LPL Financial

LPL Retains 59 Percent of NPH Advisors, $75 Billion of AUM

The firm was not able to transfer over a minimum of 72 percent in advisor production from NPH, so it won’t have to shell out a contingent payment.

In its first quarter earnings report, LPL Financial provided an update on its progress in onboarding advisors from National Planning Holdings, the broker/dealer network it acquired last summer. During the quarter, the firm added another 941 NPH advisors, bringing the total retention of those advisors to 1,900, or about 59 percent of the 3,200 originally affiliated with the NPH b/ds.

But the firm gathered a larger share of NPH’s $105 billion in reportable assets, retaining a total of $70 billion in client assets so far, including $36 billion in the first quarter. The firm still expects to retain a total $75 billion of NPH assets, with the remaining to be transferred over in the second quarter in direct brokerage business.

The final purchase price of NPH was $325 million, the firm announced. LPL had agreed to pay an initial purchase price of $325 million for NPH, and a contingent payment of $0 to $123 million, based on production transferred from 72 percent to 93.5 percent, respectively.

“As we reflect back on it, ultimately the deal structure and valuation ended up proving to be a solid one,” LPL CEO Dan Arnold said on the earnings conference call. “When we looked back over our recruiting strategy associated with that deal, I think we learned some things and some lessons relative to the value of simplicity and speed with respect to those recruiting efforts. We tried to approach the onboarding and integration of those advisors in a very different way than we had ever had before with any transaction, making sure we had enough resources both to innovate as well as add incremental human capital to support that integration and onboarding process.”

The firm’s total advisor count increased to 16,067, up 12 percent from a year ago. Not including the NPH advisors, the firm lost 84 advisors during the quarter, which Arnold said was due to a larger number of low-producing advisors losing their licenses and leaving the industry.

As first reported by WealthManagement.com, LPL introduced an enhanced recruiting package during the quarter for advisors who join from rival independent b/ds, including Cetera Financial, Securities America, Kestra Financial and Cambridge Investment Research. The firm is offering advisors 50 basis points on assets to join the firm’s corporate RIA and 40 basis points on assets to join hybrid offices of supervisory jurisdiction.

“Our principle here is to use our strength in a more agile way,” Arnold said on the call. “We’re experimenting with different strategies that we believe will be effective in the current environment. So this quarter we were really focused on exploring simplifying our message, leveraging our balance sheet and then reducing complexity for advisors in motion.”

“It’s too early to assess the effectiveness of it.”

“We’re focused on deploying capital where it drives the best returns,” Chief Financial Officer Matt Audette said. “We think that’s organic growth, and one of the biggest buckets of opportunity to do that organic growth is transition assistance.”

LPL paid out $53 million in financial assistance to NPH advisors during the first quarter, including $34 million in forgivable loans and $19 million as cash assistance.

Wealthmanagement.com recently reported on Arnold’s plan to overhaul the independent broker/dealers’ culture and approach to working with advisors, which he laid out on a call with home-office leaders in February. On that call, Arnold cited the firm’s struggle to recruit NPH advisors and a growing dissatisfaction among its existing advisors.

On Thursday’s earnings call, Arnold referenced the firm’s plan to deliver 100 wins in 100 days, which includes more efficient trading and a plan to invest $100 million in technology.

The firm also recently announced it’s going to offer a flat-rate administrative fee to more advisors who use its corporate advisory platform and plans to roll out a no-transaction-fee mutual fund platform this summer.

In January 2019, the IBD will reduce the threshold of assets custodied on its Strategic Asset Management advisory platform needed for advisors to qualify for a flat administrative fee.

Currently, LPL advisors with $50 million in assets or more custodied on the platform pay an administration fee of eight basis points but it’s lowering the threshold to $25 million to qualify.

Advisors with less that $25 million is assets custodied on the platform pay an administrative fee that varies based on their book of business, a spokeswoman for LPL said.

First quarter earnings per share were $1.01, up 94 percent year-over-year, beating analysts’ expectations by 23 cents, according to SeekingAlpha.com. Revenue was $1.24 billion, up about 19 percent from a year ago, beating analysts’ expectations by $70 million. Net Income increased 94 percent over the year-ago quarter to $94 million.

The firm reported an inflow of $38.9 billion in net new assets, including $36 billion from NPH.

On Wednesday, LPL settled with the North American Securities Administrators Association over claims it lacked proper policies and procedures to prevent the sale of unregistered, non-exempt equity and fixed-income securities over the last 12 years. ­­­­Alabama and Massachusetts state securities regulators led the investigation, in which LPL’s settlement could be more than $26 million if all jurisdictions participate.

On the conference call, the firm said the costs would primarily be covered by its captive insurance company.

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