LPLA - Earnings call transcript Q3 2019 | LPL Financial Holdings Inc.

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Operator

Good afternoon and thank you for joining the Third 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 website, 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

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

As a awful we value. this discussed each another extraordinary framework, growth business financial we culture quarter Working growth. drive mission-driven execution and within and delivered it's long-term with combined solid will of quarter, we believe and

with the the drivers review of our business. of start Let's

a on new progress assets to and of $X The net delivering annualized and continue which by as rate. growth, X% well to the growth retention, advisor focus We in new encouraged sales same-store in organic drove are quarter. third sales the organic strength store as translates solid billion,

growth billion, Company the year. markets The total ago. of advisory & platform this to that from brokerage on which year from $XXX equity We up organic will our to on also added another of closed a assets higher and $X combined billion acquisition assets Company, drove our & X% Allen later and with Allen assets transfer

results, financial quarter of our another we increased year-over-year. topline XX% growth gross as had profit to solid Turning

invest expenses leverage. on to to business, while in continued also operating drive We the staying disciplined

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

growing favorable at Looking trends market independence with more towards marketplace, operate broadly to we solutions. continue and secular advisory large the a in and

the wages of many driving economic and terms and and drivers of such unemployment remains we marketing investor sentiment In engagement. see of of solid backdrop, the the as growth supportive volatility, economic economy core while

So the while flexible us remain of our business macro sheet to in of of in the we our changes strength well the event investing organic to and growth. positions drive model continue environment, balance

investing framework thought we to look as to provide mind, will be it and the strategic our result. some use in that where derive a on With to helpful benefits we're would color

first continues team and markets, analytics our our Our expanding enhancing in and strategic also independent branches recruiting institutional to advisors reinvigorating partnerships markets, traditional recruiters, our by for innovate business to With programs play as our and transitions. with transparency, to leveraging involves in affiliation pipeline respect referral winning models. data and and traditional our improve as while execution sales well increase third-party finally, to development

recruited onboarding rates more AUM third more for reflected $XX billion We as quickly. As this we're leads, our winning result, trailing generating exceeded see and in quarter. higher a total our XX-month at straight assets the

to our capabilities our by encouraged expanding and ahead continue Looking efficacy development and to we pipeline business QX, of team. be

existing efforts, attract new development capabilities business one and business. grow to our of advisors also to addition advisors the ways In help best adding differentiated their is to

in advisors to we as and deliver expectations customized consumer will help personalized the investor aim evolved our enhanced omni-channel win digital spirit, increase marketplace. experience that to that an In interactions,

with of personalize This match our digital the is to experience also preferences. that app and their to As this advisors a part a account of It investors customize functionality. information quarter we're for their our display integrated rolling mobile effort, out new client allows goals clients.

related their progress measure time. to in can goals real investors So

Next experience out with and differentiated of client investor capabilities. outside X.X effort experience competitively innovators wallet. industry and after will wealth increase more see and to interactions; longer-term, through a aggregation share this of new In digital enhance the that overall attract self-service we create offers positions outside provides frequent view our deeper potential connections and modeled assets loyalty, year, that client we'll a comprehensive roll clients' the advisors enhanced increase is the version more to short from our clients run,

create a and play, ClientWorks flexibility respect strategic our client where system in industry-leading With to now gain to service the help advisors’ of service to by focused model experience to turn transforming efficiency and in model. their Let's ClientWorks, to we're increasing on care them into experience service an we're enhance our invest second working and continuing personalization our practices. the

ClientWorks that of ways advisors we consumers them new part now they last run introduced these like the As app practice. store, can their of library pages efforts, them arrange applications iPhone and align their Much a quarter, in use from the add applications. to how library, choose

For of applications practice practice. the advisors at their and that insights of view analytics data and real-time a key offers growing example, provided one glance new our for managing

advisors broadly, additional the and experience is that ClientWorks and efficiency. service ability tell us to More their customize enhancing personalize

one capabilities. model, develop digital new we expanding As the our is client opportunities of our see care we

organization of past machine six new in As with intelligence artificial months, environment. our learning into launching we robots to these efforts, the of our first part by accounts our over experimented set

power exploration the an in to effort an to bots artificial the to the form activate of accounts minutes. further early time can process broadly scalability XX of more apply takes experiments and been are These the straight account, initial our enterprise are it streamlining through benefits triggering to machine open, the and across in client to of the process once activate expediting it's the while learning current our intelligence enabling and account hours seeing activate We're in an model. experience processing enhance take

solutions on support the In to focused helping and grow offered more and reimagine operate digitized outsourced us capital the businesses their advisors services, business to effectively lead leads efficiently and focused play advisors generation. play, strategic independent by workflows, providing model. we're in third Our advisor this

our outsourced business highlight of Let services. progress me in these one areas,

determined their admin, advisors through Now marketing, as series services valuable of for our business. technology running are in experiments, we CSO, and of that areas points expertise a leverage such

the We price these the use. then high completing services easy over piloted with to deliver the to make year we past could affordable that them in After at pilots them an ensure quality and as services rebranded these business this at them of to rolled national solutions. illustrate solutions we and potential our our August, portfolio out of to officially and power conference sales advisors LPL

experience. his our with Virginia Miller assets initially better compromising service grow story in and aspires of million Charlottesville, advisors, That a seek to strategy, Jim his practices of manage based our expenses. model to I Jim CFO want to identified his share segmented CFO help a $XXX of his without Through up he one partnership, business client's Solution. and his build this helped him client led ways through new pricing a develop to and

CFO his of of her ever one he is describes his the member team. has resources best as had management of Jim Now a and thinks

well. admin is with the of and As solutions now our using Jim experience his a marketing as CFO, result

growth. more over XXX help Looking are practices, Business that across their many advisors operating efficiency currently subscribers and like we our broadly excited increase we're drive Jim portfolio, more have Solutions their to and

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

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

Matt Audette

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

our of first helpful we our QX and growth it results, we shareholder staying returning at and with objectives; M&A; investing four excess organically long-term on delivering on expenses; profit for be is complementary expanding gross services; assets assets capital thought As increase comprised to return our work drive disciplined which to would growing in organic while our framework shareholders. review through value, by

of QX our a all progress and quarter step we delivered pleased shareholder of work closed areas. in this and returning growth capital drive lens, acquisition made long-term back to as our all Company, growth four this shareholders. progress in Taking we history Allen highest to investing & results through value. looking our We're the generate We organic with while and excess to at on

which EPS intangibles, XX% in ago. review starting year Now let's up to from our a depth, with greater QX results $X.XX, was prior

up net new as to Turning we the at billion, $X finished $XXX growth, increase quarter were assets, This sequentially. was organic or and X% advisory growth brokerage assets a total rate. our by annualized billion driven primarily X%

$X.X another billion Allen net added also acquisition We & our assets from Company. of in new

of to platform EBITDA our transfer We end $X the year roughly XXXX. expect by run rate continue million assets and of by add the to early these on to

past billion As $XX for of solid billion we AUM with quarter had recruited and QX in the $X.X recruiting, year. over another

$X.X assets our Advisory we Looking to XX% billion at inflows business net billion managed now included growth in by new or QX rate. or of driven increased This over XX% assets, which $X.X mix, advisory annualized essentially out and greater $X trends quarter. of primarily total assets. continue advisory growth has we annualized positive to see rate. capability, advisor our platform, rolled Within of sleeve this use at were assets XX% in billion our

It primarily driven move increase production-based and $XXX million results, by increase in revenues, million, our with sequentially. transaction let's fee was gross $X sponsor the profit. up by partially advisory, to or starting was QX offset X% Now financial The and higher seasonal payout.

cash XX%, was or revenues. organic points quarters, growth results increased the basis contributed gross profit return four to last higher by gross primarily over profit These of sequentially. up Year-over-year, X.X on points and client million our from XX.X basis assets $XX which

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

revenues. or transaction asset-based driven $XXX X% mutual asset Sponsor sequentially, no Moving million our million usage average the of on were $X in platforms. QX, growth levels to and greater up by fund revenues fee in

balances $XXX Turning cash revenues, QX client in client up higher were they cash as from more rates. short-term slightly million, offset than interest the decline to

yields. cash client to Moving

XXX X average basis rate July and QX cuts driven sequentially. points, fed decline basis short-term in following was rates points down The Our September. yield the ICA primarily by lower was

to we'll cuts ahead the the full Looking two have fed rate of impact QX, QX. quarter in

XXX another is be basis this balances. assumes Additionally, in beta to expect mix changes point the it lower week. we XX basis rates floating be client rates rate points continue accepted the to low in yield If the of no will by and range. our to This ICA QX XX% versus or our expectations next of widely XX% occurs, fixed or that our further would fed interest within deposit

was Let's August, in conference volumes on partially now $X The $XXX and revenues. They transaction up fees. increase were by primarily national driven offset sequentially. million move lower sales our fee QX million, to transaction IRA by seasonally

large any advisor so have Looking we not a QX, conferences, ahead to in decline million revenue. expect confidence we do $X

cash income we by interest other on revenues, These sequentially. and primarily revenues $X the as balances. as million were million there earn to margin our interest corporate Moving balances down $XX in driven QX, well client are

we Looking driven QX, roughly forward $X million, anticipate will by rates. to decline primarily interest they lower by

G&A. QX, growth. starting $XXX as expenses, and service to we our to technology million in turn $X million let's with investments Now sequentially up core It planned long-term in was continued drive

to the feel investing ahead QX, and balance delivering. of look plans we As we're efficiencies our the about good related we

the range a As million. million, $XXX of core range XXXX bringing to outlook to a we're top $X lowering million end by our result, $XXX of our G&A

wanted for As I in XXXX, we context growth. to some investing about we're look how share to thinking forward

increased have Over organic seeing investments we the last results, few positive levels and years, growth. of increasing our including we're

to growing pace continue in to our in growth a at XXXX similar XXXX. plan investments we rate this, Given our

the slightly growth, while think in million that As of G&A we likely spend mix increasing range, we'll $XXX growth our rate. the maintain our about core technology

will look the We dynamic to specific for we're this we opportunities sharing you forward We macro excited today, But of on about finalize plans based more course, to our changes year. environment. outlook see with what our in later remain we after invest.

Moving onto well and by transition QX as promotional expense. as $XX national assistance expenses. They our driven higher sales up conference million marketing sequentially, were $XX million,

decrease to QX. range, to have to conferences ahead in low as $XX QX, million no major we the anticipate expense Looking promotional we

management. capital to on Moving

was Our balance X.X QX. The our was sheet remains cash credit and available strong leverage ratio for times. agreement use $XXX million in corporate net

deployment. Turning capital to

capital when Our priorities advantage investing shareholders. growth opportunities and Taking to and first M&A for organic returning foremost. of appropriate remain

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

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

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

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

open for With the that, questions. please call operator,

Operator

comes [Operator Thank with from you. Instructions] Our first Katz question Bill Citi.

Bill Katz

my very given underneath and start Thank certainly for you off some kicked digit may macro hitting backdrop of see be new question much Okay. this And of sort net taking off asset particularly to you that. nice evening. mix level that growth the Dan, mid-single

most So the is I these to still underneath or three there over looked XX appreciate net months, driving XX in and probably which still two you advisory the side? growth, impact that the just initiatives, more had laying next that of the I out in new to be then going

Dan Arnold

Yeah.

we're I as a the last we've and the thanks, think both Good grow respect by But Yeah, the big over in we with from we it's priority couple years. remarks, and reinforced have growth, organic absolutely question. a us So an focus Bill. results encouraged of to progress aspiration for made our here. so to

I to sales, sales same-store about think when there. respect we've sales, and good with store we retention. three new approach, look that at over it got kind new fronts, of got you've momentum we store And think

if think assets. I we you roughly recruited back it months, mentioned, – we've the billion $XX over past of XX has look

the to you have. the just looked back $XX momentum seen have so we at that think year trajectory of last If billion and we from XX went that months only and at I time assets, this about recruited reinforces trailing would period,

that I win forward higher One, own finally, continue rates. that broaden our more differentiate add to models us I that we efficacy then think and capabilities capabilities build expand and helps these as opportunity. three. two those results, the think to affiliation advisors; we're and invest to helps and the focused that about we would on Two, way invest going on attract help continuing primarily our in enhance market new business we of our us development advisors

new So of call those are kind the stores drivers of, sales. would the, I what

improved fact, thing, I improved It time. positive think where it's two that's the retention past best if years X.X%. last been it's interesting period quarter, steadily second throughout we've about over our been you the over to XXXX. move in retention, this an actually that trend of And

we ClientWorks that we to the industry-leading an about today encouraged we're strategic we're improve investing retention, where progress I on think there to developing focused our can is this new And continuing think I referenced. key and are making so service play and delivering model in again client continue and to experience, we where enhance through that

and programs advisors, then challenging over strategic digitize business narrow that's years about been more and us there for what about, same-store helping ourselves generation is to of third allocation last think capabilities, talked advisors sales, capital innovate our and around and really which some to that's support lead I steady same-store to think all challenging all range and couple rethink really sales And the meant we beginning the play even about, that systemically. are a is finally, innovate solutions these deliver new practice to we're

sort the I in of are question. it are answers ultimately that those the number hope water we up to the oars So that your today. drive from trying is where that have

Bill Katz

I questions, follow-up, long one maybe then And helpful. Matt, a winded apologize. bit of little for just That's

the of So has gross look impact about and cash strip as I number decomposition I profit the quarters. ratio look I that of at flatten been out at the the supplement And out client of ROA.

year all on, pickup maybe for. equal, else you spend out maybe move hear then that, of weaker gets the profit and backdrop ROA hear flex to incremental if the much also I of I have up then gross question, a being profit little hand, next to the but some are cost some look growth, and gross you how do lot so be than one the revenue dynamics as that bit two-part what spending what the against for ROA in good on going underneath the So

Matt Audette

Bill. Sure,

it So right, just right look the has not growing, XX.X growth interest I in keep been up on the short-term when ROA and cash rates. you has I from mind doesn't in that is come XX.X overall, from but basis just that at on at just profit, cash the growth -- mean, then gross you're I side, increases emphasize points

When advisory cash lot of you side, we look cash from would the at on have the returns highlight think to the the shift is couple advisory that the things about from of I higher tend side. brokerage when and to we higher balances on have where you a advisory

more so for up getting place the I'd shows that lot a that much balances, to in also we're highlighted cash rate line. stable and and returns fixed

subject it's short-term the to So, not rate movements.

mind. would that So keep just I in

look that is just was I below When you are the basis as down based couple highlighted of AUM was are from really highlighted, an which things, transaction you from not at activity, fees based account. do look baseline, that at X.X subtotal, quarter-over-quarter right, line, fees cash the advisor transactions and on points, really

So, from the on it well of mean, I good in advisory, early quarter the the first and our the the managed, is strategy question step covered And and standpoint side. past and especially business you of about solutions centrally we answering from we like back, take this three the lot the feel Dan saw as years driving, growth results just results a right? things growth we're a that seeing

and over on success I time. those continued think focus just

advisors we and grow. I we grow, well help think well, serves and and our grow really them they what serve them

for remarks how what investment about I we plans XXXX. that That's prepared the the underpins through So, really that's think in that. I walked think

structure about challenging question being to market organic different environments. think got look macros think the of place a we’ve cost in are driving when second that been when they we the part said, I can growth. But I your more a making, investments And adjust flexible the we've at you where it in really we think

So back. we think I would think hard pulling that long before and

then be the changing have driven XXX us -- a by times, even our when we proxy business decrease. like a down, impact in think how is interest we lot see and as And macro, would typically you market. things them markets the which several interest and covered equals know points well model in likely more about business operate rates got the equity as I of which could or rates XXX our model S&P offset hedges you go improvement up there for or from than when the from equity natural go interest good where as rate

Then you position, cash just add position low good those position drive balance really to of the make to leverage We we're the the that our where like where a to in growth. sheet range. we're we're of from the at drive investments investments those a from strength end and feel

just advisors that smaller and pricing an environments that, I the more seek recruiting best both environment from And to of like and M&A opportunities, the those environment to the and can highlight stable are buyer. From could to be, really and then long-term. be broker-dealers place like things going compelling be more a finally, maybe where some the invest recruiting of growth M&A those drive for

on where again, to others being an environment competitive then and capabilities of service able finally, that to do deliver And which helps so. just struggle our compete to in invest, them advisors focus a advantage and

the can here. get picture overall I think you

time, At think I makes we've got ability to same the where the the it about we're slowdown making. we investments sense. passionate feel

Bill Katz

you. Thank

Operator

Thank you.

comes with from Research. next Chubak question Wolfe Our Steven

Steven Chubak

to to quarter, and speak balances. a to on off growth outlook hoping So in this the could cash was start for encouraging your cash with I cash see I confidence we rates wanted that you expect you’ve past a change Certainly uptake question and if continue client flow whether in potential to in as cash X% interest to the hedge? any see to behavior as continues I said should hold, cut you

Matt Audette

Yes, Steve.

So Matt. this is

not there sensitivity is of think rate lot I there. a

is something behavior we think I changing. customer not see So the

at this just question you low growing, the of need, see it's move end about and around end natural that and cash in even referenced at in we're that operational range X.X%. X%. more as is cash at the still that account, the a manage your amount as think of I we're range of to that you And you low

cash environment probably and flow, of So, I range. rate the they the the have towards on sitting balances. And view different historical a but us kind of ebb end doesn't we're think lower can I cause to think

don't we we're downside, pressure see but us that a to So, anything new ton not give will of seeing there. concern

Steven Chubak

my just foresee potential your such ahead follow-up, regulatory as how for leadership election, changes a whether positively ask given just upcoming that regulations Got or on it. does you to how outlook, preparing want in senior of business uncertainty the the impacting the the and DOL do And question negatively?

Dan Arnold

Yeah.

take So one. let me that

use broadly. the for that maybe So to and more proxy as it think with specifically respect rule, fiduciary how about I'll we

a I consider case, the think think business. deal with something in you're reemerges you leadership change asking our the to all government, rule across to that environment perhaps about in of what as or the in regulatory different have fiduciary with, is, and utilize might you this have standard

And so, how we investors, is and think about something think do for we it though investments Reg-BI I about emerge, think about to as outcome should necessary tend that. strategically. prepare think that across One, to some like think you lens. which it we more scenario for about then technically, the two And better that that we

through using think again, the needed. the from fiduciary done what's the went majority look Reg-BI fiduciary tactical the and we’ve with that standpoint standard the prior as example, version of I for you preparation think given we and a of an So then I that, vast rule at

our to be mostly cost allocation. any sort in remaining contained our -- our our in planned rate of So capital spend run would approach or

believe for standpoint, we interest. maintaining in absolutely From advisors, a is choice clients best I their think that strategic

and solutions. to So both brokerage offer continue you would see advisory us

that trends I to strategic posture some And that though potential in that leads interesting think with approach.

move assets think, direct I you one, our our would on platform. of brokerage to see more

potentially would solutions. see recruiting standpoint. it a for from that an be serves use And positive consolidation likely I ultimately, think industry M&A would and advisory both higher of You

space. to always of some the capital probably think doing. of in how make which we're relative reinforce at would say, sort you we that a investments step and And allocation possibilities Two, when in back So capital we’d think regulatory that, investments. I your it the interesting your fact which about look platforms to as has do discipline we do our it continue advisory we

And then opportunity sheet finally, reinforces I what would share model certainly is saying think Matt that that further scenario make strong business could was accelerate an it growth like that, a and having there be in to to earlier, market into balance step and and sense explore. to flexible

I think we future. So in question. your that hope that about how think change that's potential the answers I

Steven Chubak

helpful Thanks color. for the

Operator

you. Thank

Jeffries. Our with from next O'Hara question comes Gerald

Gerald O'Hara

the an perhaps where just thanks Great, data of sense little now of further early closed channel to or could how Allen would it's & for about that deal with the a but points give kind that just or give you to early, additional taking feedback know still are thinking I any Company a of question. us context expansion trend? employee

Dan Arnold

Yes, fourth And quarter. that happy with that. assets third do be in think quarter the referenced those as the and respect Allen platform Company, & I under closed our in we transitioning to to we'll we

platform. that's and our positioning making the successfully is, core that transition now So focus on over to successful operate them

Company right innovate footprint. we're also leveraging hired continue with had their that that develop to model we finalized continued leader the of time, as for the employee to solution we strategy marketplace a make packaging way, to it new I model. At We’ve to sure the that, & we out around that this to same such it, we've and need enter and the our to the the set we go pricing round structured XXXX in capabilities go-to-market that the business and into when think both in and Allen acquisition began sort

bringing As we to well think has some possibility. really the broadly marketplace. the more that interesting as model And

that the surveying the And and marketplace and on we'll I with that. certainly, the hypothesis value. of work in marketplace XXXX, around and research think executing taking the the concept reinforces early Our on

about excited there. So opportunities the

Gerald O'Hara

That's rate fixed of XX% helpful. one of if are range kind but balances the know appose I set backdrop? give playing of on that how of those of maybe fixed of by of the of the course be just to then target us range the Thank of if with sort XX% – might with be by ratio maybe for to And midpoint you paced getting And maturities next that for curious, to any respect floating, then to could illustrated sort -- as it sense you kind year, you. throughout you year Matt, been would helpful. has of market of into or sort kind kind ICA year

Matt Audette

balances. I about that's sure. of rate $X our mean, about look I think, fixed when at at billion you Yes, balances now XX%,

think, I target, at look we our right.

about it different a when feel I think target, thought I think in we target forming good our of environment. range and comfortable to And XX%. interest we about range rate of that XX%

to contemplated the volatility because rate is the just reduce of sense we environment does which that think increase to it core interest in back So earnings. that you stability well as certainly the does point, we environment really and kind of I lower make and think our a and range come

So and place helping advisors on serve in them further focus putting a us our to their even clients.

the concept, it's So so in that's unchanged environment. this

year. XX% even is of the downs sense but on to do, think say ups still to I way XX% judgments range. year you move would of year will puts And low that think think got based about mid-XX% on think, of focused in environment we're and little about the quarter, or terms if do would we're that make year about have which the range opportunity but think to. dollars, throughout the I sense kind of to this roughly makes think look is just using of good balances that $X billion time I when this will evenly in over – fixed I roughly in at you into next It bit make we XX% at I that we where next evenly to get the right opportunity to to

Gerald O'Hara

Thanks for Great my taking questions.

Matt Audette

Sure.

Operator

Thank you.

Suisse. question Craig next Siegenthaler Crédit from with Our comes

Craig Siegenthaler

Hey, thanks. Good everyone. evening,

Dan Arnold

Hi, Craig.

Craig Siegenthaler

so balances new for just that years? you now compete you is managers as AUA how us the competitive just for been So adjusted you environment quarters, couple the how recruited evolved over advisors? financial X from the balance has transition of And all assistance can wealth your last given you strong remind also,

Dan Arnold

Matt, want the take question. the part first you of to

Matt Jon

Yes, sure.

I systems I fairly transition recently, about haven't made really the changes back go We to changes we’ve or And any maybe two if we that return, made just really doing consistently. you the year think been aligning think

really change way in on to seen in are really assets the rate a coming haven't market it's the aligning platform. our just really We that to really meaningful any

I that have think seen perhaps our is the And experience I business things team and many right next one platform. recruiting the is the development on in and think both we of success capabilities the on stand things service what our

Dan Arnold

anything that we Well rates material about have the think than have said, asked across seen assistance I and you to transition board. add the competitive don't don't other landscape Matt. I shift a in systemic

experiment time. stable circumstance, things doing of because that companies period a think some I but systemically over of certain seen business are trying certain and/or pivots making see pretty to You other we've

Craig Siegenthaler

competitors pressure given have on here, seeing Got have guys uncertainty accretive here? know management And you we're just well. can we some to migrations I one just pricing the ROI, segment in think any different I it. my them just channels wealth relating other what flush that in from are you all as another and out gross follow-up profit covered But

Dan Arnold

or pricing with to certainly least we profit gross and about think back how start let can think tie of the how ROA. then the Yes, about that me I it changes think pull back you at we it some

in are in others marketplace, years the the years in saw passive X about that occurring pricing. world and late evolution over of think it the some those then XXXX. we we where changes some last And prior through of live reemerge and have most some trends start the in the most have think, the think, I in out of trend you X pricing as in go past look the I this the to occurring fist – seen look, century, and seen just you terms in recently. started at we more XX changes saw seen investing some that We've last make this in So of and part you to industries, I case, years, type in then changes industries

of take I price-sensitive perhaps self-directed occurred much end the first bigger the I changes self-directed much think, more that because across those think and there. and much, is your players, marketplace across that foremost, you if have there's client a impact residual And in small impact assets market on a the more that we operate has know, more our self-directed on serving it really their RIAs us for. impact custody because business, you we as the don't that has

them a strategic and differentiate lever, plays that and how we we it So the about consider when see best industry, entire across occurring, our absolutely we to something and think advisors how the as about and pricing these position I'll on changes, to example, win. our are use help strategic serve to how that as support across think to look pricing more three to at this like it's going

so, that's or as part like if couple platforms year. of average strategy $XX been you million in a the of growth transaction to an roughly on and look a in adjustments years, costs, last made we've of pricing and magnitude order areas advisory an order help of our And in about our drive investment

that areas in and to like we focus it it or you into similar advisory think impact. very platform our charges at strategy, about you as similar I XXXX, magnitude as the approach we a a go be forward think and secondarily will I we we're move transaction we in way, give of would a and i.e., those little just would likely So color

hope absolutely that we years lever. on strategic kind executing is of it consider how I how that's the pricing, helpful. past part about of was kind of always over as into a thinking our so, we of move you a how it and bit it We a as think done little about trend we're and we've And strategy three gives XXXX. it

Do tie how to or anything ROA? you want to to implies your gross it back profit ROA

Matt Audette

No.

the would number be that add. Craig. well; hopeful, zone summarized I nothing thinking is think so that Hopefully, that I about you it we was to the said,

Craig Siegenthaler

guys. Thanks, Very comprehensive.

Operator

you. Thank

comes Goldman Blostein question Alex Sachs. from next with Our

Alex Blostein

afternoon. guys. Good Hey, Great.

of about And sort for to year? e-brokers commissions into last that. out with can on one So zero equity the the contemplating as cut if you that maybe and you can just guys, charges the half, emphasize pricing ticket impact question, to the any think to of respect decision for following you're in way investments we are is of looking next you

Dan Arnold

Yes.

is on assets around so we that RIAs. of strategic to points advisors our absolutely a where have prioritization smaller around is considerations data impact we again, into stack. and of taken we best think, impact level and part more and custody them how our support -- from put context I those reduce And, pricing overall a of for it's So, standpoint, us it's a the

think, about framework It something and you'll us doing well that see fits that mentioned to inside likely earlier. address I that. that thinking I

Alex Blostein

back a little when you guide understand about question if talk and but does nimble gets little How your of guys much within of bit sort bit Is are get EBITDA a just be What I tougher? environment around still for? then, for follow-up as And things the kind expenses, think talk that EBITDA we you range? And Or that pull on how on of certain you it. Matt. aware obviously contemplate? you margin it's could some sort to a environment XXXX macroenvironment for Got could the back. early, the tough about what of improving solving to you about algorithm can ability you put margin? as you, a framework growth have pull thinking

Matt Audette

day, So the early indication future plans to is, given right? I as mean, little you give emphasize finalized our I'd where you our in a that on thinking Yes. call. likely next a think, we'll we've just I

we're a we I think of the environment look environments. through, range always at thinking

time lay a from we're look to look every return if it based making, when plans, the pause emphasize, at environment we investments think the I I'd out just stage ability And deteriorates. the also, we at we we we our them so investing we have perspective.

So when and clients certain it. returns for you've them choose clear help our just got their you in between front things the sense do make when what and are versus of growth, look you margin investments maintaining looking serve drive that value op to and they at two can that right, at those pretty what organic an and usually does advisors and amount, drive

of I just scenarios, can the So, That expenses be growing – bucket a just adjust as to same put back. would and still we said, it at always investments of are I the pulling long focused in a ability are portfolio. investing, think hard technology in really being XXXX think a value the to got high-class efficiency, those the as I about and we driving problem, were the on emphasize, where got delivering got spending our or macro that scenarios, range we've and we kept flat, like go plans an in in we if you example, the back you've you time, we're relatively we've were so still

that emphasize just as I'd So well.

Alex Blostein

Great. That's helpful context. Thanks.

Operator

you. Thank

question comes Ryan JMP next Our Securities. with Devin from

Devin Ryan

interest I'm models tuning the out and broker one just so business, of in had would of inferior anticipated space, any sellers I just type whether interest backdrop? Great. see higher of make with a businesses subscale here, Most maybe some it my more you consolidation sell afternoon. more you Thanks. obviously the the that and competing seeing may sense have to around picking are build have rates asked, just been that seems to combination against, face of curious even markets Good rates or their questions more indications than as in they expect early up what or pressure

Matt Audette

Yeah.

in some growth, the So, marketplace we're view case exploring of our to in just potential Company it enrich an company, clients. given which of we opportunities of opportunity with how of then leverage concept. saw is well-run which who a very you complement some their will & Allen capabilities, a respect and see to they the as to serve organic our and M&A, that Certainly, opportunity to and smaller scale support that of example

yours tougher, and the cash that be would our organizations respect flow hypothesis business, reinvest to similar to earnings probably have of challenges for to environment with marketplace, gets and in and Our you smaller possibilities. tease the driving being being the able out time, hints a exploring some to harder in reason and the those as

opportunities think concept enrich which we to the a great that. we And about We're great be potential world we if look was can of advisory also example, how possibilities. to again respect also with a development accelerate value evolution proposition of that. we the So exploring & think M&A, our Allen market capabilities and we is to, our continue in Company for then example at looking are and

So the in there I two think places, the is interested most marketplace. we're more

Devin Ryan

just pressure just we confirm that then clear, completely not comments well? is Okay. of of I'm And the on evolution business that, going curious, some made SMA the their change on but potential on an whether the Great. announcement of any but I part guess, this or pricing to seeing I all nuance as in guess, are you basically pricing, call didn't back yet, UBS

Matt Audette

And done. you been on have as I clarity said, don't know that, what's we exact

those versus value the think that Asset more the to more looks fee prize vehicles., to end Manager Manager you've haven't type advisory us to that Manager typically gives with give client. the the an I have that flexibility and advisors third-party. SMA reflects it you That's the they where they color Manager looks were can that to fee the Manager perhaps just when the adjusted what SMA advisory then like fee, and a hypothesis sometimes their that, eliminated in an is they the for us. necessarily and got they a a to have eliminated occur the little that then bit are providing We advisors you how fee, separate they've some And the on fee

focused as felt advantage our and the we and it value some because was we which be parties again, did differentiate should eliminated been well, create that it around our several years a roughly helping and a we that, investing on management we clients it helping portfolio, shared advisory do third fee a I went more if for transactions, maybe was LPL the lower as As three cost two, to followed strategist with that we able advisors, to last way for that, platforms of use fee ago, zero to have their we've our over construct themselves. structure on great the where you standpoint years and/or were was earlier, I pricing from think

said, on may if I where think it hope logical don't they've I us just because have what we've sense That that and the of is So they would a have I helps. that's have made impact I that think I perhaps move. think it lot what already makes done, marketplace done wrong

Dave Ryan

Appreciate very Yeah, that. helpful.

Operator

you. Thank

Wells Our next question Fargo. comes Harris with Chris from

Chris Harris

guys. Thanks

remarkably bounce of charge, you accounts. Another management guys pressures, to the pricing on fee-based you at I implemented. can pressure the been roughly rate you've much think I just hold? guess, mean, rate the be if seem by financial that last question three, longer and other X% to impacted that I how with some four not but of about broadly, pricing think think areas the pricing a you rate pressure in that he given changes fee services and more it, broader financial that question, pricing rate at over Certainly what you earn doesn't changes, on that years do other call stable it's services relative broker-dealers is look the

would that you that be So on can give if us your thoughts some appreciated?

Matt Audette

sure. Yes,

majority advisors operate good stability a offering massive of a marketplace. as is where fluent do very the Look, seems Let If price follow. that. it to I it exists competitive said, set and me place be of years. is the I you segments respect quarter, there take stat across It your as think the our of you one to over all please the get don't a look that and competitive in you with fluent and

to deal solve for way that. think as more with to investment one-off to I advisors and been adjustments to most had any sensitivity, pricing is for a part try view they the it's passive

plan to competitive and appeal the do deliver by the advise life's think help and a today. price, can what I the drive my it's me you dreams, so if don't me journey, misstep someone, if to price, or way because and and execute plans, maintain that are is that make make you advisors you help and mean opportunities are I a a and I I always So, competitive problems make and sensitivity value said, didn't It's execute about you set-up long a value. value life do from go help really can there forward, our what needed solve done well. Those deliver you I That a sure be to the fair valuable to really things standpoint, achieve important in exist if around think space, can think sure for offering. I goals we you think to can me I that as my where

and got And all some of constantly to able deliver expand trying appetite efficient how to my got it can at we for do think can't. will looking focus make most saying to have can advisors to problems and advisors do others unique I proposition, be you believe effective that we then think their we're many that, to you that, we be same and and more but might that, protect power. the that, that I be automate, on And desire that automate, do it's time, that, solve harder as to I of they somewhere we value a to that help pricing some of actually

believe interesting hope them really value can more them the and the efficient, this professional into and can of we a the help and most personalization, think proposition, day, if they they has I again, preserve opportunity helps. to And that they then solving to that more enrich power have segments around overall do a a and, where help ultimately problems access, up can, efficiencies drive easier technology trust, advise wrap space, marketplace demonstrated of at We that of point we is is and to value. making all operations. we can the it's their to that their complex pricing they that prefer them compelling support set, driven to believe human by end we

Chris Harris

you. Yes. Thank

Operator

Thank you.

Stanley. Our with comes Michael Cyprys Morgan next question from

Michael Cyprys

taking for the Thanks Hey. question.

Just that bit know a the success hoping a that you of parts of guys some touched you the in versus assets, others where and seeing little on stand able more if IBD a I wanted the to the bit terms you specific color color from or are from share industry just earlier, and the which the space have of but to wires stay for recruited than on more pipeline terms strength in year of little more as ago? are any particular channels follow-up guys on

Matt Audette

Yes. Yes. Good question.

think we remaining we pipeline, color good and look, recruiting see for that see a about headline consistent certainly So, had we environment if independence, us our and for the to the I feel I you, is, strong. healthy towards trend think continued the I

to The things just we call to churn advisor of win opportunity slightly as been has and below that those advisor kind what makes improve and ourselves than we but norm. have an improve it if stepped we the average, churn stable, but our rates into movement we're better at be that challenged that rates returned and how do may only

are better position an have from model centric win and model independent to I then in our that to leaving to coming out to there, capabilities our for independent two see are the solution, and think model, attracted to that advisory to reason our advisors space a and we are employee-based employee-based model. looking we opportunity us feel continue affiliation see the who where models the we're hits of win that the more new to those the opportunities rolling continue are those And

summarize, and well the business in of spectrum team advisors for team, compete the believe development how affiliation of we'll employee new and to to like positioned we we performance So, model. a as our models evolution high-performing be a where like feel able good leaving we're continued full about we space, we independent their our

Michael Cyprys

Okay.

quick a follow-up maybe Just question.

pricing, opportunity? the lower you talked the the certainly it structural more that overall regulatory you thinking broader about risk, to trend about interesting structural about what outlook benefiting given and is trends relative how the guess, risk political that and growth growth from and it to rates industry. described are guys is or You some of see I outlook,

Dan Arnold

knowing set that I got covered that think certainly earlier, we that not pay think exactly couple regulatory tougher, question we what doesn't preparational makes like, in it a it to, of about and for think attention the looks with believe to that to and try as places, the always and consider several but you mean environments I investment that that, improve efficiency don't you how you continued we best just we require of options up sort do to will of prepare efficacy manage it different and risk. which

its on and it If mean a see size it’s then doesn’t an it's into opportunity. we actually turned We problem. hard, that do down flip how

that you that's use artificial through of use effective one your to model can side a than and and than If intelligence lower an down example. at that them. or on others price it can do can you you flip robotics that its advantage as push certainly But more

execute agility more the change, is is nimbleness its and and to to magnitude the and faster place focus change be focus I bigger technology, be a you're in filtering on more on and automation, going continuous pivots out and make important to ability faster and and not depth sure I that you digital think well having organization the and what another capabilities had always make one is of to so which and to bigger, just environment. your has only change improvement be pulling going where go that see and the believe to of pace is

is for really well and think to is that, in think cultural about transformation that's but enterprise all I that's environment an challenging the that environment. We our trying position I think important like scalability in do our is what to

that and think to well, if an earlier. do important thing don't you that's think we as to point that I your think So, emerges about risk a

I'll are couple. there, So, a pause but those

Michael Cyprys

Okay, great. Thank you.

Operator

Thank you.

Chris Shutler comes question William with Blair. from next Our

Chris Shutler

afternoon. quick Hey ones. guys. Couple of Good

first the outsourced services, around Dan. commentary So, on the business

give services? pricing per you're little revenue a much you're How Just more how generating those advisor? us on detail

Dan Arnold

Yes.

these point enough as a been again to -- if about solutions that we to may for a just at having affordable you we services provide So, old rebranded everyone, can is that to about think business leverage virtual all into way are as give the our then is that calling found a services tap this those where not think where we business an expertise reminder, are we as we and access that advisors expertise help can and as what able were have your to that, example. CFO subscription-based

do and extent, concept our enhance doing foremost, to them return first that we growth we're be And that effort. up the to to so that, successful and their probably biggest is on improve that want And systematically set the to that rates. would

That at And looked done, incremental these the contribution we said, is for stand-alone as generate a economics at say solutions. what them that have business can to of looked value. we

to their to is that service, contribution. in then principal in the one profitable underneath where and leverage ourselves this that levels has experiment challenged things access get is a affordability we for are our so and go that the where them have those way to point of And the let's done great advisors, and solution been operate for creates

like think or pricing services for you those to service. a So individual is on month month around a about average, that should $X,XXX $X,XXX the is, of think about those an any

I of a can portion I for of need. get the if that can for paying access CFO to the I the $XX,XXX So portion expertise a to and only $XX,XXX And year. that get CFO

a incremental XX $XXX-plus-thousand CFO creates to that up biggest trade helps. good value, whole that my may really profitability the from incremental me don't access the I cost hope that afford for And it if I that's been a we with business. being us, can but if from one, I rate their advisors helping for ends that them. need to to business. comes And for some a grow XX, can that's earnings concept it contribution offer get for gain

Chris Shutler

to last or cash separate lower ROA here. I a or about when key definitely or talk higher over just about material part advisors, of have is a am pulled you you than topic, on profitable amount gross It's your basic adding advisors recruiting core helpful, more of of that's Would not. you the been thinking then, profit the see Yeah. so trying understand that year similar, component if And just average that it on Dan. a advisors, a

Dan Arnold

to we exact that. I answer don't think have

advisory business. mix Here they that know and whatever. you to about in on classes business Matt what is are average, the way think brokerage add I our we recruiting would of Look, that is do

then has cash their our case This and mix that's determinant that average is a of the business big if balances. on

would I color. But there. a necessarily Matt, would they I you So add know, then look today, think like variance more from big average want our what to some is don't

Matt Audette

there the difference higher advisory, Yeah. just am most the I driver, nature of emphasize balances, to in the due percent slightly you're advisor, cash of going really brokerage the to cash higher that. is so rates, versus have

So the I think look of think as the that's probably to supposed I'll at, timing when on advisors came board.

Chris Shutler

a All right, lot. thanks

Operator

the any to questions further this no to back Dan the queue like now call for Mr. showing to in remarks. I'll I'm Arnold, closing over you. time. at turn Thank

Dan Arnold

to want forward afternoon. just you're with taking look I hey, you we to speaking time quarter. to join Yeah, this for appreciate And busy. Thanks. again thank the we next know it. everybody We us And

Operator

conference you participation. for Ladies today's and Thank call. gentlemen, this your concludes

You may now disconnect.

LPL Financial (LPLA) 25 Oct 192019 Q3 Earnings call transcript