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LPL Beats Estimates, But How Sustainable is its Growth?

May 8, 2018

LPL Financial had a strong first quarter, growing its earnings and beating analysts’ estimates — yet some analysts question whether such growth can be sustained as the financial advice industry undergoes significant transitions, ThinkAdvisor writes.

Among the company’s “strategic priorities” remains the growth of its core business, Dan Arnold, LPL’s president and CEO, says in a statement cited by the publication. But Chris Shutler, an analyst with William Blair, says LPL isn’t well-positioned to compete in a lower-fee environment where digital advice is increasingly offered alongside holistic financial planning through fee-only payment structures, ThinkAdvisor writes. According to Shutler, LPL’s organic growth “would not look all that exciting” if it weren’t for interest rate increases and LPL’s acquisition of National Planning Holding’s assets, the publication writes.

While LPL brought on 941 former NPH network representatives in early 2018, LPL actually lost 84 advisors, Shutler says, according to ThinkAdvisor. At the same time, Shutler says LPL’s recently announced generous bonus offers to advisors at several specific firms is “quite aggressive” — and the fact that LPL has to make them in the first place only underlines challenges to its growth aspirations, he says, according to the publication.

Other analysts believe LPL is poised for more growth. The onboarding of NPH assets should give rise to new growth drivers as well as help with “incremental M&A,” according to Ann Dai of Keefe, Bruyette & Woods, ThinkAdvisor writes. Dai says LPL is still the largest player in the indie retail brokerage space, and in an environment of regulatory uncertainty it stands to win from scale advantages, according to the publication.

LPL has so far brought on just 59% of advisors from the NPH network, whose assets LPL acquired last summer, WealthManagement.com writes.

In all, LPL has brought on 1,900 financial advisors of the 3,200 who were affiliated with the four broker-dealers on the NPH network, according to the company’s first quarter earnings report cited by WealthManagement.com. As part of the deal the company had agreed to a contingent payment of $0 to $123 million if 72% to 93.5% of production at NPH transferred to LPL, according to the web publication. So far LPL has brought on $70 billion of NPH’s $105 billion in reportable assets but LPL also expects to retain a total of $75 billion, or 71%, of the assets, with the rest coming in during the second quarter, WealthManagement.com writes. And LPL appears to be satisfied with the outcome.

“As we reflect back on it, ultimately the deal structure and valuation ended up proving to be a solid one,” LPL CEO Dan Arnold said on the earnings conference call cited by the web publication. “We tried to approach the onboarding and integration of those advisors in a very different way than we had ever had before with any transaction, making sure we had enough resources both to innovate as well as add incremental human capital to support that integration and onboarding process.”

Excluding NPH advisors, LPL lost 84 advisors in the first quarter, according to WealthManagement.com. Arnold attributed the loss to large numbers of low producers leaving the industry, the web publication writes. The company had some large producers jump ship recently, however. In April, a wealth management group overseeing $1.8 billion left LPL, opting not to affiliate with another broker-dealer.

By Alex Padalka
  • To read the Wealth Management article cited in this story, click here.
  • To read the ThinkAdvisor article cited in this story, click here.