Q4 2019 Earnings Call
Well all for introductory remarks, and then the call will be open for questions. The company would appreciate if analysts would limit themselves to one question and one follow up.
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Important factors that may cause actual financial and operating results or the timing of matters to differ from those top contemplated in such forward looking statements. During the call. The company will also discuss non-GAAP financial measures governed by FCC regulation G.
A reconciliation of such non-GAAP measures to the comparable GAAP figures. Please refer to the Companys earnings release, which can be found at investors that.
L.P.L. dot com with that I'll now turn the call over to Mr. Arnold.
Hey, Thank you Catherine and thanks, everyone for joining our call today.
As we discuss each quarter, we believe a thoughtful strategy combined with extraordinary execution and a mission driven culture will drive long term growth and value.
Working within this framework, we delivered another quarter of solid business and financial growth.
Let's start with a review of the drivers of our business in the fourth quarter.
Organic growth combined with higher equity markets drove total brokerage and advisory assets to a new high of $764 billion.
With respect to organic growth strict the new store sales and advisor retention as well as studies same store sales drove fourth quarter net new assets of 8.8 billion, which translates to a 4.9% annualized growth rate.
For the year organic net new assets grew at 3.8% up from 2.3% a year ago.
Turning to our financial results, we continue to do to drive solid topline growth with gross profit up 6% year over year in the fourth quarter and 12% for the year.
We also remain focused on investing in the business, while staying disciplined on expenses to drive operating leverage as a result.
Fourth quarter U.P.S. part of intangibles grew 13% year over year to $1.68 and contributed to a 35% increase for the full year to $7.17.
Looking at the marketplace more broadly we continue to operate in a large and growing market with favorable secular trends towards independence and advisory solutions.
In terms of the economic backdrop, our current view is that many of the core drivers of the economy, such as employment and consumer spending.
Combined with renewed business investment are solid and supportive of economic growth and investor engagement. So while we remain flexible India then of changes in the macro environment.
The strength of our balance sheet and business model positions us well to continue investing to drive organic growth.
With that in mind, we thought it would be helpful to use our strategic framework to provide some color where we are investing.
Our first strategic point involves winning in our traditional independent and institutional markets. While also expanding our affiliation models.
With respect to our traditional markets the efficacy of our business development team and our differentiated capabilities drove solid recruiting outcomes within the quarter and for the year fourth quarter recruited a U M was over $10 billion, bringing or for your total to 35 billion both of which are the highest level.
As we have recorded.
We also continue to make progress on the development of our new affiliation models this quarter I'll highlight our new premium offerings.
After bringing this model to market in the third quarter. It has been well received and generate a good feedback from prospective advisors.
We now have our first couple of committed practices, which we expect will join over the next few months and we're encouraged by our growing pipeline of interested advisers.
As we look ahead, we believe enhanced performance in our traditional markets combined with new affiliation models can drive our recruiting results overtime.
We also continue to invest in capabilities and pricing to help our advisors differentiating win in the marketplace over.
Over the past several years, our pricing investments have been focused on our advisory platforms and transaction costs.
In 2020.
We're taking the same approach in light of the continued secular industry trends towards advisory solutions and lower retail trading commissions.
As a part of this effort in the fourth quarter, we rolled out to know transaction fee GTF offering the builds on the success of our no transaction at the mutual funds solution.
We made this offering available on both our corporate and hybrid advisory platforms in order to extend the benefit of lower tier pricing to all of our advisors.
Now, let's turn to our second strategic play, where we're working to create an industry, leading service experience that enhances our ability to attract and retain advisers.
That's context at the beginning of 2018, we launched our ease of doing business program, which focused on investing to enhance and differentiate client works and making continuous improvements to the advisor experience as a result, we drove our NPS score up by 45 points over.
In the past two years.
As we move into 2020, not only are we continuing the ease of doing business program, but we're also adding a new effort transforming our service offering into a client care model.
This includes providing multiple channels for advisors to engage with us intelligent routing of their and inquiries and case management for complex issues.
In the fourth quarter.
We made progress on the development of our client care model by piloting our interactive voice response system and scaling our case management team into an enterprise wide capability.
Through ongoing dialogues as well as MPS and transactional surveys.
We hear from our advisors that their service experience continues to improve.
We remain focused on listening to and applying their feedback as we work to deliver a client care model that is unique to the wealth management industry and can further enhance our service experience advisor retention and MPS results.
Our third strategic play is focused on helping advisors in the independent marketplace enhance how they grow protect and operate their businesses and that spirit, we're helping them with new innovations such as outsource business solutions digitized workflows advisor focus capital solutions and leads.
Duration.
This quarter I wanted to highlight the progress we've made on digitizing advisor workflows.
As a reminder, we're focused on automating the six primary workflows, where adviser spend approximately 80% of their time.
At this point, we're roughly halfway through the overall initiative.
A notable fourth quarter milestone was our integration of a free embedded CRM solution powered by Microsoft as well as two leading third party offerings from Salesforce and Red tape.
This is important because the CRM module is a foundational component of all the workflows.
Together these three integrated CRM offerings.
But several benefits to advisors, including greater flexibility that use the best solution for their practices the opportunity to lower cost with the free option.
More effectively leveraging client data to drive efficiency across all of their workflows.
Over the past quarter, we achieved another key milestone by integrating financial planning capabilities, which are used in the work flow that turns prospects in declines.
And we did this by integrating three financial planning offerings are free goals based planning solution and two leading third party options for money guide and E money.
Much like our CRM offering this suite of integrated financial planning tools provides advisors with greater flexibility lower cost.
And an expanded solutions to help clients invest for the goals that mean, the most of them.
As we continue to work to digitize the rest of the primary workflows.
We'll be able to continue to enhance the efficiency and scalability of their practices.
This in turn will better position them to deliver greater value to their clients and grow their businesses.
In summary, we are pleased to deliver another quarter end year of business and financial growth. We remain focused on combining strategy execution and culture to serve our advisors drive profitable growth and create long term shareholder value.
Now I'll turn the call over to Matt.
Alright, Thank you, Dan and I'm glad to speak with ever on today's call.
Looking at our 2019 results we are proud of what we accomplished within our framework for driving long term shareholder value.
Organic asset growth in recruiting reached their highest quarterly and full year levels in our history.
This combined with M&A and higher equity markets drove total assets to more than three quarters of a trillion dollars.
We also continued to invest for growth, while staying disciplined on expenses to drive operating leverage.
Additionally, we increased the fixed rate portions on our IC balances and corporate debt, which further reduced our sensitivity to short term interest rates.
At the same time, we remain active on the capital deployment front, returning over half a billion dollars to shareholders through share repurchases and dividends.
Overall, we feel good about the results our strategy is driving.
And our positive momentum as we head into 2020.
Now, let's turn to our results starting with as part of intangibles. It was $1.68 cents in Q4, which brought our full year total to $7.17 up 35% from a year ago.
Looking at assets, we finished the quarter with total brokerage and advisory assets of 764 billion.
Up 6% sequentially in 22% year over year.
Total net new assets were 8.8 billion in Q4, or a 4.9% annualized growth rate.
And recruited assets were 10.6 billion in Q4, which brought our full year total to 35 billion up 28% from a year ago.
Looking at our business mix, we continued to see positive trends this quarter.
Advisory assets increased to 48% of total assets, primarily driven by advisory inflows of 9.6 billion or an 11% annualized growth rate.
Within our advisory platforms, essentially managed net new assets were 2 billion were 17% annualized growth rate.
Now, let's move on to our Q4 financial results.
Gross profit was 538 million.
And 4 million or 1% sequentially.
Looking at the components Commission advisory fees net pay out were 134 million in Q4 up 2 million from Q3.
The increase was primarily driven by higher advisory fees, partially offset by seasonally higher production bonus expense.
Moving on to asset based revenues sponsor revenues were 134 million in Q4.
Up 4 million were 3% sequentially, primarily driven by higher average asset levels and greater usage of our no transaction fee platforms.
Turning to client cash revenues, they were 155 million down 7 million or 4% from Q3.
The decline was primarily driven by lower short term interest rates, partially offset by higher average cash sweep balances.
Looking at Ida balances there were 24.4 billion at the end of Q4 up 2.2 billion or 10% sequentially.
Total fixed rate I'd say balances also increased to 12.3 billion.
Up 3.3 billion from Q3, as we continued our duration extension program.
This brought our mix of fixed rate balances to more than 50% of the I see portfolio it into our target range of 50% to 75%.
Looking at client cash yields our Q4, I say yield was 222 basis points down 19 basis points sequentially, primarily driven by the three fed rate cuts in July September and October .
Looking ahead to Q1, we will have the remaining effect of the October rate cut.
I would also highlight that the growth and balances in Q4 was in floating rate contracts, which have a lower yield than our overall IC portfolio.
Given these factors, we expect our Q1 IC yield to be around 210 basis points.
This assumes no further changes and short term rates client deposit rates or the mix of our fixed versus floating rate balances.
Moving onto Q4 transaction fee revenues.
There were 118 million down 3 million sequentially.
The decrease was primarily driven by lower conference revenues following our National sales conference in Q3.
This decline was partially offset by growth in our business solutions, which reached approximately 650 subscribers at the end of the year.
I would also highlight that we launched our no transaction CTF platforms towards the end of the fourth quarter.
So Q1 will be the first quarter with a full run rate impact of this program, which we estimate will reduce transaction revenues by two to 3 million per quarter.
Now, let's turn to expenses, starting with core DNA. It was 230 million in Q4.
Bringing our full year core DNA to 868 million, which was within our outlook range of 860 $870 million.
Turning to 2020, we plan to continue to focus our investments on areas that will drive organic growth.
A few of our priorities for this year or enhancing capabilities for our advisors expanding or affiliation models in scaling business solutions and as we shared last quarter, we expect to grow our investments at a slightly faster pace. This year.
More specifically, we're planning for 2020 core DNA in the range of 915 to 940 million.
We will of course remain flexible to respond to changes in the environment.
The based on what we see today, we are excited about opportunities to invest to continue driving organic growth.
As for Q1, we expect core do you need to be in a similar range to our fourth quarter total of 230 million as our additional growth investments will likely be offset by a sequential decline in variable compensation.
Turning back to Q4 promotional expenses, they were 51 million down 11 million sequentially.
This was driven by lower conference expenses following our National sales conference in Q3.
Partially offset by higher transition assistance.
Looking ahead to Q1, we anticipate promotional expense will increase to around 60 million as we have two of our largest advisor conferences of the year in Q1.
Looking at share based compensation expense. It was 7 million in Q4 relatively flat to Q3.
Looking ahead Q1 tends to be our highest quarter of the year given the timing of our annual stock awards. So we anticipate this expense will increase by a few million dollars sequentially.
Turning to interest expense it was 31 million down slightly from Q3.
The decrease was driven by lower average interest rates, mostly offset by 2 million of debt refinancing costs.
As for Q1, we expect interest expense, we approximately 30 million given our current debt balances and interest rates.
Moving onto our balance sheet. It remains strong in Q4 cash available for corporate use was 204 million in our leverage ratio was 2.05 times.
Turning to capital deployment, our priorities remain investing for organic growth first and foremost taking advantage of M&A opportunities when appropriate.
Returning capital to shareholders.
Looking at organic growth our investments are focused on recruiting new advisors.
Helping existing advisors grow and enhancing our technology.
In addition to our investments for growth, we returned excess capital to shareholders. This included 120 million of share repurchases in Q4, which brought us to 500 million for 2019.
This drove our share count down by 7% year over year and kept us on track to complete EUR 1 billion authorization over roughly two years.
We also returned capital through 20 million of regular quarterly dividends in Q4.
Which brought us to 83 million for the full year.
In total our 2019 capital returns to shareholders were 583 million or approximately $6.89 per share.
In closing we are pleased to have delivered another quarter and year of strong business and financial results. We remain focused on growing assets in gross profit.
Investing to drive organic growth, while staying disciplined on expenses.
And returning excess capital to shareholders with that operator, please open the call for questions.
Thank you to ask a question you'll need to press star one on your telephone.
Draw your question press the pound key begins I'd like to ask a question press Star one.
And our first question comes from Bill Katz with Citi. Your line is open.
Okay. Thank you very much for taking the questions. This evening so on that maybe sort of start off where you left off if you on expenses curious sort of walk us through maybe a little more specificity about what helps define the ranges between the low and high end like what you macro framework is and then within that can you can maybe quantify how much the common spending is in Q1.
Sure. So I think on the second point the conference spending is the primary driver to increase.
Maybe a little bit from a transition assistance naturally bending the conferences the primary component of that.
I think on the under spending Bill I think when you when you look at where we were spending in 2019 in the areas of capabilities and technology and service those are really the big contributors that we're helping drive organic growth. So we pivoted and look towards 2020, it's really those same categories that were focused on and a little bit more.
Color on some other things were focused on from.
Building out in developing the new affiliation models.
From scaling up business solutions, and really investing in the advisory platforms.
I think when you look at the range of spending I think theres a handful of things there's things that drive that range like variable comp theres things, where we lay out our spending and gate the spending throughout the year. So if we see a pullback on the macro or the the investments are not as compelling as we thought we can land towards the lower into that range.
If the macro supportive and the investments are compelling and we have even more opportunities that completions towards the high end of the range.
So hopefully that helps give you a little color on how we choose that.
Okay. That's helpful. And then maybe just a follow up in terms of client behavior into new year's sort of wondering if you could maybe speak to engagement levels, whether it be buying.
And so were trending is sort of cash balances to catch offset the shrinkage on the yield.
Yes, sure I mean, I think we'll release January metrics in February as you know, but I think what we've kind of some color on what we've seen so far as I think we've seen what you would expect in in a market. That's on so we've seen strength and assets and assets increasing.
We've also seen some of that customer cash thats, we that we saw grow in December go back into the market I'd say, we've got a couple of days ago, but I'd say cashes I'd call it down slightly in January versus December .
But again I classified as we're seeing what you would expect to see in an up market and we'll we'll give you the metrics in February .
Okay. Thank you.
Thank you and our next question comes from Steven Chubak with Wolfe Research. Your line is open.
Hey, good afternoon.
So.
I wanted to start off with the question just on the ROI outlooks on yet another strong quarter of growth in centrally managed as was advisory assets I know that those channels have historically translated into better gross profit our away.
Especially relative to some of your peers. This quarter, we saw a little bit more pressure on that line.
Relative to what we've seen recently and I was hoping maybe unpack this whereas some of the components have resulted in that contraction.
Yes, sure I mean, I think when you look at gross profit year over year, whether the quarter year over year or the full year, we're seeing nice growth there and the quarter is up 6% versus Q4 last year the years up 12% year over year.
But when you look at that metric market movements can create some noise right not all the revenue streams and there are driven by asset movements things like transaction fees and even the client cash revenues themselves. So when you look at what happened in Q4 equity markets were up pretty large were up 9%. If you look at the full year there were.
30% right, so while market movements and market increases are definitely good for the business. When you look at that metric when not all that revenue streams are driven by that it can create some noise.
Now you see the opposite effect right. When you look at the end of 2018, when you had a drop in the markets. We saw some ROI increase there. So I'll just keep that in my when you're looking at that particular metric that that can be noise from the market even when we're in a quarter. We're having all these the positive drivers that you highlighted.
So maybe Dan if you will end if there's any color you wanted to add to that no I think you've got the math right in the only thing that I would add as we continue.
To focus with respect to our strategy on trying to create and add value to our advisors and where we do that you see these positive mix shifts so you're seeing the value of the.
As an example, our corporate advisory platform and outsourcing the risks associated with that or you see as you as you mentioned the transition towards centrally managed or even advisory and so I think thats. What we continue to focus on is creating and adding value recognizing that those those trends will help drive that that.
Our away, which is controllable if you will have higher.
And just one follow up for me on organic growth. It's continued at a really healthy clip pure IBT market share I think now sits at north of 15% I was hoping you could speak to the growth opportunity how that's evolving within the IBT channel maybe your confidence levels in terms of your ability to sustain.
That mid single digit pace of organic growth as we look ahead to 2020.
Yes.
It's a great question and I think it's dead in the center of what our strategy is focused on.
We have an aspiration and our strategy is focused on driving.
That to organic growth.
Upward.
Overtime, and I think we think about that over three fronts or or three areas of which to do that.
You've got new store sales.
I mean here we have good good momentum right, we recruited 35 billion.
Have you win in the fourth quarter or sorry, 35 billion over the full year, which was up over 27 billion. The prior year. So you see good.
Growth year on year, and we believe there theres opportunity by continuing to.
Proven enhance the efficacy of our business development team.
Developing new capabilities that further help us differentiate that just creates a more appealing model to continue to drive up recruiting in our traditional markets and then you add to that the.
The complementary broadening our participation in the marketplace by creating these new affiliation models were now you're able to participate in in a more significant way.
Across.
Movement of advisors and other channels, we think that combination creates opportunity to continue to.
Enhance our overall new store sales the second I think area with of opportunity. We see is in the area of retention.
Our reserve results continue to show improvement there. If you look over the last two years retention is gone up from 95% to 96.5%. That's a good trend theres good momentum there and again, our second strategic play runs right at us continuing to improve that service experience.
As reflected by the increase in our NPS score over the last couple of years.
We believe we continue to improve the service experience along with that is going to.
Improved retention numbers and so this year we're focused on.
Adding this transformation of our new service model you add that to the baseline work, we were already doing around enhancing our technology.
Improving policies and procedures you end up we think with an interesting opportunity of which to improve and enhance retention overtime.
And then the last category you get to is same store sales and look that area has been consistently steady over the last couple of years, we wanted to be.
Better and we've challenged ourselves to innovate new ways of which to help our advisors increased the growth of their practices. So this is where we're focused on.
Business solutions as a lever to do that digitizing workflows. These new new advisor capital solutions that we're working on all of which we think are ways to go really deep to help advisors with tools that will help them transform how they operate their businesses and heightened probability they're able to grow their same store sales. So when you.
Put all of those multiple orders together.
We're encouraged by the opportunities to continue to enhance our.
Our organic growth and improved sort of that in a capture over time, so hope that helps.
Very comprehensive answer Dan so thanks for taking my questions.
Thank you and our next question comes from Alex Blostein with Goldman Sachs. Your line is open.
Hey, I'm going to be guys.
Another follow up around expenses, so Matt appreciate your comments.
Around being nimble and I guess responsive to the environmental when it comes to expenses for 2020.
But assuming you guys meet your organic growth objectives, and the environment stays kind of steady the way you've described on the macro side is it still reasonable to anticipate EBITDA margin extension from you guys in 2020.
Yeah, I mean, as I think theres a lot a lot of factors that impact that I mean, I think when I'd take a step back on EBITDA margin for us I mean, we're focused on driving value over the long term and I think that when you look at three four years ago. Our margins were in the low Thirtys. If you look at this year and the.
At 47%.
We had some nice expansion there I.
I think when we're focused on investing for organic growth. We're focused on on the on the long term. So I think if if they're a short period. The time when you take a little bit of the step back on on EBITDA margin like you saw this quarter.
Where we're investing for long term growth I think we're we're we're comfortable staying in a place Riyadh healthy margin. So I think our confidence is in the long term expansion there near term lots, there's lots of different factors that could impact that so it'd be hard to predict.
Got it fair enough and then on the business side of things.
Either either Datamatic I was hoping you guys could give us an update on where some of the business service initiative, Stan I think theres been a handful of them, obviously rolled out last year.
Thank the revenues are likely to start coming through this year, so maybe kind of help us frame.
How meaningful revenue contribution that could be for LPL. This year.
Yes, I think you referred to the business solutions I just want to make sure. Yes, that's right yep, Okay terrific. So yes.
Maybe I'll start and certainly met you can add any color you like.
So to put a finer point on it I look we ended the year with 650 subscribers, which was up 500 over the year I think we see that is a really positive trend the key point, there being that the value proposition.
Is resonating with the advisors and.
The solutions are adding the value that were intended and I think that's that's a really interesting opportunity we see the build from and Thats. What we were trying to sort of proven our overall hypothesis and experimentation last year I think as we move in specifically to fourth quarter. If you drill down on that for a minute we were still in that.
Developmental phase where.
We were continuing to build the foundation and the infrastructure to scale in a in a really thoughtful and effective way.
Think about things like.
Automation to drive efficiency or dedicating a sales team to drive awareness and demand for the solutions.
And so we think thats important to make sure that we do this well as we move to this more operational phase as we move into 2020 so.
I think as you look at the value that comes from these solutions were courage by the contribution of helping existing advisors operate their practices free up time to spend time with clients and grow their businesses. So we're seeing sort of positive trends coming from those that are using these services. Today. We're also seeing it help attract new advisors.
But these are unique solutions and they add to the appeal of the overall model.
And then finally, we're starting to see as you say it start to contribute to gross profit.
And so as we look ahead, we remain focused on growing out these solutions and moving from what I'll call more of a developmental phase two more of an operational phase, where we're really focused on on scaling and I think we began to make that transition in this year. So hope that helps.
Yes that helps thanks.
Thank you and our next question comes from Gerry O'hara with Jefferies. Your line is open.
Thanks, really just one for me.
It's kind of looking at your supplemental slide in the recruited assets. The trend has been it's been pretty strong sequentially over over the past year.
Just curious if you could maybe elaborate a little bit on what what are some of those drivers are what's working or what's resonating.
Just from a from a general I guess from just from a broad perspective. Thank you.
Yes, maybe let me take that from kind of a macro level and maybe the headline is the recruiting environment itself, we find and sort of a solid state and then.
We feel good about the progress that we're making and our pipeline. So let me give you a little color on maybe both of those.
From an environmental standpoint, we continue to see the trend towards independents and that remains strong and obviously creates opportunity.
Over the last year I think the rate of adviser movement has been relatively stable.
And then finally, we continue to see in the independent space advisers in search of a higher level of capabilities that will help them run their businesses and so.
Those trends, obviously make up.
Well, what we would see is again, a pretty solid environment.
When you click down and sort of look at our approach to that opportunity set.
In the independent space, we continue to add more capabilities.
That help us differentiate and or meet the needs of what those advisors are searching for.
I think in addition, you have a very stable platform and so the combination of capabilities and stability is very appealing.
With respect to.
Also stepping into this opportunity how could do we continue to invest and automate and digitize our business development team and capabilities such that we enhance the efficacy of that group and that team and increase our win rates and so that's part of our element strategy and we continue to make progress.
There and the teams done a great job.
Over 19, and continue to add new capabilities, and new leverage tools to enrich how they do their work.
And then finally I think.
We have the opportunity to think about these other channels right and where we haven't participated as greatly in the movement of advisors in those other channels, we see the opportunity to.
Create new affiliation models that really cater to.
And appeal to advisors, who are in search of of an independent model coming out of these of these other channels and so with respect to those affiliation models ones in market. One we go to market in the second quarter and then one we'll we'll go to market later this year.
We are receiving good feedback with respect to the value proposition associated with those programs.
And we're encouraged that they will continue to contribute to our ability to expand our recruiting effort. So.
In a nutshell, we feel good about the results from last year in our pipeline as we move forward.
That's helpful color Thats it for me. Thank you.
Thank you and our next question comes from Craig.
You can follow with credit Suisse. Your line is open.
Thank you good morning, good and good evening, everyone spin along here [laughter].
So first one just wanted maybe an update on the timing behind the migration of the portfolio from floating to fixed.
Yes, sure Craig So I think if you look at we've talked about but a quarter ago had about $6 billion potential opportunity moving to move from floating to fixed.
Over the year.
We ended up moving 3.3 billion of that a little bit earlier than we had anticipated meaning in the fourth quarter.
I think about the rest of the opportunity at I'd say that another three billions of good round number in a way to think about it and it's probably more towards the second half of the year just given most of what we moved this quarter was really acceleration of the of the near term.
Alright contracts that were coming up.
Got it and then just a quick update on the recruiting frontend specifically on the high end the transition assistance at the amortization were up over 20% year over year and how should we model.
Transition assistance amortization costs for the full year.
Sure, Yes, I think from a from a transition assistance endpoint pregnant, the where we are market really hasn't changed.
So the economics that we are paying are pretty similar that the amortization are typically in the five years out although they are there every deal is underwritten individually.
I think the primary driver of that's going to be just the level of recruiting itself right and I think we've talked a little bit about on this call already the the strengthen the increase in that recruiting that build throughout the year with the fourth quarter being 10.6 billion. So that's probably the primary driver the rates of T.K. and the timing of amortization have been pretty consistent.
Thank you.
Sure.
Thank you and our next question comes from Chris Harris with Wells Fargo. Your line is open.
Thanks, guys.
So you talked about a few conferences that are affecting the promotional expense in the first quarter shouldn't there be some revenue that offsets that expense and if there is can you quantify that for us that's part one of the question part two.
Will there be another large conference in the third quarter of this year or has that been pulled forward to Q1.
Yes, so Chris we think about our conference our largest conference of the year.
Is almost always in the third quarter, there's no change to that our number two and three typically happen what happens in Q1 and the other happens in Q2, those two just volt happened to be in Q1.
On that conference in Q3 is the one that typically has the most revenue associated with it being the transactions and fees. So there might be a little bit associated with the the two they're happening in Q1, but but not much.
Okay. Thank you.
Sure.
Thank you and our next question comes from Devin Ryan with JMP Securities. Your line is open.
Great Hi, guys.
Hey, Dan.
Most have been asked I just wanted to ask one on client cash you guys had a nice step up into year end, we've seen that from some others as well but.
Just curious now that were beyond year end does it feel like that was kind of typical behavior, where kind of money typically flows back.
Just one for the calendar year starts or I guess, what are you. What are you seeing there and net buying still seems reasonable. So just trying to kind of unpack that a little bit given that it's obviously positive trend.
Yeah sure Devon, So I think what what we've seen so far in January is what you would expect it up market. So I think with respect to cash you're starting to see some of that cash flow back into the market.
Say headline is cash so far is down slightly theres still a.
Couple or one or two days of data left to get.
The cash balances are just down slightly so far in January .
Okay terrific and just maybe a quick follow up in terms of the various affiliation options when you're talking to advisers.
Are you presenting the from now as.
Kind of.
Hoping to.
Allow them to affiliate in any option, they would like or or typically.
Our advisors approaching LPL or you're approaching them for one specific affiliation option I understand it will probably evolve as some of the newer affiliation options.
Increase, but I'm, just curious kind of how youre going to position that moving forward.
Yes, we see that is actually an advantage to to be able to have the flexibility to offer them different ways of which to think about the their affiliation that would work best for them.
And that can be when you recruit them new to the firm or that could be wall, they're here and something changes within their business, which allows them to to continue to think about.
You know evolving their business in a way that's much easier and much more efficient by staying on this platform. So.
Our whole launcher is we have to meet them, where they are in the evolution of their practices in the flexibility of of our solutions and alternatives.
Should be available to them and they can decide which ones best for them. So that's how we see it.
Okay, great. Thank you.
Thank you and our next question comes from Ken Worthington with Jpmorgan. Your line is open.
Hi, good evening and thank you.
We're hearing in Syria, seeing more consolidation in the wealth management space broadly.
A couple of things maybe one are you seeing valuation and wealth management companies.
From a further or say over the last couple of quarters I think maybe more interestingly is this flowing through it all to increase your recruiting costs at the broker or advisor level.
Yes, So let me start and then Matt you have any color.
So I think definitely we've seen an up weight and activity as you describe out in the marketplace.
And with respect to valuations I think that.
We've seen them.
I'd say pretty steady over the last year as we think about it in the different places in opportunities where we explore.
Our disciplined as you know is always going and look at a deal and make sure that it makes sense from a strategic operational and financial standpoint, and so.
We tend to take a good sustained rigor around how we think about those things and and.
What does that mean relative to the M&A activity that occurs within the marketplace. I think there are places where we still find some really interesting value where an acquisition strategy makes a lot of since across those three lens Theres other places where it may not and I think we will we will stay disciplined where we find that off.
Opportunity, we are and continue to look for opportunities relative to acquisition from what we would call a growth acquisition like and Alan and co solution that we did as well as.
Things that will accelerate and advance our capabilities like the advisory World transaction. So we think you got to be selective and you've got to look and you've got to be proactive exploring those opportunities, but we think that are out there relative to the recruiting front, we don't really see any correlation or any tie relative to the cost of acquisition on the recruiting from with respect.
Back to.
The acquisition approach I think there's a there's a fair consideration down at the individual advisor level, if you're a practice and advisory practice acquiring another practice, how you might think about that and values that but.
We don't see it necessarily correlate it up at the higher macro level.
Okay, great. Thank you very much.
Thank you and our next question comes from Michael.
Cypress with Morgan Stanley Your line is open.
Hey, good afternoon. Thanks for taking the question just curious to get your thoughts on how you're thinking about what might be an opportunity set for the pure are a space given some of the.
Today Thats happening in the industry that petsmart, A's and our a assets and motion and what in your view would be the key value proposition that LPL could potentially offered to attract some of those advisers versus some of the larger ARIA custodians.
Yes, so one I do think that we acknowledge there's opportunity in that pure advisory space. One of the affiliation models that were creating right now is.
As a solution that is focus just a 100% on on it on.
An IRA only from and we see opportunity to differentiate relative to.
Providing what I might call the capabilities that we're building on our strategic play number three where you are building and supporting more capabilities down inside the practice everything from digitize workflows capital to support that practice all the way to our business solutions I think the second opportunity. We have is that we can provide.
Slide a solution that allows them to outsource that risk to us and be an IRA only or be their own or a so the flexibility and optionality to choose how they think about investing in their own infrastructure to manage risk versus outsourcing that to US is another place that we believe we can differentiate and then as we continue.
[music] to innovate on our advisory platforms on creating certain solutions they are fully integrated inside.
Overall platform leveraging the vertical integration that we would make available to those types of advisors.
We think is an advantage when I mean by vertical integration is being able to support both the or a itself as well as being the custodian and having technology that crosses both of those we think create some differentiated options. So those would be the primary areas.
Great and just maybe on the I see a yield guidance. Thank you said 200 basis points for the first quarter, just curious how you're thinking about that trending to the rest of the year, maybe assuming stable rates and then just curious around.
What are the fixed on floating yields today broadly speaking in the reinvestment rates on the fixed for new extensions.
Yeah, I mean, I think the guidance for Q1 at 210 basis points that is driven by where you get the full quarter effect of the October rate cut as well as kind of where floating rates are currently.
And you kind of see fed funds sitting in the 155 zone right now just kind of in the low end or their range than you typically see I'd call. It around a 20 basis point premium.
On on that in the market on the fixed side I think if we've seen the curve flatten out and even inverted a few points. So I think on the on the fixed rate side, you're probably at that that level or actually lower.
On any given day, we've typically put our deposits in the in the five year point on the curve and those would be a little bit lower.
I think guidance for the rest of year I think we'll take that one quarter at a time I'm just given the number of things that can move that but to 10 as our view for the first quarter.
Great. Thank you.
Sure.
Thank you and we have a question from.
Chris Shutler with William Blair. Your line is open.
Hey, guys good afternoon.
A follow up any Ari segment I'm, just curious how I know, it's early but how should we thinking about the economics to LPL in that affiliation model.
Yeah, Chris definitely early and I think when you get back to when you. When you think about are always that's obviously going we primarily on the advisory side.
All depends on the affiliation there so I think it's probably a little bit earlier, but the advisory returns.
Are the key the key area focus on.
Okay.
And then let's see on gross profit Norway.
Is there any way to give us a sense what the with the gross profit early looks like today for.
For advisors brought onto the platform.
In recent quarters versus advisors brought on a couple of years ago before the big ramp in recruiting asset recruit assets and advisor loans really began just trying to get a sense comparing those two tranches.
Using a similar timeframe.
Sure I mean, I think the big drivers going to be mix right to depends on the asset mix. They have in the platform is that they use having the best way to think about it is with brokerage dollars or on the road low 20 basis point range advisory dollars or in the low 30 basis point range in advisory dollar. That's on essentially managed platform is going to be in a low 40.
At this point range right and then you start to folks that are they're using our business solutions. You can yes. They are used in all four of them you can even add up to five basis points from there. So it really depends on all the the mix of the services that they use.
If you go back a long time ago, I think you where the asset mix was more brokerage versus advisory I think that gives you a sense as time has changed over time.
Okay. Thank you.
Sure.
Thank you and I'm showing no further questions at this time I'd like to turn the call back to Dan for any closing remarks.
Yes, Thanks, Catherine and thanks, everyone for taking the time to join US. This afternoon, and we look forward to speaking with you again next quarter have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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