Q2 2022 LPL Financial Holdings Inc Earnings Call

August 2, 2022

The.

[music].

Good afternoon, and thank you for joining the second quarter 2022 earnings Conference call for LPL Financial Holdings, Inc. Joining.

Joining me on the call today are president and Chief Executive Officer, Dan Arnold and Chief Financial Officer, Matt All debt.

Dan and Matt will offer introductory remarks, and then the call will be opened for questions. The company would appreciate as analysts would limit themselves to one question and one follow up.

The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website investor LPL Dot com.

This call includes forward looking statements, including statements about LPL financial future and operating results outlook business strategies and plans as well as other opportunities and potential risks that management foresees. Thus forward looking statements reflect management's current estimates or beliefs and are subject to known.

One and unknown risks and uncertainties that may cause actual results or the timing of events could differ materially from those expressed or implied in such forward looking statements.

For more information about such risks and uncertainties. The company will first listeners to the disclosures set forth under the caption forward looking statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission.

During the call. The company will also discuss certain non-GAAP financial measures.

For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures. Please refer to the company's earnings release, which can be found at investor Dot LPL Dot com.

With that I will now turn the call over to Mr. Arnold.

Thank you Justin and thanks to everyone for joining our call today.

Over the past quarter, we remain focused on our mission of taking care of our advisers. So they can take care of their corn.

Amid persistent market volatility and geopolitical uncertainty alright advisors reinforced the value they provide to their clients by helping them navigate.

Certainly not.

Spirit I want to recognize our advisers for their continued care and dedication to their clients.

When they need it most.

With respect to our performance our second quarter business result, led to solid financial health.

At the same time, we continue to make progress.

<unk>.

I'll review both of these areas starting second quarter business results.

In the quarter total assets decreased to $1. One trillion as continued solid organic growth was more than offset lower equity more.

With respect to organic growth.

This has continued to perform well despite market volatility.

Second quarter net new assets were <unk> 37 billion, which included 25 billion from Qunar and represented 13% annualized.

Clearly results contributed to a 10% organic growth rate for the past 12 months.

Looking at recruited assets. They were 44 billion in Q2 included $32 billion for Q&A.

This brought our total recruited assets over the past 12 months to 84.

Which was up $4 billion from the same period year ago.

These results were driven by the ongoing enhancements to our model and our expanded addressable market.

Looking at same store sales our advisors continue to focus on serving their clients and differentiating their solutions in the market.

And while market volatility led some clients to moderate.

Periods.

There is heightened uncertainty are often the environments that reinforced the value.

And with time and serve as a catalyst for advisors to grow there.

With respect to retention, we continue to enhance the advisor experience through continued delivery of new capabilities and technology as well as the ongoing modernization of our service and operations.

As a result asset retention was approximately 98% in the second quarter and 98% over the past 12 months.

Our second quarter business results led to solid financial outcomes of $2.24 of Etfs priority of intangibles and acquisition and.

An increase of 21%.

Let's now turn to the progress we made on our strategic plan.

As a reminder, our long term vision is to become the leader across the entire advisor center market.

Which for us means being the best at empowering advisors.

To deliver great advice to their clients and to be great operators of their businesses.

To bring this vision to life, we're providing the capabilities and solutions that help our advisors deliver personalized advice and planning experiences to their clients.

At the same time through human driven technology enabled solutions and expertise, we're supporting advisers and their efforts.

Ordinary business.

During this well gives us a sustainable path to industry leadership.

The advisor experience organic growth and market share.

Now to execute on our strategy, we have organized our work into four strategic plays which I'll review in term.

Our first strategic play involves meeting advisors and institutions, where they are in the evolution of the business.

Winning in our traditional markets, while also leveraging new affiliation models expand our addressable.

Our recruiting and traditional markets continued to be a source of growth in Q2 with approximately $9 billion in assets.

We continue to increase our win rates and expand the depth and breadth of our pipeline notwithstanding a broader a broader slowdown in advisor movement over the past couple of quarters.

Historically during the initial stages of elevated market volatility advisors, often focused on supporting existing clients and may pause and making strategic decisions like switching firms. However, after advisers have acclimated to the condition. They will often use times like this that are new options for their practices likely creating an opportunity.

<unk> for us.

Our recruiting staff.

With respect to our new affiliation models strategic well employed and our enhanced offering.

We recruited over $2 billion in assets in Q2, and believe we are well positioned to drive continued growth across all three.

Second quarter saw a new high for recruited assets in our employment as the value proposition for advisors has proven to be compelling.

As a complement to our organic growth, we recently announced the acquisition of the private client group business at bidding it's scattered.

Which we will onboard to our employee model early next year.

With respect to large financial institutions, we onboard a Q&A.

And we are on track to onboard People's United later this year.

To learn each experienced use these findings to drive innovation that improves the transition to LPL and in turn helps make our offering even more.

As we look ahead, we expect to continue winning in this market as demand for our model.

Our second strategic play is focused on providing capabilities that help our advisers differentiate in the marketplace and drive efficiency in their practice.

As a part of that focus we continue to enhance client works our core operating platform with the expansion of digitized workflows. For example in the second quarter, we introduced enhancements to our move money solution, which makes it easier and more automated for advisors to support deposits and withdrawals with implants.

We also enhanced the client management workflow for adviser by integrating gold planning data into our meeting manager solution, which facilitates more efficient preparation for and more value added dialogue with the client reviews.

These enhancements helped advisors operate more effectively and increase their scalability to serve more clients.

Let's next move to our third strategic play, which is focused on creating an industry leading service experience that.

The lights advisors and their clients and in turn helps drive advisor recruiting and retention.

As a reminder, over the past two years, we have transformed our service.

And to an omnichannel client care, which.

Which includes voice chat and digital support thus, giving advisers flexibility for when and how they access served.

Continue to fine tune this model to drive additional efficiency and an enhanced experience for our advisers.

As part of the next phase of our transformation, we continue to expand and enrich our digital processing capabilities in order to provide greater flexibility speed and accuracy for our advisors are.

Transformation efforts are currently focused on for clearing functions, including money movement account opening and account transfers, which collectively drive the majority of our operational process.

And while we remain early in these efforts we are seeing solid progress as we are now processing millions of transactions for our advisors through the applications of robotics and AI.

Expanding the automation of these critical processes, we continue to increase scalability and efficiency of our platform, while also enhancing client experience.

Good.

Our fourth strategic play is focused on developing our services portfolio that helps advisors and institutions from driving businesses and deliver comprehensive advice to their clients.

In the second quarter, our subscription base ended the period at nearly 3900 with sequential growth moderating slightly in the wake of macro volatility.

As we work with advisors on existing services, we continue to identify new needs. We can solve for on their behalf, which is a catalyst for further innovation that expands the value proposition of our existing services and surfaces opportunities for new service.

One example relates to how former Waddell <unk> Reed advisors utilize our admin solutions on an interim basis to help them during the onboarding process.

Based on that insight, we created a set of solutions for shorter term agents with our services to software specific need in time for advice.

We are testing some of these with cuneate advisors as they transition to our plan.

Looking at our pipeline for the second half of the year, we have several services and pilot and other offerings in the incubation phase and as we move forward, we will remain focused on enhancing and expanding our services portfolio better support our advisors and drive growth.

In summary in the second quarter, we continued to invest in the value proposition for advisers and their clients, while driving growth and increasing our market leadership.

As we look ahead, we remain focused on executing our strategy to help our advisors further differentiate and win in the marketplace and as a result drive long term shareholder value that I will turn the call over to Matt Alright, Thank you, Dan and I'm glad to speak with everyone on today's call.

In the second quarter, we remain focused on serving our advisors.

Our business and delivering shareholder value.

Against the volatile market backdrop, we delivered another quarter of solid net new assets and earnings growth.

In addition, we progressed the work to enhance our sweet program utilizing free credits to create client cash.

Substantially completed the integration of <unk> signed an agreement to acquire bedding and scattergood onboard kuna and are preparing to onboard people's United.

So as we look ahead, we continue to be excited by the opportunities to help our advisers differentiate and win in the marketplace.

Now, let's turn to our second quarter business results.

Total advisory and brokerage assets were $1 one trillion.

Down 8% from Q1 is continued organic growth was more than offset by lower equity.

Total net new assets were <unk> 37 billion or 13% annualized growth.

Looking more closely at recruiting Q2 recruited assets were the strongest in our history at 44 billion.

Which included 32 from Q.

These results brought our 12 month total to 84 billion.

Now, let's turn to our Q2 financials.

Combination of organic growth.

Rising interest rates higher client cash balances and expense discipline.

Led to EPS prior to intangibles and acquisition cost of $2 24.

This was up 21% from a year ago and is the highest in our history.

Looking at our top line growth gross profit reached a new high of $711 million up $42 million or 6% sequentially.

Looking at the components mission advisory fees net of payout were 205 million down.

Down $22 million from Q1.

The decrease was primarily driven by the seasonal increase in production bonus expense.

Lower advisory fees following the Q1 equity market.

In Q2, our payout rate was 87% up about 90 basis points from Q1 due to typical seasonality.

Looking ahead to Q3, we anticipate our payout rate will increase to roughly 88% driven by the typical seasonal build in the production.

As well as the Onboarding.

Moving on to asset based revenues.

<unk> revenue was $208 million in Q2.

Down 4 million sequentially as average assets decreased during the quarter driven by lower equity.

This was partially offset by an 8 million payment from our sponsor related higher periods of activity.

Turning to client cash revenues, it was $156 million up $71 million from Q1.

This was driven by higher client cash balance as well as higher average short term interest.

Looking at overall client cash balances they were up in the period ending the quarter at $70 billion.

Within our ICA portfolio, we added capacity in Q2 as we saw further improvements in bank deposit demand.

Leading to an increase in balances of $8 billion.

<unk> 3 billion of fixed rate and $5 billion are floating rate.

Looking more closely at our ICA yield was 134 basis points in Q2.

Up 32 basis points from Q1, primarily driven by the increase in the fed funds rate during the quarter.

As we look ahead to Q3, we expect our ICA yield to continue to increase.

Based on where interest rates are today.

And our historical betas, we expect our Q3 ICA yield to increase to approximately 195 base.

Before moving on I want to highlight that we updated our reporting of client cash balances.

As we prepare for the introduction of the client cash count as our primary sweep overflow vehicle.

We have updated our cash reporting to include these balance.

In addition purchased money market fund balances been relocated and notes Barbara.

The historical data, reflecting these changes is available in our historical information.

Now, let's turn to service and fee revenue, which in Q2 was 113 billion unchanged from Q1.

Within our services group, we ended the quarter with nearly 3900 subscription.

Which is up about 300 from last.

Our services group now generates roughly $32 million of annual revenue.

While also contributing to organic growth by helping drive recruiting same store sales and retention.

Looking ahead to Q3, we expect service and fee revenue to increase by roughly $10 million sequentially.

Driven by revenues from our National Advisor Conference and Eire.

Moving onto Q2 transaction.

It was $44 million down $2 million sequentially due to decreased trading.

As we look ahead to Q3 volumes in July had seasonally decline, which on a run rate basis would result in a decline in transaction revenue of around $10 million from chip.

Now, let's turn to expenses, starting with core G&A.

It was $286 million in Q2.

Looking ahead, we plan to stay disciplined on expenses, while continuing to invest to drive growth.

Given the increase in interest rates to date, including the rate hikes last week.

We are poised to generate significant additional capital.

Our framework for allocating this capital remains aligned with the returns we generate.

Which first and foremost as investments to drive and support organic growth.

Now that we're deeper into the rate cycle, we plan to accelerate some of these investments and anticipate up to $20 million of additional or G&A in 'twenty two.

This increases our 2022 core G&A outlook to a range of $1 billion 170 minutes.

The $1 billion 195.

Moving onto Q2 promotional expense was $84 million down 4 million sequentially, primarily driven by lower conferences.

Looking ahead to Q3, we expect promotional expense will increase to approximately $105 million primarily.

Driven by conference spin as we hosted our largest advisor conference of the year last week, which returned to an in person format for the first time in three years.

Now, let's move to what Alan Murray.

In total we on boarded over $70 billion is.

Is 99% of client assets joined our platform.

We generated EBITDA of roughly $21 million in Q2 or.

For $85 million on an annualized basis.

At the end of the quarter the run rate EBITDA benefit was approximately $100 million.

Bringing our estimated purchase multiple of four five times.

As we have now substantially completed the integration going forward, we will no longer break out their standalone.

Turning to depreciation and amortization was $48 million in Q2.

Up $3 million sequentially.

Looking ahead to Q3, we expect depreciation and amortization to increase by up to $5 million sequentially.

As for interest expense it was $29 million in Q2 up $2 million sequentially as higher LIBOR rates increased the cost of our floating debt.

Looking ahead to Q3, we expect interest expense to increase to approximately 33 million.

Primarily driven by the increase in LIBOR.

Moving on to capital management, our balance sheet remained strong in Q2 with a leverage ratio at two one times and corporate cash of $241 million.

As for capital deployment, our framework remains focused on allocating capital aligned with the returns we generate.

Vesting in organic growth first and foremost pursuing M&A, where appropriate returning excess capital to shareholders.

In Q2, we allocated capital to both organic growth and share repurchases buying back 50 million shares.

As we look ahead to Q3, given our improved level of cash generation, we plan to increase share repurchases to approximately 75.

In closing, we delivered another quarter of strong business and financial results.

As we look forward, we remain excited about the opportunities we see to continue investing to serve our advisers grow our business and create long term shareholder value with that operator. Please open the call for questions.

A reminder to ask a question you will need to press star one on your telephone again, if you have a question that is star one one please standby, while we compile the Q&A roster.

One moment for questions.

And our first question comes from Alex <unk> from Goldman Sachs. Your line is now open.

Hey, guys. Good afternoon, and thanks for thanks for taking the question.

So maybe we'll just start off with some of the cash sweep dynamics and <unk>.

One of the slides you guys referenced that the deposit beta is on subsequent hikes.

Beyond a 100 basis points of running a little bit lower than what you experienced I guess in the last cycle.

Just curious to get your thoughts on why that is is it just the pace of rate hikes has been too fast and we're going to likely play a little bit of a catch up or do you think there is a reason to believe that thats more sustainable.

And maybe just as a follow up to that would love a comment on appetite for additional fixed duration. As we saw you guys have gotten in the quarter.

Sure Ross.

I think that maybe the operative point on that flight of the primary point of that slide.

Betas in the prior cycle I think we are just given how much cash is in the system. It's not a surprise to me that the beta so far had been a little bit better, but I would just emphasize a little bit. So I think the center of gravity on where pricing and the product is.

Probably in the zone of last time, which.

Which just highlights it's not really a rate sensitive product.

On your second question on fixed rate I think our objective and goals here remains the same that you I think you've heard for quite some time, which is to get into a range of 50% to 75% of the portfolio on the fixed rate side.

And I think that the primary driver on our ability to do that is really demand coming back. If you look at where we ended the quarter, even though we added some fixed because of the growth that we had worried about 25% of the portfolio.

And I think when you when you think about the demand that came back in the market, it's really starting to build up quite well with us being able to add eight 8 billion of balances in the quarter. There was more demand on the variable rate side right. So about 5 billion of that came on the variable rate side, but.

But the 3 billion on the fixed rate side that was the most that we've put in place in quite some time, probably since since the pandemic began so I think it's encouraging to see.

As we look ahead, it's going to be really about is the additional demand on the fixed rate side there.

In the environment I think is conducive in general to that whether it's the fed continuing to raise rates or probably more importantly, shrinking their balance sheet and taking cash out of the system to the consumer side, where consumer spending remains healthy loan balances growing those are all things that ultimately would lead to sweep demand overall.

And then ultimately I think some fixed rate debt management.

Great. Thanks for that and just maybe for my second question around organic growth.

Obviously and again, perhaps not surprisingly with more volatility we've seen moderation in organic growth across the industry in terms of just net new assets.

You were to unpack that a bit and think about sort of the slightly lower run rate.

The larger transactions.

We've seen from you guys.

How much of that is coming from just slower same store sales versus slower recruiting versus some retention dynamics.

To get a little more color on that as we think on the forward organic growth opportunity for the firm as a whole.

I'll take that one Alex.

Look I think if you if you look at the quarter more closely we saw.

Solid new store activities, and if you look across our traditional markets.

The new models.

The large institution.

You saw a good robust activity.

With.

Some slowing relative to prior quarters and new store sales.

We believe more to do with just that macro backdrop as we've talked about I think is.

Pfizer's pivot through that and get a bit more acclimated to that environment and then.

Begin to look forward again these types of conditions are mutually.

An opportunity for us.

As we believe there will be.

More demand if you will to explore.

Looking at <unk> options and alternatives and so I think <unk> seen just a little sluggish and new store sales, which is more of a backup with the environment.

The retention levels have remained as we pointed out.

Percent range.

Yes.

Year to two years and feel good about where that is and that's at the lower end of kind of our target range and so haven't seen much variability there through the period.

And then same store sales is where you see most of the headwind.

Of course this quarter you have the April dynamic.

Tax payments.

But our headwind on April and then you saw the equity market.

Volatile and move down much of the quarter, we saw a little sluggishness in April we saw some same store sales pick back up in May slightly with the market and then and then June it returned to a headwind.

At our at our conference last week I think in the dialogue with advisors, who are beginning here those advisers get to a place I think in this period, where they are beginning to see more growth opportunities.

As they work through this period of volatility and I think that's logical and normal as they see more opportunity to serve new clients, who may not being served well by other advisors and that ends up being but frankly, a stimulus and a structural opportunity to demonstrate value to differentiate.

Got it.

So.

A headwind in the second quarter.

I do think that structurally speaking we still.

Good opportunity as we go forward on same store sales that's the biggest headwind in short let me pause there I hope that helps great. Yes, no thats helpful. Thanks, Dan.

Okay.

And thank you.

And one moment for questions.

And our next question comes from Steven <unk> from Wolfe Research. Your line is now open.

Hey, good afternoon, Dan Good afternoon, Matt.

First off I, just I just wanted to unpack a recent announcement that you guys made in hiring Bill Sappington and I was hoping you could just speak to the decision around the new hire it certainly sends a strong signal that you guys are focused on growing some of your banking and lending <unk>.

Aleutians.

It is a sizable revenue opportunity. It's one that many of your peers have pursued but just wanted to get a sense. If you could help us frame the long term revenue opportunity here, especially since your advisors haven't historically been strong users of that lending product.

Yes. This is Dan look from a strategic standpoint, we're trying to solve.

<unk> for two opportunities one.

Here our advisors.

With the appetite to broaden their value to their clients.

And provide more of what I might call a holistic.

Approach to that overall.

Spectrum and so it is logical that we would think about bringing lending capabilities cash management solutions.

And integrate those in as part of the client experience and to create those products and solutions to add value to clients.

And then if you by solving that you create economics around that.

It certainly is appealing from a strategic standpoint so.

That's really what we're solving for I think what we did was go up the marketplace and say hey, if we're going to do this right. Let's go get the experience and the insight and the leadership to do that we had been experimenting for.

Short period of time, and just learning enough about it probably asked questions and better identify where our opportunities were and then and then bring that leadership and that helps us go operationalize and execute on that concept.

That's what we're doing we think there's interesting possibilities.

To do that through.

Good third party partnerships that have tight integrations into the overall client experience and thus deliver compelling solutions to the employer.

Via those advisors.

So I hope that helps but that's our that's our strategy.

Great and just for my follow up maybe just unpacking some of the rate commentary that you made earlier Matt.

Two things I wanted to clarify first have you seen any change in client behavior in July in terms of cash allocations, how much of that cash.

<unk> has gone back into the market and secondarily you gave a lot of it.

Color around fixed rate contracts.

Noted that you had termed out some in the quarter.

I'm just trying to gauge your sense of urgency there because the forward curve is pricing in cuts for next year and.

There is some concern that.

If you still are running with a significant amount of floating rate ICA at the downside risk on cash sweep fees can be more acute if we do enter another easing patch.

Yes, I'll take the second one first Stephen I think that.

What I'd emphasize on the fixed rate side is we're below our target range right. So I think from our perspective.

Theres availability in the marketplace for fixed rate, we're interested in doing that and I think what's encouraging.

As I said.

Alex right, having the ability to add $3 billion just this quarter.

Really the most amount we've been able to do in a quarter since the pandemic. So I think it's encouraging but our perspective I think is in line with the premise of your question.

Wed like to to increase fixed rates from here.

All about whether its available in the market.

Now with respect to your first question. So balances in July I think when you. When you look at what you would typically see in the first months of the quarter.

Reminder, that advisory fees are primarily charge or the month. One is the biggest most of the quarter. So that typically would reduce cash, but I think that was offset by the continued organic growth that we have as well as the.

The volatility at least in the first half of July so those two things kind of netted off in I'd say July cash balances were relatively flat.

But I'd add that the mix improve we saw further demand our capacity on the ICA side. So ICA balances actually went up while the money market overflow went down.

And maybe just to complete the July update even though you didn't ask and just get a little bit of color on the M&A front, which has the same dynamics of advisory fees in the first month of the quarter.

Well as that choppy macro.

And I think when you when you factor those things in July as well.

Looking like something that you would expect in that environment, which is organic growth call. It in the 4% zone.

And that is prior to any additional kuna onboarding, which we have about $5 billion to go on the direct side a few minutes I hope that helps.

Give you a little bonuses.

I appreciate it thanks, so much Matt.

Got it.

Thank you.

One moment for our next question.

And our next question comes from Michael Cyprus from Morgan Stanley . Your line is now open.

Great. Thanks, good afternoon.

Just had a question on expenses as we think about the moving pieces for this year, but also into 'twenty three items.

I, probably didnt get any sort of guidance there, but I saw you increase the core G&A growth expense guidance here for 2002, I think that implies around 10, 5% growth to 13% growth for this year. So I guess would you be surprised if that level of growth persisted.

13% growth for this year. So I guess would you be surprised if that level of growth persisted into 'twenty, three and just any sort of help on the moving pieces as we kind of build our models out to 'twenty. Three here just in terms of something that moving pieces around expenses that are coming into the run rate. This year from some of the acquisitions.

As well as the large mandate wins and initiatives that you have going on just in terms of helping us with the run rate impact as we think about full year impact in 'twenty three but at the same time I imagine there are some synergies and some expenses that'll be falling out. So just any help there would be appreciated.

Yes sure of course, I mean, I think the key thing I'll just start with that.

The driver of the increase and specifically, where we are in the interest rate cycle and I think you probably recall the past past few quarters, we've talked about the economics of interest rates going up and our perspective on that which is really for that first 100 basis points or so increase the benefits of that really having that fall to the bar.

Some line and improve outcomes.

And once we got beyond that really looking to our capital allocation framework to drive to drive those decisions.

Sitting here now well above 100 basis points, I think we feel well positioned to really allocate capital across all three of our primary areas, including what you are asking about on the expense front and I think when we look at how and where to allocate that we do focus first and foremost on investments to really drive and support organic growth.

And the investments that we've identified to accelerate into this year that $20 million are really focused on that and areas that where we are we typically spend six technology capabilities, serving and supporting our advisors.

We see opportunities in M&A spending in scatter. Good is a good example of that that were recently recently signed and.

And then of course, returning capital to shareholders.

As I highlighted in the prepared remarks, we plan to increase our <unk>.

Back to $75 million up from $50 million in this quarter.

Now to your question about next year I think what we'll do is really share our thinking on next year. When we typically do which is when we get closer to the end of this year, but I'd just emphasize we will continue to apply our capital allocation framework to really drive, how and where we allocate that capital.

It really focused on making sure we remain flexible and can make decisions really at that time. So we will give you will give you an update then.

And I would just highlight from a share repurchase standpoint, with the $75 million planned for next quarter. We are getting close to completing our current authorization. So that's something that will naturally work to refresh with a new one and we'll also give you an update on after we do that as well.

Okay, and then maybe just on the capital management front, the $75 million of buybacks you mentioned for next quarter should we expect that pace to be sustained into the fourth quarter and beyond how are you thinking about that and then just more broadly on M&A.

Clearly saw that transaction announced in the quarter I think it was employee model, So I guess where else might M&A be additive to the platform at this point and what sort of properties are you seeing out there and how much time are you guys spending on that.

Yes, I mean, I think on the M&A front, it's all about anything that can accelerate our strategy whether it's.

When you look at the different types of M&A that we've done from.

Our traditional markets to helping advanced or advanced our entry into a new market.

On the technology side.

In advancing capabilities that we otherwise would have had to build so I think it goes all of those back to our strategy.

Whether it can advance that or not and of course, if it's a price that makes financial sense and if it is a growth acquisition of operation. We are in a position to be able to bring it up.

So I think that that perspective is really that we've had for a while is really it's really the same.

On share repurchases I'd just go back to what I said at the <unk>.

Answering the prior question is really about our framework and what the opportunities are to allocate capital I think with where interest rates are we do expect to have more capital to allocate.

And we will be focused then on the opportunities we see on organic growth and M&A and returning capital to shareholders through share repurchases. So it just depends on what the opportunities look like but if share repurchases makes sense, we will allocate capital. There, we'll just have to see what it looks like at the time.

Okay. Thank you.

And thank you.

One moment for questions.

And our next question comes from Brennan Hawken from UBS. Your line is now open.

Good afternoon, guys. Thanks for taking my questions.

To start with a follow up.

Steven and Alex's questions. So.

The.

The floating rate ICA contracts are still being done at flat to fed funds. Matt you indicated that demand was improving and we certainly saw that on the volume side. This quarter. When do you think that that demand is going to translate into price as well.

Thinking back to the <unk>.

The historical premium two fed fund rates that you typically get on a floating rates.

Sure, Brian I mean, I think that I remember I think look back.

What it peaked right I think the fed funds.

The variable contracts, we're at fed funds of maybe plus 20 plus 25.

And I think that was at the peak right. So where we are now with just the amount of demand and volume I would just emphasize was the big big positive for the quarter and moving from contracts that were fed funds fed funds minus a couple of basis points and now starting to get some that are fed funds plus even in the five range or so.

A pretty quick improvement.

So it's hard to know if that trend continues I just will say when you look out in the marketplace.

And the factors that would drive demand just continue to be so it would not surprise me.

From a balance standpoint, if demand continues to increase and whether the spreads go from the <unk>.

Five ish zone that we just saw up to that 2025 that we saw at the peak that's harder to know, but keep in mind with fed funds at 225% to $2 50.

Spread that we're talking about a relatively small piece of the overall economy.

Sure sure.

I didn't realize that you are seeing some small improvements in price. So that's certainly encouraging and it makes sense.

On the other asset based fees, Matt I believe that you flagged in $8 million payment related to prior period activity should we consider that to be onetime in nature or is there a reason why that might be recurring.

Yes, its prior its prior period related so not recur.

Got it okay. Thanks very much.

Okay.

And thank you.

And one moment our next question.

Yeah.

And our next question comes from Devin Ryan from JMP Securities. Your line is now open.

Hey, Thanks, good evening everyone.

First question just wanted to dig in a little bit more around.

If we get some more flavor on just the pool of advisors in motion today.

What youre seeing both there and you touched little bit Matt on kind of M&A properties, but just how that's been evolving.

In the current backdrop.

If theres any affiliation model that people are gravitating to in this environment and then whether in terms of just the strategy.

Whether people are seeking LPL out or if you are kind of aggressively proactively going after either M&A targets or recruiting. So we're hearing kind of two sides in the marker I know some people are having a lot of success as you are.

Seeing much at all so just love to get a little flavor for that.

Yeah, Devin let me, let me take a stab at that and couple of questions in there if I don't get it all please.

Just to circle back so I think with respect to the opportunity set I think you've heard us talk about for the.

Past year Theres been slower movements are less movement, if you will than historical norms.

Overall marketplace and we've continued to expand.

Our participation rate so our share during periods of time.

And I think that's probably reflective.

But we just saw.

And we're very proactive in the marketplace across all different models affiliation models.

Terms of making sure that.

We create awareness for the solutions that we have sort of horizontal expansion was going on with multiple affiliation models.

We want to make sure that people are aware of it solutions and problems that we can help them.

And certainly our ongoing investment in vertical integration of our capabilities is making the model more and more fueling.

Two advisors again in all business segments and so.

We want to make sure that people are aware of that capability set within the pace of innovation, which means fulfilling one.

The team has done a really good job I think of creating structure.

Using.

Data insights that go to the market.

<unk> way and crisp way to tell that story.

In a consistent way so.

We're very intentional about trying to be.

Good at <unk>.

<unk>, new advisors and very intentional about constant.

Constantly working on how can we improve.

So I think this combination of the capabilities that we've built matched with growing efficacy of our ability to.

Two.

Fruit.

Is leading to that sort of consistent.

Up into the right.

So related to sports.

And again, we see a really strong pipeline notwithstanding what's going on in the marketplace all of our different models.

That is very encouraging I think.

Employee base solution that we have still retained independent principles.

We're seeing continuing so really resonate out in the marketplace is more and more people become aware of it and we understand the combination.

Get all preserving sort of.

Principals and most appealing attributes of the independent model.

We think is really interesting.

Yes.

I hope that helps.

That's helpful. Thanks, Dan.

Maybe just a quick follow up here on the services business.

You mentioned there is some new services in pilot.

Incubation at the moment not sure. If you can give me more detail on what those might look like or what buckets. They fit into and then but should we think about the kind of a bigger picture as you continue to scale is there room for pricing uplift as it sounds like a lot of the advisors are getting a lot of value out of it.

And maybe arguably even under pricing some of the services.

Or really is it just more about the differentiation of that platform and so it just helps growth and stickiness just love to get more cars in kind of a longer term vision.

Yes, it's a good question look strategically our hypothesis was hey, theres real problems and challenges to help these advisors better operate their businesses that we could solve.

In a more effective way and in a cheaper way for them. Thus.

Thus, creating real alternatives and real appeal and.

And then if you can then integrate them.

Automation and technology steam when service is human centered.

Apology around it that would be a great way to not only create scalability and efficiency in the overall delivery of those services.

I do them for lower cost.

Again improvement enhanced the value. So I think that's the journey, we're on and that's the journey we're on with the first.

Generation of solutions that we offer to the marketplace Edmunds CFO marketing.

As the professional services that we started with.

I think we continue to refine them and improve and enhance them.

I'll give us.

Our.

Certain of the solutions and services.

Devon continues to innovate on how you offer them to the marketplace and it could be that you turn those that holistic sort of CFO solution into different discrete solutions think about keeping as a derivative of that that might have a lower price point.

<unk>.

Need within the old CFO scope and so there's another a number of iterations that we can take create.

Expansion that have different price points that actually make it more accessible and easier for us to serve a broader set of advisers. So you've got both dynamics its product innovation needs.

Different positioning in the marketplace that will drive by sports and to your point is to create more value. Then you can also charge more historically.

Consistent with valuable.

So I think all of those spectrum.

Possibilities are there for us.

We are heavily into the innovation and trying to learn and understand what problems or challenges, we're hearing from advisers and how we can earn.

That into a service.

You mentioned some things that are in the incubation phase indoor but Michael.

Look the thing is one of those we think will be an interesting opportunity that will go to market later this year on.

And then we've got another.

Probably five or six that are in that incubation phase that then logically would move.

Alright.

Hope that helps.

Yes, very helpful. Thanks, Dan I appreciate it I'll leave it there.

Thank you.

And one moment our next question.

And our next question comes from Gerald O'hara from Jefferies. Your line is now open.

Great. Thanks, maybe just sticking with the business solutions for for a moment.

Can you maybe give us a little bit of color or context around kind of the stickiness of.

Of the subscriptions and what those kind of renewal terms look like or how long the contracts are or anything to just give us some insight as to the.

The longer term kind of opportunity there.

Yes, so there is a variety of different solutions and services.

That are offered rights that you have the professional services that I mentioned before CFO marketing.

Business strategy.

Then you have some business solutions that we've created that.

Or more like M&A solutions, our assurance plan remote office resilience plan and even now arrow planning as a solution and so there are slightly different in the in the in the.

<unk>.

And there are slightly different than how an advisor and they use them.

And so.

You are distinctively different than they have.

Think about contracts and things of that nature.

If you take the professional services generally speaking that's a one year contract to start that.

Typically speaking.

We have done that as a way to presented to the marketplace to make sure that it's not a longer term commitment as people got acclimated service understood whether that has value to them or not but then gave us enough time I E. A year to make sure that they hadn't informed you in <unk>.

Used it enough to really understand whether it created value.

And I think you have.

You have high retention rates on those different types of services.

We're also learning into the marketplaces I said in my remarks.

We saw some advisors that moved over from Waddell and read on our admin services.

<unk>.

Used those for a shorter timeframe.

It was to say Hey, I just want to help me transition.

Over to <unk>. So their vision was just one term on that contract and then and then ultimately.

Would find a different long term solution. So that's a good learning for us and an opportunity to innovate around that and create a different type of solution or shorter term specific need in time might have a higher price associated with it but still create that value that they need for that short period.

That was a good example, and learning where you might've had higher attrition rates on the surface of the admin.

That period of time, but it was more related to how they were using the service.

Dissatisfaction sorry, so again I think as we as we innovate on this portfolio and we offer them to the marketplace and we're seeing how people use them in different ways. It's a good learning experience and evolution for us in terms of making sure we fine tune the value.

And that we are well positioned in the marketplace to meet the specific needs.

<unk>.

We're looking for so net out as think high retention rates, some and again our opportunity is to continue to create awareness and to make sure that we expand that portfolio. So that we reach more advisers with a variety of different solutions that they need and we think that there is a significant amount of value to be added it also.

Great stickiness and.

Around that overall relationship with US and also has the residual market is.

The improvement in advancing the overall.

Correct.

Hi, tailwind to same store sales.

Our retention rates that come along with those.

Those additional services as part of our relationship.

And that helps us with new store sales is a differentiated.

<unk> differentiated model.

Yeah.

Okay. That's helpful and then as a follow up.

I think around about this time last year, you kind of gave some.

Color with respect to the RIAA relaunch and sort of how that that.

And that strategy was.

Coming along I guess sort of early days, maybe encouraging pipeline comments, along those lines, but.

I think you also ended by saying you kind of need to go out and sell it. So hoping you might be able to give us a little bit of an update as to as to how that's coming along thank you.

Yeah. Good question and I think that was a go back a year ago, we've kind of relaunched if you will or went to the marketplace in a more offensive posture relative to our offering.

We continue to.

Go to the marketplace.

Looking for those opportunities for folks to leverage us as.

Vertically integrated strategic partner that are that are that are <unk> only.

We see the AG capabilities and pricing that we believe is additive and compelling and youre seeing that show up in the recruiting that we've had over the past 12 months that said I think there's more that we can do and more opportunity and more we can be more intentional about how we go to the market.

Really established ourselves as a differentiated strategic partner and value added partner and not just the custodian to <unk> and <unk>.

So we have more to play there.

Youll hear more about it.

Portals.

And thank you.

And one moment for our next question.

And our next question comes from Kyle Voigt from K BW. Your line is now open.

Hi, Good evening, maybe a follow up question on capital management.

Our leverage ratio is roughly two one times, which is towards the bottom end of your range Youre targeted range I.

I guess when you consider that ratio is calculated using LTM EBITDA and the rate sensitivity you've disclosed it's relatively easy to see how that leverage ratio can very quickly move below one five times without down any debt and still investing significantly in that business.

How do you view your optimal leverage ratio in the period with rapidly growing EBITDA and I guess would you be willing to kind of let this trend significantly below the target as we look at it here.

Yeah, Kyle I mean, I think we're just starting with the range I think the two to $2 75, we think is the right range to operate it.

And it does a handful of things, but I think the balance sheet strength is key and supportive.

Recruiting and supporting our advisors that are with US, it's really really important and I think in addition to that positioning us to have flexibility to deploy capital based on the opportunities that we see.

Including M&A investments in organic growth.

Are important as well and I think to the point of your question I think as we get deeper into the interest rate cycle or even where we are right now I think we feel.

Comfortable and like being positioned on the lower end of that range.

As the interest rates get get higher and higher and the amount of EBITDA that is driven by that either as economics as a larger percentage of it.

I think if we ended up dropping below the low end of that range.

And maybe I wouldn't say significantly to your question, but maybe by a small amount for a short period of time I think that's okay. I think our center of gravity and focus is being really deliberate and thoughtful about not only where we allocate that capital, but when we allocate capital.

So I think.

That's our perspective.

Overall, we wanted to allocate that capital to drive value and I think we feel good where we're positioned today.

Understood. Thank you for that.

As a follow up on client cash I appreciate the commentary on July .

Just a question on the idea of potential sorting advisers figure around client cash are you seeing any incremental signs of more yield seeking days.

Whether that's demand for mining Treasury short duration fixed income instruments.

Given that we've just got in this most recent pointed out last week and obviously acknowledging that the very strong <unk>. Just wondering if there's any been any change in behavior, you've seen certainly that's been neutral.

Yeah, I think I got your question Kyle is breaking up there, but I think when you look at the the rate sensitivity of our cash and has anything changed I think the answer is no and I think just maybe a couple of reminders.

The cash.

We have in sweep on our business is largely operational.

And Thats why we tend to have some of the lowest cash as a percent of AUM in the industry, where it's usually in the 5% zone.

And the primary factor that tends to move that up and down is really market sentiment as opposed to rate seeking behavior.

And I think when you look at just the last couple of quarters, and especially this quarter I think youre seeing that play out just looking at Q2 as interest rates have gone up meaningfully.

During the quarter, our cash balances actually grew both in dollars and as a percent of AUM up to six 5% just given the volatility that you saw in the quarter. So I think.

The cash tends to be operational in <unk>.

Even even looking back at Q1, the last couple of quarters, I think youre seeing empirical data that really validates that the cash.

The rate seeking behavior is really not in the cash that we haven't been.

Yeah got it thank you very much.

And thank you.

And one moment if our next question.

And our next question comes from Craig Siegenthaler from Bank of America. Your line is now open.

Hey, good afternoon, everyone hope, you're all doing well.

I wanted to come back to the pure RIAA channel, which you just relaunched a little more than a year ago.

Can you provide us an update on how this channel is doing and I was also interested in how the competitive landscape is evolving with both the merger of two of the biggest sorry custodians.

And also some changes in the macro backdrop year to date.

Yes, so I think with respect to the Ari business look the last two quarters <unk> seen our affiliation models collectively we've recruited in.

In each of those quarters, a little over $2 billion in assets and certainly the <unk> solution is.

Or to that so again, we're seeing good traction with our offering in the marketplace today.

As I shared with you, though we see the opportunity to be a more significant vertically integrated strategic partner than just a custodian and so that's one of the things that we're trying to be intentional about both in terms of how we think about our offering our pricing and even potentially our branding work that off and so there is more to play out there.

You'll hear more about as we go forward, but we do see the opportunity given the size of that market to continue to win share there.

I do think that the consolidation of two large custodians that creates disruption or some potential change in the marketplace and usually where theres change, it's a well prepared.

Chance favors the prepared and you can capitalize on that opportunity and so on.

I think we certainly see that as one of the possibilities and opportunities amongst a number to the win share as we go forward. So.

I hope that helps give you a little bit more color and context on a the opportunity to see them and how we're trying to be intentional about some without.

Without capitalizing anymore.

Thank you Dan and then I wanted to do my follow up on the Bank channel. So two big wins last year to this year with with both Qunar and People's United coming shortly.

What's the potential for additional bank channel wins can you keep the street Caf two wins per year alive next year and also is the macro backdrop, making it a little tougher to find the next win.

With banks, focusing more internally right now.

Yes, good question and so look that as we go forward our pipeline continues to build across.

A larger spectrum financial institution clients.

Momentum, where you had some success you continue to iterate all your value proposition in that.

To create more dialogue and more opportunity so we.

We certainly see.

We certainly see that demand is picking up and what.

What are the biggest hurdles as just the whole onboarding change minute transition process, we continue to learn and apply those insights and new innovations I like to say now make our onboarding and transition process, a differentiated capability and that's one of the things that we saw as a big opportunity.

One of the barriers, if you will of making that transition and the change.

And so we think that the track record of steady wins, the ongoing evolution and appeal of our model smooth transitions is increasingly making us confident in the durability of this growth in this channel.

So that may be answers. Your first question your second question around.

The banks and their interest and their willingness to have this dialogue.

I think the significant opportunity we have to add value across sort of the spectrum of economics meets risk management needs operational efficiency potential growth in their programs.

Notwithstanding the market volatility.

There's a lot of reasons to have a dialogue and discussion.

We see.

Those opportunities to explore those possibilities continuing to evolve in a constructive world so macro hasn't.

Really altered the trajectory of those.

Thank you Dan.

<unk>.

And thank you.

And I am showing no further questions I would now like to turn the call back over to Dan Arnold for closing remarks.

Hey, I'd just like to thank 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 forward to speaking with you again next quarter have a great day and you may now disconnect.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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Good afternoon and thank.

You for joining the second quarter 2022 earnings conference call for LPL Financial Holdings, Inc. Joining me on the call today are <unk>.

And Chief Executive Officer, Dan Arnold and Chief Financial Officer, Matt All debt.

Dan and Matt will offer introductory remarks, and then the call will be opened for questions. The company would appreciate as analyst would limit themselves to one question and one follow up.

The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website investor LPL Dot com.

<unk> call includes forward looking statements, including statements about LPL financial future and operating results outlook business strategies and plans as well as other opportunities and potential risks that management foresees. Thus forward looking statements reflect management's current estimates or beliefs and are subject to known.

One and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward looking statements.

During the call. The company will also discuss certain non-GAAP financial measures.

For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures. Please refer to the company's earnings release, which can be found at investor Dot LPL Dot com.

With that I will now turn the call over to Mr. Arnold.

Thank you Justin and thanks to everyone for joining our call today.

Over the past quarter, we remained focused on our mission of taking care of our advisers. So they can take care of their clients.

Amid persistent market volatility and geopolitical uncertainty our advisors reinforced the value they provide to their clients by helping them navigate through times of uncertainty.

Spirit I want to recognize our advisers for their continued care and dedication to their clients, especially.

Especially when they need it most.

With respect to our performance our second quarter business result, led to solid financial outlook.

At the same time, we continue to make progress in our strategic plan.

I'll review both of these areas starting with our second quarter business results.

In the quarter total assets decreased to $1. One trillion as continued solid organic growth was more than offset by lower equity more.

With respect to organic growth the business continued to perform well despite market volatility.

Second quarter net new assets were <unk> 37 billion, which included 25 billion from kuna and represented 13% annualized rate.

These quarterly results contributed to a 10% organic growth rate for the past 12 months.

Looking at recruited assets. They were 44 billion in Q2 included 32 billion group unit.

This brought our total recruited assets over the past 12 months to 84 billion, which was up $4 billion from the same period year ago.

These results were driven by the ongoing enhancements to our model and our expanded addressable market.

Looking at same store sales our advisors continue to focus on serving their clients and differentiating their solutions in the market.

And while market volatility led some clients to moderate or activity in the quarter.

Periods of heightened uncertainty are often the environments that reinforce the value of professional advice and with time and serve as a catalyst for advisors to grow their products.

As a result asset retention was approximately 98% in the second quarter and 98% over the past 12 months.

Our second quarter business results led to solid financial outcomes of $2 24.

EPS prior to intangibles and the acquisition and.

An increase of 21%.

Let's now turn to the progress we made on our strategic plan.

As a reminder, our long term vision is to become the leader across the entire advisor center market.

Which for us means being the best at empowering advisors and institutions to deliver great advice to their clients and to be great operators of their businesses.

To bring this vision to life, we're providing the capabilities and solutions that help our advisors deliver personalized advice and planning experiences to their Cologne.

At the same time through human driven technology enabled solutions and expertise, we're supporting advisers and their efforts the extraordinary business soon.

During this will gives us a sustainable path to industry leadership.

The advisor experience organic growth and market share.

Now to execute on our strategy, we have organized our work into four strategic plays which I'll review in term.

Our first strategic play involves meeting advisors and institutions, where they are in the evolution of the business.

By winning in our traditional markets, while also leveraging new affiliation models and expand our addressable.

Our recruiting and traditional markets continued to be a source of growth in Q2 with approximately $9 billion in assets.

Continue to increase our win rates and expand the depth and breadth of our pipeline notwithstanding a broader broader slowdown and advisor movement over the past couple of quarters.

Historically during the initial stages of elevated market volatility advisors, often focus on supporting existing clients and may pause and making strategic decisions like switching firms. However, after advisers have acclimated to the condition. They will often use times like this consider new options for their practices likely creating an opportune.

<unk> for us from a recruiting season.

With respect to our new affiliation models strategic well employ and our enhanced RIAA awkward, we recruited over $2 billion in assets in Q2, and believe we are well positioned to drive continued growth across all three months.

Second quarter saw a new high for recruited assets and our employee model as the value proposition for advisors has proven to be compelling.

As a complement to our organic growth, we recently announced the acquisition of the private client group business at bidding in scatter group, which we will onboard to our employee model early next year.

With respect to large financial institutions, we on boarded kuna in May and we are on track to onboard People's United later this year.

We continue to learn each experienced use these findings to drive innovation that improves the transition to LPL and in turn helps make our offering even more.

As we look ahead, we expect to continue winning in this market as demand for our model.

Our second strategic play is focused on providing capabilities that help our advisers differentiate in the marketplace and drive efficiency in their practices.

Part of that focus we continue to enhance client works our core operating platform with the expansion of digitized workloads. For example in the second quarter, we introduced enhancements to our move money solution, which makes it easier and more automated for advisors to support deposits and withdrawals within client accounts.

Separately, we also enhanced the client management workflow for adviser by integrating gold planning data into our meeting manager solution, which facilitates more efficient preparation for and more value added dialogue with the client reviews.

These enhancements helped advisors operate more effectively and increase their scalability to serve more clients.

Let's next move to our third strategic play, which is focused on creating an industry, leading service experience that delights advisors and their clients and in turn helps drive advisor recruiting and retention.

As a reminder, over the past two years, we have transformed our service.

Into an omnichannel client care, which includes voice chat and digital support.

Giving advisers flexibility for when and how they access service.

Continue to fine tune this model to drive additional efficiencies and an enhanced experience for our advisers.

As part of the next phase of our transformation, we continue to expand and enrich our digital processing capabilities in order to provide greater flexibility speed and accuracy for R.

Our transformation efforts are currently focused on for clearing functions, including money movement account opening and account transfers, which collectively drive the majority of our operational process.

And while we remain early in these efforts we are seeing solid progress as we are now processing millions of transactions for our advisors through the applications of robotics and AI.

Expanding the automation of these critical processes, we continue to increase scalability and efficiency of our platform.

I will also soon.

In that spirit.

Our fourth strategic play is focused on developing our services portfolio that helps advisors and institutions run thriving businesses and deliver comprehensive advice to their clients.

In the second quarter, our subscription base ended the period at nearly 3900 with sequential growth moderating slightly in the wake of macro volatility.

We work with advisors on existing services, we continue to identify new needs. We can solve for on their behalf, which is a catalyst for further innovation that expands the value proposition of our existing services and surfaces opportunities for new service.

One example relates to how former Waddell <unk> Reed advisors utilize our admin solutions on an interim basis to help them during the onboarding process.

And based on that insight, we created a set of solutions for shorter term agents with our services to software specific need in time for advice.

We are testing some of these with cuneate advisors as they transition through our platform.

Looking at our pipeline for the second half of the year, we have several services in pilot and other offerings in the incubation stage and as we move forward, we will remain focused on enhancing and expanding our services portfolio better support our advisors and drive growth.

In summary in the second quarter, we continued to invest in the value proposition for advisers and their clients, while driving growth and increasing our market leadership as.

As we look ahead, we remain focused on executing our strategy to help our advisors further differentiate and win in the marketplace and as a result.

Term shareholder value that I will turn the call over to Matt Alright, Thank you, Dan and I'm glad to speak with everyone on today's call.

In the second quarter, we remain focused on serving our advisors rolling our business and delivering shareholder value.

Against the volatile market backdrop, we delivered another quarter of solid net new assets and earnings growth.

In addition, we progressed the work to enhance our sweet program utilizing free credits to create client cash.

Substantially completed the integration of what <unk> signed an agreement to acquire bedding and Scattergood Onboarding kuna and are preparing to onboard people's United.

So as we look ahead, we continue to be excited by the opportunities to help our advisers differentiate and win in the marketplace.

Now, let's turn to our second quarter business results total.

Total advisory and brokerage assets were $1 one trillion.

8% in Q1 is continued organic growth was more than offset by lower equity.

Total net new assets were <unk> 37 billion or 13% annualized growth.

Looking more closely at recruiting Q2 recruited assets were the strongest in our history at $44 billion.

Which included 32 from Q.

These results brought our 12 month total to 84 billion.

Now, let's turn to our Q2 financials.

Combination of organic growth.

Rising interest rates higher client cash balances and expense discipline.

Led to EPS prior to intangibles and acquisition cost of $2 24.

This was up 21% from a year ago and is the highest in our history.

Looking at our top line growth gross profit reached a new high of $711 million up $42 million or 6% sequentially.

Looking at the components mission advisory fees net of payout were 205 million down $22 million from Q1.

The decrease was primarily driven by the seasonal increase in production bonus expense.

And lower advisory fees following the Q1 equity market.

In Q2, our payout rate was 87% up about 90 basis points from Q1 due to typical seasonality.

Looking ahead to Q3, we anticipate our payout rate will increase to roughly 88% drill.

Driven by the typical seasonal build in the production notes as well as the Onboarding.

Moving on to asset based revenues sponsor.

Sponsor revenue was $208 million in Q2.

Down 4 million sequentially as average assets decreased during the quarter driven by lower equity.

This was partially offset by an 8 million payment from our sponsor related to higher periods of activity.

Turning to client cash revenues, it was $156 million up $71 million from Q1.

This was driven by higher client cash balance as well as higher average short term interest.

Looking at overall client cash balances they were up in the period ending the quarter at $70 billion.

Within our ICA portfolio, we added capacity in Q2 as we saw further improvements in bank deposit demand leading to an increase in balances of $8 billion.

Of which $3 billion of fixed rate and $5 billion are floating rate.

Looking more closely at our ICA yield was 134 basis points in Q2.

Up 32 basis points from Q1, primarily driven by the increase in the fed funds rate during the quarter.

As we look ahead to Q3, we expect our ICA yield to continue to increase.

Based on where interest rates are today.

And our historical betas, we expect our Q3 ICA yield to increase to approximately 195 base.

Before moving on I want to highlight that we updated our reporting of client cash balances.

As we prepare for the introduction of the client cash count as our primary sweep overflow vehicle.

We have updated our cash reporting to include these balance.

In addition purchase money market fund balances have been relocated and notes Barbara.

The historical data, reflecting these changes is available in our historical information.

Now, let's turn to service and fee revenue, which in Q2 was 113 billion unchanged from Q1.

Within our services group, we ended the quarter with nearly 3900 subscriptions, which is up about 300 from last.

Our services group now generates roughly $32 million of annual revenue.

While also contributing to organic growth by helping drive recruiting same store sales and retention.

Looking ahead to Q3, we expect servicing fee revenue to increase by roughly $10 million sequentially.

Driven by revenues from our National Advisor Conference and IRI.

Moving onto Q2 transaction.

It was $44 million down $2 million sequentially due to decreased trading.

As we look ahead to Q3 volumes in July had seasonally decline, which on a run rate basis would result in a decline in transaction revenue of around $10 million from chip.

Now, let's turn to expenses, starting with core G&A.

It was $286 million in Q2.

Looking ahead, we plan to stay disciplined on expenses, while continuing to invest to drive growth.

Given the increase in interest rates to date, including the rate hikes last week.

We are poised to generate significant additional capital.

Our framework for allocating this capital remains aligned with the returns, we generate which first and foremost as investments to drive and support organic growth.

Now that we're deeper into the rate cycle, we plan to accelerate some of these investments and anticipate up to $20 million of additional or G&A in 2022.

This increases our 2022 core G&A outlook to a range of $1 billion 170 minutes.

The $1 billion 195.

Moving onto Q2 promotional expense was $84 million down 4 million sequentially, primarily driven by lower conference expense.

Looking ahead to Q3, we expect promotional expense will increase to approximately $105 million.

Primarily driven by conference spend as we hosted our largest advisor conference of the year last week, which returned to an in person format for the first time in three years.

Now, let's move to what Alan Murray.

In total we on boarded over $70 billion.

Is 99% of client assets joined our platform.

We generated EBITDA of roughly $21 million in Q2.

For $85 million on an annualized basis.

At the end of the quarter the run rate EBITDA benefit was approximately $100 million.

Bringing our estimated purchase multiple of four five times.

As we have now substantially completed the integration going forward, we will no longer break out their standalone. So.

Turning to depreciation and amortization was $48 million in Q2.

Up $3 million sequentially.

Looking ahead to Q3, we expect depreciation and amortization to increase by up to $5 million sequentially.

As for interest expense it was $29 million in Q2 up $2 million sequentially as higher LIBOR rates increase the cost of our fleet debt.

Looking ahead to Q3, we expect interest expense to increase to approximately 33 million.

Primarily driven by the increase in LIBOR.

Moving on to capital management, our balance sheet remained strong in Q2 with a leverage ratio at two one times and corporate cash of $241 million.

As for capital deployment, our framework remains focused on allocating capital aligned with the returns we get.

And organic growth first and foremost pursuing M&A, where appropriate and returning excess capital to shareholders.

In Q2, we allocated capital to both organic growth and share repurchases buying back 50 million shares.

As we look ahead to Q3, given our improved level of cash generation, we plan to increase share repurchases to approximately 75.

In closing, we delivered another quarter of strong business and financial results.

A reminder to ask a question you will need to press star one on your telephone again, if you have a question that is star one one please standby, while we compile the Q&A roster.

One moment for questions.

And our first question comes from Alex <unk> from Goldman Sachs. Your line is now open.

Hey, guys. Good afternoon, and thanks for thanks for taking the question.

So Matt maybe we'll just start off with some of the cash sweep dynamics and <unk>.

One of the slides you guys referenced that the deposit beta is on subsequent hikes.

Beyond 100 basis points of running a little bit lower than what you experienced I guess in the last cycle.

And maybe just as a follow up to that would love a comment on appetite for additional fixed duration. As we saw you guys have got in the quarter. Thanks.

Sure Ross I think maybe the operative point on that slide the primary point of that slide.

Beta to the prior cycle I think we are just given how much cash is in the system. It's not a surprise to me that the beta so far had been a little bit better, but I would just emphasize a little bit. So I think the center of gravity on where pricing and the product is.

Probably in the zone of last time, which.

Which just highlights it's not really a rate sensitive product.

And I think the primary driver on our ability to do that is really demand coming back. So if you look at where we ended the quarter, even though we added some fixed because of the growth that we had worried about 25% of the portfolio.

And I think when you think about the demand that came back in the market, it's really starting to build up quite well with us being able to add eight 8 billion of balances in the quarter. There was more demand on the variable rate side right. So about 5 billion of that came on the variable rate side, but.

The 3 billion on the fixed rate side that was the most that we've put in place.

Quite some time, probably since since the pandemic began so I think it's encouraging to see and.

And as we look ahead, it's going to be really about is the additional demand on the fixed rate side there.

The environment I think is conducive in general to that whether it's the fed continuing to raise rates or probably more importantly, shrinking their balance sheet and taking cash out of the system to the consumer side, where consumer spending remains healthy loan balances growing those are all things that ultimately would lead to sweep demand overall.

And then ultimately I think some fixed rate debt management.

Great Thanks for that.

And just maybe for my second question around organic growth.

Obviously and again, perhaps not surprisingly with more volatility we've seen moderation in organic growth across the industry in terms of just net new assets.

As you were to unpack that a bit and think about sort of the slightly lower run rate ex the larger transactions that.

We've seen from you guys.

How much of that is coming from just slower same store sales versus slower recruiting versus some retention dynamics just would love to get a little more color on that as we think on the forward organic growth opportunity for the firm as a whole.

I'll take that one Alex.

Look I think if you if you look at the quarter more closely.

Salt.

Solid new store activities, and if you look across our traditional markets.

The new models.

The large institution.

You saw a good robust activity.

With.

Some slowing relative to prior quarters and new store sales.

We believe more to do with just that macro backdrop as we've talked about I think is.

Is it through that and get a bit more acclimated to that environment and then.

Begin to look forward again these types of conditions that are mutually.

An opportunity for us.

As we believe it will be.

More demand if you will to explore.

Looking at <unk> options and alternatives and so I think <unk> seen just a little sluggish and new store sales, which is more of a backup with the environment.

The retention levels have remained as we've pointed out that 2% range in the past.

Year to two years, and we feel good about where that is and thats at the lower end of kind of our target range and so haven't seen much variability there through the period and then.

Same store sales is where you see most of the headwind.

Of course this quarter you have the April dynamic.

Tax payments.

But our headwind on April and then you saw the equity market.

At our at our conference last week I think in the dialogue with advisors, who are beginning here those advisers get to a place I think in this period, where they are beginning to see more.

More growth opportunities.

So a.

A headwind in the second quarter.

I do think that structurally speaking we still.

Good opportunity as we go forward on same store sales, but that's the biggest headwind in the short let me pause there I hope that helps Greg Yes, no thats helpful. Thanks, Dan.

Okay.

And thank you.

And one moment for questions.

And our next question comes from Steven <unk> from Wolfe Research. Your line is now open.

Hey, good afternoon, Dan Good afternoon, Matt.

<unk>.

Yes. This is Dan I look from a strategic standpoint, we're trying to solve.

Sulfur two opportunities one.

<unk> here.

Visors.

With the appetite to broaden their value to their clients.

And provide more of what I might call a holistic.

Approach to that overall.

Spectrum and so it is logical that we would think about bringing lending capabilities cash management solutions.

Sure.

And integrate those in as part of the client experience and create those products and solutions to add value to clients.

And then if you by solving that you create economics around that.

That certainly is appealing from a strategic standpoint so.

That's really what we're solving for I think what we did was go out to the marketplace and say hey, if we're going to do this right. Let's go get the experience and the insight and the leadership to do that we had been experimenting for sure.

Period of time, and just learning enough about it probably ask questions and better identify where our opportunities were and then and then bring that leadership to help us go operationalize and execute on that concept.

That's what we're doing we think there's interesting possibilities.

To do that through good third party partnerships that have tight integrations into the overall client experience and thus deliver compelling solutions to the employment via those advisors.

So I hope that helps but that's our that's our strategy.

Great and just for my follow up maybe just unpacking some of the rate commentary that you made earlier Matt.

Two things I wanted to clarify first have you seen any change in client behavior in July in terms of cash allocations, how much of that cash if any has gone back into the market and secondarily you gave a lot of help.

Color around fixed rate contracts.

Noted that you had termed out some in the quarter.

I'm just trying to gauge your sense of urgency there because the forward curve is pricing in cuts for next year and.

There is some concern that.

If you still are running with a significant amount of floating rate ICA at the downside risk on cash sweep fees can be more acute if we do enter another easing patch.

Yes, I'll take the second one first Stephen I think that what.

What I'd emphasize on the fixed rate side is we're below our target range right. So I think from our perspective.

There is availability in the marketplace for fixed rate, we're interested in doing it and I think what's encouraging.

As I said.

Alex having the ability to add $3 billion just this quarter.

Really the most amount we've been able to do in a quarter since the pandemic. So I think it's encouraging but our perspective I think is in line with the premise of your question that.

That we'd like to to increase fixed rates from here, it's just all about whether its available in the market.

Now with respect to your first question so balances in July I think.

When you look at what you would typically see in the first months of the quarter I'll just remind you that advisory fees are primarily charge or the month. One is the biggest most of the quarter. So that typically would reduce cash, but I think that was offset by the continued organic growth that we have as well as the volatility at least in the first half of July so those two things kind of <unk>.

Netted off in I'd say July cash balances were relatively flat.

I would add that the mix improve we saw further demand our capacity on the ICA side. So ICA balances actually went up while the money market overflow went down.

As well as that choppy macro.

When you when you factor those things in July is looking like something that you would expect in that environment, which is organic growth call. It in the 4% zone.

And that is prior to any additional tuna, onboarding, which we have about $5 billion to go on the direct side of units. So I hope that helps.

To give you a bonus it.

I appreciate it thanks, so much Matt.

Got it.

Thank you.

And one moment our next question.

And our next question comes from Michael Cyprus from Morgan Stanley . Your line is now open.

Great. Thanks, good afternoon.

Just had a question on expenses as we think about the moving pieces for this year, but also into.

23 items.

Probably to get any sort of guidance there, but saw you increase the core G&A growth expense guidance here for 'twenty, two I think that implies around 10, 5% growth to 13% growth for this year. So I guess would you be surprised if that level of growth persisted.

13% growth for this year. So I guess would you be surprised if that level of growth persisted into 'twenty, three and just any sort of help on the moving pieces as we kind of build our models out to 'twenty. Three here just in terms of someone that moving pieces around expenses that are coming into the run rate. This year from some of the acquisitions.

As well as the large mandate wins and initiatives that you have going on just in terms of helping us with the run rate impact as we think about full year impact in 'twenty three but at the same time I imagine there are some synergies and some expenses that will be falling out. So just any help there would be appreciated.

Yes sure of course, I mean, I think the key thing I'll just start with that.

The driver of the increase and specifically, where we are in the interest rate cycle and I think you probably recall the past past few quarters, we've talked about the economics of interest rates going up and our perspective on that which is really for that first 100 basis points or so increase that the benefits of that really having that fall to the <unk>.

Online and improve outcomes.

And once we got beyond that really looking to our capital allocation framework to drive to drive the decision then.

Sitting here now well above 100 basis points, I think we feel well position to really allocate capital across all three of our primary areas, including what you are asking about on the expense front and I think when we look at how and where to allocate that we do focus first and foremost on investments to really drive and support organic growth.

And the investments that we've identified to accelerate into this year that $20 million are really focused on that and areas that where we typically spend technology capabilities, serving and supporting our advisors.

We see opportunities in M&A that setting and Scattergood is a good example of that that were recently recently signed.

And then of course, returning capital to shareholders.

As I highlighted in the prepared remarks, we plan to increase our buyback to $75 million up from $50 million in this quarter.

Now to your question about next year I think what we'll do is really share our thinking on next year. When we typically do which is when we get closer to the end of this year, but I just emphasize we will continue to apply our capital allocation framework to really drive, how and where we allocate that capital.

It really focused on making sure we remain flexible and can make decisions really at that time. So we'll give you we'll give you an update then.

And I would just highlight from a share repurchase standpoint, with the $75 million planned for next quarter, we are getting close to completing our current authorization.

It's something that will naturally work to refresh with a new one and we'll also give you an update on after we do that as well.

We clearly saw that transaction announced in the quarter I think it was employee model, So I guess where else might M&A be additive to the platform at this point and what sort of properties are you seeing out there and how much time are you guys spending on that.

Yes, I think on the M&A front, it's all about anything that can accelerate our strategy whether it's.

When you look at the different types of M&A that we've done from our.

Our traditional markets to helping advanced or advanced our entry into a new market.

On the technology side.

In advancing capabilities that we otherwise would have had to build so I think it goes all of those back to our strategy.

Whether it can advance that or not and of course, if it's a price that makes financial sense and if it's a growth acquisition of operation. We are in a position to be able to bring it on board. So I think that that perspective is really that we've had for a while is really it's really the same.

On share repurchases I'd just go back to what I said at.

Answering the prior question, it's really about our framework and what the opportunities are to allocate capital I think with where interest rates are we do expect that more capital to allocate and.

And we will be focused then on the opportunities, we see on organic growth and M&A and returning capital to shareholders through share repurchases.

It depends on what the opportunities look like but if share repurchases. It makes sense, we will allocate capital there.

Have to see what it looks like at the time.

Okay. Thank you.

And thank you.

One moment for questions.

And our next question comes from Brennan Hawken from UBS. Your line is now open.

Good afternoon, guys. Thanks for taking my questions.

To start with.

A follow up.

Steven and Alex's questions. So.

The.

The floating rate ICA contracts, they are still being done at flat to fed funds. Matt you indicated that demand was improving and we certainly saw that on the volume side. This quarter. When do you think that that demand is going to translate into price as well.

Thinking back to the.

The historical premium two fed fund rates that you typically get on a floating rates.

Sure, Brian I mean, I think I remember I think look back.

When it peaked right way that I think the fed funds.

The variable contracts, where the fed funds or maybe plus 20 plus 25.

A pretty quick improvement.

So it's hard to know if that trend continues I just will say when you look out in the marketplace.

And the factors that would drive demand just continue to be so it would not surprise me.

From a balance standpoint, if demand continues to increase and whether the spreads go from the kind of five.

Five ish zone that we just saw up to that 2025 that we saw at the peak that's harder to know, but keep in mind with fed funds at 225% to $2 50.

Spread that we're talking about a relatively small piece of the overall economy.

Sure sure.

I didn't realize that you are seeing some small improvements in price. So that's certainly encouraging and it makes sense.

On the other asset based fees.

Matt I believe you flagged an $8 million payment related to prior period activity should we consider that to be onetime in nature or is there a reason why that might be recurring.

Yes. Its prior is prior period related so not recur.

Got it okay. Thanks very much.

Okay.

And thank you.

And one moment our next question.

And our next question comes from Devin Ryan from JMP Securities. Your line is now open.

Hey, Thanks, good evening everyone.

First question just wanted to dig in a little bit more around.

If we get some more flavor on just the pool of advisors in motion today.

What youre seeing both there and you touched little bit Matt on kind of M&A properties, but just how that's been evolving.

The current backdrop.

If there is any affiliation model that people are gravitating to in this environment and then whether in terms of just the strategy.

Seeing much at all so just love to get a little flavor for that.

Yeah, Devin, let me Mutiga stab at that and couple of questions in there if I don't get it all please.

Just to circle back so I think with respect to the opportunity set I think you've heard us talk about for the.

Past year Theres been slower movements are less movement, if you will than historical norms in the <unk>.

Overall marketplace and we've continued to expand.

Our participation rate so our share during periods of time.

And I think that's probably reflective.

Quarter, there as well, but we just saw.

And we're very proactive in the marketplace across all different models affiliation models.

Terms of making sure that.

We create awareness for the solutions that we have sort of horizontal expansion was going on with multiple affiliation models.

We want to make sure that people are aware of it solutions and problems that we can help them.

And certainly our ongoing investment in vertical integration of our capabilities is making the model more and more fueling.

Two advisors again in all the segments and so.

We want to make sure that people are aware of that capability set within the pace of innovation, which means fulfilling one.

The team has done a really good job I think of creating structure.

Using.

Data insights that go to the market.

<unk> way and crisp way to tell that story.

In a consistent way so.

We're very intentional about trying to be.

Good at attracting new advisors and very intentional about constantly.

Constantly working on how can we improve.

So I think this combination of capabilities.

Capabilities that we've built matched with growing efficacy of our ability to.

To recruit.

<unk> is leading to that sort of consistent.

Up into the right results related to our new sports and again, we see a really strong pipeline notwithstanding what's going on in the marketplace all of our business models.

That is very encouraging I think.

The employee base solution that we have but still retains the independent principles.

We're seeing continuing to really resonate out in the marketplace is more and more people become aware of it and we understand the combination they get reserving principles and most appealing attributes of <unk>.

Within the model.

We think that is.

Interesting I.

I hope that helps.

That's helpful. Thanks, Dan maybe just a quick follow up here on the services business and you mentioned there is some new services in pilot.

<unk> at the moment not sure. If you can give any more detail on what those might look like or what buckets. They fit into and then could you could think about the kind of a bigger picture as you continue to scale is there room for pricing uplift.

It sounds like a lot of the advisors are getting a lot of value out of it.

And maybe arguably even under pricing some of the services.

Or really is it just more about the differentiation of that platform and so it just helps growth and stickiness just love to get more cars kind of a longer term vision.

Yes. Good question look strategically our hypothesis was hey, theres real problems and challenges to help these advisors better operate their businesses that we could solve.

In a more effective way and in a cheaper way for them.

Thus, creating real alternatives and real appeal.

And then if you can then integrate them.

Automation and technology steam when I take the service consumer incentives.

I'll, let you around that that would be a great way to not only create scalability and efficiency in the overall delivery of those services.

We do them for a lower cost.

And again improvement enhanced the value. So I think that's the journey, we're on and that's the journey we're on with the first.

Generation of solutions that we offer to the marketplace Edmunds CFO marketing.

As the professional services that we started with.

I think we continue to refine them and improve and enhance them.

I'll give us.

<unk> licensed our.

Certain of the solutions and services.

Devon continues to innovate on how you offer them to the marketplace and it could be that you turn those that holistic sort of CFO solution into different discrete.

Solutions think about keeping as a derivative effect that might have a lower price point, but sold.

<unk> need within the CFO , so and so.

There is another a number of iterations that we can take create product expansion that have different price points that actually make it more accessible and easier for us to serve a broader set of advisers. So you've got both dynamics its product innovation needs.

Different positioning in the marketplace that will drive the price points and to your point is to create more value. Then you can also charge more historically.

Yes.

System with valuable service, so I think all of those spectrum of us.

Abilities are there for us.

We are heavily into the innovation and trying to learn and understand what problems or challenges. We're hearing from advisers and how we can turn that into a service.

You mentioned some things that are in the incubation phase <unk>, what I might call Facebook.

The thing is one of those.

<unk> will be an interesting opportunity that will go to market later this year on.

And then we've got another.

Probably five or six that are in that incubation phase that then logically would move higher.

Pilot.

Hope that helps.

Yes, very helpful. Thanks, Dan I appreciate it I'll leave it there.

Thank you.

And one moment our next question.

And our next question comes from Gerald O'hara from Jefferies. Your line is now open.

Great. Thanks, maybe just sticking with the business solutions for a moment.

Can you maybe give us a little bit of color or context around kind of the stickiness of.

Of the subscriptions and what those kind of renewal terms look like or how long the contracts are or anything.

Just give us some insight as to the.

The longer term kind of opportunity there.

Yes, so there is a variety of different solutions and services.

Better offer rights that you have the professional services that I mentioned before.

<unk> marketing.

Business strategy.

Then you have some business solutions that we've created that.

Or more like M&A solutions, our assurance plan remote office resilient plan and even now <unk> planning as a solution and so there are slightly different in the in the in the <unk>.

They create and there are slightly different than how an advisor and they use them.

And so.

You are distinctively different than they have.

Think about contracts and things of that nature.

If you take the professional services generally speaking that's a one year contract to start that.

Typically speaking.

And I think you have.

You have high retention rates on those different types of services.

We're also learning into the marketplaces I said in my remarks.

We saw some advisors that moved over from Waddell and read on our admin services that.

Used those shorter timeframe their intent was to say hey, I just want to help me transition.

Over to <unk>. So their vision was just one term on that contract.

And then ultimately.

Would find a different long term solution. So that's a good learning for us.

<unk> to innovate around that and create a different type of solution or shorter term specific need in time might have a higher price associated with it but still create that value that they need for that short period. So that was a good example, and learning where you might've had higher attrition rates on the surface.

The admin.

Period of time, but it was more related to how they were using the service.

Satisfactory.

So.

Again, I think as we as we innovate on this portfolio and we offer them to the marketplace and we're seeing how people use them in different ways. It's a good learning experience and evolution for us in terms of making sure we fine tune the value and that we are well positioned in the marketplace to meet the specific needs the advisors.

We're looking for so.

Net out as think high retention rates.

And again, our opportunity is to continue to create awareness and to make sure that we expand that portfolio. So that we reach more advisers with a variety of different solutions that they need and we think that there is a significant amount of value to be added. It also creates great stickiness and around that overall relationship with us and.

Also has the residual knock on effect of improving and enhancing the overall performance of the practice.

Correct.

Hi, tailwind to same store sales.

Your retention rates that come along with those.

Those additional services as part of the relationship.

And that helps us with new store sales.

Differentiated more proven model.

Yeah.

Okay. That's helpful and then as a follow up.

I think around about this time last year, you kind of gave some.

Color with respect to the RIAA relaunch and sort of how that that.

And that strategy was.

Coming along I guess sort of early days, maybe encouraging pipeline comments, along those lines, but.

I think you also ended by saying you kind of need to go out and sell it. So hoping you might be able to give us a little bit of an update as to as to how that's coming along thank you.

Yeah. Good question and I think that was a go back a year ago, we've kind of relaunched if you will or went to the marketplace in a more offensive posture relative to our offering.

We continue to.

Go to the marketplace.

Looking for those opportunities for folks to leverage us as.

Vertically integrated strategic partner that are that are that are <unk>.

Only.

These added capabilities and pricing that we believe is additive and compelling and youre seeing that show up in the recruiting that we've had over the past 12 months.

I think there's more that we can do and more opportunity.

The more we can be more intentional about how we go to the market.

Really establishes ourselves as a differentiated strategic partner and value added partner and not just the custodian to <unk> and so we have more to play there.

Youll hear more about in coming quarters.

And thank you.

And one moment our next question.

And our next question comes from Kyle Voigt from K VW. Your line is now open.

Hi, Good evening, maybe a follow up question on capital management.

Your current leverage ratio is roughly two one times, which is towards the bottom end of your range your targeted range.

Yes, when you consider that ratio is calculated using LTM EBITDA and the rate sensitivity you've disclosed it's relatively easy to see how that leverage ratio can very quickly move below one five times without you down any debt and still investing significantly in the business.

How do you view your optimal leverage ratio in the period with rapidly growing EBITDA and I guess would you be willing to kind of let this trend significantly below the target as we look at it here.

Yes, Colin I think we're just starting with the range I think the two to $2 75, we think is the right range to operate it.

And it does a handful of things, but I think the balance sheet strength is key and supportive.

Including M&A investments in organic growth.

Are important as well and I think to the point of your question I think as we get deeper into the interest rate cycle or even where we are we are right now I think we feel comfortable.

Comfortable unlike being positioned on the lower end of that range.

As the interest rates get higher and higher and the amount of EBITDA that is driven by that either as economics as a larger percentage of it.

I think if we ended up dropping below the low end of that range.

So I think.

That's our perspective.

Overall, we wanted to allocate that capital to drive value and I think we feel good where we're positioned today.

Understood. Thank you for that.

As a follow up on client cash I appreciate the commentary on July .

But just a question on the idea of potential sorting advisors midyear around client cash are you seeing any incremental signs of more yield seeking data.

Whether that's demand for mining Treasury short duration fixed income instruments.

Given that we've just got in this most recent John Haines pointed out last week, and obviously acknowledging that the very strong full size just wondering if there's any been any change behavior you've seen that's been notable.

Yeah, I think I got your question Kyle is break it out there, but I think when you look at that the rate sensitivity of our cash and has anything changed I think the answer is no, but I think just maybe a couple of reminders.

The cash that we have in sweep of our business is largely operational.

And that's why we tend to have some of the lowest cash as a percent of AUM in the industry, where it's usually in the 5% zone.

And the primary factor that tends to move that up and down is really market sentiment as opposed to rate seeking behavior.

And I think when you look at just the last couple of quarters, and especially this quarter I think youre seeing that play out just looking at Q2 as interest rates have gone up meaningfully during the quarter, our cash balances actually grew both in dollars and as a percent of AUM up to six 5% just given the volatility that you saw in the quarter. So I think that the.

Cash tends to be operational and even even looking back at Q1. The last couple of quarters, I think youre seeing empirical data that really validates that.

Cash.

The rate seeking behavior is really not in the cash that we haven't been.

Got it thank you very much.

And thank you.

One moment for our next question.

And our next question comes from Craig Siegenthaler from Bank of America. Your line is now open.

Hey, good afternoon, everyone hope, you're all doing well.

I wanted to come back to the pure RIAA channel, which you just relaunched a little more than a year ago.

Can you provide us an update on how this channel is doing and I was also interested in how the competitive landscape is evolving with both the merger of two of the biggest sorry custodians.

And also some changes in the macro backdrop year to date.

Yes, so I think with respect to the Ari business look the last two quarters <unk> seen our affiliation models collectively we've recruited and.

In each of those quarters, a little over $2 billion in assets and certainly the <unk> solution is.

<unk> to that and so again, we're seeing good traction with our offering in the marketplace today.

You'll hear more about as we go forward, but we do see the opportunity given the size of that market to continue to win share there.

I do think with the consolidation of two large custodians that creates disruption or some potential change in the marketplace and usually where theres change we're well prepared.

Chance favors the prepared and you can capitalize on that opportunity and so.

I think we certainly see that as one of the possibilities and opportunities amongst a number to win share as we go forward. So.

I hope that helps give you a little bit more color and context on the opportunity to see them and how we're trying to be intentional about some without.

Without capitalizing anymore.

Thank you Dan and then I wanted to do my follow up on the Bank channel. So two big wins last year to this year with with both Qunar and People's United coming shortly.

What's the potential for additional bank channel wins can you keep the street Caf two wins per year alive next year and also is the macro backdrop, making it a little tougher to find the next win.

With banks, focusing more internally right now.

Yes, good question and so look that as we go forward our pipeline continues to build across.

A larger spectrum financial institution clients.

Momentum, where you had some success you continue to iterate and move all of your value proposition in that.

To create more dialogue and more opportunity so we.

We certainly see.

We certainly see that demand picking up and whats.

What are the biggest hurdles as just the whole onboarding change minute transition process, we continue to learn and apply those insights and new innovations I'd like to say now make our onboarding and transition process, a differentiated capability and that's one of the things that we saw as a big opportunity.

One of the barriers, if you will of making that transition and the change.

And so we think that the track record of steady wins.

Ongoing evolution and appeal of our model smooth transitions is increasingly making us confident in the durability of this of the growth in this channel.

So that may be answers. Your first question your second question around.

The banks and their interest and their willingness to have this dialogue.

I think the significant opportunity we have to add value across sort of the spectrum of economics needs risk management needs operational efficiency midst potential growth in their programs.

Notwithstanding the market volatility.

There's a lot of reasons to have a dialogue and discussion.

We see.

Those opportunities to explore those possibilities continuing to evolve in a constructive world so macro hasn't.

Really altered the trajectory of those.

Thank you Dan.

<unk>.

Thank you.

And I am showing no further questions I would now like to turn the call back over to Dan Arnold for closing remarks.

Q2 2022 LPL Financial Holdings Inc Earnings Call

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