LPL reclaims recruiting crown, sees new assets swell in Q2

LPL Financial returned to recruiting form in the second quarter with a net headcount gain of more than 300 and steep increase in assets from advisors pulled in from elsewhere.

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LPL reported Thursday that it added 331 advisors net through recruiting from April to June, bringing the total to 32,475, while seeing its total for recruited assets swell by 35% year over year to $25 billion. Both results marked a turnaround from its first quarter, when tepid recruiting resulted in an unusual net loss of advisors for the largest independent broker-dealer.

CEO Rich Steinmeier has noted repeatedly on recent earnings calls that LPL internal recruiters have been devoting much of their time in recent months to trying to retain advisors at Commonwealth Financial Network, a former rival firm that LPL acquired for $2.2 billion last August. With Commonwealth now well on its way to being incorporated into the much-larger LPL, recruiters have again been able to direct their attention to pulling advisors from rival firms.

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More advisor moves means more for LPL to recruit

Steinmeier told analysts Thursday that LPL is also benefiting from a general acceleration in advisors changing firms.

“That’s important for us,” Steinmeier said. “As we capture a disproportionate share of the advisors in motion, any movement to that overall advisor movement, we’re going to be one of the winners who benefit in that movement.”

He said LPL sees particular opportunities in pulling advisors from large wirehouses and regional firms, along with from its traditional independent broker-dealer rivals. He said internal recruiters continue trying to retain Commonwealth advisors, but the need for that work is tapering off.

READ MORE: Despite losses, LPL claims it kept biggest, best Commonwealth teams 

Even with advisor defections, LPL says it’s on track with asset goal

Even with those retention efforts, Commonwealth has lost hundreds of advisors to other firms since the acquisition plans were announced last year. Steinmeier reconfirmed Thursday that those departures have not derailed LPL from its ultimate goal of keeping at least 90% of the roughly $305 billion in assets Commonwealth had at the time of its purchase.

“The integration is progressing well, and we remain on track to onboard Commonwealth advisors in the fourth quarter,” he said. “In terms of asset retention, we are in the mid-80s today, and we continue to work toward our target of 90% retention of client assets.”

LPL’s net asset inflows, along with market appreciation of existing assets, helped boost the firm’s total for client assets by 34% year over year to $2.6 trillion. Of that, $1.5 trillion was in accounts managed by advisors, a figure up 46%. Advisory assets — which are particularly valued for their ability to generate steady fees — now make up just over 60% of LPL’s total client assets. LPL’s revenue was up by 35% year over year to nearly $5.2 billion and its net income by 39% to $379 million. 

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Pricing changes to lower LPL’s payouts on client assets

LPL is seeking to control its costs by making changes to the way it pays investors who hold assets in what it calls an insured cash account. This is a type of “sweeps” account that moves uninvested cash over to banks to be lent out.

Firms typically make money from the difference between what they make off those loans and what they pay back to investors. In Thursday’s earnings call, LPL Chief Financial Officer Matthew Audette explained that LPL is a bit of an outlier in that its payouts are based on client households’ total asset holdings and not just their cash.

In the third quarter, Audette said, LPL plans to follow the example of Commonwealth and other firms and pay just on cash. He said the average amount held in insured cash accounts is around $5,000.

“When you look at the price tiering — to perhaps state the obvious — you pay less on smaller balances and more on the larger balances,” Audette said. “And as we’ve talked a bit about, I think, for a long time, our advisors have their clients in cash at relatively small levels. We’re probably at about two years now where the average amount of cash per account at LPL has been around $5,000.”