor to create short-term, mid-term and long-term goals to improve their practice. It also will include M&A solutions, which goes live in the first quarter, a turnkey solution and dedicated support for advisors from deal sourcing all the way through transaction advice, capital funding and process execution; this offering grew out of CFO Solutions to help advisors acquire other practices.
“Our hypothesis is these services could potentially be offered to all 300,000 financial advisors in the marketplace,” Arnold said. “If you think about that premise of, ‘If I’m operating my own business, and have local level services that are necessary to support the operation of that business,’ we believe we could step in and create higher quality solutions at a lower cost using automation and digital capabilities to create real interesting scalability.
“Take our M&A solutions. If we do that well for LPL advisors, then we could easily take that and point that to an advisor that doesn’t necessarily sit on our platform today, and help create growth opportunities associated with a practice by providing or plugging into that type of solution.”
Arnold said the firm is currently in the experimental phase with this now, and will likely take on of these offerings and see how it does outside of LPL.
In its fourth quarter earnings results, LPL said it has received commitments from Waddell & Reed advisors representing 80% of the brokerage’s client assets, or about $56 billion, to make the move to LPL once the deal is closed. That’s higher than the firm’s 70% modeling assumption.
LPL announced the deal in early December to acquire Waddell & Reed’s wealth management business, which has over 900 advisors, for $300 million.
LPL said Waddell & Reed’s total wealth management assets had grown from $63 billion in September to $70 billion by the end of the year. On the earnings call, CFO Matt Audette said the firm estimates onboarding and integration costs to be $85 million, including $10 million in costs during the first quarter of this year.
The deal has an estimated run-rate EBITDA accretion of more than $50 million by one year after the close.
The firm’s fourth quarter recruiting numbers did not include Waddell & Reed advisors, as the deal has yet to close, but it did include 32 who came over through the acquisition of E.K. Riley. LPL’s advisor headcount was 17,287 at the end of 2020, up 119 from the third quarter and 823 year-over-year.
Recruited assets were $10.8 billion for the quarter, up from $10.7 billion in the third quarter 2020, bringing the firm’s total 2020 recruited assets to $40.9 billion, up 17% from a year ago.
The firm reported production retention rate of 97.7% for 2020, up from 96.5% a year ago.
Total organic net new assets were about $18 billion during the quarter, an 8.8% annualized growth rate. Over the year, net new inflows were $56.2 billion, a 7.4% growth rate, up from 5.3% in 2019.
The firm’s total advisory and brokerage assets reached a new high of $900 billion, up 18% year-over-year, driven by organic asset growth and market appreciation, Arnold said.
Overall, LPL reported earnings per share of $1.38, or $112 million, down 10% from a year ago, on revenue of $1.58 billion, up 9% year-over-year.