LPL Execs Bump Up Expectations and Timing for Waddell Deal
LPL Financial executives once again revised upwards expectations for the share of Waddell & Reed’s $71 billion in wealth management client assets that will transfer with their company’s scheduled acquisition of that business.
Arnold and Audette also shortened the timeline for when they expected LPL’s purchase of Waddell & Reed’s roughly 900-advisor unit to close, saying the deal could be finalized as early as today, months ahead of the mid-year plan previously discussed.
Their remarks came after LPL, the nation’s largest independent broker-dealer, reported a 17% decline in pretax earnings, which fell to $130 million from $156 million in the year-ago quarter. The company’s revenue of $1.7 billion in the quarter was up 17% but failed to keep pace with a 22% rise in expenses.
LPL also reported record advisor headcount of 17,672, up 909 year-over-year, and 385 from the prior quarter. For the quarter, the company reported a record $958 billion total brokerage and advisory assets, up 43% year-over-year, driven in part by market appreciation and record net inflows of $29 billion.
“In our traditional markets, while overall industry advisor movement remained at lower levels in the first quarter, we continue to gain share and grow our pipeline,” Arnold told stock analysts on the earnings call.
Future growth would depend in part on LPL’s ability to expand beyond its traditional independent broker roots with new affiliation options that appeal to a wider range of advisors, according to Arnold.
“We aspire to expand beyond our old vision of extending our leadership in the independent space and redefine the independent model over time, and by doing so, become the leader across the entire advisor centered marketplace,” Arnold said.
Those efforts include the company’s Strategic Wealth Services channel, a new model launched last April to appeal to higher-end wirehouse teams. LPL launched the channel to offer transition, marketing and back office services to wirehouse brokers who want more help setting up their practice and pay a flat fee for the additional support. The new model has attracted seven breakaway teams–including a four-broker team in Greenville, South Carolina of breakaways from Merrill Lynch, who had managed $650 million in client assets at the wirehouse, and, most recently, one led by a UBS Wealth Management USA broker who had been overseeing $215 million in assets in San Diego.
Future mergers and acquisitions will also likely help swell LPL’s advisor ranks, Arnold said. The deals will serve “as a complement to organic growth,” he said, pointing to the Waddell & Reed unit purchase as a prime example of that tactic succeeding.
“The transaction is progressing better than we originally estimated across multiple fronts,” Audette told analysts on the same call in reference to the acquisition.
The Waddell & Reed purchase has also become more expensive, however, with the improving retention rate, Audette said. The company raised its expectation for acquisition costs to $110 million, up from $85 million.
LPL in December began offering Waddell advisors retention deals ranging between 30% and 50% of their prior year’s fees and commissions, the company said previously.
An LPL spokeswoman did not immediately return a request for comment on the exact number of Waddell brokers who have signed commitments.
Recruiting costs broadly have risen due to more aggressive hiring and a large bank onboarding during the quarter, Audette said. He didn’t break out an exact number and instead only cited “promotional expenses” totaling $54 million in the first quarter, an increase of $6 million from the prior quarter, which was “primarily driven by increased transition assistance from higher recruiting and large bank onboarding expenses.”
End-of-year recruiting loan balances at LPL were up 24% to $419.2 million as of December 31 from 12 months earlier, according to its annual report filed in February.
Meanwhile, despite the pandemic’s unwelcome staying power, LPL’s independent advisors are returning to less-remote working conditions, Arnold said. “Many of our advisors are doing a lot more face-to-face than what we might – would expect living in bigger cities,” he said.