LPL Financial (LPLA) said Monday that its fourth-quarter profits rose 20% to $44.4 million, or $0.43 per share, from $36.9 million, or $0.34 a share, a year ago. Sales improved 16% to $1.09 billion in the period. Its adjusted results topped analysts' estimates.
During a call with investment analysts, LPL Chairman and CEO Mark Casady explained that the independent broker-dealer is no longer pursuing any plans to form a bank holding company. It is, however, still considering the possibility of acquiring an industrial loan company.
Investor interest in LPL's growth story had pushed the stock up 1.6% on Monday, when it closed at $52.74. After Tuesday's early announcement of its results, though, the stock weakened by as much as 3.6%. By the afternoon, its shares were trading down about 1% at $52.20, despite an overall uptick in the market.
"Our continued success in retaining and recruiting advisors also contributed to our strong results," Casady said during a conference call. "We believe our 97% annual production retention continues to lead the industry … We [also] believe advisor migration to independence continues to be a sustainable, long-term trend."
The executive noted that LPL recruited 110 net new advisors in the fourth quarter and 321 net new advisors in 2013. "Our pipeline remains strong and we are optimistic of our momentum heading into 2014," he said.
Net new advisory assets, which exclude market movement, were $3.9 billion in Q4 and $14.6 billion for the year, a 12% jump from 2012.
Assets under custody on the company's RIA platform grew 54% to $62.9 billion at year end and included 285 independent RIA firms versus $40.9 billion and 191 firms as of Dec. 31, 2012.
Total brokerage and advisory assets rose 17% in Q4 to $438 billion. Overall, LPL's 13,600-plus advisors managed an average of about $32 million in client assets and had averagely yearly fees and commissions of $254,000, a 13% jump from a year ago.
Average commissions represented about $163,000 of this total, including "elevated levels" of nontraded REIT sales. Excluding these sales, commissions per advisor were $151,000.
There were some hiccups in the growth story, though. Its adjusted margin in Q4 (as a percent of net revenue) declined to 11.4% or 30 basis points vs. Q4'12, mainly due to a $7 million decline in LPL's cash sweep revenue, according to CFO Dan Arnold. In addition, asset-based revenue growth in Q4 was "partially offset" by the drop in cash sweep revenues, Arnold says.
2014 Plans
To improve its profit margin and other results going forward, the IBD says it is rolling out a new alternative investment order entry system and enhancing its variable annuity order entry system. It will also continue to outsource back-office work.
