LPL Financial Holdings Inc. saw continued revenue growth, market share gains and the highest organic net new assets in its history.
LPL Financial Holdings Earnings Were Good in the fourth quarter. What You Need to Know.
- Total advisory and brokerage assets reached $1.21 trillion. This is up 34% year-over-year mainly from continued organic growth, LPLA’s acquisition of Waddell and Reed Financial, Inc.’s Wealth Management business, and equity market appreciation.
- In terms of organic growth, fourth quarter net new assets were $26 billion, or 9% annualized growth, driven by strong new store sales, same-store sales and retention. For the full year, organic net new assets totaled $119 billion or 13% organic growth, up from 7% compared to a year ago.
- Asset retention was approximately 98% in the fourth quarter and over the past year. This was aided by an improved advisor experience which was achieved with new capabilities and technology; and the continued modernization of services and operations.
- Gross profit reached a new high of $643 million, up $12 million or 2%. The components, commission and advisory fees net of payout, were $200 million. This was down $2 million vs. the third quarter, largely from the seasonal increase in production bonus. The payout ratio in 4Q2021 was 87.6%, about 45 basis points higher vs. Q3, mainly due to the seasonal build in the production bonus. For the first quarter of 2022, the payout ratio is expected to decline to about 86.5% from the production bonus reset at the beginning of each year.
The firm’s four main strategic goals are as follows:
- Traditional & Affiliation Models: “Our first strategic play involves meeting advisors where they are in the evolution of their practice, by winning in our traditional markets, while also leveraging new affiliation models to expand LPLA’s addressable market,” according to CEO Dan Hogan Arnold. In the traditional markets, fourth quarter recruiting was very strong, with a new high of about $15 billion in assets. Strong business development and the continued enhancement of LPLA’s platform boosted win rates and expanded the pipeline. This was despite advisor movement in the industry being at lower levels.
- Differentiation: The firm is focused on providing capabilities that help LPLA’s advisors be differentiated in the market and drive efficiency in their practices. For 2022, the firm will focus on solutions in three key areas: 1) better digital solutions that increase personalization and enable advisors to create customized experiences; 2) enhanced wealth management platform to help provide clients with differentiated advice, products, and pricing; and 3) improved digital workflows to help advisors increase their scalability to serve more clients.
- Industry Leading Service: Over the last two years, LPLA’s service offering expanded to become omnichannel, including voice, chat and digital support giving advisers flexibility for when and how they access service.
- Helping Advisors: LPLA’s portfolio of business solutions improves a business’s operations so advisors can focus on growth and client service. In 4Q2021, the subscription base more than doubled year-over-year to about 3,000 subscriptions.
In terms of near-term capital deployment, LPLA will invest in organic growth first, “while pursuing merger & acquisition opportunities where appropriate and returning excess capital to shareholders.”
LPLA sees continued investments driving organic growth and plans to increase core General & Administrative expenses in the range of 7% to 9.5%,” a similar growth rate vs. 2021.
LPLA delivered another strong quarter and full year of results while executing on its core strategic plan. The firm expects to continue focusing on helping its advisors win and be differentiated in the sector by investing in the value proposition for advisors and their clients, while expanding market share.
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This earnings summary has been prepared by Marsh, Berry & Co., LLC. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., LLC has not independently attempted to investigate or to verify such information.
