LPLA - Earnings call transcript Q2 2019 | LPL Financial Holdings Inc.

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Operator

Good afternoon and thank you for joining the Second Quarter 2019 Earnings Conference Call for LPL Financial Holdings Inc.

Joining the call today are our President and Chief Executive Officer, Dan Arnold; and Chief Financial Officer, Matt Audette. Dan and Matt will offer introductory remarks and then the call will be opened for questions. The company will appreciate if analysts will limit themselves to one question and one follow-up each. The Company has posted its earnings press release and supplementary information on the Investor Relations section of the company's Web site, investor.lpl.com.

and forward-looking operating statements and results, well other include future LPL plans, will management as and that financial outlook, opportunities call statements, about including Financial's as foresees. Today's risks potential business strategies Such and subject forward-looking may actual to beliefs materially. differ that are results uncertainties statements to current and or management's cause reflect estimates risks

the filings earnings The those statements. caption forward-looking Forward-Looking the appreciate company contained press as factors cause disclosures release, under that refers SEC differ the such listeners operating actual Harbor to of company's well important those financial from as in matters in to to results the the latest timing Safe may contemplated Statements or or

Regulation G. the call, will the non-GAAP company SEC financial discuss During by also measures governed

measures found at reconciliation comparable the such the to refer a GAAP investor.lpl.com. be earnings please of release, can company's non-GAAP to which figures, For

will I that, Mr. over call With turn Arnold. now to the

Dan Arnold

Carmen, call. everyone and for Thank to our joining thanks you,

As with Day, we will growth discussed last within thoughtful and solid driven delivered quarter business value. growth. execution this drive of a extraordinary strategy financial and culture long-term another Working Investor mission believe we we and framework, quarter at our combined

quarter our results the review our with business. second Let's of drivers starting

store time. to with focus growth brokerage and $XXX delivering same-store new organic to new for the markets second solid sales growth assets assets reflecting This are and quarter. equity $XXX and retention. combined were we sales, billion by the continued billion drove We on across first advisory performance Net the organic advisor encouraged progress in higher $X exceeding total billion

increased stayed continuing invest generate expenses Turning drive discipline continued operating in top-line the to XX% our gross to we we profit to results, on leverage. to business, growth while year-over-year, financial as

XX% result, second ago. a year from up $X.XX, to a was was quarter As which intangibles prior EPS

help our supported own our market advisory Looking more and an operate the indicate best market this solutions. advisor position their more enhance Within accelerate context, value speak now. this marketplace, towards our efforts to win with at have and opportunity the the plays, we to the I their serve and to is trends strategic we to intelligence growth, will three which advice way secular our to of to attractive continue marketplace in organized our them broadly feedback independence into clients. To and address advisors capacity

beyond Our institutional independent models model involves our affiliation our strategic and play expanding platforms. traditional

advisory differentiated a our are models. size together advisory moves developing As reminder, we approaching the models, market oriented in the a which our With are and new than addressable independent of models, beyond doubled oriented we market. to traditional employee respect that more way

Our and vision practice of to an that in advisor make to solution the easier thrive independent brokerage an advisory, channel. deliver custodial, it for services and integrated level enter is

advisory enhancing further and operations these drive we same are workflows reengineering by the practices. time, the key day-to-day and simplicity to At policies of offering this efficiency into

While this offering new, advisors. encouraged interested growing of pipeline are by relatively our is we

and secular to order that platforms managed and advisors value the win their continue management tasks. clients in more affiliation outsource we our centrally lower time the are capabilities deliver differentiate investment help trend marketplace. prices advisors advisory will many more leverage our of more and challenges face solutions leading Regardless in capacity towards and intensive provide to to to The advisors the to model,

construction, trading advisors of within to managed saving solution our sleeve enables of benefiting said, us. That the portfolio work and by advisor to administrative control there In our centrally order also maintain managed the developed platforms. that we maintain centrally advisors time This needs while the of control investment advisors, while these models, outsourcing of rebalancing to of population meet from is to wants a efficiency platforms.

are we positive of advisors’ in while are trends rollout far. the wave thus first Now, initial of advisors, with two the seeing we X,XXX sleeve

First, assets of into we these sleeve. advisors’ are have that million advisors $XXX initial approximately added encouraged

come advisors. platform retain advisors has the historical trends platforms centrally greater these from the the managed demonstrate while coming component corporate also from their hybrid Together, Second, to about appreciate for sleeve early achieving investment ability XX% demand that of value while predominantly management flows of are efficiency. proposition, advisors

to turn we second into X.X, by which to industry to now Let's to aims are focus and continue evolving client With improvement, with on strategic provide service streamlined experiences. play create a investing and we intuitive care where to model. leading more differentiate experience continuous works our an client respect works, working to advisors Version client driving

quarter, to greater have efficient second their dashboards and most manner we is systems for them that configure advisors interfaces, In their serve ability enhanced a personalize flexibility to they key clients. to for the the so in

new within more opening simplifying an are Additionally, the to capturing we data account workflows process, the and account. efficiently open required

their significantly clients. Advisors and on-boarding the while have opening tell us accounts, increased simplicity updates that the enhancing these speed new for experience of

personalized we focus flexible experience our more creating their on improving ahead, and also to will efficiency. continue a Looking advisors for

expectations. hear marketplace. Our a in to the play that industries them their At businesses. consumer operate establishing about are strategic same independent in third harder advisors other macro layer time, We for the from value raising of challenges experiences is are new making client it

lifecycle. and them services an throughout We access offering advisors including services into are capital turn digitized our helping workflows, portfolio virtual opportunity by a their to new this of challenge

This a access offering. want contribution a not important to CFO. makes experiments, many to an that efforts CFO and a advisor's time on Through found CFO an our we advisors virtual business. in a quarter to full strong do partner is have of we highlight But series cases our

a manage advisors’ more also these practice day-to-day CFO monthly advisor big to time have group strategic we while provides at help we the real-time way. XX value. subscription to capabilities pilot with of solution that and and a CFO of a Consequently, in financial discount CFOs result, in management full our an delivering our CFO. practices a a trained affordable the have insights advisors to a increasing hiring innovative for fee hired support than finances By partnered As data, guidance, businesses, of

virtual us achieve a practices. are their on and recurring the their evaluating that executing other At advisors opportunities more toward the them and lowering CFOs end of acquire to revenue moving cost, model include tell helping day, outcomes

consistent interest CFO CTO. experience including services and of we and approach is full virtual virtual with the admin, see across the CMO Our taking we're portfolio the virtual

of of can After now with value that validate working the broadly services over resonates each and to we execute the to marketplace. are the we with consistently offering solutions high that past quality, these more year proposition advisors these

portfolio, XXX their last quarter. our up subscribers, excited to from the Our help which is operate is about jumping serve drive point off services number XXX across and prospects growth. growing their We're to increase efficiency we advisors the practices, better of currently virtual a

and to to as also we growth I driving a long-term few a want efforts transform moments highlight to see our take fundamental ongoing culture, which our value. to

as structured alignment. Now taking are a base we approach reminder, and a mission instilling by driven a logic client-centric thinking mindset,

Over first the values, set their half our a we quarter, in of and daily new of rollout of work. guiding decision-making our the completed past action behavioral based

teams. have principles with help a us Six our of nearly two-thirds process in level Lean Sigma Additionally, employees our designed apply and to now through work training been our management and

in that to other efforts, driving they these our most As transformation notably service that a us their is continue our positive of cultural see advisors result experience. and changes tell the

deliver advisors and value. of on another growth. strategy culture pleased our create to we're quarter summary, In business shareholder We to profitable growth financial execution combining and focused and remain serve drive long-term

over turn With Matt. call the to that, I'll

Matt Audette

speak glad with I'm Thank you, everyone to and Dan today's call. on

to invested to had gross We solid leverage growth, shareholders. another return operating QX. We in quarter profit, and drive assets grew delivered and capital

As ago. a up XX% $X.XX, EPS QX was result, intangibles prior our a from year to

deliver as we execute continue We are on our to strategy. pleased results to these

X.X% combination previously X% in to broker-dealer related growth organic at the billion now to Prior were their assets. for $X and sequentially finished rate. outflows, These starting of that firm $X.X were results our annualized with a form and own total review X% $X.X translates Total included greater new growth those assets billion, net or brokerage annualized growth which we higher departed. discussed Let's net billion QX driven $XXX results outflows new by total to hybrid markets. rate. billion, quarter business We the and assets QX depth of equity advisory up

net $X.X billion and of Additionally, the of increased pace growth May $X.X June. throughout with assets $X.X new billion quarter, our in in in billion April,

As our brought we $X.X quarter had with trailing four solid over $XX which a to recruiting, recruited a billion AUM, total billion. quarter of

which billion QX. in advisory advisory in are inflows results more in We over also included of primarily assets. driven of our positive increased platforms, to of of pace a fastest total by $X.X managed than in mix Advisory business centrally billion, $X.X shifts see our assets growth These of inflows continue now assets XX% our year. to total XX%

want acquisition to on on Before provide an of moving I results, update to our Company. Allen financial & our

have $X is and well, reminder, than XX affiliate end has we the anticipated. of expect a around work and they will serving signing assets we our integration client new now in close which Since employee through earlier gone independent As May, model. originally to our and by QX, billion a advisors planning in quarter

caliber run to time their rate Allen more continue want Company, $X to we with the an of I team. we annual of XXXX. that with are the reach million to in and we spend early their benefit, more high a expect EBITDA financial the share accretion for As culture also & about impressed

We soon. are excited to to LPL them welcome

as Now, million by or sequentially revenues. payout increased let's by from ramping million starting to turn and It gross client Year-over-year production XX%, or was million profit. primarily our down $XXX asset-based primarily driven results $XX financial higher gross cash with X% base $XX profit QX expected.

$X profit, by were at was in $XXX commission commission higher advisory partially payout Looking fees. gross production higher million seasonally of bonus decrease million of fees from the driven expense advisory QX. offset QX and net by down net components The

payout to look we that forward production rate year. throughout remind to increases want the our you bonus As QX, I

year, from the about context last XX to increased million. production X or As by points QX bonus payout basis QX rate

to our quarter want mark-to-market expense related was revenue. results revenue our I to in deferred P&L recognized we on, help and that Historically, management production advisor two compensation and moving the highlight separate to Before to other our make program expense this updated lines, easier follow.

had they swings results, movements create on within impact While our net financial the no did mark-to-market those lines. large

offset now both they revenue each Given items other other. of this, consolidated were we into these

view which management. We clearer believe provide rate a on focus this is will of production we our the actual metric change as payout

P&L our same historical see We also file updated site, on you so Web the management our past with results can the view.

Moving asset-based our $X QX transaction no as from primarily million fee revenues sponsor driven advisory revenues, continued increase as up higher levels was average by platforms. on QX. million on well in asset were to $XXX The growth

the typical cash cash million Moving decline sequentially. revenues, to in decrease client payments in primarily million by client seasonal tax $XXX $XX to April. down there driven due The was balances were

cash beyond we As May move tax and season, in both June. balances grew

points Turning our to cash was last basis client yield yields QX, ICA to quarter. flat roughly for XXX

QX assuming the interest basis XX% This mix points. to week. We the within points versus to assumes around be Looking further no Fed floating of of deposit are ahead ICA and basis XX changes rates cuts our yield our rate and to betas in expectations interest next would or XXX expect balances. our fixed XX% by rates

million now to sequentially IRA revenues. There $XXX lower fees. transaction in primarily move transaction down, seasonally volumes driven Let's by fee $X on million QX were

and be we fee from fees likely as transaction we the seasonal national conference. to be QX, to ahead Looking with QX and relatively fees and volumes generated our advisor will by decline in-line offset anticipate revenue transaction IRA expect

to with year. QX starting It in core spending with million $XXX was for in plans Now G&A. expenses our let's the turn line

QX, updating on far we tightening expenses approximately are are we an our closing we anticipate this Allen include G&A our to of by executing guidance well estimated as million $X core year, ahead, range our are acquisition Company so given & in our that efficiency $XX of investment plans million. Looking Additionally, operating XXXX integration, now in initial we

second year. million Taken about per range half $XXX average $XXX the of G&A quarter together, of to of we expect our or core be million the million the an to $XXX in XXXX for

from to there $XX assistance, down million as sequentially million the down on QX drivers QX. $XX Moving this area, spend, all key promotional conference marketing and for expense were transition expenses were

by Looking primarily increase Conference, anticipate expense occurs ahead which be each we our The year. in driven Advisor in of QX QX, timing $XX range. low will promotional to is National million the the

transition associated Additionally, ramp June the of recruiting assistance the our strongest was so month in will expense quarter, QX.

was our capital use balance Moving X.XXx. on agreement, in under to sheet million QX. for leverage and remains ratio Cash was strong management, net corporate our just credit $XXX available

growth organic first remain to Turning foremost our investing and and returning deployment, to taking they M&A capital priorities of if shareholders. capital opportunities for advantage arise

enhancing focused advisors on investments Looking grow growth, existing advisors, helping the technology. our organic and recruiting new at are our

to repurchases This excess plan addition return years. with million complete QX. our XXX we in X in growth, In included authorization line our billion to our investments $X capital for shareholders to over of share roughly

capital $XX return of quarterly million in QX. also through We dividends regular

In closing, staying to on pleased financial growing we profit, strong of expenses drive have another organic on disciplined remain delivered and growth gross results. focused returning capital excess We investing are to shareholders. quarter while assets and and to business

call With operator the for that please open questions.

Operator

first question with from Credit is Thank Siegenthaler you. [Operator Suisse. And Craig Instructions] our

Craig Siegenthaler

Thanks. Good evening everyone.

you also before the and give nice So, balances the see asset it in departures. was wondering, an because to government activity I if have of quarter started the with us X% like looks think it shutdown, seen in recruiting you and ISP breakaway the But how overall broker was recruited the count advisor trend. you year stronger could update the pipeline increase when just this the it slowed the just improve year on

Dan Arnold

Hey, Craig. Dan. This is

me that Let one. take

a call and a pipeline. far. excited environment The on for would recruiting our I place and supportive what think basis, solid might have results think of and kind neutral been say in then I I about thus the is we are very headline

little each component. So, a let give on color me you

months, if the billion If last assets achieved. outcome. most the is across the you the X.X as we remarks, trailing look ever think in pointed we XX look Matt out results his XX the recruited at billion quarter, recruited is that a And which solid we've of you over

again, so, we think reflective solid those results. And are of

the complexity at of our beginning to respect some your post With getting what's recruiting maybe environment the to around and year. on the point the thinking of that

affiliation the or I amount results, in looking the exploring have think slightly of down. out advisors to at of different been the you've if you to stable seen movement year-to-date look marketplace a

macro our little competitive So, have strengthening. opportunity might months, you if seeing over environment same you a though think about six past that time the reduced sort of had the of at we're positioning bit

So, we're advisors opportunities affiliate. exploring actually more to seeing and at those are getting given swings that

would within we so a about. you strong new models, models, look of forward that's as we've and think certainly expect a we also these exist to pipeline traditional see build pipeline And but talked consequently, our that some beginning driving we're to in

some pipeline. as So, thinking we're go that helpful and Hopefully we color. excited forward that about gives us

Craig Siegenthaler

Thanks Dan.

Operator

you. Thank

Research. question is Steven from next with Wolfe Our Chubak

Steven Chubak

afternoon. good Hey

So, Dan, want to with I just a picture bigger start-off question.

You quarter had growth another organic strong of good business momentum.

the evolving and macro about landscape you implications rate Just the business of given interest of the how some do to momentum? sustain level that the feel in ability your for strategic confidence

Dan Arnold

Yes.

then all and think clarity. maybe we Stephen about about macro, certainly we'll And we So, that. of that pull then we let's think start any there through with how don't cover as you if follow-up can the

a then that around lens. we of I gave look headline So, as be, we we macro some might through remains color through would what macro, my it that call of think I additional typically kind solid you would state. at supportive pretty the three it's on about the that If

The I first, growth notwithstanding move as economic forward some and we about I think see we potential the headwinds the of right, there. think economy, continued thinking

discretionary low We see solid with continue a and contributor in investments. income growth at the work can towards think good to and to creating of is people a steady along employment pace in putting certainly certainly economic about coming one that terms a then

supportive is the macro. think and moving we economy So, along, quite to

we've performance element seen markets, of low The again, type volatility is the strong I and in think equity second year-to-date, environment. a pretty

pretty leads the solid and see And necessarily the typically we've that don't take what from which that forward. engagement as we performance and move investors. seen, markets that So, to we in equity you changing is economy

good pretty feel we opportunity So, to about respect engagement. investor the set with

for focus they those you to and at two investor work. probably as of an relate advisors, assets look those When creating neutral it's assets advisors new Certainly, though a opportunity economic putting more engagement to a to gathering bit is view. on factors the

affiliating looking same exploring but advisors or a those and talked favorable, their business the time strategically. sometimes new that's as will conditions So about delay have with at thinking of we about types partner

you so of two more they out may consequently, when at other a look those into things, neutral view. And each balance

So, those are components. two

third Matt interest to is Maybe the that. to you color provide with rates. respect want which on maybe some

Matt Audette

sure. Yes,

highlight we about interest when I'd that's down. And think well rates which today, macro think our dynamics a think I positioning, we're I couple positioned environments think range of including assumed is there. for going one most I a the

First, and portfolio at of specifically, moved fixed balances portfolio We're rate right. fixed about bit our know fair ICA I think that this rate, right. we've the of you to a XX% well

less from impact movements have an we rates. of in So, short-term

I interest markets. into then market that highlight just rate the the on sentiment And the second, way when the its equity makes impact

right look month really and at the curve just really interest you solidified. of If where is the June rate dynamic has

up in equity that the of rate about million S&P would reduction annual that XX XXX $XX to how right. model, every about compare an or interest and saw million interest increase a You point point million the flows pre-tax rate the a our markets to is you by S&P move And specifically through XXX impact, impact just $XX on points. earnings, reminder annual And about cut be cut go in right. basis $XX about

the look at June, right, more the you So, impact effectively increase of offset if market two cuts. more than

your us question, puts growth? of the position position to how really you well is the right, our on place that does a which us take the natural but of It is focus market, you pretty in combine where for we're positioned, if a -- you right, that think position if a this in in strength. core hedges I in So, with our positioned, to take clients, sheet balance

things about what's them, environments. to place investing for We that do our macro that. a clients talking about a really across in on capabilities, in We're good able and to when investing position especially you're technology, Well, being a being to is and service. do best investing in not like focus everybody feel of range in

differentiator So, a key we be could it over be to growth to feel like long-term. able the drive

Steven Chubak

you, both ROA it for that is my contacts. decline follow you The Maybe helpful did gross for Matt. profit this Thank up sequentially. x-cash,

ability Investor could the said increased in some decline centrally expansion factors possibly you're additional whether of and what even So, in the metric in other Day, platforms maybe the your speak and sequential growth with at you that managed still confident to line consistent drove you of you given adoption and that that deliver cited? of services hold some on some the to guys

Matt Audette

We Yes, it. about I area still to in think we mean sure. our investments profitable good about feel long-term I feel growth. good that drive

where good I we ROA at gross about a gone at we've profit now place to feel was we the x-cash, years, look stable starting and it consistently grow, from look when over couple think that you our of to that's something declining last should efforts right.

this at advisory, the I growth services. them and trends, of look I both we're Dan remarks, positive prepared centrally in in think see growth managed, you talked quarter, early virtual growth signs in right, in we to When to continue about see starting

So, that. feel we good about

metric, a can one doing when you. But that versus have I a it way is it's you we and basis, we trailing give little look the right, I best quarterly quarterly one bit recognize annoyed. the viewed at a think one XX-month one that on this probably

going at following When a of right. So, quarters' the month in especially of advisory through like balances. the fees, are those quarter we quarter when right, flow had in And like based quarter, give of economics right. growth had look those off last couple to have you mostly June, you you let in the the me we prior are examples,

it's noise noise the little You that there and a kind quarter even bit louder. of and because a bit you have little analyzing a then end up of making

mix. that end annualize it. at that basis Similar or really you up the out higher We're this range context on again, down of rate for quarter. And the base pay points can a move XX

we've good So, stay a think strategy I we return that we're the and delivering that's of the But, results, the on. you positive the are focused the about that noise shift really get just got I'd we on and bit there. are assets to mix seeing feel going little and what say improvements driving, is driving overall,

Steven Chubak

my questions. Great. Thanks taking for

Matt Audette

You bet.

Operator

you. Thank

next Our from comes question Citi. with Katz Bill

Bill Katz

you for very Thank questions Okay. well. much the taking as

to the picture back big Dan. going question, Just

-- for As within think that and the advisory, a cash of use then, snapback underneath structural here business percentage planning. create and What term? that that is And is cyclical over toward you greater assets? to longer the component we of think underlying client of a toward as we pressure do limit migrate does cash as continues more centrally that corporate time? might the Are yield on then, there managed the outlook

Dan Arnold

Yes.

at thoughts. macro relative At the in to level, balances account. the So, an contributory certainly to nature advisory Bill, I towards probably trends overall couple of the them a have think average

Fees just terms on Just in portfolio how terms maintaining account some as overall well to in of in relative helpful. -- to of balances the in of around you maintenance a the usually the that lead And balances greater that that would brokerage cash is overall portfolio flexibility having that expectation some cash. do manage as of itself. allocation and to things access just order nature an on and of to

directed, in versus don't managed rep cash the amount to Centrally a allocated portfolio. of big see difference I think a we

transition. So in because do migrate advisory that move little to manage someone pick a cash. balances an to centrally believe necessarily of from just wouldn't But, cash might rep with from directed a brokerage increase up bit or you expect

more is investing to balances, not think securities significantly our to then that's might cash within construction and of and the how of to going to -- accounts our an maintenance have within lot smaller sorry, remember part that vary balances, the portfolio on use we clients the respect one that you cash With about on as its a have relative use account.

market then Certainly, assets lot get a volatility the and if is in allocation you And of quickly people around market change. that's assets we it think and/or so, more those really relative to noise transition one's that you structural that adjusting long-term. you some might if fluctuation big of will see swings of around don't some, you see but get influence overall

account. if brokerage with from you you summarize see to see then how respect might would I advisory of got overall that, probably to of to overall one to expect whole don't maintenance I influence an So, We hope relative increase balances cash allocate account. move those our a I an because do they're when majority your assets in to that see advisory on question. balances the an ours, lot think cash you from the heart within of

Bill Katz

Thank maybe then taking helpful. for thanks very one That's And And question. you. of complexity this Matt. the for

you two-part a So, for well. as question

the In other in assumptions the of reported suggested the have of experience rate if back greater ability and matter should sort the declining pricing about level we much retail brokers How a it. haven't the already Some backdrop? you potentially maybe to a core to have terms your on think the of answers will. of earnings had pass higher positive would suggest a quite consumer bears deposit

I'm balances? you've Obviously, the way less you July between downside? wondering, versus about a into any but And then to bit think if benefit of client little the on on is deposit cash to more month asymmetric had a there behavior upside, engagement just rate

Matt Audette

Yes. Yes, sure.

on In betas deposit I range. to and down. up is right XX% XX% our think is view way the the the

firms is I we low-end on down. XX% our we different was on apply I of the the to XX% high across think You at think in that and view moves, closer were individual it where that but way to can think wide same the on up range that would have logic way range a and a level always

we've July seen in stability really where respect to were the think is far June. in With balances versus I what July, so

to every and some June. neutral First that and quarter, with offset advisor of of cash and the seen month come reduce where we we've we kind in fees we're inflows out ended have always that net

Bill Katz

That's helpful. you. Thank

Operator

you. Thank

with Our comes next from question Sachs. Alex Goldman Blostein

Alex Blostein

Co. that channel? get that like maybe deal curious to this remind guys like relative little around. base your would around work just the you this expand & forward any of about mean doing? for to just is Hey I'm now kind sort seems going that guys you of EBIT, guys. type How contextualize could of us the newer thoughts what help Allen just bit in in everybody to like then, So, maybe kind could sooner. employee close would of deals Similar And Question the ROA of sort how be to helpful is economics channel or to maybe over installed metrics you you book? around something a time?

Dan Arnold

Yes.

you that, Let on the question and of can part economics. Alex, me first take follow-up then that the the around

and at So, I complement know, as in couple the possibilities M&A with we've think we opportunity tend look we think you take focus and explore are the of opportunities, done that. I six are that months and strategy to with would environment, a back as I certainly respect where right respect last would to of our first there you a to our And reflection then on to organic to foremost growth. good transactions

world our that. the into be of with advisory to it respect of would accelerating example a good enhancing see or You capabilities development

got certain opportunities that growth associated is for then, out it. & with one continue of a opportunities is strategy. Allen And aligned. operationally they've around be you out course, look our at say all help many And financially to Co. of would those both and those rigor the heard in transaction opportunities, times to the And strategically looking will we to born which of over, that the across be us drive marketplace as we landscapes certainly have active

looking active how, terms a) are you and We so, think of of the in just b) then, either color We one that And about in in categories. opportunities that for those hopefully gives the M&A, marketplace

Matt Audette

about kind on Day. then, think when little your building Yes. of second Investor I'll how take this about part question, a talked at the think And economics we I of the bit we

specific I think on advisors as employers would higher. the our I expenses ROAs to support that behalf right the the higher or be. also we a higher much you we think the general provide that to the be ROAs them their on be more think this model, principle as would do the on of premise more services And would

I think and little that they services. better be would directionally we're providing anticipate we bit were less a even if an would employee not

advisors it's like be of things mix be brokerage any being and versus to like That of advisory going by said, that. our would impacted

directionally. as hopefully that hopefully So, to come think But, and and more to on to we specific able our on opportunities more these platform these as we'll build more helps get I are that.

Alex Blostein

of it. the That's just then, around outlook. Got and helpful. quarter the And specific kind one question more

it of this the So of a quarter the solid promotional of over was lighter despite in couple I quarters quite June, expense, activity. recruiting quite feels that now. than it some later was last happened had understand you guys like quarter robust that but normally fact

help about maybe then to maybe quarter. behind understand Thanks. from year the ramp picture, expense how really million beyond guys kind growth that? million $XX just promotion And kind So bigger of drivers low the us the year-over-year of think $XX do you next and for

Matt Audette

sure. Yes,

in to promotional more little right. the The move areas are expense that a naturally within color quarter, given quarter, on think any bit right. give just around I items can

We emphasize the of each through than quarter had recruiting just notable within June. this strongest would go and them a last being quarter most the the you one. quarter if stronger I transition So, was month that quarter assistance

that see pick assistance you transition up next really So, quarter.

an is by run individual bit we then, overall, calls lot Marketing an a conferences, We've talk and got XX is right. quarter And typically can like what little more conferences that that right. about we three you see. in right. all just but usually of this, we third than on than lower this move around marketing, item is a nature its quarter second The major

So, a little the quarter individual and that there was just it's can lower. in happen quarter conference for be a things spend this bit

the transition marketing year. That's seasonally have assistance the will the get half will you up that in QX. of also into but we driver, So, of especially when and you items can look really be $XX quarter, those take each to next we biggest our you Advisor Conference through is that in that primary second as year expense of to talk up pick that National each the typically ramp will driver million

those that with I transition it's more wouldn't highlighted recruiting mean on think months I the the promotional can I first we specific is mean which really tied question question just Dan depending recruiting to think the the assistance I feel goes? good and are of drivers, than going to on -- second than there trend the other of in the we right. quarter quarterly I noise about really and asks your happens say where think think I be get Noting I to So call pipeline. recruiting. as part

Alex Blostein

much. Great. All Thanks right. very

Matt Audette

Sure.

Operator

comes question with Fargo. next Harris our And Chris Wells from you. Thank

Chris Harris

Thanks. Hey guys.

channel X% broadly? guys about to So, independent growth the I'm you growth more can you're IFP. you at excluding wondering share asset that rate compares organic if how feel your thoughts

Dan Arnold

perspective public to that we relative there. on are got on So, from and industry, hate a or sales results into from momentum we from is outcomes own and from That think exact see recruiting think is that about channel key recruiting how a new drivers Dan. standpoint some have three I strong the One And organic relative because said, it or don't the I we Chris, the And growth. from visibility independent can outperformance insight basis certainly from store standpoint. this speculate then there's retention a standpoint to doing as I we've and think feedback a broadly. to we've our others. got more based data we

including a on I that think a tends performance to think basis. range be x in we XX% that the IFP, relative strong XX%, that pretty again

are little a and into and a relative what's tougher get little Same-store to sales others feedback to see bit occurring. exactly little insight and measure harder to tougher a

on towards So, seeing nice speak so in And the also to relative think relative other which trends other areas. corporate to places I that is got think mix in consistent contributor, a can't that of product I we've centrally then, think seeing trend advisory trend I that's finally, managed. to I we're And one. type we're the and using ROAs what probably

quick maybe the -- the growth, a about I'm answered of drivers your question how of the if give I just are some we that. those think not sense though. maybe organic down overall to of So a sure, on contributors you

Chris Harris

you. Thank that. Appreciate did. You

Operator

Thank you.

Devin Our with question JMP Securities. next from Ryan comes

Devin Ryan

guys. Good Great. afternoon

Dan Arnold

afternoon. Good

Devin Ryan

space. love here competitively a it's thing it your just bar year get or quite for a curious picked talent kind is first Clearly, to thoughts activity is question of raising the views on some -- guess for the and in that good that's private one. I I'm past a over the And equity of LPL, up just bit capabilities? part

firms to breakage, create The actually PE which of extent pretty brokerages, recruiting any that would as look some to of material of could integrate the other think the these would be think I would so. part backed a I is, that some opportunities result

through kind it firm? as think to could it give puts takes, like some but would have maybe seems to be Just the that beneficial and love effect of

Dan Arnold

going maybe are. there a raised. exploring an And of and buyer thoughts consolidation, ownership materially. that anytime what their uncertainty when the lead some that things on they're perhaps the that be creates some look make some some increase around principles increases think to to of have about as sort transition will actually work go I options the some change percentage evolves that the who of advisors to some if in to tends Maybe that to you you that questions is, well future through that Regardless couple you have just of say, in

opportunity. complementary doubt, creates then all a as ownership talked we activity creates M&A that no And just of may It also to so, the in activity about down that way consolidating well. that change the recruiting occur some the

Relative assumptions the new of on. future. sort business the to owner, there you're think and or then, hypothesis in the think I spot about So, they is

back that allows click flow even the create to does flow it, transaction then structure the then aspiration if be do cash cash invest to That ability free that created may in creates really can't how for to complexity necessary How it desire. but the a want and they the model? or the to One they model. much look you've are think itself, of at much down got and the in leverage leverage allow using? I

influence what ultimately how then that And term a model view from investing think about and I also their a long-term short that at think but in their you've model. they standpoint that how is a and if encourage got does is one, to timing they leadership one, not view around one, shorter look

deal basis, how appeal desire to may to which might on activity think you of supported and a structure about that So, forward actual have model. in Then a experience the on front-end. that influence knock-on the the to particular do model have effect the speak around is and advisor's the a which would go a bit ability to they the on an obviously it invest

And then, final point your maybe around talent.

buyer I around There to sure talent to not expectations And so future see of talent. big think out of right the a driver marketplace. talent they the of the that interesting might profile or who it's themselves even I'm are transition is the in the the lead. think that is

I think questions. think going those is necessary the is are success a on fair of big in terms We really drive forward. there that talent transformation to going

some capabilities leadership disruptive a work We grow capabilities and position right forward. this transition go think talent how the complex be be that's or contribute of building to team and more sometimes much be and and a than this actually types industry actually as going that's inside thoughtful have ownership to used to you or ultimately and that the to them ever attract their and is whether higher getting can attract you then much, about consolidation and outside. around to evolve team continuity quite bar It's going it of much them more

world. So, hope answered leadership the a question. in it your of I the I performance to that of that has great probably think I it who as not think is team a continuity disruptive so can and how of but building the ultimate about much that's type lead more complex

Devin Ryan

what some and it And quarter there's than guys It is a direction all seems just a had go curious a that the we're what's since maybe something blip, on XXXX, that's fund a of just with if seeing different be you that sales-based like perspective. quick on to that driving in I'm of that just follow-up, looks else whether mutual direction. did. Appreciate best going commission your or peers. going different all

Dan Arnold

quarter-on-quarter broadly around more that specifically mutual I saw year-on-year think than just and lift brokerage overall may answer do I funds. you rather in some sales.

look at peel actually an You'll interesting funds, back. of are kind place mutual look variable annuities to to you

the I end appealing more annuity of category the spectrum end some certainly the particular think variable them product when where you investors. living were of to in had of at innovation benefits look year offerings, enhanced product going make you that at on which much

these environment in overall opening investments with our that how have to more Reg-BI help in couple making proclivity brokerage of clarity we little regulatory You and account then and advisors process think the a We're new products manage brokerage also think which the we around enhance bit to general. around products, will systems right. solutions use about

the take both You and operational uncertainty from of out friction some the regulatory processes.

some it's know of that to see our inside platform a to and quarter, both package encouraging that trend it product hypothesis. bit but of forward. this innovation a see create may you I You That's also with think going

play brokerage the or got broadly. thinking that's we've commission how sales of to logical it's we're think about more sort sales out, that see I but the

Devin Ryan

okay. Interesting, Appreciate that.

Operator

Thank you.

from Our Michael comes with Morgan Cyprys next Stanley. question

Michael Cyprys

some taking earlier color to the I on Hey, wanted question. mentioned follow pipeline. advisor the of good just around afternoon. Thanks recruitment for up the you

these you over of where about couple years? seeing Just most that dig you're the to little could there like you how recruitment And traction past which days, a up in from sort evolved hoping on mix yourselves little find how stacks channels pipeline bit and channel year versus and a recruiting of ago. that more quarter just last understand the bit a if and has talk

Dan Arnold

Yes.

don't ask lot get a there. follow-on. all, If just I for please there's clarity the in it So,

in think positioned the competitively to recruiting continue we do we pipeline that I look solution of increase with solution two There's create strength we're us as we're things more making or and believe it. advisors investments set kind the sure appealing pace make we helping about of more So, an and to think our capability a appealing the attract that recruiting. in is of our

own our to capabilities improve we how do thus performance. that, recruiting re-engineer, change We've also own been to and retool, working our materially hard around

recruiting You that's as do. or got we're within go to capabilities to increase the two things to or together continue and you've those forward believe put one exactly hypothesize the and makings your trying tools you what

with assets last what things, of do build XX And we the to do year. And trailing pipelines to do recruited that. the that then two so, I help to continue billion over say us mentioned that or will about talked that. increase just enhance at we and okay, those look ourselves I XX to try challenge We

pipeline about pretty we good. looks think And think say we when our kind so, of it we about and that

I us pace of it now. see that of that you kind doing reflects think recruiting

recruiting the the characterization the mix. of of to respect With

think to independent option relative capabilities we strength fuel the and real from invest see independents. the continues space our got on progress continue as we to alternative further relative front. in interesting to independent an appealing that think in recruiting in We I ourselves to recruiting differentiate we've

we're from to help There's see And complement or as I some us our employee-based models. our that's our in new to models enhanced And new increase traditional some encouraging to are as changes that making we're of that a the whether be recruiting in pipeline models. to mentioned that intended capabilities see beginning models. build participation earlier

So we're pipeline probably where gives from feel a how recruiting makeup. where about little you also reflects for that and you should and think maybe the its

go Yes, everything. I ahead. got think I

Michael Cyprys

packages, your for you packages how I do to how cycle, just much the look And that forward industry. of see expectations falling terms economic more sort how others given and do a as how environment is follow-on with could you how any evolving? around these was attractive I late today that's versus you just expect of as evolve? packages rate that the a just others you in recruiting to question going share guess ask advisor maybe evolving color compares in

Dan Arnold

Yes.

of to which capital as his organic Matt I basis growth. shape development our the on a let color focus as construct returns-based with that. is give a on it right. to how think investing we principle, And on in a think collaboration drive involved it me you group take let business these principle packages return a at in We to base That daily said team. we're about take we look we

Matt Audette

we We returns-based Yes, a pretty sure. macro. I Michael I benefit don't take take assume said, We're conservative. mean we approach. a from the as think Dan

marketplace. that I the think they're offer those models, the packages competitive you quite with take in think we when I

then up you the same through think natural when just hedges macro to show in emphasize think model, our right. start the an impact that, in at those I the hedges on advisor economics would that I And right, individual level,

the in model has natural volatility withstand and our to macro. positioned So, well offsets is to

I if two So, on consistently with you conservative combine that drive able the you things put we think to to that levels shareholders. those returns want being together, be and at make the for be disciplined fairly and market offers underwriting offering in that our we

Michael Cyprys

Great. Thank you.

Dan Arnold

Sure.

Operator

Thank you.

next Our with question comes Chris Shutler Blair. William from

Chris Shutler

ICA Good afternoon. the on portfolio. Hey Couple guys.

XXXX portfolio be move How change, of And it of in comes if So, a much how you wanted with that. where curve fixed be. to then, renewal up for the could would does fixed Matt, much is rate that want ICA you to how structure? ICA the to the and yield

Matt Audette

question, first, taking I'm second right. Chris, Yes. the

our about of we balance that earnings sheet when our for the think is of I right. enhancing stability really kind about into really it and moving objective, strong balances fixed, goal think supporting

focus you if renegotiating a reduce So, that does contract, think focus were curve is maybe interesting curve and I we're that in I think with yield change in one may where opportunities that the tactical have versus really it -- rate on goal. the not. existing near-term be doesn't any steep right, less And on an to like

when unchanged into right. that that to I we're range, that think you move the on to XX% think XX% go goal is I focused So, back

unchanged, standpoint. that's from So I opportunity think an

XX% Investor in As walked of matured kind XX%. to in us right, midpoint that -- you through XXXX, I no But into there's past, really changed. next took that in range you XXXX. that get said in And that into the if remember of and are if opportunities Day, if the we XXXX we move contract in hasn't ones think of can fixed, those we've it every which

easy and do pretty to math off you probably tell of balances that. to the So

Chris Shutler

you. All right. Thank

Matt Audette

Sure.

Operator

you. Thank

Chris from Point. comes question Compass next Our Allen with

Chris Allen

Got questions. of couple quick Evening guys. numbers

revenues quarter. the on ask period mostly to are the based sequentially levels, and off those that's XX% want below asset last Just advisory prior

quarter This surface the revenues fee else maybe advisory underneath just if the not, so than a or there's something wondering less if X%, grew about there, XXX%. I'm

little the So, bit disconnect a just between a two. of

Matt Audette

Chris, the or based it's the just price quarter. price There's the the a primary XXX% quarter. of just majority of at it's the them right the of drivers quarter, throughout that the Okay. prior are at beginning end assets on quarter the of last not the the advisory timing portions

market market of from So, look it in emphasizing at again really month just the grew June. growth from growth, When you it's just a noise the levels from the that. standpoint asset

that And the So, of those you much are see key really an drivers. the coupled of don't with M&A that. impact

just that's the it's timing out noise there. So,

Chris Allen

Understood.

Just two quick ones.

Just other to to now payout rate that assume line? moving kind rate there, forward? million rate tax the also, the the any is moving And think a think adjustment of revenues forward run good XX.X within tax about a what's or anything seasonality good about

Matt Audette

tax Yes. XX% The we XX% rate expect to range. in the

the see seen the where of and is really hover this you've tax usually if things in you're the which bit usually quarters first year. driven quarter benefit get a the that us including the it's benefits from from to that vest I compensation around couple time for think half was going below that usually stock-based past a that,

think I that. you saw So, that's why

move line I combine X, Slide that's look release, on P&L the management you're I think other X looking that at of the the when we encourage interesting on a think line. I the kind I'd item, stable Page you think just P&L at we driven relatively the of there. GAAP one balance the dealer. in come with income the combined sheet by might do interest lending the that's in And more and little bit margin our broker cash that notably on any items returns corporate most probably line a

I it think when that it based drivers, on But, that. relatively are of that our Both two would that be the be those being would just So minor, would the anticipate you drive don't about those we highlighted. if P&L line things so that's did move, volatile. that

Chris Allen

guys. Thanks it. Got

Operator

And Worthington is next with question from Thank our you. Ken JPMorgan.

Ken Worthington

seeing planning Thanks evening. question. we're my software, for Good of software sort financial Maybe financial taking grab first for a those Hi. land planning assets.

So, for here. planning. LPL business? in maybe a then, pricing subscription maybe planning seeing makes Schwab Are for greater subscription start model like better planning Does or sense or maybe has talk And you or your software? the launched financial about a capabilities demand for either it financial more in sophisticated differentiate just elsewhere here financial model

Dan Arnold

risk goals a understands one Dan. and it's its we planning with make that profiles clients. of simply objectives a try it's which proposition that your value see think to simplified to and sure create long-term and the orientation we with solutions. across Ken, more specifically do leverage clients of big over do Yes. the first and planning Maybe advisors our respect starting that advisors someone's can important or relationship clients want enable the and add use spectrum context financial to needs-based with We gives tool an that of important. their a to easily component you of and capability we helps something. the We would value to think of XX% the solve them And

and going access a workflow and is free For give leverage big integration utilization of something it's think the or example, like that really that tool that And providing a solution and the purchase data a charge type of are be big simplicity there. retirement advisor and we with think keys your drive making of sharing right important or your to into that that I adequate information to to tool. base which point the the

that need think think have the industry good as complex that planning. subscription they XX% where it to client, a have to, is high net call is is plus advisors should use worth is clients. that's of Wealth how eMoney know a so, net Vision what of worth access more to well for integrated Certainly, I fee that of And those the in the point plus certainly fully you in leverage I give more and version space pay. known We you and have high you opportunities. might which about a the and pay you a to but They tool our access

So, advisors give client. capabilities spectrum what do a on their complexity we've of and is the to tools full to different tried depending our of

the can, that needs can and so client that problems really cost And Solve their they and do have of efficiently a) tool it effectively. a

remind part first the one. of your was question, that so And sorry, second me the

Ken Worthington

sophisticated Just for that, then financial software, on you kind seeing and model? the subscription planning more demand of touched

Dan Arnold

the it's have exactly how models to subscription Thanks. that plays relative Yes. sure that with some folks And we model, today interesting. respect use out. to value their they I'm I that In subscription planning cases, offer. think not

an it's whether if relationship, most and overarching because level themselves as advisors with be understand. position it an think it, yet, full be whatever fees sure are the marketplace. not to with But you look continue based do to at As position their across in offer differentiated to value based respect be that relationship, got I interesting or way based to concept, whether out it's really that flexibility offer it sort on Are it experience. to that whether of the subscription makes or you example, doing to that. proposition viewer that for some read yourself the that an create empower asset a important your commissions doing a we've we I'm you assess a you to sense

Ken Worthington

recruited you rate leakage Great. a just Okay. assets highlighting good. when I and is continues success and you. assets of there's on leakage the you're to time? have you over Thank assets Do recruited any guys worse number leakage getting that there assume sort then, And and against do pretty look some is stand, of or better leakage might that yourself come measure the leakage where sort over -- like

Dan Arnold

mean many do onboarded to them? you x close, process? how respect leads you or amount So, the have do, do once with mean in and you've might you recruiting that Is of you

Ken Worthington

would assets, where that you but make Once all book point assets there certain assume that not that would over some come there's over. they'll a expect I that business that They've them a leakage from it the sort you've onboarded over. that they come that's and of amount to have of got of is

come about think about but over. what about But you should as could But wrong that's So, to recruited and concept, of I'm it your come doesn't be all it I number, how over correctly, leakage? it's if we if hope think we not, sort maybe the all maybe would assume comes thinking over. I

Dan Arnold

the for Thanks clarification. it. Got

Matt. that to start with want You

Matt Audette

sure. Yes,

we that come to on into -- So, metric, think in factor is Ken the just we that the metric, that amount think I over going right.

some bit each to number, So, recruit that not is described some is could be that be you leakage exactly as into worse. metric. little the be already could better, going But a factored

Ken Worthington

Okay.

you much. Okay. Thank Fair enough. very

Operator

And thank back for to our you. turn final his remarks. This I the to Dan like call Arnold session. Q&A concludes would

Dan Arnold

time Thank to to join we quarter. you, this operator speaking and thanks the afternoon again us look with everyone for great taking and next you forward Have a day.

Operator

participating gentlemen and you thank in conference. ladies And for today's

You day. a may wonderful have all disconnect

LPL Financial (LPLA) 26 Jul 192019 Q2 Earnings call transcript