* Adjusted Q4 earnings rise 13.6 pct to 50 cents a share
* LPL adds 182 advisers in fourth quarter to 13,352 total at
* Company plans to outsource some nonadviser-facing
By Ashley Lau
Feb 6 LPL Financial Holdings Inc is
betting the size and scale of its adviser force will ultimately
bolster profits, even if it means increased short-term costs.
The Boston-based company said in its fourth-quarter
financial results released Wednesday that its adviser headcount
rose by 182 during the quarter to end the year at 13,352 -
almost double its size since 2006 when the company had just over
LPL, which provides technology and clearing services to
self-employed brokers, has bucked a recent trend by adding to
its adviser headcount even as other major brokerage firms have
seen their adviser forces shrink.
"We're very much built for scale," said Chief Financial
Officer Dan Arnold in an interview, adding that there are some
150,000 advisers in the industry who could be potential
Building scale can pay off in the long term, but it comes at
It can take three to four years for a new adviser team to
ramp up its practice to return to the level of business they
were doing when they left their old firm. And with the
accumulation of assets comes the need to make those assets
"It's a long-term bet," said Boston-based Aite Group senior
researcher Alois Pirker. "You get your hands on the top
producers... whether it pays off in the end is a gamble. Right
now it's a forward-looking undertaking."
Arnold said the company had an additional $10 million,
year-over-year, in transition assistance and costs associated
with recruiting advisers in the fourth quarter of 2012. The
company also had a year-over-year increase of $12 million from
other "growth-oriented investments," including costs associated
with operating recently acquired businesses.
LPL reported a higher-than-expected fourth-quarter profit on
Wednesday, when adjusted for certain acquisition and
integration-related expenses and other items.
CREATING EFFICIENCIES, COST-CUTTING
Adding advisers may mean cutting jobs in other areas of the
company's business, an initiative which LPL began before this
LPL plans to outsource certain back-office jobs to other
firms, the company said in a regulatory filing on Wednesday. The
shift is part of a broader program called Service Value
Commitment, which it expects to complete in 2015.
"This effort is not simply a cost-reduction exercise," said
Chief Executive Officer Mark Casady in a statement, adding that
the program also includes investing in new technology and
The program is projected to cost $70 million to $75 million
through 2014, with $39 million to $42 million of those costs
occurring in 2013.
The company had already started cutting non-adviser
back-office jobs in the first phase of its program, and more
cuts may be on the way.
"Because we had been outsourcing for a couple of years in a
very small-scale way, it had created some opportunity where we
could transition some of our management that used to manage
those folks," Arnold said.
ADJUSTED EARNINGS BEAT ESTIMATES
LPL said fourth-quarter earnings fell to $36.9 million, or
34 cents a share, from $39.5 million, or 35 cents a share, a
On an adjusted basis, excluding charges and other items,
earnings per share rose 13.6 percent to 50 cents, beating
expectations as adviser activity improved at the end of 2012.
Analysts on average had forecast 48 cents, according to Thomson
The company said that net revenue rose 13.9 percent to
$944.2 million, above analysts' expectations of $918.2 million.
Casady called the uptick in adviser activity, which includes
more financial planning sessions and the addition of new
accounts, the "seeds for future growth."
"They are focused primarily on upgrading the productivity
of their existing sales forces," said New York-based financial
services recruiter Mark Elzweig. "Advisors who control pools of
client assets are mini-profit centers. There's a big appetite
Client assets in fee-based advisory programs rose 20 percent
to $122.1 billion in the fourth quarter, while overall client
assets at the brokerage rose 13 percent to $373.3 billion.
Commission revenue rose 15.6 percent from a year earlier.
The company also increased its quarterly dividend 12.5
percent to 13.5 cents a share.