Q1 2024 LPL Financial Holdings Inc Earnings Call
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Operator: Good afternoon, and thank you for joining the first quarter 2024 earnings conference call for LPL Financial Holdings Inc. Joining the call today are the President and Chief Executive Officer, Dan Arnold, and Chief Financial Officer and Head of Business Operations, Matt Audette. Dan and Matt will offer introductory remarks, and then the call will be open to questions. The company would appreciate it if analysts would limit themselves to one question and one follow-up each. The company has posted its earnings press release and supplementary information in the Investor Relations section of the company's website, Investor.LPL.com.
Speaker Change: Good afternoon, and thank you for joining our first quarter 2024 earnings conference call for LPL Financial Holdings, Inc. Joining the call today are president and Chief Executive Officer, Dan Arnold and Chief Financial Officer, and head of business operations.
Speaker Change: Our debt.
Dan and Matt will offer introductory remarks, and then the call will be open to the questions.
Speaker Change: The company would appreciate if analysts limit themselves to one question and one follow up each the company has posted its earnings press release and supplementary information on the Investor Relations section of the company's web site Investor Dot L. P. L Dot com.
Operator: Today's call will include forward-looking statements, including statements about LPL's financials, future financial and operating results, outlook, business strategies, and plans, as well as other opportunities and potential risks management is foreseeing. Such forward-looking statements reflect management's current estimates and beliefs and are subject to known 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. For more information about such risks and uncertainties, the company refers 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 filing with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to comparable GAAP figures, please refer to the company's earnings release, which can be found at investors.lpl.com.
Speaker Change: Today's call will include forward looking statements, including statements about LPL financial's future financial and operating results outlook business strategies and plans as well as other opportunities and potential risks of management foresees such forward looking statements reflect management's current estimate.
Speaker Change: And beliefs and are subject to known 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.
Speaker Change: For more information about such risks and uncertainties. The company refers 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.
Speaker Change: The call the company will also discuss certain non-GAAP financial measures.
For a reconciliation of non-GAAP financial measures to the comparable GAAP figures. Please refer to the company's earnings release.
Speaker Change: Which can be found at investors Dot L. P. L dot com with that I would now like to turn the call over to Mr. Arnold.
Operator: With that, I would now like to turn the call over to Mr. Arnold. Thank you, Michelle, and thanks to everyone for joining our call. Over the past quarter, our advisors continued to provide their clients with personalized financial guidance on the journey to help them achieve their life goals. And to help support that important work, we remain focused on our mission, taking care of our advisors so they can take care of their clients. During the first quarter, we continued to see the appeal of our model grow due to the combination of our robust and feature-rich platform. Thank you very much.
Thank you Michelle and thanks to everyone for joining our call today.
Arnold: Over the past quarter, Alright advisers continue to provide their clients with personalized financial guidance on the journey to help them achieve their life goals and dreams.
Arnold: To help support that important work, we remain focused on our mission taking care of our advisers. So they can take care of their clients.
Arnold: During the first quarter, we continued to see the appeal of our model growth due to the combination of our robust feature rich platform, the stability and scale of our industry, leading model and our capacity and commitment to invest back into the black.
Dan Hogan Arnold: As a result, we continue to make solid progress in helping advisors and institutions solve challenges and capitalize on opportunities better than anyone else and, thereby, serve as the most appealing player in the industry. With respect to our performance, we delivered another quarter of solid results. We'll also continue to make progress on the execution of our strategy. I'll review both of these areas, starting with our first quarter business. In the quarter, total assets increased to $1.4 trillion.
Arnold: As a result, we continue to make solid progress in helping advisors and institutions solve challenges and capitalize on opportunities better than anyone else and thereby sir.
Arnold: Appealing player in the industry.
Arnold: With respect to our performance we delivered another quarter of solid results.
Arnold: Also continuing to make progress on the execution of our strategic plan.
Arnold: I'll review both of these areas starting with our first quarter business results.
Arnold: In the quarter total assets increased to $1 four trillion.
Dan Hogan Arnold: As continued solid organic growth was complemented by higher equity. Regarding organic growth, first quarter organic net new assets were $17 billion, representing 5% annualized growth. This contributed to organic net new assets over the past 12 months of 96.5 billion dollars, representing approximately an 8. In the first quarter, recruited assets were $20 billion, which represents a quarterly record excluding periods when onboarding large investments.
Arnold: As continued solid organic growth was complemented by higher equity model.
Regarding organic growth first quarter organic net new assets were <unk> 17.
Arnold: Presenting 5% annualized correct.
Arnold: This contributed to organic net new assets over the past 12 months of 96.
Arnold: Representing approximately an 8%.
Arnold: In the first quarter recruited assets were 20.
Arnold: Which represents a quarterly record excluding periods when onboarding large institutions. This outcome was driven by the ongoing enhancements to our model as well as our expanded addressable market.
Dan Hogan Arnold: This outcome was driven by the ongoing enhancements to our model, as well as our expanded addressable market. Looking at same-store sales, our advisors remain focused on taking care of their clients and delivering a differentiated experience. As a result, our advisors are both winning new clients and expanding wallet share with existing clients, a combination that drove solid same store sales in Q1. At the same time, we continue to enhance the advisor experience through the delivery of new capabilities and technology and the evolution of our service and operations. As a result, asset retention for the first quarter was approximately 97%, and 98% over the last 12 months.
Arnold: Looking at same store sales.
Arnold: <unk> remained focused on taking care of their clients and delivering a differentiated experience as a result, our advisors are both winning new clients and expanding wallet share with existing.
Arnold: Combination drove solid same store sales in Q1.
Arnold: At the same time, we continue to enhance the advisor experience through the delivery of new capabilities and technology and the evolution of our service and operations functions as a result asset retention for the first quarter was approximately 97% 98% over the last 12 months.
Dan Hogan Arnold: First quarter business results led to solid financial outcomes with adjusted EPS of $4.21. Let's now turn to the progress we made on our strategic... Now, as a reminder, our long-term vision is to become a leader across the Advisory Center. To do that, our strategy is to invest back into the platform, provide unprecedented flexibility in how advisors can affiliate, and to deliver capabilities and services that help maximize advisors' success throughout the life cycle of their business.
Arnold: Our first quarter business results led to solid financial outcomes adjusted EPS of $4 in 'twenty one.
Speaker Change: Let's now turn to the progress we've made on our strategic plan.
Speaker Change: Now as a reminder, our long term vision is to become the leader across the advisor center market.
Speaker Change: Do that our strategy is to invest back into the lab.
Speaker Change: To provide unprecedented flexibility in how advisors can affiliate.
Speaker Change: And to deliver capabilities and services to help maximize adviser success throughout the lifecycle of their businesses.
Dan Hogan Arnold: Doing this well gives us a sustainable path to industry leadership across the advisor experience, organic growth, and marketing. Now, to execute on our strategy, we organize our work into two strategic categories. Horizontal Expansion, where we look to expand the ways that advisors and institutions can affiliate, such that we are positioned to compete for all 300,000 advisors in the market. Vertical Integration, where we focus on delivering capabilities, technology, and services that help our advisors differentiate and win in the marketplace, making them great operators of the business.
Speaker Change: Doing this well gives us a sustainable path industry leadership across the advisor experience organic growth and market share.
Speaker Change: Now to execute on our strategy, we organize our work into two strategic categories.
Speaker Change: Horizontal expansion, where we look to expand the ways that advisors and institutions can affiliate.
Speaker Change: Such that we are positioned to compete.
Speaker Change: All 300000 advisers in the marketplace.
Speaker Change: And vertical integration, where we focus on delivering capabilities technology and services that help our advisers differentiate and win in the marketplace.
Speaker Change: Operators of the businesses.
Dan Hogan Arnold: And with that as context, let's start with our efforts around horizontal expansion. Over the first quarter, we saw strong recruiting in our traditional independent market, reaching a new quarterly high of approximately $15 billion in assets. At the same time, due to the ongoing appeal of our model and the evolution of our go-to-market approach, we maintained our industry-leading win rates while also expanding the breadth and depth of our pipeline. With respect to our new affiliation models, Strategic Wealth, Employee, and our enhanced RAA offering, we delivered another solid quarter, recruiting roughly 2 billion new employees. And as we look ahead, we expect that the increasing awareness of these models in the marketplace and the ongoing enhancement Next, in Q1, we added approximately $3 billion of recruited assets in the traditional bank and credit union, which continues to be a consistent contributor to organic growth.
Speaker Change: And with that as context, let's start with our efforts around horizontal expansion.
Dan Hogan Arnold: During the quarter, we also continued to make progress with the Large Institution Marketplace, where we announced that WinTrust Financial would onboard two of its wealth management... to our institution's server. And at the same time, we continued our preparation to onboard the Retail Wealth Management... Prudential Finance. Collectively, these two deals will add approximately $66 billion of brokerage and advisory assets by early 2025. Now, as a complement to our organic growth, we also announced the planned acquisition of Atria Wealth... Supports approximately 2,400 advisors and 150 banks and credit unions, managing approximately $100 billion in client assets.
Speaker Change: Over the first quarter, we saw strong recruiting in our traditional independent market, reaching a new quarterly high of approximately $15 billion in assets.
Speaker Change: At the same time due to the ongoing appeal of our model and the evolution of our go to market approach, we maintained our industry leading win rates, while also expanding the breadth and depth of our pipeline.
Speaker Change: With respect to our new affiliation models strategic well.
Speaker Change: Lloyd.
Lloyd: And our enhanced <unk> offering we delivered another solid quarter recruiting roughly $2 billion in assets.
Lloyd: And as we look ahead, we expect that the increasing awareness of these models in the marketplace and the ongoing enhancements to our capabilities will drive a sustained increase in their growth.
Lloyd: Next in Q1, we added approximately $3 billion recruited assets in the traditional bank credit Union space, which continues to be a consistent contributor organic growth.
Lloyd: During the quarter. We also continued to make progress with the large institution marketplace, where we announced wind trust financial will onboard two of its wealth management businesses and institutions services.
Speaker Change: And at the same time, we continued our preparation to onboard the retail wealth management business of Prudential financial.
Speaker Change: These two deals will add approximately $66 million of brokerage and advisory assets by early 2025.
Speaker Change: Now as a complement to our organic growth. We also announced the planned acquisition of Atria wealth solutions, which supports approximately 2400 advisers and a 150 banks right.
Speaker Change: Managing approximately a 100 billion in client assets.
Dan Hogan Arnold: This transaction will give Atria Advisors access to our differentiated capabilities, technology, and services. We are on track to close the transaction in the back half of this year and complete the conversion in mid-2025. And finally, we're seeing solid momentum with our liquidity in succession, as demand continues to build with existing LPLs while also creating interest with advisors outside our platform, including our first signed external deal in the. Now, within our vertical integration efforts, we remain focused on investing back into the model to deliver a comprehensive platform of capabilities, services, and technology that help our advisors differentiate and win in the marketplace, and Run Thrive in Distance is part of this effort.
Speaker Change: This transaction will give hei advisors access to our differentiated capabilities technology and service.
Speaker Change: We are on track to close the transaction in the back half of this year and complete the conversion mid 2025.
Speaker Change: And finally, we're seeing solid momentum with our liquidity and succession solution as demand continues to build with existing LPL advisors, while also creating interest advisors outside our ecosystem, including our first signed external deal in the quarter.
Speaker Change: Now within our vertical integration efforts, we remain focused on investing back into the model to deliver.
Speaker Change: Comprehensive platform of capabilities services, and technology that help our advisers differentiate and win in the marketplace and run thriving businesses.
Speaker Change: As a part of this effort, we continue to make progress across several key areas of focus including our ongoing journey to build a world class wealth management platform.
Dan Hogan Arnold: We continue to make progress across several key areas of focus, including our ongoing journey to build a world-class wealth management system. Within that body of work, we are focused on meeting the evolving investment needs of our advisors and their clients. Including the increasing interest in non-traditional investments. To help solve for that demand, we are reimagining the end-to-end experience of our alternative platform, including enhancing our custodial and operational capabilities for alternative investments, making it simpler and easier to utilize, manage, and transact these products, and at the same time, expanding our Alternative Investment Product Office. For the last year, we have more than doubled the number of products available for advisors to utilize.
Speaker Change: And within that body of work, we are focused on meeting the evolving investment needs of our advisors and their clients, including the increasing interest for non traditional investment products.
Speaker Change: Sulfur that we're re imagining the end to end experience of all our alternatives.
Speaker Change: Including enhancing our custodial and operational capabilities for alternative investments, making it simpler and easier to utilize manage and transact products.
Speaker Change: And at the same time, expanding our alternative investment products.
Speaker Change: Over the last year, we have more than doubled the number of products available for advisers to utilize.
Dan Hogan Arnold: Another key area within our vertical integration effort is the continued enhancement of the experience our advisors deliver to their clients. One of the primary ways we do that is providing increased flexibility for advisors to tailor their ideal client experience. For example, we designed an account, an in-client digital platform so that an advisor can personalize access to features on a client-by-client basis.
Speaker Change: Another key area within our vertical integration efforts is the continued enhancement of the experience our advisors delivered their client.
Speaker Change: One of the primary ways, we do that is.
Speaker Change: <unk> increased flexibility for advisors to tailor their ideal client experience. For example, we designed account are in client digital platform subsidiary adviser personalized access to features on a client by client basis in.
Dan Hogan Arnold: In addition, we recently launched a series of enhancements to our end-client statement, which provides increased flexibility in the channel of delivery and the cadence that clients receive the information, also adding a unique interactive digital experience to further enrich the traditional state. Our continued work on our services portfolio is also a key area of our vertical integration. As a reminder, these services help solve for a broad spectrum of advisors and institutions' needs and, in doing so, help position them to deliver great, great advice and be great operators of the business.
Speaker Change: In addition, we recently launched a series of enhancements to our clients.
Speaker Change: Which provides increased flexibility in the channel of delivery and the cadence the clients receive the information while also adding a unique interactive digital experience to further enrich the traditional state.
Speaker Change: Our continued work on our services portfolio is also a key area of our vertical integration strategy.
Speaker Change: As a reminder, these services help solve for a broad spectrum of advisors and institutions need and in doing so help position them to deliver great great advice and be great operators of the businesses.
Dan Hogan Arnold: In that spirit, we are developing a number of tools to help advisors expand the breadth and depth of their advice, including the more effective utilization of financial planning, catering to the more complex needs of high-net-worth investors, and delivering more personalized investment. For example, as a part of our efforts to enrich our planning capabilities, last year we introduced our tax planning service, seeing strong demand in the market. And more recently, we expanded our high net worth offering to enhance our advisors' support for their high-net-worth prospects and... Complex Case Design, State Planning, and Investment Product Analysis, and the early indications have been favorable.
Speaker Change: In that spirit, we are developing a number of solutions.
Speaker Change: To help advisors expand the breadth and depth of their advice.
Speaker Change: <unk> the more effective utilization of financial planning catering to the more complex needs of high net worth investors and delivering more personalized investments.
Speaker Change: For example, as a part of our efforts to enrich our planning capabilities last year, we introduced our tax planning surface, which is seeing strong demand in the market.
Speaker Change: More recently, we expanded our high net worth services.
Speaker Change: To enhance our advisor support of their high net worth prospects endpoint through complex case design state planning and investment product analysis and the early indications have been favorable.
Dan Hogan Arnold: Finally, we're in pilot with our latest innovation; our new outsourced Chief Investment Officer service provides advisors with personalized investment expertise powered by LTLV. And based on initial feedback, this is unlocking additional growth and efficiency in our advisors' practices. Collectively, these services help expand our advisors' value proposition to their clients, enable them to win new prospects, and increase the differentiation and appeal of our platform. And as we move forward, we will continue to solve for our advisors' needs at every stage of their practice in order to help them build the perfect businesses for themselves and ultimately maximize their success.
Speaker Change: Really we're in pilot with our latest innovation, our new outsourced Chief investment officer surplus, which provides advisors with personalized investment expertise.
Speaker Change: About <unk>.
Speaker Change: And based on the initial feedback this is unlocking additional growth and efficiency and our advisory practices.
Speaker Change: Electively. These services helped expand our advisors value proposition to their clients and enable them to win new prospects and increase the differentiation of appeal of our platform.
Speaker Change: And as we move forward, we will continue to solve for our advisors needs at every stage of their preference in order to help them build the perfect businesses for themselves and ultimately maximize their success.
Dan Hogan Arnold: In summary, in the first quarter, we continued to invest in the value proposition for advisors and their partners while driving growth and increasing our market. As we look ahead, we remain focused on executing our strategy, helping our advisors further differentiate and win in the marketplace, and, as a result, drive long-term shareholder value. With that, I'll turn the call over to Dan. All right. Thank you, Dan.
Speaker Change: In summary in the first quarter, we continued to invest in the value proposition for advisers and their clients, while driving growth and increasing our market leaders as.
Speaker Change: 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 of long term shareholder value.
Speaker Change: With that I'll turn the call over to Matt Alright, Thank you, Dan and I'm glad to speak with everyone on today's call.
Matthew Jon Audette: And I'm glad to speak with everyone on today's call. As we move into 2024, we remain focused on serving our advisors, growing our business, and delivering shareholder value. This focus led to another quarter of strong organic growth in both our traditional and new markets. And we are preparing to onboard the wealth management businesses of Credential and Wintrust.
Matt: As we move into 2024, we remain focused on serving our advisors growing our business and delivering shareholder value.
Matt: This focus led to another quarter of strong organic growth, both our traditional and new markets.
Speaker Change: And we are preparing to onboard the wealth management businesses of Prudential and wind trusts.
Matthew Jon Audette: In addition, we continue to build momentum in our liquidity and succession solution, including our first signed deal with an external practice. We also entered into an agreement to acquire Atria Wealth, which we plan to onboard to our platform in mid-2025. So as we look ahead, we remain excited by the opportunities we have to serve and support our nearly 23,000 advisors, while continuing to invest in our industry-leading value proposition and drive organic growth.
Speaker Change: In addition, we continued to build momentum in our liquidity and succession solution.
Speaker Change: Including our first sign deal with an external practice.
Speaker Change: We also entered into an agreement to acquire atria wealth solutions, which we plan to onboard to our platform in mid 2025.
Speaker Change: So as we look ahead, we remain excited about the opportunities we have to serve and support our nearly 23000 advisors.
Speaker Change: Continuing to invest in our industry, leading value proposition and drive organic growth.
Matthew Jon Audette: Now let's turn to our first quarter business. Total advisory and brokerage assets were $1.4 trillion, up 6% from Q4, as continued organic growth was complemented by higher. Total organic net new assets were $17 billion, or approximately a 5% annualized growth rate. Our Q1 recruited assets were $20 billion, which prior to large institutions, was the highest quarter on record.
Speaker Change: Now, let's turn to our first quarter business results total advisory and brokerage assets were $1 four trillion.
Speaker Change: Up 6% from Q4 as continued organic growth was complemented by higher equity markets.
Speaker Change: Total organic net new assets were <unk> 17 billion or approximately a 5% annualized growth rate.
Speaker Change: Our Q1 recruited assets were 20 billion, which prior to large institutions was the highest quarter on record.
Matthew Jon Audette: Looking ahead to Q2, our momentum continues, and we're on pace to deliver another strong quarter of recruiting. As for our Q1 financial results, the combination of organic growth and expense discipline led to adjusted EPS of $4.21. Gross profit was $1,066,000,000, up $59,000,000 sequentially.
Speaker Change: Looking ahead to Q2, our momentum continues and we are on pace to deliver another strong quarter of recruiting.
Speaker Change: As for our Q1 financial results the combination of organic growth and expense discipline led to adjusted EPS of $4 21.
Speaker Change: Gross profit was $1 $66 million up $59 million sequentially.
Matthew Jon Audette: As for the components, commission advisory fees netted a payout of $260 million, up $41 million from Q4, primarily driven by higher advisory fees and a seasonally lower production. Our payout rate was 86.6%, down 100 basis points from Q4, largely due to the seasonal reset of the production bonus at the beginning of the year. Looking ahead to Q2, we anticipate our payout rate will increase to approximately 87.5%, primarily driven by the typical seasonal builds in production.
Speaker Change: As for the components Commission and advisory fees net of payout were $260 million up 41 million from Q4, primarily driven by higher advisory fees and a seasonally lower production bonus.
Speaker Change: Our payout rate was 86, 6% down 100 basis points from Q4, largely due to the seasonal reset of their production bonus at the beginning of the year.
Speaker Change: Looking ahead to Q2, we anticipate our payout rate will increase to approximately 87, 5% primarily driven by the typical seasonal build in our production.
Matthew Jon Audette: With respect to client cash revenue, it was $373 million, down roughly $1 million from Q4. Looking at overall client cash balances, they ended the quarter at $46 billion, down $2 billion sequentially, driven by advisory fees paid during the quarter. Outside of those fees, cash balances were flat to Q4.
Speaker Change: With respect to client cash revenue it was $373 million down roughly $1 million from Q4.
Speaker Change: Looking at overall client cash balances. They ended the quarter at 46 billion down $2 billion sequentially driven by advisory fees paid during the quarter.
Speaker Change: Outside of those fees cash balances were flat to Q4.
Matthew Jon Audette: As for our ICA portfolio, the mix of fixed-rate balances increased to roughly 65 percent, within our target range of 50-75%. Looking more closely at our ICA yield, it was 323 basis points in Q1, up six basis points from Q4. That's for Q2, based on where client cash balances and interest rates are today. We expect our ICA yield to decline by a few basis points.
Speaker Change: As for our ICA portfolio, the mix of fixed rate balances increased to roughly 65% within our target range of 50% to 75%.
Speaker Change: Looking more closely at our ICA yield it was 323 basis points in Q1 up six basis points from Q4.
Speaker Change: As for Q2 based on where our client cash balances and interest rates are today, we expect our ICA yield to decline by a few basis.
Matthew Jon Audette: As for service and fee revenue, it was $132 million in Q1, up $1 million from Q4. Looking ahead to Q2, we expect service and fee revenue to be roughly flat sequentially. Moving on to Q1 transactions, it was $57 million, up $3 million sequentially as trading volume increased slightly.
Speaker Change: As for service and fee revenue was $132 million in Q1 up $1 million from Q4.
Speaker Change: Looking ahead to Q2, we expect service and fee revenue to be roughly flat sequentially.
Speaker Change: Moving onto Q1 transaction.
Speaker Change: It was $57 million up $3 million sequentially as trading volume increased slightly.
Matthew Jon Audette: As we look ahead to Q2, based on typical seasonality and activity levels to date, we would expect transaction revenue to decline by a few million from Q1. Now let's turn to expenses, starting with Core Data. It was $364 million in Cuba.
Speaker Change: As we look ahead to Q2 based on typical seasonality and activity levels to date, we would expect transaction revenue to decline by a few million from Q1.
Speaker Change: Now, let's turn to expenses, starting with core G&A it.
Speaker Change: It was $364 million in Q1.
Matthew Jon Audette: For the full year, we continue to anticipate CoreGNA to be in a range of $1,455,000 to $1,490,000. As a reminder, this is prior to expenses associated with prudential and ATRI. Moving on to Q1 promotional expense, it was $132 million, down $6 million from Q3, due to lower onboarding costs for large institutions. Looking ahead to Q2, we expect promotional expense to increase by approximately $10 million sequentially due to increased transition assistance resulting from strong recruiting and large institution onboarding as we prepare for Prudential to join us in the fourth quarter.
Speaker Change: For the full year, we continue to anticipate core G&A to be in a range of $1 $455 million to $1 490.
Speaker Change: As a reminder, this is prior to expenses associated with Prudential and atria.
Speaker Change: Moving on to Q1 promotional expense was $132 million down 6 million from Q4 due to lower onboarding costs for large institutions.
Speaker Change: Looking ahead to Q2, we expect promotional expense to increase by approximately $10 million sequentially due.
Speaker Change: Due to increased transition assistance, resulting from strong recruiting.
Speaker Change: And large institution on boarding as we prepare for Prudential to join us in the fourth quarter.
Matthew Jon Audette: Looking at share-based compensation expense, it was $23 million in Q1, up $7 million from Q4. As we look ahead, we anticipate this expense to be at a similar level in Q2. Turning to depreciation and amortization, it was $67 million in Q1, down $1 million sequentially.
Speaker Change: Looking at share based compensation expense was $23 million in Q1 up 7 million from Q4.
Speaker Change: As we look ahead, we anticipate this expense to be at a similar level in Q2.
Speaker Change: Turning to depreciation and amortization it was $67 million in Q1 down $1 million sequentially.
Matthew Jon Audette: Looking ahead to Q2, we expect depreciation and amortization to increase by roughly 5 million sequentially, which includes technology development for Prudential. Regarding capital management, our balance sheet remains strong. We ended Q1 with corporate cash of $311 million, up $127 million from Q4. Our leverage ratio was 1.6 times flat with Q4.
Speaker Change: Looking ahead to Q2, we expect depreciation and amortization to increase by roughly $5 million sequentially, which includes technology development for Prudential.
Speaker Change: Regarding capital management, our balance sheet remains strong we ended Q1 with corporate cash of $311 million up $127 million from Q4.
Speaker Change: Our leverage ratio was one six times flat with Q4.
Matthew Jon Audette: As a reminder, we expect to close our acquisition of Atria in the second half of this year. We plan to finance the transaction through a combination of cash and debt. Following the close, we continue to expect leverage to be approximately two times, near the midpoint of our target leverage. As for capital deployment, our framework remains focused on allocating capital aligned with the returns we generate. Investing in Organic Growth First Impressions, pursuing M&A where appropriate, and returning excess capital to shareholders.
Speaker Change: As a reminder, we expect to close our acquisition of Atria in the second half of this year and plan to finance the transaction through a combination of cash and debt.
Speaker Change: Following the close we continue to expect leverage to be approximately two times.
Speaker Change: Near the midpoint of our target leverage range.
Speaker Change: As for capital deployment, our framework remains focused on allocating capital in line with the returns we generate investing in organic growth first and foremost pursuing M&A, where appropriate and returning excess capital to shareholders.
Matthew Jon Audette: In Q1, we deployed capital across our entire framework as we continued to invest to drive and support organic growth. We allocated capital to M&A within our liquidity and succession solution and returned capital to our shareholders for purchasing $70 million of shares in January. We paused share repurchases for the last two months of the quarter to ensure we maintain a strong and flexible capital position we closed in our acquisition of Atrium.
Speaker Change: In Q1, we deployed capital across our entire framework as we continue to invest to drive and support organic growth.
Speaker Change: Allocated capital to M&A within our liquidity and succession solution.
Speaker Change: And return capital to our shareholders repurchasing $70 million of shares in January.
Speaker Change: We paused share repurchases for the last two months of the quarter to ensure we maintain a strong and flexible capital position, we closed on our acquisition of atrium.
Operator: Following the close expected in the second half of this year, we will evaluate restarting share purchases consistent with our existing capital framework. 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 advisors, grow our business, and create long-term shareholder value. With that, Operator, please open the call to questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: Following the close expected in the second half of this year, we will evaluate restarting share repurchases consistent with our existing capital frame.
Speaker Change: In closing, we delivered another quarter of strong business and financial results.
Speaker Change: 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.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, we do ask that you limit yourself to one question and one follow up one moment, while we compile our Q&A roster.
Operator: We do ask that you limit yourself to one question and one follow-up. One moment while we compile our Q&A roster. And our first question is going to come from the line of Devin Ryan with Citizens JMP. Your line is open. Please go ahead.
Speaker Change: And our first question is going to come from the line of Devin Ryan with citizens.
Devin Patrick Ryan: Your line is open. Please go ahead.
Dan Hogan Arnold: Hey, great. Yeah, thanks. Good afternoon, Dan and Matt. First question: just want to dig in a little bit on recruited assets. They had a really nice quarter, up 57% year-over-year, but also a bit stronger than the net new asset trend. And maybe that's just a January dynamic, but I just want to maybe dig in a little bit about the divergence you saw this quarter between those two metrics. And then, more broadly, on recruited assets and the outlook, it sounds like you're still seeing a really good recruiting pipeline.
Devin Patrick Ryan: Okay, great. Thanks, Good afternoon, Dan and Matt.
Devin Patrick Ryan: First question just wanted to dig in a little bit on recruited assets had a really nice quarter up 57% year over year, but also a bit stronger than the net new asset trends and maybe thats just a January dynamic, but just wanted to maybe digging a little bit about the divergence that you saw this quarter between those two metrics and then more broadly.
Devin Patrick Ryan: Leon recruited assets in the outlook it sounds like Youre still seeing a really good recruiting pipeline. So just love to get a little more context on that and kind of what youre seeing between both legacy channels and some of the newer affiliation channels.
Dan Hogan Arnold: So just love to get a little bit more context on that and kind of what you're seeing between both legacy channels and some of the newer affiliation channels. So Devin, it's Dan. Let me try to go in maybe a sequential order around those questions that are helpful. So first, maybe let me just hit Q1. I think organic growth, which I heard in your question.
Devin Patrick Ryan: Yes, so Devin it's Dan let me, let me try to go in maybe a sequential order around those questions that are that is helpful. So first maybe let me just take Q1, I think organic growth, which I heard inside your question. So during the quarter, we posted 5% organic growth and given the seasonality we typically see.
Dan Hogan Arnold: So during the quarter, we posted five percent organic growth. And given the seasonality we typically see in Q1, we would have expected that to be more like seven. And while the underlying drivers of the business were strong, there were a couple of things in the quarter that drove the roughly 2% difference, with some impact from the timing of onboarding recruiting, which equated to roughly 1% of Q1 organic growth. And that's just really a function of recruiting. As we mentioned, I think back to January's call of it, a lot of it happening in the second half of the quarter, and that gives you a little tailwind going into the second.
Devin Patrick Ryan: In Q1, we would have expected that to be more like 7%.
Devin Patrick Ryan: And while the underlying drivers of the business were strong there were a couple of things in the quarter that drove the roughly 2%.
Devin Patrick Ryan: The first with some impact from the timing of on boarding.
Devin Patrick Ryan: Recruiting, which equated to roughly 1% to Q1 organic growth and Thats, just really a function of the recruiting as we mentioned I think back in.
Devin Patrick Ryan: In January as call it that.
Devin Patrick Ryan: A lot of it happening in the second half the quarter.
Devin Patrick Ryan: And that gives you a little tailwind going into second quarter.
Dan Hogan Arnold: And then the second thing that we mentioned last quarter as well was that there were two acquired practices that departed in January, which accounted for 1% of our attrition. So, outside of those impacts, which we would categorize as a bit of noise, the underlying drivers. Thank you, and for our continued low levels of advisor attrition. The experience over the last couple of years. So I feel good coming out of the quarter and how we see that opportunity emerge over the remainder of the year.
Devin Patrick Ryan: And then the second thing that we mentioned last quarter as well was that there were two acquired practices that departed in January.
Devin Patrick Ryan: Which accounted for 1% impact to our attrition.
Devin Patrick Ryan: Outside of those impacts, which we would categorize as a bit of noise the underlying drivers.
Devin Patrick Ryan: It set us up well for the rest of the year remained intact.
Devin Patrick Ryan: Thats, where you were getting at record level.
Devin Patrick Ryan: Routing strongest pipelines that we've had historically <unk> historically in our continued low levels of advisor attrition consistent with the experience over the last couple of years, so feel good coming out of the quarter.
Devin Patrick Ryan: We see that opportunity emerge.
Devin Patrick Ryan: Over the remainder of the year I.
Dan Hogan Arnold: I think you mentioned a bit of the, perhaps, how we think about new stores specifically or recruiting going forward, maybe, the second part of your question, and I think, You know, look, we had a really nice quarter, $20 billion in recruited assets. You see significant growth year-on-year across all affiliation models.
Devin Patrick Ryan: I think you mentioned a bit of the perhaps.
Devin Patrick Ryan: Do we think about new stores, specifically, our recruiting going forward maybe it was second part of your question I think.
Devin Patrick Ryan: Look we had a really nice quarter 20 billion and recruited assets.
Devin Patrick Ryan: See significant growth year on year across all affiliation models.
Dan Hogan Arnold: And, you know, at the same time, that expanded addressable market, our increasing win rates, it's driving that deep pipeline that I mentioned as we. It's as deep a pipeline as we've seen and certainly is supportive of where we head going forward. And that gives us a really solid conviction that we're well positioned to continue to win a larger share of advisors in motion with respect to, and I think when you add them to that, the committed wins we have, in the large institution marketplace. That sets us up with a solid opportunity with respect to newsflash sales as we move forward. So hopefully, that gives you a little color on the quarter and then a little color around the edges.
Devin Patrick Ryan: And.
Devin Patrick Ryan: At the same time expanded addressable market are increasing win rates, it's driving that pipeline that I mentioned this.
Devin Patrick Ryan: Oh.
Devin Patrick Ryan: This deeper pipeline as we've seen and certainly is supportive of where we had going forward.
Devin Patrick Ryan: And that gives us a really solid conviction that we're well positioned to continue to win a larger share of advisors in motion with respect to.
Devin Patrick Ryan: Recruiting and I think when you add into that the committed wins, we have and in the large institution marketplace.
Devin Patrick Ryan: So with a solid opportunity with respect to new store sales as we move forward. So hopefully that gives you a little color on the quarter and then a little color around the.
Devin Patrick Ryan: Okay.
Dan Hogan Arnold: Yeah, thanks, Dan. It's really helpful. And just to follow up, this is kind of interrelated, but just on the economics of all that. So, you know, the theme of competition in the space has continually been coming up. I know it's always a competitive market, so nothing necessarily new, but when we look at transition assistance, it's up 6% sequentially, 25% year-over-year. I know that's directionally trending with growth, but can you maybe just talk a little bit about kind of the competitive dynamics and kind of the economics around recruiting and transition assistance and how you feel like LPL is positioned around those economics if, let's say Thanks.
Speaker Change: Yes, Thanks, Dan really helpful and just a follow up this is kind of interrelated, but just on the economics of all of that so the theme of competition in the space as you can.
Speaker Change: It's really been coming out right now.
Speaker Change: It's always a competitive market, so nothing necessarily new but we look at transition assistance is up 6% sequentially and 25% year over year, I know thats directionally trending with growth, but can you maybe just talk a little bit about kind of the competitive dynamics and kind of the economics around recruiting and transition assistance and how you feel like <unk> positioned.
Speaker Change: <unk>.
Speaker Change: Around kind of those economics.
Speaker Change: Let's say transition deals or maybe a little bit higher than that happen. Thanks.
Dan Hogan Arnold: Let me start that, and then Matt, you add any color on economics that you think would be helpful. Look, I think with respect to the recruiting environment, right? We always start with the opportunity set and advisor movement over the last 12 months, which hovered around 5%, which remains lower than the historical norms. That said, despite this low overall movement, our win rates continue to move higher. And certainly, that's an encouraging trend relative to how we think about the opportunity set.
Speaker Change: Yeah, Let me start that Matt you add any color on economics would be helpful.
Speaker Change: Look I think with respect to the recruiting environment right. We always start with the opportunity set an advisor movement over the last 12 months has hovered around 5%, which remains lower than the historical norms that said despite those low overall movement.
Speaker Change: Our win rates continue to move higher.
Speaker Change: And certainly that's an encouraging trend relative to how we think about the opportunity set then too.
Dan Hogan Arnold: And then two, I think when we think about the environment, we look at the competitive landscape, and the participants have remained largely the same, as have the priorities that advisors are looking for when they evaluate their options to potentially move. And as a reminder, the first priorities are around capabilities, technology, and service. And that's where we continue to further distinguish ourselves as we invest back into our model. Next is the ongoing economics, which haven't changed significantly over time.
Speaker Change: When we think about the environment, we look at the competitive landscape and the participants have remained largely the same as do the priorities.
Dan Hogan Arnold: And I think in the independent space, especially, they create a compelling and interesting scenario for advisors. And then lastly, you get transition assistance rates, which we've seen pretty stable over the last year. And, you know, feel good about how we're well-positioned across our portfolio of different affiliation models in terms of how we support that advisor to make that transition. So, you know, given all of that. The strength of our overall value proposition continues to resonate, and we remain really confident that the ongoing appeal of our model positions it as well to sustain our industry-leading win rates. I don't know if you want to add anything to that. I wouldn't really – not really add, Dan.
Speaker Change: Advisers are looking for when they evaluate their options to potentially move.
Speaker Change: A reminder, the first priorities.
Speaker Change: Is around capabilities technology and service.
Speaker Change: That's where we continue to further distinguish ourselves as we invest back into our model.
Speaker Change: Next is the ongoing economics, which haven't changed significantly over time, and I think in the independent space, especially create.
Speaker Change: Our compelling and interesting scenario for advisors and then lastly, you get transition assistance rates, which we've seen pretty stable over the last year.
Speaker Change: Feel good about how we're well positioned across our portfolio of different affiliation models.
Speaker Change: In terms of how we support that advisor to make that transition so.
Speaker Change: Given all of that the strength of our overall value proposition continues to resonate and we remain really confident that the ongoing appeal of our model positions us well to sustain.
Speaker Change: Our industry, leading win rates and market share.
Speaker Change: I don't know if you want to add anything to that Matt I.
Matthew Jon Audette: I just underscore the point, Devin, on capabilities being really what matters from a decisioning standpoint on advisors and where they're joining firms. And I think from a TA standpoint, as Dan said, the rates have really been stable for quite a while. I think it's for us, and the growth there, it's more about the recruited AUM itself that's coming on board, which I know you see and follow the numbers. But Q1, which is typically the seasonally lowest quarter of the year, bringing in $20 billion prior to any large financial institutions, I think is the driver there.
Matt: I wonder not really add Dan I'd, just underscore the point I think on debit on capabilities is really what matters from a decisioning standpoint on advisers, and where theyre joining firms and I think from a ta standpoint, as Dan said the rates have really been stable.
Speaker Change: For quite a while I think it's for us and the growth there. It's more about the recruited AUM itself Thats coming on board.
Matt: Which which I know youll see and follow the numbers, but Q1, which is typically the seasonally lowest quarter of the year, bringing in 20 billion prior to any large financial institutions. I think is the driver there. So that's about the level of recruiting ta rates have been pretty stable.
Matthew Jon Audette: So it's about the level of recruiting. TA rates have been pretty stable. Yeah, that's great.
Speaker Change: Yeah, that's great. Thanks, guys.
Operator: Thanks, guys. Thank you, and one moment as we move to the next question. And our next question is going to come from the line of Alex Blostein with Goldman Sachs. Your line is open. Please go ahead. Hey, good afternoon, everyone.
Speaker Change: Thank you and one moment as we move to the next question.
Speaker Change: And our next question is going to come from the line of Alex <unk> with Goldman Sachs. Your line is open. Please go ahead.
Operator: Thank you for the question. You guys mentioned liquidity succession a couple of times this afternoon, and it's been coming up in prior calls as well. So maybe set for us kind of where that business is today, just maybe in terms of size or AUM, however you want to frame it. And how meaningful do you expect this to be to your organic growth targets, which I guess will continue to be in the high single digit range in terms of NNA over the next couple of years? Yeah, Alex, I'll start there on just some of the, maybe, economics and capacity parts of your question.
Alex: Hey, good afternoon, everyone. Thank you for the question.
Alex: You guys mentioned liquidity et cetera in a couple of times.
Alex: Afternoon, and it's been coming up in prior calls as well so.
Alex: Maybe level set for us kind of where that business is today, just maybe in terms of size or AUM. However, you want to frame it and how meaningful do you expect this to be to your organic growth targets, which I guess continues to be in the high single digit range in terms of M&A over the next couple of years.
Matthew Jon Audette: I think we're, you know, quite bullish on this offering and this solution. The economics are compelling. And from a capacity standpoint, I think there are ultimately limitations on the number of deals we can do in a given year. So if you look at what we've done since we launched the program, it's been 27 to date. I think we look at our team and capacity and how you bring these practices on board. I think, you know, probably max capacity per year is in the 30 to 40 zone.
Speaker Change: Yeah, Alex I'll start there just on some of the maybe the economics and capacity parts of your question I think we are.
Speaker Change: We're quite bullish on this offering in this solution.
Speaker Change: The economics are compelling and I think from a from a capacity standpoint, I think there are ultimately limitations on the number of deals we can do in a given year. So if you look at what we've done since we launched the program. It's been 27% to date I think we look at our team and capacity and how you bring on these pratt.
Alex: This is onboard.
Alex: <unk>, probably Max capacity per year, I would think about in the 30 to 40 a zone.
Matthew Jon Audette: So then when you put the financial aspects against that from a capital standpoint, we're applying capital consistent with our M&A framework, so we'll deploy capital here at about the 6 to 8 times EBITDA range. These deals are relatively small in the $10 to $20 million zone, and I would say they skew closer to the $10 million side of it.
Alex: So within when you when you put the financial impacts FX against that from a capital standpoint.
Alex: We're applying capital consistent with our M&A framework. So there we'll deploy capital here at about the six to eight times EBITDA range.
Alex: These deals are relatively small in the 10 to 20 million zone, and I would say skew towards closer to the 10 million side of it.
Dan Hogan Arnold: And then financially, the economics are pretty attractive in that the ROA of these firms effectively doubles when we purchase them. So if you're in the, think of the 30 basis point zone, we'd be earning 60 basis points once we own the practice, and that's largely a function of the reduced payout to the advisors. So that's where you would see those economics show up. So those are the economics, and so I think it's really financially compelling, but I think maybe even more exciting or more compelling is really the strategic value of this solution.
Alex: And then financially that the economics are pretty attractive and that the ROA. These firms effectively doubles when we purchase them. So if you are in the thick of the 30 basis point zone.
Alex: We'd be earning 60 basis points. Once we once we owned the practice that's largely a function of the reduced payout to the advisors. So that's where you would see those economics show up.
Alex: So those are the economics, so I think that's really financially compelling, but I think maybe even more exciting are more compelling is really the strategic value of this this solution, maybe dan would be better.
Dan Hogan Arnold: Maybe, Dan, that'd be better if you wanted to jump in there. Hey Dan, I'm sorry. I don't think we could hear you. Unfortunately, I don't know if it's my phone, or maybe other people are having the same issue.
Dan Hogan Arnold: Do you want to jump in there.
Dan Hogan Arnold: Sure.
Dan Hogan Arnold: Yeah.
Dan Hogan Arnold: Okay.
Dan Hogan Arnold: Yeah.
Dan Hogan Arnold: Okay.
Dan Hogan Arnold: No.
Dan Hogan Arnold: Okay.
Dan Hogan Arnold: Okay.
Dan Hogan Arnold: Yes.
Dan Hogan Arnold: Okay.
Dan Hogan Arnold: Thank you.
Speaker Change: Hey, Dan I'm, sorry, I don't think we could we could hear you. Unfortunately I don't know if its my phone or maybe other people are having the same okay.
Dan Hogan Arnold: It was user error on my part. Sorry about that. So let me start over. And again, as we've discussed before, you know, our opportunity set is really driven by trying to solve that big problem and the strategic question of how do we help potentially as many as a third of advisors retire and transition to businesses over the next 10 years, while there are a variety of options that are available in the marketplace.
Dan Hogan Arnold: It was user error on my fault on my part sorry about that.
Dan Hogan Arnold: Let me start over and again I think.
Dan Hogan Arnold: As we've discussed before our opportunity set.
Dan Hogan Arnold: It's really driven by trying to solve that big.
Dan Hogan Arnold: Strategic question, how do we help potentially as many as a third advisors.
Dan Hogan Arnold: Tire and transition of businesses over the next 10 years and.
Dan Hogan Arnold: While there are a variety of options that are available in the marketplace. We think ours is.
Dan Hogan Arnold: We think ours is a really differentiated and compelling one and a very elegant way to help these advisors transition their practices, take care of them, take care of their teams, take care of their clients, and ultimately create a bridge to the next entrepreneurial leader or owner. And in that spirit... You know, I think.
Dan Hogan Arnold: <unk> compelling one and a very elegant way to help these advisors transition their practices.
Dan Hogan Arnold: Care of them take care of their teams take care of their clients and ultimately create a bridge to the next entrepreneurial leader or owner.
Dan Hogan Arnold: And in that spirit.
Dan Hogan Arnold: I think.
Dan Hogan Arnold: Since we rolled it out to our advisors, which was late in 2022, it's been very, very appealing for those that are exploring those possibilities. And, as Matt said, we've closed roughly 27 deals to date. And given the success with our existing advisors, we've extended the question to the external marketplace and begun to explore how we could help those advisors that are on the LPL platform. And, as we mentioned, we were fortunate enough to close our first deal in Q1, and we've got a pretty solid pipeline building there.
Dan Hogan Arnold: Since we've rolled it out to our advisors, it's been which was late in 2022, it's been very very appealing for those that are that are exploring those possibilities and as Matt said, we've closed roughly 27 deals to date.
Dan Hogan Arnold: And given the success with our existing advisors now we've extended the question to the external marketplace.
Dan Hogan Arnold: Again to explore how we could help on those who are on the LPL platform with the same title.
Dan Hogan Arnold: Solution to that is the question of how do they transition their practices and as we mentioned we were fortunate enough to close our first deal in Q1, and we've got a pretty solid pipeline building there. So.
Dan Hogan Arnold: So I think we see it as this multidimensional opportunity to support and help our existing advisors, extend those assets on our platform for another generation of advisors, and then two, also as a catalyst for growth, complement the other opportunities that we focus on and have to drive growth. And we think it's a compelling, differentiated solution, a little hard to replicate. I think it'll resonate in the external market. Great. No, that's very helpful.
Dan Hogan Arnold: We see it as this multi dimensional opportunity the supporting and helping our existing advisors, which extends those assets on our platform for another generation of advisors and then to also with them as a catalyst for growth.
Dan Hogan Arnold: The other.
Dan Hogan Arnold: <unk>.
Dan Hogan Arnold: That we focus on and have.
Dan Hogan Arnold: To drive growth.
Dan Hogan Arnold: We think its a compelling differentiator solutions will be hard to replicate.
Dan Hogan Arnold: We think it will resonate in the external market.
Speaker Change: I hope that helps.
Operator: So my second question is kind of related, I guess, to some of the new initiatives. You guys have been super busy in the last few months with a number of deals, H3 obviously being on the larger size. How should we think about the capacity for incremental M&A, call it that, over the next 12 months as we sort of wait for H3 to close? And then, obviously, you guys have to integrate it. And then, as part of this H3 conversation, maybe you can touch on the competitive dynamics in the bank channel post this deal, given that we're a pretty sizable player there. Thank you.
Speaker Change: Great No that's very helpful.
Speaker Change: So my second question.
Speaker Change: And a related I guess to the some of the new initiatives you guys have been super busy in the last few months with a number of deals HD, obviously being on the larger size.
Dan Hogan Arnold: Should we think about the capacity for incremental M&A call. It over the next 12 months.
Dan Hogan Arnold: As we sort of waiting for HR to close and then obviously you guys have to integrate it and then as part of this atria conversation maybe you can hit on the competitive dynamics in the bank channel post this deal given that they were pretty sizable player. There. Thank you.
Dan Hogan Arnold: Yes, so I think, listen, relative to, you know, onboarding these programs and making sure that we have the ability to support and scale them. I think this is something that we've been working on since the good fortune of onboarding some of the larger financial institutions, BMO, and M&T, in 2021. And so our guiding principle when we explore any growth initiative, whether it's an organic win, like the large institutions, or even an acquisition like Atria, is to ensure that we're going to continue to deliver an exceptional experience to our existing advisors and that then we provide a seamless transition for advisors that are joining our platform. And in that spirit, we've continued to evolve our transition approach. We've iterated, and we've improved and gotten a lot better.
Speaker Change: Yes, so I think listen relative to.
Speaker Change: Onboarding. These these programs and making sure that.
Speaker Change: We have the ability to support scale.
Speaker Change: All of them I think.
Speaker Change: It is something that we've been working on since the good fortune of of Onboarding.
Dan Hogan Arnold: Some of the larger financial institutions, Nemo and <unk> in 2021, and so our guiding principle when we explore any growth initiative whether it's.
Dan Hogan Arnold: Organic when like the large institutions or even an acquisition like atria is to ensure that we're going to continue to deliver an exceptional experience to our existing advisors.
Dan Hogan Arnold: And then we provide a seamless transition for advisors that are joining our platform and in that spirit. We've continued to evolve our transition approach.
Dan Hogan Arnold: As we reiterated we have improved and gotten a lot better.
Dan Hogan Arnold: Over the last few years, we've established a discipline operating rigor; we use seasoned run books and automation, all in the spirit of delivering a high-quality, successful outcome that is repeatable and sustainable. And with each iteration, as I mentioned, we continue to enhance the efficiency and efficacy of how we execute the onboarding process. The important part about that is... That certainly improves and enhances the quality that we deliver but also the pace at which we can deliver it.
Dan Hogan Arnold: Over the last few years, we established a disciplined operating rigor we use season run books and automation all in the spirit of delivering a high quality successful outcomes that are repeatable and sustainable.
Dan Hogan Arnold: And with each iteration as I mentioned, we continue to enhance the efficiency and efficacy in how we execute the onboarding process now the important part about that is.
Dan Hogan Arnold: That certainly then improves and enhances the quality that we deliver but also the pace at which we can deliver these in.
Dan Hogan Arnold: And I think as we continue to go forward with each iteration, we adopt new ideas, new concepts, new ways of doing things in a simpler and faster way. And we'll continue to work on that and iterate on that, I think it will help us know and deliver an industry-leading onboarding experience, do it in the simplest and fastest way possible in the marketplace.
Dan Hogan Arnold: As we continue to go forward with each iteration, we adopt new ideas, new concepts, new ways of which to.
Dan Hogan Arnold: To do them in a simpler and faster way and we will continue to work on that and reiterate that I think will help us not only deliver an industry leading onboarding experience.
Dan Hogan Arnold: But do it in the.
Dan Hogan Arnold: The simplest and fastest way possible.
Dan Hogan Arnold: So that's sort of the context of how we think about increasing the capacity to support that ongoing opportunity. I think and then your second question, please remind me what it was. Sorry, just the, you know, the competitive positioning in the banks channel, institutions channel, after you guys integrated HR, because there were sizable player there. Now you have, you know, obviously more presence in that channel with them eventually under your umbrella. Yeah, so again, I think we've seen that marketplace as sort of an emerging opportunity where we took a novel concept back in 2020-ish and began to offer it to the marketplace and establish a significant advantage from just, Having market share, developing and growing IP around how to support and serve those clients, and then, And then ultimately, continuing to evolve our capability set to make sure that we can help them in terms of their risk profile or posture around this business line or service, increase or enhance financial results or financial performance of their programs to create operational efficiency and scalability into their programs and then ultimately to support them with growth, do that within this value proposition, and then have the advantage of.., history and the experience of operating and working with these clients.
Dan Hogan Arnold: That's sort of the context of how we think about increasing the capacity to support our ongoing opportunity.
Speaker Change: I think and then your second question.
Speaker Change: What it was.
Speaker Change: Sorry, just.
Speaker Change: The competitive positioning in the bank channel institutions channel. After you guys integrate a truck is there a sizable player there and now you have obviously more presence in that channel with them eventually under under your umbrella.
Dan Hogan Arnold: Yes, so again I think we've seen that marketplace as sort of an emerging opportunity, where we took a novel concept.
Dan Hogan Arnold: Back in 2020, as she began offering to the marketplace and the established.
Dan Hogan Arnold: Significant.
Dan Hogan Arnold: Advantage from just having market share developing and growing IP around how to support and serve those clients.
Dan Hogan Arnold: And then.
Dan Hogan Arnold: And then ultimately.
Dan Hogan Arnold: Continuing to evolve our capability set to make sure that we can help them in terms of their risk profile a cluster around this business line, our service increase or enhance.
Dan Hogan Arnold: Actual results.
Dan Hogan Arnold: Their programs to.
Dan Hogan Arnold: To create.
Dan Hogan Arnold: Operational efficiency and scalability into their programs and then ultimately to support them with growth.
Dan Hogan Arnold: If we can do that within this value proposition and then have the advantage of <unk>.
Dan Hogan Arnold: History and experience of operating in working with these clients.
Dan Hogan Arnold: So, better practice at onboarding through change management, a very complex effort, but that gives us [inaudible] clients. So I think we feel great about our positioning in the marketplace. The insights and perspectives that we can bring forward that have enriched our value proposition. Again, it's hard to do if you hadn't had the, So that's how we think about that leadership, and we think it's pretty durable and an interesting ongoing growth opportunity. Awesome. Great. Thanks.
Dan Hogan Arnold: Better practice at Onboarding through the change management, a very complex effort I think gives us a distinct advantage.
Dan Hogan Arnold: In the marketplace that.
Dan Hogan Arnold: That we think really resonates when we go out and share that with any prospective new clients. So I think we feel great about our positioning in the marketplace. The insights and perspectives that we can bring forward that is enriched our value proposition that again is it's hard to do if you hadn't had the.
Dan Hogan Arnold: So that's how we think about that leadership, we think it's pretty durable and an interesting ongoing growth opportunities.
Speaker Change: Awesome great. Thanks, so much.
Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Steven Chubak with Wolf Research. Your line is open. Please go ahead. Hi, good afternoon, Dan. Good afternoon, Matt.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Steven <unk> with Wolfe Research. Your line is open. Please go ahead.
Steven: Hi, Good afternoon, Dan Good afternoon, Matt.
Operator: So I wanted to start with a follow-up on just the liquidity and succession discussion. Matt, you alluded to some of the limitations on the pace of deployment. But I was hoping you could just speak to the cadence now that this has been launched externally that we should be contemplating. And given the higher year-on-year payout ratio guide for 2Q, when should we expect to see those reductions in the advisor payout rate as some of that liquidity and succession accretion really starts to come through?
Steven: So I wanted to start with with a follow up on just the liquidity in succession discussion that Matt you alluded to some of the limitations on the pace of deployment.
Steven: Was hoping you could just speak to the cadence now that this has been launched externally that we should be contemplating and given the higher year on year payout ratio guide for <unk> when should we expect to see those reductions in the advisor payout rate as some of that liquidity and succession accretion really starts to come through.
Operator: Yeah, I think on seeing that last point, right, I think when you look at the payout, there's a handful of things going on. But I think you're already seeing it within the payout rate, just based on the 27 deals we've done so far. So maybe if you just looked at the payout rate year over year for Q1 to just eliminate any kind of seasonal production build. And as a reminder, the Q1 payout for last year had a 40 basis point kind of catch up one timer. So the overall payout was flat year over year.
Speaker Change: Yes, I think on ceiling on that last point right I think when you look at the payout. There is there is a handful of things going on but I think you're already seeing it within within the payout rate just based on the 27 deals we've done so far so maybe if you just looked at.
Speaker Change: Payout rate year over year for Q1, so just to eliminate kind of seasonal production build.
Speaker Change: And as a reminder, the Q1 payout for last year had a 40 basis point kind of catch up one timer. So overall payout was flat year over year.
Matthew Jon Audette: And there's two things in there that actually drove payout up a little bit. The first is kind of building on what Dan was just talking through, the institution channel and the growth in the institution channel, which I think, you know, has a much higher payout than the average, also has a much lower cost to serve, and lower TA rates. When you get down to things, bottom line economics, I have margins that are quite compelling.
Speaker Change: And there are two things in there that actually drove payout up a little bit. The first is kind of building on what Dan was just talking through the institution channel and the growth in the institution channel, which I think has a much higher payout.
Speaker Change: Average also has a much lower cost to serve lower ta rate. So when you get down to things.
Speaker Change: <unk> economics like op margins quite compelling, but if you're just looking at the payout rate youre going to see that ROE as that business grows.
Matthew Jon Audette: But if you're just looking at the payout rate, you're going to see that grow as that business grows. And then we had some pricing reductions or pricing investments on our corporate advisory platform. We had announced those last year. Those took effect in the first quarter. She had those two things that pushed payout up.
Speaker Change: And then we had some pricing reductions are pricing investments on our corporate advisory platform, We had announced those last year. Thus took effect on the first quarter. She had those two things that bias payout up.
Speaker Change: But then liquidity and succession did dry payout down to offset that so there are moving parts in there. But you are you are absolutely starting to see that show up in the payout rate.
Matthew Jon Audette: But then liquidity and succession did drive payout down to offset that. So there are moving parts in there, but you are you are absolutely starting to see that show up in the payout rate, maybe not on an individual quarter to quarter. I'm just given the size of our overall business, but you are starting to see that over time. I think on the capacity point. And not sure where you're specifically going with that, so maybe just follow up if we're not hitting that, but I think overall, when you look at whether it's internal or external, and you think through the process to onboard these teams, make sure we're putting the proper field management in place, all the complexities associated with it, that's really where the 30 to 40 deals per year comes from, just to make sure that we're bringing those on board in a way that really delivers the strategic value that Dan was describing. earlier.
Speaker Change: Maybe not on an individual quarter to quarter, just given the size of our overall business, but you are starting to see that over time.
Speaker Change: I think on the capacity point.
Speaker Change: And not sure where specifically go with that so maybe just just a follow up if we're if we're not hitting that but I think overall when you look at whether it's internal or external and you think thrill think through the process to onboard. These teams to make sure we're putting the proper yield management in place all the complexities associated with it that's really where the.
Speaker Change: 30 to 40 deals per year comes from just to make sure that we're bringing those onboard in a way that really delivers the strategic value that Dan was describing earlier.
Matthew Jon Audette: Really helpful caller, Matt. And for my follow-up question, just a question on cash levels and, you know, expectations around reinvestment, just given the significant number of fixed-rate contracts coming due, I believe roughly $6 billion over the next three quarters. Where are those fixed contracts going to get renewed relative to that 240 basis point back book? And should we expect that it's all going to be renewed in fixed rate contracts, given that we are starting to see some signs of cash stabilization?
Speaker Change: That's really helpful color, Matt then for my follow up just a question on cash levels and.
Speaker Change: Expectations around reinvestment just given the significant number of fixed rate contracts coming due I believe roughly 6 billion over the next three quarters.
Speaker Change: Where are those fixed contracts going to get renewed relative to that 240 basis point back book.
Matt: And should we expect that that's all going to be renewed in fixed rate contracts given that we are starting to see some signs of cash stabilization.
Matthew Jon Audette: Yeah, I mean, on the plans to renew, I think we like being in the center of that range, that 50% to 75% range, which is where we are now. So we'll make, you know, decisions and judgments about that.
Speaker Change: Yeah, I mean, I think on on the on the plans to renew I think we like being in the center of that range that $50 to 75% range, which is where we are now so we'll make decisions and judgments about that but I think with a stable cash balance.
Matthew Jon Audette: But I think with a stable cash balance and being at 65%, it's a fair assumption to assume our plans would be to renew. When you look, maybe just to look at the next quarter, so not to go too far out, the maturities, that $2 billion in maturities are towards the end of the next quarter. And those specifically are at 200 basis points right now, so they're kind of below that average for the year.
Speaker Change: Being at 65% I think it's a fair assumption to assume our plans would be to renew.
Speaker Change: When you look maybe just to look at the next quarter. So not to go too far out the maturities that 2 billion of maturities are towards the end of next quarter.
Speaker Change: Specifically, our or at 200 basis points right now so they're kind of below that average for the year and if you look at where we would typically place in the three to five year range.
Matthew Jon Audette: And if you look at where we would typically place them in the three to five year range, where that marketplace is, I think, you know, in today's market, you can assume in the 450 basis point range is where we'd place them. So, of course, things could move between now and the end of Q2. But, you know, where we're sitting right now, you'd be going from 200 basis points up to the mid 450s on that $2 billion. Very helpful, Matt.
Speaker Change: Where that marketplace is I think in <unk>.
Speaker Change: Today's market you can assume in the 450 basis point range is where we'd place. Those so of course things can move between now and the end of Q2, but where we're sitting right now you'd be going from 200 basis points up to the mid 40 <unk> on that $2 billion.
Speaker Change: Very helpful. Matt Thanks for taking my questions.
Speaker Change: Okay.
Matthew Jon Audette: Thanks for taking my question. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Michael Cyprys with Morgan Stanley. Your line is open. Please go ahead.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Michael Cyprus with Morgan Stanley. Your line is open. Please go ahead.
Operator: Great, thank you. Good afternoon. Maybe just circling back to the enterprise channel, you guys have had a lot of success there over the past couple of years. I'm just hoping you could talk a little bit about the pipeline for new mandates and how those conversations are evolving. And then on the Pru platform, more broadly on that, I was hoping maybe you could speak a little bit about the platform that you've customized and built for Pru, just how that differs from what you've done with other enterprise clients, and how you might be able to take this sort of capability set into other channels or markets over time. We have to.
Michael J. Cyprys: Great. Thank you good afternoon, maybe just circling back to the enterprise channel you guys have had a lot of success there over the past couple of years I was just hoping you could talk a little bit about the pipeline for new mandates. How those conversations are evolving and then on the <unk> platform more broadly on that I was hoping maybe you could speak a little bit into the platform that you have customized and built for Peru.
Michael J. Cyprys: So just how that differs from what you've done with other enterprise clients and how you might be able to take the sort of capability set into other channels or markets over time.
Michael J. Cyprys: Yes, so with respect to the institution pipeline.
Michael J. Cyprys: We have.
Dan Hogan Arnold: Continued opportunity to get swings in the batter's box in the large bank space. Obviously, we had an established series of a number of years of success in bringing those clients on and, and the success that those institutions are having once on the platform from a financial performance standpoint from new capabilities, solutions, and features. I think it certainly reinforces the value that the model can provide them and thus helps us in those ongoing dialogues about other opportunities within the bank space.
Michael J. Cyprys: Continued opportunity too.
Speaker Change: It swings in the Batter's box in the large bank space.
Speaker Change: Obviously, we had to establish series of a number of years of success in bringing those clients on the.
Speaker Change: <unk> that those institutions are having once on the platform.
Speaker Change: Financial performance standpoint.
Speaker Change: Capabilities and solutions and features.
Speaker Change: It certainly reinforces the value.
Speaker Change: That's the model can provide them and thus helps us in those ongoing dialogues with other opportunities within the bank space, that's about a trillion dollar opportunity or a marketplace and so there is there is a number of opportunities that remain out there.
Dan Hogan Arnold: That's about a trillion dollar opportunity or marketplace. And so there are a number of opportunities that remain out there, and we're encouraged by the dialogue that we're having in that part of the market. And then I think also with the win with Peru, right, we expanded that market to include Wealth Management Solutions that are owned or operated by product manufacturers and specifically insurance companies.
Speaker Change: We're encouraged by the dialogue.
Speaker Change: And that part of the marketplace and then I think also.
Speaker Change: With the win with Peru, right, we expanded that market to include.
Speaker Change: Got it.
Speaker Change: Wealth management solutions that are at our owned or operated by auto manufacturers and specifically insurance companies and I think that certainly that when.
Dan Hogan Arnold: And I think that certainly that win created the opportunity to have a number of dialogues at this point, similar in nature to a prudential and certainly exploring the possibilities of outsourcing where an outsourcing solution wasn't always available in that part of the marketplace. And so though a longer sales cycle and a sort of longer iterative consultative approach to that, we are encouraged by the emerging dialogue and discussions we're having in that part of the market. I think that's your first question. Your second one...
Speaker Change: Created the opportunity to have a number of dialogues.
Speaker Change: The companies that are.
Speaker Change: Similar in nature to a potential and certainly exploring the possibilities of outsourcing where an outsourcing solution wasn't always available in that part of the marketplace and so though.
Speaker Change: A longer sales cycle, and the sort of longer iterative.
Speaker Change: Consultative approach to that we are encouraged.
Speaker Change: By the emerging dialogue and discussions we're having in that part of the market pick up the first question. Your second one again.
Dan Hogan Arnold: Sorry, the first part was just about the pipeline for new mandates and conversations, and then the second part was just around the approved custom-built platform and opportunities to take that elsewhere to other markets. Yes, thank you.
Speaker Change: Sorry, the first part was just on the.
Speaker Change: Pipeline for new mandates in conversations and then the second part was just around those approved custom built platform and opportunities to take that elsewhere into other markets our channels over time.
Speaker Change: Yes, yes. Thank you sorry, so I think I answered the first one so on the on the second half with respect to some.
Dan Hogan Arnold: So I think I answered the first one. So, on the second half, with respect to, you know, some of the capabilities that we're thinking about relative to proof, part of the opportunity in exploring that and solving for that was, I think, creating what I think are two interesting applications that are somewhat novel in the marketplace today. The first one is the expansion of our platform that will enable the product manufacturer and the LPL suite of products to exist in a single experience.
Speaker Change: Some of the capabilities that we're thinking about relative to prove.
Speaker Change: Part of the opportunity and exploring that and solving for that was I think creating what I think are two interesting applications that are there is somewhat novel in the marketplace. Today. The first one is the.
Speaker Change: Expansion of our platform that will enable the manufacturer and the LPL suite of products to exist in a single experience. If you think about that relative to insurance as an example that can be a really important element differentiator, where you get a really seamless.
Dan Hogan Arnold: If you think about that relative to insurance, as an example, that can be a really important element and differentiator where you get a really seamless, integrated solution set across your entire product. Again, that's kind of a novel concept.
Speaker Change: <unk> integrated solution set across your entire product.
Speaker Change: Pardon me.
Speaker Change: Again, that's kind of a novel concept.
Dan Hogan Arnold: The hypothesis of a lot of folks thinking, wow, that would be a really interesting thing to solve for, I think, inside this opportunity. We're solving for that. So we're really encouraged about that. And again, once you do that, that can be valuable to any number of other larger institutions that might value it. A second one would be an integrated operating platform that embeds workflows and connectivity not only to our systems but to parent and third-party systems. And it's kind of a cool operational efficiency, again, across the landscape. They do!
Speaker Change: Hypothesis that hypothesis of a lot of folks thinking while that would be a really interesting.
Speaker Change: Thing to solve for and I think inside this opportunity.
Speaker Change: We're solving for that so we're really encouraged about that and again once you do that that can be valuable to any number of other different film larger institutions it might value that a second one would be.
Speaker Change: An integrated operating platform that embeds workflows activities, not only through our systems, but to the parent third party systems and so it's.
Speaker Change: It's kind of a cool operational efficiency across the landscape.
Speaker Change: They do.
Dan Hogan Arnold: It makes it easy for them to collaborate, operate, and work with us in a very integrated way. So those are things we think are really, again, interesting and differentiating for them, but also applicable to others, to other potential prospects. Hope that helps. Good. Thank you.
Speaker Change: It makes it easy for them to collaborate operate and work with us in a very integrated way. So those are just tools.
Speaker Change: I think we think are really again interesting and differentiating for them, but also applicable to other.
Speaker Change: Two other potential prospects hope that helps things.
Operator: Just a follow-up question, if I could just on client cash, just curious what you're seeing in underlying client behavior, realize the cash allocation is a bit lower today versus historical. But when you look at the customer behavioral trends under the hood with cash going in and out of the account, just curious, is there anything different now that you're seeing relative? [inaudible] Hey, Michael.
Speaker Change: Great. Thank you just a follow up question if I could just on client cash just curious what youre seeing in terms of underlying client behavior and realize the cash allocation a bit lower today versus historical but when you look at the customer behavioral trend under the hood with cash going in and out of the account just curious if there's anything different now that you're seeing relative.
Speaker Change: To historical and as you kind of look out from here is there a certain macro or rate environment.
Speaker Change: It would be helpful. In terms of Catalyzing cash allocations to Brian tire.
Matthew Jon Audette: Yeah, I think, and I think you can see it in our metrics, I think we've seen, you know, stability in the category of near full deployment for quite some time now, right? You look at Q1 results, and cash balances kind of remained in that, you know, just above 3% zone, largely coming down just by fees in the quarter. So I think you're starting to get to that place where you're really at full deployment. And I think from an environmental standpoint and where things could go, I think history is the best guide.
Speaker Change: Hey, Michael Yes, I think the headline is I think you can see it in our metrics I think we've seen stability.
Michael J. Cyprys: In the category of near full deployment for quite some time that you look at Q1 results in cash balances kind of remained in that just above 3% zone.
Speaker Change: Is that coming down just by fees in the quarter. So I think youre starting to get to that place where you really at full deployment.
Speaker Change: And I think from from an environment standpoint, and where things could go I think history is the best Guide I think we're in a place where.
Matthew Jon Audette: I think we're in a place where, you know, clients are fully deployed, the equity markets are rising, interest rates are high, and they're fully deployed in the market. And I think when we've seen environments that are, you know, the opposite of that, where they're in more of a defensive position, you see cash balances come back up, right? That doesn't, you know, feel like that, of course, in the moment, but I think that is the behavior we've seen time and time again.
Speaker Change: Clients are fully deploy the equity markets are rising interest rates are high and they're fully deployed in the market and I think we've when we've seen environments that are the opposite of that where they are in more of a defensive position you see cash balances come back up right that doesn't.
Speaker Change: Feel like that of course in a moment, but I think that is the behavior, we've seen time and time again.
Matthew Jon Audette: And I think that's the dynamic we would expect to continue. All that being said, I'd just emphasize we are seeing that stability where cash is really coming down for things like paying fees and things, as opposed to deployment in the marketplace which has gotten pretty stable in the last quarter or so. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Dan Fannon with Jefferies. Your line is open. Please go ahead.
Speaker Change: And I think that that's the dynamic we would expect to continue all that being said I'd. Just emphasize we are seeing that stability, where cash is really coming down for things like paying fees and things as opposed to deployment in the marketplace has gotten pretty stable in the last quarter or so.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Dan Fannon with Jefferies. Your line is open. Please go ahead.
Operator: Thanks. Good afternoon. Matt, I was hoping you could talk about the factors that are going to get us or get you towards the low or the high end of your G&A growth for this year, and now that we're four months in, kind of where you think you're tracking based upon current trends. Yeah, I mean, when you look at just the first quarter, right, from an annualized rate, we're at the low end of that guidance. And I think when you look ahead to Q2, we'd probably be in something in a similar zone.
Daniel Thomas Fannon: Thanks, Good afternoon, Matt I was hoping you could talk to the factors that are going to get us or get you towards the low or the high end of your G&A growth for this year.
Daniel Thomas Fannon: Now that we're four months and kind of where you think you're tracking based upon current trends.
Matt: Yeah, I mean, I think when you look at just the just the first quarter right.
Matt: From an annualized rate we're at the low end of that guidance.
Matt: And I think when you look ahead to Q2.
Matt: Probably be something in a similar zone. So I think we're we feel good that we are tracking towards our guidance overall I think the things that can move.
Operator: So I think we feel good that we are tracking towards our guidance overall. I think the things that can move us within that range are similar to things that were in prior years, which is more about our levels of organic growth, opportunities that we see during the year that really drive, whether it be variable costs, variable compensation, or the costs associated with that growth. But the headline I would give is that we feel comfortable landing within that zone.
Matt: US within that range or similar to things that are in the prior years, which is more about our levels of organic growth opportunities that we see during the year that really drive.
Matt: Whether it be variable variable costs variable compensation or the costs associated with that growth, but the headline I would I would give is we feel comfortable of landing within that zone.
Operator: And just a reminder that it's prior to expenses associated with prune atria, and to the extent that those impact core DNA, we'll give updates later in the year on that. The headline is we feel good.
Matt: Just a reminder that is prior to expenses associated with Peru and atria.
Matt: To the extent that those impact core G&A.
Matt: We will give updates later in the year on that.
Speaker Change: Your line is we feel good.
Matthew Jon Audette: And then, Dan, I was hoping you could provide some updated thoughts around the DOL rule. Obviously, we got the full proposal last week. Any changes to how you were thinking about it and what you said previously? Yes, so let me see that hot topic over the last week since its release. But look, the headline is, I think the final rule reflects...
Speaker Change: Understood and then.
Speaker Change: Dan I was hoping you could provide some updated thoughts around the Dol rule, obviously, we got the full proposal last week any.
Dan: Changes to how you were thinking about it and what you said previously.
Dan: Yes so.
Dan: Topic over the last week since the release.
Dan: But look the headline is I think the final rule reflects hopeful changes from the original proposal and generally better aligns with the Sec's Reg G I.
Dan Hogan Arnold: Thank you very much, which we believe is a good thing for investors. As you probably have seen, the rules are scheduled to become effective in September. Although there is a one-year transition period for firms that acknowledge fiduciary status and comply with specified content, that's probably a long-winded way to say it. And there's probably a year timeline in and around getting any changes that need to be required or made in your compliance programs in place such that they will fill those.
Dan: Which we believe is a good thing for investors.
Dan: And as you've probably seen the rules are scheduled to become effective in September.
Dan: Although there is a one year transition period from firms that acknowledge ashish <unk> and plywood.
Dan: Specified concept standards. So that's probably a long winded way to say there is a.
Dan: Theres, probably a year timeline in and around.
Dan: Getting any changes that need to be required are made and the compliance programs in place such as.
Dan: Great.
Dan: You can still build those new responsibility.
Dan Hogan Arnold: That said, our team is working to finalize the design and implementation of our compliance program. And again, we feel good about that preparation and the ability to execute around the effective, Framework-affected dates and framework that we've seen thus far. We're able to leverage some of the work we did in 2016, which ultimately wasn't implemented, in addition to some work that we've already done connected to REGBEYOND. You know, at the same time, there are a few areas, like around rollovers, where we'll have to deploy new approaches and solutions, but again, we think, you know, they're solvable. All that said, it's safe to assume that there will be litigation challenging the rules.
Dan: Our team is working to finalize the design and implementation of our compliance program and again, we feel good about the preparation and the ability to execute.
Dan: Brown effective.
Dan: Framework effective dates and framework that we've seen thus far.
Dan: We're able to leverage some of the work we did in 2016, which ultimately wasn't implemented.
Dan: In addition.
Dan: Some work that we've already done.
Dan: Beyond so.
Dan: At the same time, there are a few areas like around rollovers, where we will have to deploy new approaches and solutions again.
Dan: They are solvable.
Dan: That's all of that said, it's safe to assume that there will there will be litigation challenging the rule.
Dan Hogan Arnold: As there was a case with successful litigation we saw back in response to the 2016. All of that could potentially impact the compliance approach that any of us take in the timeline. Jury's out on that, but we do think it was a better landing spot than the original.
Dan: As there was.
Dan: Successful litigation saw back.
Dan: Response to the 2016.
Dan: So all of that could potentially impact.
Dan: Both the compliance approach that any of the stake in the <unk>.
Dan: Online.
Dan: So.
Dan: Jury's out on that we.
Dan: We do think it was a better landing spot originally.
Speaker Change: Great. Thank you.
Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Bill Katz with TD Cowan. Your line is open. Please go ahead.
Speaker Change: Thank you and one moment as we move on to our next question.
Dan: And our next question is going to come from the line of Bill Katz with TD Cowen. Your line is open. Please go ahead.
Operator: Thank you very much for taking the questions. So, just going back to cash for a moment, to the extent that we follow the forward curve from here, and I appreciate your comments, Matt, that there's some cyclicality longer term looking at this, but just sort of using your current AUM base, even if I apply an 8 percent growth rate against that and sort of assume a 3 percent allocation, and I adjust for quarterly billing.
Bill Katz: Thank you very much for taking the questions. So just coming back to cash for a moment.
Bill Katz: To the extent that we follow the forward curve from here and I. Appreciate your comments meant that there's some cyclicality longer no longer looking on this but just using your current base, even if I apply an 8% growth rate against that and so assume 3% allocation.
Dan: Just for quarterly billings.
Operator: Should we be thinking of a scenario of sort of flatter client cashiers until a more strident change of interest rates as we sort of think through our models? Well, I think you're walking through your model there, Bill.
Dan: Should we kind of think of a stereo or sort of flatter.
Dan: Client cash here until a more strident change of interest rates as we saw I think because of our models.
Speaker Change: Well I think you were.
Speaker Change: Walk us through your model there Bill I think the headline point is if.
Matthew Jon Audette: I think that the headline point is if, If you're assuming the environment remains the same, I think assuming cash is fully deployed in the market, I think it's a good assumption. I think the point you're making is that we continue to grow, and that growth does come with cash. So I think modeling that versus the fees we pay and things of that nature, I think it's a good way to look at it. And maybe to bottom line it, I think when you look at the cash as a percent of AUM where we are in that low 3% zone, you're certainly getting the point of friction from going below that when you've got to have a certain amount of cash to manage rebalancing, paying fees, and You're just a natural resistance when you get down to the levels that we are.
Speaker Change: If you are assuming the environment remains the same I think assuming cash is fully deployed in the market.
Bill Katz: I think it's a good assumption I think to the point I think the point you are making as we continue to grow that growth does come with cash.
Speaker Change: So I think.
Speaker Change: Modeling that versus the fees, we pay and things of that nature.
Speaker Change: I think it's a good way to look at it and maybe the bottom line and I think when you look at the cash as a percent of AUM, where we are in that low kind of 3% zone Youre certainly getting to the point of.
Speaker Change: Friction from going below that when you've got to have certain amount of cash to manage rebalancing paying fees facilitating withdrawals or just a natural resistance when you get down to the levels that we are.
Matthew Jon Audette: So I think that was where you were probing, but those levels would be what makes sense to us. And there's certainly cash that comes along with growth if that's what you're trying to achieve. Thank you. That is very helpful. And then just one clarification and one question. You mentioned that your ICA yield might be down a couple of basis points quarter on quarter, and I guess I'm a little surprised just given the high reinvestment rates and you're getting more payable gross spread on the Fed Fund on the variable side. So could you maybe explain that?
Speaker Change: So I think that was where you were probing but.
Speaker Change: Those levels will be what it makes sense to us and there are certainly cash that comes along with growth if thats, what youre trying to confirm.
Speaker Change: Okay. Thank you that's helpful. And then just one clarification and one question you mentioned that your ICA yield might be down a couple of basis points quarter over quarter, and I guess almost surprised just given the high reinvestment rates.
Speaker Change: And you are getting more favorable gross spread on the fed fund on the variable side. So can you just maybe explain that but the broader question I have is.
Operator: But the broader question I have is going on to just the liquidity and services opportunity, success. Excuse me. Could you talk a little bit about maybe the external one, Dan? You sort of highlighted that you sort of secured your first one. So congrats on that. What's the shape and size of that look like?
Speaker Change: Going on to just the liquidity and services opportunity.
Speaker Change: Excuse me can you talk a little bit about.
Speaker Change: Maybe the external one Dan you sort of highlighted that you saw a security first of all so congrats on that whats the shape and size of that look like and then just from a Devil's advocate perspective, if you are getting 60 basis points on that incremental deployment.
Operator: And then just from a devil's advocate perspective, if you're getting 60 basis points on that incremental deployment, why not ratchet that up and slow some of the lower gross profit ROA but larger transactions on the enterprise side? Maybe help me understand the puts and takes as you think about capital allocation. Thank you so much.
Speaker Change: Why not ratchet that up and slow some of the lower gross profit ROA.
Speaker Change: But larger transactions in the enterprise side, maybe help me understand the puts and takes as you think about capital allocation. Thanks, so much.
Speaker Change: Okay.
Operator: All right, so I'll start with part one of your seven-part question there, my man. I think on the ICA yield, just the timing, so I think when you look at the decline quarter over quarter, the fixed rate maturity that I think we would, you know, reinvest at, you know, from 200 basis points to 450, that comes at the very end of the quarter. So if you just look at where cash balances are at the moment, you would just have a movement of those variable ones. I think that the point I would make is it's really that maturity, just coming at the end of the quarter.
Speaker Change: Alright ill start with part one of your seven part question there.
Speaker Change: I think I think on the ICA yield just the timing. So I think when you look at the decline quarter over quarter.
Speaker Change: The fixed rate maturity that I think we would reinvest that from 200 basis points to 450 that comes at the very end of the quarter.
Speaker Change: So if you just look at where we're cash balances are at the moment.
Speaker Change: You would just have a movement of those variable one so I think the point I would hit is it truly that maturity I was just coming at the end of the quarter. So youll see that benefit pull through assuming it comes in at the at the rates that we talked through there in the marketplace right. Now you just see that come through in the third quarter.
Matthew Jon Audette: So you'll see that benefit pull through, assuming it comes in at the rates that we talked through. They're in the marketplace right now; you just see that come through in the third quarter. I think about the L&S economics, and maybe I'll just give a comment there and then turn it over to Dan. I think it's not necessarily about pure, you know, decisions on capital allocation, where to put it. I think it's about these advisors and finding, you know, a succession offering that works for them and doing it in a way that is very thoughtful and helpful and lands them on our platform and really hits the marks of the really strategic benefits of the transaction itself.
Speaker Change: I think on the LLS economics, so maybe I'll just give a comment there and then turn it over to Dan I think that it's not necessarily about pure decisions on capital allocation where to put it I think it's about these advisors and finding.
Speaker Change: Succession offering that works for them and doing in a way that is very thoughtful and helpful and land them on our platform and really hits the marks of the the really strategic benefits of the transaction itself and I think thats what leads to our thoughts on the capacity of 30 to 40, a year as opposed to just some financial.
Matthew Jon Audette: And I think that's what leads to, you know, our thoughts on the capacity of 30 to 40 a year, as opposed to just some, you know, financial choice. And maybe, Dan, if there's anything you want to add to that.
Speaker Change: Joyce.
Speaker Change: Now if there's anything you want to add to that.
Dan Hogan Arnold: So Bill, you were speaking to the opportunity set, and again, you know, it goes back to, in many cases, what we're solving for is... sessions for these advisors. And I think given the size of that need has driven the proliferation of maybe innovation in that area to try to solve for it. And so, you know, if there are 300,000 advisors in the marketplace, and a third of them are going to retire over the next 10 years, that would be a total opportunity set, I think.
Joyce: So you were speaking to the opportunity set again it goes back to.
Joyce:
Joyce: In many cases, what we're solving for is the succession for these advisors and I think.
Joyce: Given the size of that need has driven the proliferation of maybe innovation in that area to try to solve.
Joyce: Yeah.
Joyce: And so you know it's if it's there's 300000 advisers in the marketplace and a third of them are going to retire over the next 10 years that would be the total opportunity set I think.
Dan Hogan Arnold: For now, a lot of these transactions have been targeted at a little larger practices because to do these transactions, it's a complex administrative process to work through them, and so it's probably not fair to say then it's all the hundred thousand that are retiring within the next ten years of the opportunity set. That said, the administrative complexity to do these deals will certainly get easier as everyone in the marketplace learns, iterates, and evolves how to do that.
Joyce: We're now a lot of these transactions have been targeted for a little larger practices because to do these transactions. It's just it can be a complex administrative process to work through it and so.
Joyce: It's probably not fair to say and it's all 100000 that are retiring in the next 10 years as the opportunity set that said the constraints around the administrative complexity to do these deals we will certainly get easier as is everyone in the marketplace learn iterate some malls.
Joyce: How to do that and that constraint then we'll allow that capacity to go up.
Dan Hogan Arnold: And that constraint then will allow that capacity to go up. And, you know, as firms learn how to onboard these folks and do it in a highly successful way, then, again, I think that constraint... will go up, and you'll see an increased number and sizes of these over time. So that's how we think about the opportunity set and make sure that we have the compelling value proposition to support these folks once they transition over and once we serve them in the context and capacity that they are being served in as... FOIA, LPL, and that's it.
Joyce: And.
Joyce: As firms learn how to onboard these folks and do it in a highly successful way then again I think that constraint.
<unk> will go up.
Joyce: Youll see increased number and size of these <unk>.
Joyce: So that's how we would think at least about how we think about the opportunity set makes sure that we have a compelling value proposition.
Joyce: To support these folks once they transition over and once we served in the context of past.
Joyce: Sure.
Joyce: Being served in us.
Joyce: <unk>.
Joyce: Okay.
He is LPL in buses all okay.
Dan Hogan Arnold: Part of a transition of a succession plan over a five-year period of time, we're delivering value and capabilities that we've built into a lot of our affiliation models that enable us to do that. [inaudible] And we're going to get more efficient at them; we'll scale them up. We do think, again, it's a compelling opportunity that is relevant for folks that are in traditional employee-based models. It's relevant for anyone that has their own independent business.
Joyce: Part of the transition of the succession plan over a five year period on where we're delivering value and capabilities that we built in a lot of our affiliation model.
Joyce: Enable us to do that really efficient effective way. So we can scale that where we couldnt. We didn't have three or four years of experience in building those capabilities and so I think it's just that front end administrative operational work doing these deals and as again you can get more efficient item will scale it up.
Joyce: We do think again selling opportunity that has some relevant or folks that are in traditional employee based models, which are relevant for anyone that has their own independent business.
Dan Hogan Arnold: It's trying to explore how to transition to business and create a... Again, I think we'll continue to innovate, evolve, and get better and better at it. I don't suspect we'll have competition in the marketplace because it's a big problem to solve, but we think we've got a good head start and a good infrastructure to leverage and scale. Thanks for taking all the questions.
Just trying to explore how though.
Joyce: Transmission business and creative.
Joyce: Succession outcome.
Joyce: So it is a relevant businesses, possibly oh, sorry, a relevant opportunity across the industry.
Joyce: And again, I think we'll continue to innovate evolve and get better and better at it.
I suspect we will have competition out in the marketplace, because it's a big problem to solve a problem. We think we've got a good head start.
The structure of which to leverage and scale.
Speaker Change: Thanks for taking my questions.
Operator: Thank you, and one moment as we move on to our next question. And our last question is going to come from the line of Benjamin Budish with Barclays. Your line is open. Please go ahead.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our last question is going to come from the line of Benjamin <unk> with Barclays. Your line is open. Please go ahead.
Operator: Hi, good afternoon, and thanks for taking the question. I wanted to first maybe ask one more follow-up question on cash levels, but maybe ask about the April update more holistically. So on cash, it sort of sounds like your comment about the variable piece moving with, you know, given the timing of advisor payments and taxes, perhaps, you know, cash continues to decline in April, but you also sound quite optimistic on the recruiting pipeline. Any color you can give on in terms of what you're seeing there in terms of net new assets in April? I know the month is almost at an end. Yeah, you bet, man.
Benjamin: Hi, good afternoon. Thanks for taking the question I wanted to first maybe one more follow up on cash levels, but maybe asking about the April update more holistically. So on cash it sort of sounds like your comments about the variable piece moving with given the timing of adviser payments and taxes, perhaps cash continues to decline in April but you also sound quite optimistic on the recruiting.
Pipeline any color you can give on in terms of what youre seeing there in terms of net new assets in April I know the month is almost at an end.
Yeah, you bet, Matt I think we've got one more day of data to see but the headline I'd give you on April as it is shaping up a.
Matthew Jon Audette: I think we've got one more day of data to see, but the headline I'd give you on April is that it is shipping up to be a bit better than you would expect, especially given the seasonality that you hinted at in your question of what you see in April. So starting first on client cash balances, the two seasonal factors that do hit April are first to your point taxes. Right taxes get paid in April, and that for us typically reduces cash by about a billion and a half.
Benjamin: A bit better than you would expect especially given the seasonality that you hinted at in your question of what you see in April.
So starting first on client cash balances. The two seasonal factors that do hit April are first to your point taxes right taxes get paid in April that for us typically reduces cash by about 1 billion and a half.
Benjamin: And then the second factor is advisory fees does primarily come out in the first months of the quarter April obviously being the first month of Q2 that reduces cash by about 1 billion. Four so those two seasonal factors together all else equal would drive a decline of nearly $3 billion in cash sweep for the month.
Matthew Jon Audette: And then the second factor is advisory fees. Those primarily come out in the first month of the quarter, April obviously being the first month of Q2. That reduces cash by about a billion dollars. So those two seasonal factors together, all else equal, would drive a decline of nearly $3 billion in cash sweep for the month.
Matthew Jon Audette: But to the point on stability, outside of those factors, we actually have seen cash balances grow by over a billion. So you net it all out, and cash balances for the month of April are down just a billion and a half from where we sit right now. And then to your point on organic growth, we're continuing to see the strength that we talked about in Q1. Those same dynamics, taxes, and advisory fees, do hit N&A in the month of April.
Benjamin: But to the point on stability outside of those factors, we actually have seen cash balances grow by over $1 billion. So you net it all out in.
Benjamin: And cash balances for the month of April are down just two 1 billion and a half where we sit right now.
And then to your point on organic growth, we're continuing to see the strength that we've talked about in Q1.
Benjamin: Those same dynamics taxes in advisory fees due hit M&A in the month of April.
Matthew Jon Audette: That would reduce N&A by about $3 billion, or about 3%. But outside of that, when you factor in the recruiting levels that we've had, that ramp that's come into April, as well as the strength that we continue to see from a strength in the month of April, we're seeing organic growth in the 5% to 6% zone, which, as a reminder, April is typically the slowest month of the year from a growth standpoint
That would rousseau would reduce M&A by about $3 billion or about 3%.
But outside of that when you when you factor in the recruiting levels that we've had that have that ramp.
Benjamin: That's come into April as well as we continue to see from our strength in the month of April we're seeing organic growth in the 5% to 6% zone, which as a reminder April is typically the slowest months of the year from a growth standpoint. So.
Benjamin: So at 5% to 6% for that month, I think it's a solid start to the quarter.
Operator: And then maybe my follow-up. Just in terms of promotional expenses, I guess I have two questions. One, can you unpack a little bit the Prudential-related expenses? I guess how much was in Q1?
Great and then maybe my follow up.
Speaker Change: Just in terms of promotional expenses I guess two questions. One can you unpack a little bit the Prudential related expenses I guess, how much was in Q1 and then for the step up you indicated in Q2, how much are.
Matthew Jon Audette: And then for the step-up you indicated in Q2, how much are you expecting that's pro-specific versus the increase on the TA side? And then, at a high level, can you kind of just walk us through what happens over the next year, say, with Prudential and Atria? For Prudential, I understand there are promotion expenses coming off.
Speaker Change: Are you expecting thats proved specific versus the increase on the Ta side and then at a high level can you kind of just walk us through what happens over the next like year or say with Prudential and atria Prudential I understand there are promo expenses coming off for atria, presumably there is a separate M&A spend but ta which should be ramping up. So how are you thinking about the growth in that line over the next say.
Matthew Jon Audette: For Atria, presumably there's a separate M&A spend, but TA, which should be ramping up. So how are you thinking about the growth in that line over the next, say, four quarters? Thank you. Yeah, you bet.
Speaker Change: Four quarters. Thank you.
Matthew Jon Audette: I think when you look at... specific to Q1 and PRU. We had about $17 million of promo-related expenses related to PRU and Q1. We'd actually expected in the low $20 million range; it's a little bit why promotion came in a little bit better than we had guided and the reason why next quarter is up by about $10 million. It's really a shift in the timing of spend related to PRU. I think when you look at the overall year to your question on what's going to drive promotion, and I'll get to the pretty specific pieces of that, but I think there are really three factors when you look at the full year. And the first, in Q1, is organic growth, right?
Speaker Change: Yeah, you bet I think when you look at.
Speaker Change: Specific to Q1 in Peru.
Speaker Change: We had about $17 million of promo related expense related to Peru in Q1, we.
Speaker Change: We had actually expected in the low $20 million range, it's a little bit why promotional came in a little bit better than we had guided and the reason why next quarter is up by about $10 million its really a shifting of the timing of spend related to Peru.
Speaker Change: I think when when you look at the overall year to your question on what's going to drive promotional and I'll get to the proved specific pieces of that.
Speaker Change: But I think there's really three factors when you look at the full year and the first in key one is organic growth right.
Matthew Jon Audette: And specifically from recruiting, which we talked a little bit about earlier in the call, primarily the level and amount of recruited AUM that comes onto the platform with Q1 at a record prior to large financial institutions. The good momentum we have going into Q2, I think we feel like that will be a key driver of promotional expense going up this year for a very good reason, that it's the recruited assets coming on the platform with TA rates really stable.
Speaker Change: Specifically from recruiting that we talked a little bit about earlier on the call primarily the the level of an amount of recruited AUM that comes onto the platform with Q1 at a record prior to large financial institutions. The good momentum we have going into Q2, I think we feel like that will be a key driver of promotional expense going up this year.
Speaker Change: <unk> for very good reason that it's the recruited assets coming on the platform with Ta rates really stable.
Matthew Jon Audette: The other item is our conference spend, right? So that is really in line with the size and scale of the firm. Our conferences are where we get together, we connect with our advisors, they're really important, really valuable, and we would scale that with the size of the firm.
Speaker Change: The other item is our conference spend right. So that is really in line with the size and scale of the firm. Our conferences are aware, we get together, we connect with our advisors are really important really valuable and we would scale that with the size of the firm and then lastly to deploy on your question on Prudential Atria really wouldn't impact promotional this year.
Matthew Jon Audette: And then lastly, to the point in your question on Prudential, Atria really wouldn't impact promotional this year, but Prudential would. And just as a reminder for that deal overall, we estimate $325 million of spend to bring them on. $200 of that is in technology spend that Dan gave a little bit of color on earlier. And then the other $125 is really onboarding integration costs. That's what shows up in promotional.
Speaker Change: Here, but prudential wood.
Speaker Change: And just as a reminder for that deal overall, we estimate $325 million of spend to bring them on 200 of that is in technology spend that Dan gave a little bit of color on earlier and then the other 125 is really onboarding integration costs, that's what shows up in promotional.
Speaker Change: We've incurred a little over $40 million, so far through the first quarter. So the remaining 80 to 85 that will primarily come through in the remainder of this year. So those are the drivers and hopefully that gives you a little bit of a double click on prudential itself.
Matthew Jon Audette: We've incurred a little over $40 million so far through the first quarter. So the remaining $80 to $85, that will primarily come through in the remainder of this year. So those are the drivers, and hopefully that gives you a little bit of a double-click on Prudential itself.
Operator: Very helpful. Thank you. Thank you, and I would now like to hand the conference back to Dan Arnold for any closing remarks. I just want to thank everyone for taking the time to join us this afternoon and look forward to speaking with you again. This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Very helpful. Thank you.
Speaker Change: You bet.
Thank you and I would now like to hand, the conference back to Dan Arnold for any closing remarks.
Dan Hogan Arnold: Yes, I just want to thank everyone for taking the time to join US. This afternoon, and we look forward to speaking with you again next year.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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Operator: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Music Music Music Music Music ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? Good afternoon and thank you for joining the first quarter 2024 earnings conference call for LPL Financial Holdings Inc. Joining the call today are the President and Chief Executive Officer, Dan Arnold, and Chief Financial Officer and Head of Business Operations, Matt Audette.
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Operator: Dan and Matt will offer introductory remarks, and then the call will be open to questions. The company would appreciate it if analysts would limit themselves to one question and one follow-up each. The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, Investor.LPL.com.
Speaker Change: Good afternoon, and thank you for joining the first quarter 2024 earnings conference call for LPL Financial Holdings, Inc. Joining the call today are the President and Chief Executive Officer, Dan Arnold and Chief Financial Officer, and head of business operations.
Speaker Change: Yes.
And then Matt will offer introductory remarks, and then the call will be open to the questions.
Speaker Change: The company would appreciate if analysts limit themselves to one question and one follow up each the company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website.
Speaker Change: <unk> Dot LPL dot com.
Operator: Today's call will include forward-looking statements, including statements about LPL's financials, future financial and operating results, outlook, business strategies, and plans, as well as other opportunities and potential risks management is foreseeing. Such forward-looking statements reflect management's current estimates and beliefs and are subject to known 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. For more information about such risks and uncertainties, the company refers 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 filing with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to comparable GAAP figures, please refer to the company's earnings release, which can be found at investors.lpl.com.
Matt: Today's call will include forward looking statements, including statements about LPL financial's future financial and operating results outlook business strategies and plans as well as other opportunities and potential risks of management foresees such forward looking statements reflect management's current estimate.
Matt: And beliefs and are subject to known 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.
Matt: For more information about such risks and uncertainties. The company refers 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.
Matt: On the call. The company will also discuss certain non-GAAP financial measures.
Matt: For reconciliation of non-GAAP financial measures to the comparable GAAP figures. Please refer to the company's earnings release.
Matt: Which can be found at <unk>.
Dan Hogan Arnold: <unk> Dot LPL dot com with that I would now like to turn the call over to Mr. Arnold.
Dan Hogan Arnold: With that, I would now like to turn the call over to Mr. Arnold. Thank you, Michelle, and thanks to everyone for joining our call. Over the past quarter, our advisors continued to provide their clients with personalized financial guidance on the journey to help them achieve their life goals. To help support that important work, we remain focused on our mission, taking care of our advisors so they can take care of their clients. During the first quarter, we continued to see the appeal of our model grow due to the combination of our robust and feature-rich platform. Thank you very much.
Arnold: Thank you Michelle and thanks to everyone for joining our call today.
Arnold: Over the past quarter, our advisors continue to provide their clients with personalized financial guidance on the journey to help them achieve their life goals and dreams. It.
Arnold: To help support that important work, we remain focused on our mission taking care of our advisers. So they can take care of their clients.
Arnold: During the first quarter, we continued to see the appeal of our model growth due to the combination of our robust and feature rich platform, the stability and scale of our industry, leading model and our capacity and commitment to invest back into the platform.
Dan Hogan Arnold: As a result, we continue to make solid progress in helping advisors and institutions solve challenges and capitalize on opportunities better than anyone else, and thereby serve as the most appealing player in the industry. With respect to our performance, we delivered another quarter of solid results, while also continuing to make progress on the execution of our strategy. I'll review both of these areas, starting with our first quarter business. In the quarter, total assets increased to $1.4 trillion.
Arnold: As a result, we continue to make solid progress in helping advisors and institutions solve challenges and capitalize on opportunities better than anyone else and thereby serve as the most appealing player in the industry.
Arnold: With respect to our performance we delivered another quarter of solid results.
Arnold: While also continuing to make progress on the execution of our strategic plan.
Arnold: I'll review both of these areas starting with our first quarter business results.
Arnold: In the quarter total assets increased to $1 four trillion.
Dan Hogan Arnold: This continued solid organic growth was complemented by higher equity. Regarding organic growth, first quarter organic net new assets were $17 billion, representing 5% annualized growth. This contributed to organic net new assets over the past 12 months of $96 billion, representing approximately an eighth. In the first quarter, recruited assets were $20 billion, which represents a quarterly record excluding periods when onboarding large institutions.
As continued solid organic growth was complemented by higher equity market.
Arnold: Regarding organic growth first quarter organic net new assets were <unk> 17.
Arnold: Representing 5% annualized growth.
Arnold: This contributed to organic net new assets over the past 12 months of 96 million representing approximately an 8%.
Arnold: In the first quarter recruited assets were $20 billion.
Arnold: Which represents a quarterly record excluding periods when onboarding large institutions. This outcome was driven by the ongoing enhancements to our model as well as our expanded addressable market.
Dan Hogan Arnold: This outcome was driven by the ongoing enhancements to our model, as well as our expanded addressable market. Working at Same Store Sales, our advisors remain focused on taking care of their clients and delivering a differentiated experience. As a result, our advisors are both winning new clients and expanding WalletShare with existing clients, a combination that drove solid same-store sales in Q1. At the same time, we continue to enhance the advisor experience through the delivery of new capabilities and technology and the evolution of our service and operations. As a result, asset retention for the first quarter was approximately 97%, and 98% over the last 12 months.
Arnold: Looking at same store sales, our advisers remain focused on taking care of their clients and delivering a differentiated experience as a result, our advisors are both winning new clients and expanding wallet share with existing.
Arnold: Combination drove solid same store sales in Q1.
Arnold: At the same time, we continue to enhance the advisor experience through the delivery of new capabilities and technology and the evolution of our service and operations functions as a result asset retention for the first quarter was approximately 97% 98% over the last 12 months.
Dan Hogan Arnold: Our first quarter business results led to solid financial outcomes with adjusted EPS of $4.21. Let's now turn to the progress we made on our strategic... Now, as a reminder, our long-term vision is to become the leader across the advisor-centered market. To do that, our strategy is to invest back into the platform, provide unprecedented flexibility in how advisors can affiliate, and to deliver capabilities and services that help maximize advisors' success throughout the life cycle of their business. Doing this well gives us a sustainable path to industry leadership across the advisor experience, organic growth, and marketing. To execute on our strategy, we organize our work into two strategic categories.
Arnold: Our first quarter business results led to solid financial outcomes adjusted EPS of $4 21.
Speaker Change: Let's now turn to the progress we made on our strategic plan.
Speaker Change: Now as a reminder, our long term vision is to become the leader across the advisor centered market.
Speaker Change: To do that our strategy is to invest back into the lab.
Speaker Change: Provide unprecedented flexibility in how advisors can affiliate.
Speaker Change: And to deliver capabilities and services help maximize adviser success throughout the lifecycle of the businesses.
Doing this well gives us a sustainable path industry leadership across the advisor experience organic growth and market share.
Dan Hogan Arnold: Horizontal Expansion, where we look to expand the ways that advisors and institutions can affiliate, such that we are positioned to compete for all 300,000 advisors in the market. And Vertical Integration, where we focus on delivering capabilities, technology, and services that help our advisors differentiate and win in the marketplace, great operators of the business. And with that as context, let's start with our efforts around horizontal expansion. Over the first quarter, we saw strong recruiting in our traditional independent market, reaching a new quarterly high of approximately $15 billion in assets.
Speaker Change: Now to execute on our strategy, we organize our work into two strategic categories.
Speaker Change: Horizontal expansion, where we look to expand the ways that advisors and institutions can affiliate.
Speaker Change: Such that we are positioned to compete.
Speaker Change: All 300000 advisers in the marketplace.
Speaker Change: And vertical integration, where we focus on delivering capabilities technology and services that help our advisers differentiate and win in the marketplace.
Speaker Change: Operators of their businesses.
Speaker Change: And with that as context, let's start with our efforts around horizontal expansion.
Speaker Change: Over the first quarter, we saw strong recruiting in our traditional independent market, reaching a new quarterly high of approximately $15 billion in assets.
Dan Hogan Arnold: At the same time, due to the ongoing appeal of our model and the evolution of our go-to-market approach, we maintained our industry-leading win rates while also expanding the breadth and depth of our pipeline. With respect to our new affiliation models, Strategic Wealth, Employee, and our enhanced RAA offering, we delivered another solid quarter, recruiting roughly 2 billion new employees. And as we look ahead, we expect that the increasing awareness of these models in the marketplace and the ongoing enhancements to our capabilities will drive a sustained increase in their growth.
Speaker Change: At the same time due to the ongoing appeal of our model and the evolution of our go to market approach, we maintained our industry leading win rates, while also expanding the breadth and depth of our pipeline.
With respect to our new affiliation models strategic well.
Speaker Change: Lloyd.
Lloyd: And our enhanced <unk> offering we delivered another solid quarter recruiting roughly $2 billion in assets.
Lloyd: And as we look ahead, we expect that the increasing awareness of these models in the marketplace and the ongoing enhancements to our capabilities will drive a sustained increase in their growth.
Dan Hogan Arnold: Next, in Q1, we added approximately $3 billion of recruited assets in the traditional bank and credit union, which continues to be a consistent contributor to organic growth. During the quarter, we also continued to make progress with the Large Institution Marketplace, where we announced that WinTrust Financial will onboard two of its wealth management products to our institution services. And at the same time, we continued our preparation to onboard Retail Wealth Management and Prudential Finance.
Lloyd: Next in Q1, we added approximately $3 billion recruited assets in the traditional bank and credit Union space, which continues to be a consistent contributor to organic growth.
Lloyd: During the quarter. We also continued to make progress with the large institution marketplace, where we announced that wind trust financial will onboard two of its wealth management businesses, where our institution services platform.
Lloyd: And at the same time, we continued our preparation to onboard the retail wealth management business of Prudential financial.
Dan Hogan Arnold: Collectively, these two deals will add approximately $66 billion of brokerage and advisory assets by early 2025. Now, as a complement to our organic growth, we also announced the planned acquisition of Atria Wealth, which supports approximately 2,400 advisors and 150 banks and credit, managing approximately $100 billion in client assets.
<unk>. These two deals will add approximately $66 million of brokerage and advisory assets by early 2025.
Lloyd: Now as a complement to our organic growth. We also announced the planned acquisition of Atria wealth solutions, which supports approximately 2400 advisers and 150 banks right.
Managing approximately 100 billion in client assets.
Dan Hogan Arnold: This transaction will give Atria Advisors access to our differentiated capabilities, technology, and services. We are on track to close the transaction in the back half of this year and complete the conversion in mid-2025. And finally, we're seeing solid momentum with our liquidity in succession, as demand continues to build with the existing LPL, while also creating interest with advisors outside of our..., including our first signed external deal in the. Now, within our vertical integration efforts, we remain focused on investing back into the model to deliver a comprehensive platform of capabilities, services, and technology that help our advisors differentiate and win in the marketplace and Run Thrive in Distance.
Lloyd: This transaction will give hei advisers access to our differentiated capabilities technology and service.
Lloyd: We are on track to close the transaction in the back half of this year and complete the conversion mid 2025.
And finally, we're seeing solid momentum with our liquidity and succession solution as demand continues to build with existing LPL advisors, while also creating interest advisors outside our ecosystem, including our first signed external deal in the quarter.
Lloyd: Now within our vertical integration efforts, we remain focused on investing back into the model to deliver it.
Comprehensive platform of capabilities services, and technology that help our advisers differentiate and win in the marketplace and run thriving businesses.
Dan Hogan Arnold: As part of this effort, we continue to make progress across several key areas of focus, including our ongoing journey to build a world-class wealth management system. Within that body of work, we are focused on meeting the evolving investment needs of our advisors and their clients. Including the increasing interest in non-traditional investments. To help solve for that demand, we are reimagining the end-to-end experience of our alternative platform, including enhancing our custodial and operational capabilities for alternative investments, making it simpler and easier to utilize, manage, and transact this product, and at the same time, expanding our Alternative Investment Product Office. For the last year, we have more than doubled the number of products available for advisors to utilize.
Lloyd: As a part of this effort, we continue to make progress across several key areas of focus including our ongoing journey to build a world class wealth management platform.
Lloyd: And within that body of work, we are focused on meeting the evolving investment needs of our advisors and their clients, including the increasing interest for non traditional investment products.
Lloyd: Solve for that and we are re imagining the end to end experience of all our alternatives.
Lloyd: Including enhancing our custodial and operational capabilities for alternative investments, making it simpler and easier to utilize manage and transactions products.
Lloyd: And at the same time, expanding our alternative investment products.
Lloyd: Over the last year, we have more than doubled the number of products available for advisers to utilize.
Dan Hogan Arnold: Another key area within our vertical integration effort is the continued enhancement of the experience our advisors deliver to their clients. One of the primary ways we do that is providing increased flexibility for advisors to tailor their ideal client experience. For example, we designed a count, in-client digital platform so that an advisor can personalize access to features on a client-by-client basis.
Lloyd: Another key area within our vertical integration efforts is a continued enhancement of the experience our advisors deliver their client.
Lloyd: One of the primary ways, we do that is providing increased flexibility for advisors to tailor their ideal client experience. For example, we designed account are in client digital platform subsidiary adviser personalized access to features on a client by client basis in.
Dan Hogan Arnold: In addition, we recently launched a series of enhancements to our end-client statement, which provides increased flexibility in the channel of delivery and the cadence that clients receive the information, also adding a unique interactive digital experience to further enrich the traditional state. Our continued work on our services portfolio is also a key area of our vertical integration. As a reminder, these services help solve a broad spectrum of advisors' and institutions' needs and, in doing so, help position them to deliver great, great advice and be great operators of the business.
In addition, we recently launched a series of enhancements to our clients.
Lloyd: Which provides increased flexibility in the channel of delivery and the cadence the clients receive the information while also adding a unique interactive digital experience to further enrich the traditional state.
Lloyd: Our continued work on our services portfolio is also a key area of our vertical integration strategy.
Lloyd: As a reminder, these services help solve for a broad spectrum of advisors and institutions need and in doing so help position them to deliver great great advice and be great operators of the businesses.
Dan Hogan Arnold: In that spirit, we are developing a number of tools to help advisors expand the breadth and depth of their advice, including the more effective utilization of financial planning, catering to the more complex needs of high-net-worth investors, and delivering more personalized investment. For example, as a part of our efforts to enrich our planning capabilities, last year we introduced our tax planning service, due to strong demand in the market. And more recently, we expanded our high net worth offering to enhance our advisor's support for their high-net-worth prospects and clients. Complex Case Design, State Planning, and Investment Product Analysis, and the early indications have been favorable.
Lloyd: In that spirit, we are developing a number of solutions.
Lloyd: To help advisors expand the breadth and depth of their advice.
Lloyd: <unk> the more effective utilization of financial planning catering to the more complex needs of high net worth investors and delivering more personalized investments.
For example, as a part of our efforts to enrich our planning capabilities last year, we introduced our tax planning service, which is seeing strong demand in the market.
Lloyd: More recently, we expanded our high net worth services.
To enhance our advisor support of their high net worth prospects and clients through complex case design state planning and investment product analysis and the early indications have been favorable.
Dan Hogan Arnold: Finally, we're in pilot with our latest innovation; our new outsourced Chief Investment Officer service provides advisors with personalized investment expertise powered by LTLV. And based on initial feedback, this is unlocking additional growth and efficiency in our advisors' practices. Collectively, these services help expand our advisors' value proposition to their clients, enable them to win new prospects, and increase the differentiation and appeal of our platform. And as we move forward, we will continue to solve for our advisors' needs at every stage of their practice in order to help them build the perfect businesses for themselves and ultimately maximize their success.
Lloyd: Really.
Lloyd: Pilot with our latest innovation, our new outsourced Chief investment Officer service, which provides advisors with personalized investment expertise.
Lloyd: By LPL research.
Lloyd: And based on the initial feedback this is unlocking additional growth and efficiency and our advisors practices.
Lloyd: Electively. These services helped expand our advisors value proposition to their clients and enable them to win new prospects and increase the differentiation the appeal of our platform.
Lloyd: And as we move forward, we will continue to solve for our advisors needs at every stage of their practice in order to help them build the perfect businesses for themselves and ultimately maximize their success in.
Dan Hogan Arnold: In summary, in the first quarter, we continued to invest in the value proposition for advisors and their clients while driving growth and increasing our market. As we look ahead, we remain focused on executing our strategy, helping our advisors further differentiate and win in the marketplace, and, as a result, drive long-term shareholder value. With that, I'll turn the call over to Dan. All right. Thank you, Dan.
Lloyd: In summary in the first quarter, we continued to invest in the value proposition for advisers and their clients, while driving growth and increasing our market leaders.
Lloyd: As we look ahead, we remain focused on executing our strategy.
Lloyd: Our advisors further differentiate and win in the marketplace and as a result.
Lloyd: Long term shareholder value.
With that I'll turn the call over to Matt Alright, Thank you, Dan and I'm glad to speak with everyone on today's call.
Matthew Jon Audette: And I'm glad to speak with everyone on today's call. As we move into 2024, we remain focused on serving our advisors, growing our business, and delivering shareholder value. This focus led to another quarter of strong organic growth in both our traditional and new markets. And we are preparing to onboard the wealth management businesses of Credential and Wintrust.
Matt: As we move into 2024, we remain focused on serving our advisors growing our business and delivering shareholder value.
Matt: This focus led to another quarter of strong organic growth, both our traditional and new markets.
Matt: And we are preparing to onboard the wealth management businesses, a credential and wind trusts.
Matthew Jon Audette: In addition, we continue to build momentum in our liquidity and succession solution, including our first signed deal with an external practice. We have also entered into an agreement to acquire Atria Wells, which we plan to onboard to our platform in mid-2025. So as we look ahead, we remain excited about the opportunities we have to serve and support our nearly 23,000 advisors, while continuing to invest in our industry-leading value proposition and drive organic growth. Now, let's turn to our first quarter business. Total advisory and brokerage assets were $1.4 trillion, up 6% from Q4.
Matt: In addition, we continued to build momentum in our liquidity and succession solution.
Matt: Including our first sign deal with an external practice.
Matt: We also entered into an agreement to acquire atria wealth solutions, which we plan to onboard to our platform in mid 2025.
Matt: So as we look ahead, we remain excited by the opportunities we have to serve and support our nearly 23000 advisors, while continuing to invest in our industry, leading value proposition and drive organic growth.
Matt: Now, let's turn to our first quarter business results total advisory and brokerage assets were $1 four trillion.
Up 6% from Q4 as continued organic growth was complemented by higher equity markets.
Matthew Jon Audette: This continued organic growth was complemented by higher total organic net new assets were $17 billion, or approximately a 5% annualized growth rate. Our Q1 recruited assets were $20 billion, which prior to large institutions, was the highest quarter on record. Looking ahead to Q2, our momentum continues, and we're on pace to deliver another strong quarter of recruiting. As for our Q1 financial results, the combination of organic growth and expense discipline led to adjusted EPS of $4.21. Gross profit was $1,066,000,000, up $59,000,000 sequentially.
Total organic net new assets were <unk> 17 billion or approximately a 5% annualized growth rate.
Our Q1 recruited assets were 20 billion, which prior to large institutions was the highest quarter on record.
Matt: Looking ahead to Q2, our momentum continues and we are on pace to deliver another strong quarter of recruiting.
As for our Q1 financial results the combination of organic growth and expense discipline led to adjusted EPS of $4 21.
Gross profit was $1 $66 million up $59 million sequentially.
Matthew Jon Audette: As for the components, commission advisory fees netted a payout of $260 million, up $41 million from Q4, primarily driven by higher advisory fees and a seasonally lower production. Our payout rate was 86.6%, down 100 basis points from Q4, largely due to the seasonal reset of the production bonus at the beginning of the year. Looking ahead to Q2, we anticipate our payout rate will increase to approximately 87.5%, primarily driven by the typical seasonal builds and infractions.
Matt: As for the components Commission advisory fees net of payout were $260 million up $41 million from Q4, primarily driven by higher advisory fees and a seasonally lower production bonus.
Matt: Our payout rate was 86, 6% down 100 basis points from Q4, largely due to the seasonal reset of their production bonus at the beginning of the year.
Matt: Looking ahead to Q2, we anticipate our payout rate will increase to approximately 87, 5%.
Merrily driven by the typical seasonal build in our production.
Matthew Jon Audette: With respect to client cash revenue, it was $373 million, down roughly $1 million from Q4. Looking at overall client cash balances, they ended the quarter at $46 billion, down $2 billion sequentially, driven by advisory fees paid during the quarter. Outside of those fees, cash balances were flat to Q4.
Matt: With respect to client cash revenue it was $373 million down roughly $1 million from Q4.
Matt: Looking at overall client cash balances. They ended the quarter at 46 billion down $2 billion sequentially driven by advisory fees paid during the quarter.
Matt: Outside of those fees cash balances were flat to Q4.
Matthew Jon Audette: As for our ICA portfolio, the mix of fixed-rate balances increased to roughly 65% within our target range of 50-75%. Looking more closely at our ICA yield, it was 323 basis points in Q1, up six basis points from Q4. That's for Q2, based on where client cash balances and interest rates are today. We expect our ICA yield to decline by a few basis points.
Matt: As for our ICA portfolio, the mix of fixed rate balances increased to roughly 65% within our target range of 50% to 75%.
Looking more closely at our ICA yield it was 323 basis points in Q1 up six basis points from Q4.
Matt: As for Q2 based on where our client cash balances and interest rates are today, we expect our ICA yield to decline by a few basis.
Matthew Jon Audette: As for service and fee revenue, it was $132 million in Q1, up $1 million from Q4. Looking ahead to Q2, we expect service and fee revenue to be roughly flat sequentially. Moving on to Q1 transactions, it was $57 million, up $3 million sequentially as trading volume increased slightly.
Matt: As for service and fee revenue was $132 million in Q1 up $1 million from Q4 <unk>.
Matt: Looking ahead to Q2, we expect service and fee revenue to be roughly flat sequentially.
Matt: Moving onto Q1 transaction.
Matt: It was $57 million up $3 million sequentially as trading volume increased slightly.
Matthew Jon Audette: As we look ahead to Q2, based on typical seasonality and activity levels to date, we would expect transaction revenue to decline by a few million from Q1. Now let's turn to expenses, starting with Corgina. It cost $364 million in Cuba.
Matt: As we look ahead to Q2 based on typical seasonality and activity levels to date, we would expect transaction revenue to decline by a few million from Q1.
Matt: Now, let's turn to expenses, starting with core G&A it.
Matt: It was $364 million in Q1.
Matthew Jon Audette: For the full year, we continue to anticipate CoreGNA to be in a range of $1,455,000,000 to $1,490,000. As a reminder, this is prior to expenses associated with prudential and ATRI. Moving on to Q1 Promotional Expense, it was $132 million, down $6 million from Q3, due to lower onboarding costs for large institutions. Looking ahead to Q2, we expect promotional expense to increase by approximately $10 million sequentially due to increased transition assistance resulting from strong recruiting and large institution onboarding as we prepare for Prudential to join us in the fourth quarter.
Matt: For the full year, we continue to anticipate core G&A to be in a range of $1 $455 million to $1 billion 490.
Matt: As a reminder, this is prior to expenses associated with Prudential and atria.
Matt: Moving on to Q1 promotional expense was $132 million down 6 million from Q4 due to lower onboarding costs for large institutions.
Matt: Looking ahead to Q2, we expect promotional expense to increase by approximately $10 million sequentially due to increased transition assistance, resulting from strong recruiting and large institution on boarding as we prepare for prudential to join us in the fourth quarter.
Matthew Jon Audette: Looking at share-based compensation expense, it was $23 million in Q1, up $7 million from Q4. As we look ahead, we anticipate this expense to be at a similar level in Q2. Turning to depreciation and amortization, it was $67 million in Q1, down $1 million sequentially.
Matt: Looking at share based compensation expense it was $23 million in Q1 up $7 million from Q4.
As we look ahead, we anticipate this expense to be at a similar level in Q2.
Matt: Turning to depreciation and amortization it was $67 million in Q1 down $1 million sequentially.
Matthew Jon Audette: Looking ahead to Q2, we expect depreciation and amortization to increase by roughly 5 million sequentially, which includes Technology Development for Prudential. Regarding capital management, our balance sheet remains strong. We ended Q1 with corporate cash of $311 million, up $127 million from Q4. Our leverage ratio was 1.6 times flat with Q4.
Matt: Looking ahead to Q2, we expect depreciation and amortization to increase by roughly $5 million sequentially, which includes technology development for Prudential.
Matt: Regarding capital management our.
Matt: Balance sheet remains strong.
Matt: We ended Q1 with corporate cash of $311 million up $127 million from Q4.
Matt: Our leverage ratio was one six times flat with Q4.
Matthew Jon Audette: As a reminder, we expect to close our acquisition of Atria in the second half of this year. We plan to finance the transaction through a combination of cash and debt. Following the close, we continue to expect leverage to be approximately two times, near the midpoint of our target leverage rate. As for capital deployment, our framework remains focused on allocating capital aligned with the returns we generate. Investing in organic growth first, pursuing M&A where appropriate, and returning excess capital to shareholders.
Matt: As a reminder, we expect to close our acquisition of Atria in the second half of this year and plan to finance the transaction through a combination of cash and debt.
Following the close we continue to expect leverage to be approximately two times near the midpoint of our target leverage range.
Matt: As for capital deployment, our framework remains focused on allocating capital in line with the returns we generate investing in organic growth first and foremost pursuing M&A, where appropriate and returning excess capital to shareholders.
Matthew Jon Audette: In Q1, we deployed capital across our entire framework as we continued to invest to drive and support organic growth, allocated capital to M&A within our liquidity and succession solution, and returned capital to our shareholders for purchasing $70 million of shares in January. We paused share repurchases for the last two months of the quarter to ensure we maintain a strong and flexible capital position we closed in our acquisition of Atrium.
Matt: In Q1, we deployed capital across our entire framework as we continue to invest to drive and support organic growth.
Allocated capital to M&A within our liquidity and succession solution.
Matt: And return capital to our shareholders repurchasing $70 million of shares in January.
Matt: We paused share repurchases for the last two months of the quarter to ensure we maintain a strong and flexible capital position, we closed on our acquisition of atria.
Matthew Jon Audette: Following the close expected in the second half of this year, we will evaluate restarting share purchases consistent with our existing capital framework. 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 advisors, grow our business, and create long-term shareholder value. With that, Operator, please open the call to questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Matt: Following the close expected in the second half of this year, we will evaluate restarting share repurchases consistent with our existing capital frame.
Matt: 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.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, we do ask that you limit yourself to one question and one follow up one moment, while we compile our Q&A roster.
Operator: We do ask that you limit yourself to one question and one follow-up. One moment while we compile our Q&A roster. And our first question is going to come from the line of Devin Ryan with Citizens JMP. Your line is open. Please go ahead.
Speaker Change: And our first question is going to come from the line of Devin Ryan with citizens JMP. Your line is open. Please go ahead.
Operator: Hey, great. Yeah, thanks. Good afternoon, Dan and Matt.
Okay, great. Thanks, Good afternoon, Dan and Matt.
Dan Hogan Arnold: First question, just want to dig in a little bit on recruited assets. They had a really nice quarter, up 57% year over year, but also a bit stronger than the net new asset trend. And maybe that's just a January dynamic, but just want to maybe dig in a little bit about the divergence you saw this quarter between those two metrics and then more broadly on recruited assets and the outlook. It sounds like you're still seeing a really good recruiting pipeline.
Devin Patrick Ryan: First question just wanted to dig in a little bit on recruited assets had a really nice quarter up 57% year over year, but also a bit stronger than the net new asset trends and maybe thats just a January dynamic, but just wanted to maybe digging a little bit about the divergence that you saw this quarter between those two metrics and then more broadly.
Dan Hogan Arnold: So just love to get a little more context on that and kind of what you're seeing between both legacy channels and some of the newer affiliation channels. Yes, Devin, it's Dan. Let me try to go in maybe a sequential order around those questions that are helpful. So first, maybe let me just hit Q1, I think organic growth, which I heard in your question.
Devin Patrick Ryan: Recruited assets in the outlook it sounds like Youre still seeing a really good recruiting pipeline. So just want to get a little more context on that and kind of what youre seeing between both legacy channels and some of the newer affiliation channels.
Devin Patrick Ryan: Yes, so Devin it's Dan let me, let me kind of go in maybe a sequential order around those questions that are that is helpful. So first maybe let me just hit Q1, I think organic growth, which I heard inside your question. So during the quarter, we posted 5% organic growth and given the seasonality we typically see in.
Dan Hogan Arnold: So during the quarter, we posted 5% organic growth. And given the seasonality we typically see in Q1, we would have expected that to be more like 7%. And while the underlying drivers of the business were strong, there were a couple of things in the quarter that drove the roughly 2% difference, with some impact from the timing of onboarding recruiting, which equated to roughly 1% of Q1 organic growth. And that's just really a function of the recruiting, as we mentioned, I think, back in January's call about it, a lot of it happening in the second half of the quarter. And that gives you a little tailwind going into second.
Q1, we would have expected that to be more like 7%.
Devin Patrick Ryan: And while the underlying drivers of the business were strong there were a couple of things in the quarter that drove the roughly 2%.
Devin Patrick Ryan: <unk>.
Devin Patrick Ryan: With some impact from the timing of Onboarding.
Devin Patrick Ryan: Recruiting, which equated to roughly 1% to Q1 organic growth and Thats, just really a function of the recruiting as we mentioned I think back in <unk>.
In January call.
Devin Patrick Ryan: A lot of it happening in the second half of the quarter.
And that gives you a little tailwind going into second quarter.
Dan Hogan Arnold: And then the second thing that we mentioned last quarter as well was that there were two acquired practices that departed in January, which accounted for 1% of our attrition. So, outside of those impacts, which we would categorize as a bit of noise, the underlying drivers. Set up well for the rest of the year, remain intact, and that's where you were getting at that record level of recruiting, the strongest pipelines that we've had in his store ever historically and our continued low levels of advisor attrition.
Devin Patrick Ryan: And then the second thing that we mentioned last quarter as well was that there were two acquired practices that departed in January which accounted for 1% impact to our attrition so outside of those impacts, which we would categorize as a bit of noise the underlying drivers.
Devin Patrick Ryan: Set us up well for the rest of the year remained intact and Thats, where you were getting at that.
Devin Patrick Ryan: Third level of recruiting strongest pipelines that we've had historic historically in our continued low levels of advisor attrition consistent with the experience over the last couple of years, so feel good coming out of the quarter.
Dan Hogan Arnold: The experience over the last couple of years. So I feel good coming out of the quarter and how we see that opportunity emerge over the remainder of the year. I think you mentioned a bit of the, perhaps, how we think about new stores specifically or recruiting going forward, maybe, the second part of your question, and I think, You know, look, we had a really nice quarter, $20 billion in recruited assets. You see significant growth year-on-year across all affiliation models.
Devin Patrick Ryan: We see that opportunity emerge.
Devin Patrick Ryan: Over the remainder of the year.
Devin Patrick Ryan: You mentioned a bit of the perhaps.
Think about new stores, specifically, our recruiting going forward maybe it was second part of your question I think.
Devin Patrick Ryan: Look.
Devin Patrick Ryan: We had a really nice quarter 20 billion and recruited assets.
Devin Patrick Ryan: See significant growth year on year across all affiliation models.
Dan Hogan Arnold: And, you know, at the same time, that expanded addressable market, our increasing win rates, are driving that deep pipeline that I mentioned this week. As deep a pipeline as we've seen, it certainly is supportive of where we head going forward. And that gives us a really solid conviction that we're well-positioned to continue to win a larger share of advisors in motion with respect to. And I think when you add them to that, the committed wins we have, in the large institution marketplace. That sets us up with a solid opportunity with respect to new store sales as we move forward. So hopefully, that gives you a little color on the quarter and then a little color around the world.
Devin Patrick Ryan: And.
Devin Patrick Ryan: At the same time expanded addressable market are increasing win rates, it's driving that that.
Devin Patrick Ryan: Pipeline that I mentioned this.
Devin Patrick Ryan: Good.
Devin Patrick Ryan: This deeper pipeline as we've seen and certainly is supportive of where we had going forward.
And that gives us a really solid conviction that we are well positioned to continue to win a larger share of advisors in motion with respect to.
Devin Patrick Ryan: Recruiting and I think when you add into that the committed wins we have.
Devin Patrick Ryan: And the large institution marketplace.
Devin Patrick Ryan: So with a solid opportunity with respect to new store sales as we move forward.
Devin Patrick Ryan: So that gives you a little color on the quarter and then.
Devin Patrick Ryan: Color around them.
Devin Patrick Ryan: Yes.
Yes.
Dan Hogan Arnold: Yeah, thanks, Dan. It's really helpful. And just to follow up, this is kind of interrelated, but just on the economics of all that. So, you know, the theme of competition in the space has continually been coming up. I know it's always a competitive market, so nothing that's really new, but when we look at transition assistance, it's up 6% sequentially, 25% year-over-year. I know that's directionally trending with growth, but can you maybe just talk a little bit about kind of the competitive dynamics and kind of the economics around recruiting and transition assistance and how you feel like LPL is positioned around those economics if, let Thanks.
Speaker Change: Yes, Thanks, Deb really helpful and just a follow up this is kind of interrelated, but just on the economics of all of that so the theme of competition in the space.
Speaker Change: It's really been coming out right now.
Speaker Change: It's always a competitive market, so nothing necessarily new but we look at transition assistance is up 6% sequentially, 25% year over year, I know thats directionally trending with growth, but can you maybe just talk a little bit about kind of the competitive dynamics and kind of the economics around recruiting and transition assistance and how you feel like <unk> positioned.
Speaker Change: Around kind of those economics.
Speaker Change: Say transition deals or maybe a little bit higher than that happen. Thanks.
Dan Hogan Arnold: Let me start that, and then Matt, you add any color on economics would be helpful. Look, I think with respect to the recruiting environment, right, we always start with the opportunity set and advisor movement over the last 12 months, which hovered around 5%, which remains lower than the historical norms. That said, despite this low overall movement, our win rates continue to move higher. And certainly, that's an encouraging trend relative to how we think about the opportunity set.
Speaker Change: Yes, let me start that Matt you add any color on economics.
Speaker Change: Be helpful. So.
Speaker Change: Look I think with respect to the recruiting environment right, we always start with the opportunity set.
Speaker Change: Advisor movement over the last 12 months has hovered around 5%, which remains lower than the historical norms.
Speaker Change: That said despite those low overall movement.
Speaker Change: Our win rates continue to move higher.
And certainly that's an encouraging trend relative to how we think about the opportunity set and then too.
Dan Hogan Arnold: And then two, I think when we think about the environment, we look at the competitive landscape, and the participants have remained largely the same, as have the priorities that advisors are looking for when they evaluate their options to potentially move. And as a reminder, the first priority is around capabilities, technology, and service.
Speaker Change: When we think about the environment, we look at the competitive landscape and the participants have remained largely the same as do the priorities.
Speaker Change: Advisers are looking for when they evaluate their options to potentially move.
Speaker Change: A reminder, the first priorities.
Speaker Change: Around capabilities technology and service.
Dan Hogan Arnold: And that's where we continue to further distinguish ourselves as we invest back into our model. Next is the ongoing economics, which have changed significantly over time. And I think, in the independent space, especially, they create.
Speaker Change: That's where we continue to further distinguish ourselves as we invest back into our model.
Speaker Change: Next is the ongoing economics, which haven't changed significantly over time, and I think in the independent space, especially create.
Dan Hogan Arnold: And then lastly, you get transition assistance rates, which we've seen pretty stable over the last year. And, you know, feel good about how we're well positioned across our portfolio of different affiliation models in terms of how we support that advisor to make that transition. So, you know, given all of that, the strength of our overall value proposition continues to resonate, and we remain really confident that the ongoing appeal of our model positions it as well to sustain our industry-leading win rates. I don't know if you want to add anything to that. I wouldn't really, not really add anything, Dan.
Speaker Change: Our compelling and interesting scenario for advisors and then lastly, you get transition assistance rates, which we've seen pretty stable over the last year.
Feel good about how we're well positioned across our portfolio of different affiliation models.
Speaker Change: In terms of how we support that advisor to make that transition so.
Given all of that the strength of our overall value proposition continues to resonate and we remain really confident that the ongoing appeal of our model positions us well to sustain.
Speaker Change: Our industry, leading win rates and market share.
Speaker Change: I don't know if you want to add anything to that Matt.
Dan Hogan Arnold: I just underscore the point. I think capabilities are really what matters from a decisioning standpoint on advisors and where they're joining firms. And I think from a TA standpoint, as Dan said, the rates have really been stable for quite a while. I think it's more about the recruited AUM itself that's coming on board, which I know you see and follow the numbers, but with Q1, which is typically the seasonally lowest quarter of the year, bringing in $20 billion prior to any large financial institutions, I think is the driver there. So it's about the level of recruiting. TA rates have been pretty stable. Yep, that's great. Thanks, guys.
Matt: I wonder not really add Dan I'd, just underscore the point I think on debit on.
Matt: <unk> abilities is really what matters from a decisioning standpoint on advisers and where they are joining firms and I think from a ta standpoint, as Dan said the rates have really been stable.
Matt: For quite a while I think it's for us and the growth there it's more about the recruited AUM itself that's coming onboard.
Matt: Which I know youll see and follow the numbers, but Q1, which is typically the seasonally lowest quarter of the year, bringing in $20 billion prior to any large financial institutions.
Matt: It is the driver there. So it is about the level of recruiting ta rates have been pretty stable.
Matt: Okay.
Speaker Change: Yeah, that's great. Thanks, guys.
Matthew Jon Audette: Thank you, and one moment as we move to the next question. And our next question is going to come from the line of Alex Blostein with Goldman Sachs. Your line is open. Please go ahead. Hey, good afternoon, everyone.
Thank you and one moment.
Speaker Change: Move to the next question.
And our next question is going to come from the line of Alex <unk> with Goldman Sachs. Your line is open. Please go ahead.
Operator: Thank you for the question. You guys mentioned liquidity succession a couple of times this afternoon, and it's been coming up in prior calls as well. So maybe set for us kind of where that business is today, just maybe in terms of size or AUM, however you want to frame it. And how meaningful do you expect this to be to your organic growth targets, which I guess will continue to be in the high single digit range in terms of NNA over the next couple of years? Yeah, Alex, I'll start there on just some of the, maybe, economics and capacity parts of your question.
Alex: Hey, good afternoon, everyone. Thank you for the question.
Alex: You guys mentioned liquidity et cetera in a couple of times. This afternoon, and it's been coming up in prior calls as well so.
Alex: Maybe level set for us kind of where that business is today, just maybe in terms of size or AUM. However, you want to frame it and how meaningful do you expect this to be to your organic growth targets, which I guess continue to be in the high single digit range in terms of M&A over the next couple of years.
Matthew Jon Audette: I think we're, you know, quite bullish on this offering and this solution. The economics are compelling. And from a capacity standpoint, I think there are ultimately limitations on the number of deals we can do in a given year. So if you look at what we've done since we launched the program, it's been 27 to date. I think we look at our team and capacity and how you bring these practices on board. I think, you know, probably max capacity per year is in the 30 to 40 zone.
Speaker Change: Yes, Alex I'll start there just on some of the maybe the economics and capacity parts of your question I think we are.
We're quite bullish on this offering in the solution.
Speaker Change: The economics are compelling and I think from a from a capacity standpoint, I think there are ultimately limitations on the number of deals we can do in a given year. So if you look at what we've done since we launched the program. It's been 27 to date I think we look at our team and capacity and how you bring on these pratt.
Speaker Change: Mrs onboard.
Speaker Change: Probably max capacity per year, I would think about it in the 30 to 40.
Matthew Jon Audette: So then when you put the financial aspects against that, from a capital standpoint, we're applying capital consistent with our M&A framework. So we'll deploy capital here at about the 6 to 8 times EBITDA range. These deals are relatively small in the $10 to $20 million zone, and I would say they skew closer to the $10 million side of it.
Speaker Change: Zone.
So within when you when you put the financial impacts aspects against that from a capital standpoint.
Speaker Change: We're applying a capital consistent with M&A framework. So there we will deploy capital here at about the six to eight times EBITDA range.
Speaker Change: These deals are relatively small in the 10 to 20 million zone, and I would say skew towards closer to the 10 million side of it.
Matthew Jon Audette: And then, financially, the economics are pretty attractive given that the ROA of these firms effectively doubles when we purchase them. So if you're in the, think of the 30 basis point zone, we'd be earning 60 basis points once we own the practice. And that's largely a function of the reduced payout to the advisors. So that's where you would see those economics show up. So those are the economics. So I think it's really financially compelling, but I think maybe even more exciting or more compelling is the strategic value of this solution.
And then financially that the economics are pretty attractive and that the ROA of these firms effectively doubles when we purchase them. So if you're in the thick of the 30 basis point zone.
Speaker Change: We'd be earning 60 basis points. Once we once we owned the practice that's largely a function of the reduced payout to the advisors. So that's where you would see those economics show up.
So those are the economics, so I think thats really financially compelling, but I think maybe even more exciting are more compelling is really the strategic value of this this solution, maybe dan would be better.
Matthew Jon Audette: Dan, that'd be better if you want to jump in there. Hey Dan, I'm sorry. I don't think we could hear you. Unfortunately, I don't know if it's my phone or maybe other people are having the same issue.
Dan: Do you want to jump in there.
Dan: Sure.
Dan: Yeah.
Dan: Okay.
Dan: Okay.
Dan: Okay.
Dan: Okay.
Dan: Yes.
Okay.
Dan: Yeah.
Okay.
Speaker Change: Hey, Dan I am sorry, I don't think we could we could hear you. Unfortunately I don't know if its my phone or maybe other people are having the same okay.
Operator: It was user error on my part. Sorry about that. So let me start over. And again, as we've discussed before, you know, our opportunity set is really driven by trying to solve that big and strategic question of how do we help potentially as many as a third of advisors retire and transition to businesses over the next 10 years, while there are a variety of options that are available in the marketplace.
Dan: It was user error on my fault on my part sorry about that.
Dan: Hum.
Speaker Change: Let me start over and again I think.
Dan: As we've discussed before our opportunity set.
Dan: It's really driven by trying to solve that big.
Dan: Strategic question, how do we help potentially as many as a third advisors.
Dan: Tire and transition of businesses over the next 10 years.
Dan: While there are a variety of options that are available in the marketplace. We think ours is.
Operator: We think ours is a really differentiated and compelling one and a very elegant way to help these advisors transition their practices, take care of them, take care of their teams, take care of their clients, and ultimately create a bridge to the next entrepreneurial leader or owner. And in that spirit... You know, I think.
<unk>.
Selling one in a very elegant way to help these advisors transition their practices.
Dan: Care of them take care of their teams take care of their clients and ultimately create a bridge to the next entrepreneurial leader owner.
Dan: And in that spirit.
Dan: Yeah.
Dan Hogan Arnold: Since we rolled it out to our advisors, which was late in 2022, it's been very, very appealing for those that are exploring those possibilities. And, as Matt said, we've closed roughly 27 deals to date. And given the success with our existing advisors, we've extended the question to the external marketplace and begun to explore how we could help those advisors that are on the LPL platform. And, as we mentioned, we were fortunate enough to close our first deal in Q1, and we've got a pretty solid pipeline building there.
Speaker Change: I think so.
Speaker Change: We've rolled it out to our advisors, it's been which was late in 2022, it's been very very appealing for those that are that are exploring those possibilities.
Speaker Change: As Matt said, we've closed roughly 27 deals to date.
Speaker Change: And given the success with our existing advisors now we've extended the question to the external marketplace.
Speaker Change: And fourth quarter again to explore how we could help on those that are on the LPL platform with the same type of.
Speaker Change: Solution to that is the question of how do they transition here the practices and as we mentioned we were fortunate enough to close our first deal in Q1, and we've got a pretty solid pipeline building there. So.
Dan Hogan Arnold: So I think we see it as this multidimensional opportunity to support and help our existing advisors, extend those assets on our platform for another generation of advisors, and then two, also as a catalyst for growth, complement the other opportunities that we focus on and have to drive growth. And we think it's a compelling, differentiated solution, a little hard to replicate. I think it will resonate in the external market. Great. No, that's very helpful.
Speaker Change: We see it as this multi dimensional opportunity the supporting and helping our existing advisors, which extends those assets on our platform or another generation of advisors and then to also as well as a catalyst for growth.
The other opportunities.
Speaker Change: We focus on and have.
Speaker Change: To drive growth.
Speaker Change: We think its a compelling differentiator solutions will be hard to replicate.
Speaker Change: We think it will resonate in the external market.
Speaker Change: Okay.
Operator: So my second question is kind of related, I guess, to some of the new initiatives. You guys have been super busy in the last few months with a number of deals, H3 obviously being on the larger size. How should we think about the capacity for incremental M&A, call it that over the next 12 months as we sort of wait for H3 to close? And then, obviously, you guys have to integrate it. And then, as part of this H3 conversation, maybe you can touch on the competitive dynamics in the bank channel post this deal, given that we're a pretty sizable player there. Thank you.
Speaker Change: Great No that's very helpful.
Speaker Change: My second question.
Speaker Change: Kind of related I guess to the some of the new initiatives you guys have been super busy in the last few months with a number of deals HD, obviously being on the larger size.
Speaker Change: Should we think about the capacity for incremental M&A call. It over the next 12 months.
Speaker Change: As we sort of waiting for HR to close and then obviously you guys have to integrate it and then as part of this atria conversation maybe you can hit on the competitive dynamics in the bank channel post this deal given that they were pretty sizable player. There. Thank you.
Dan Hogan Arnold: Yes, so I think, listen, relative to, you know, onboarding these programs and making sure that we have the ability to support and scale them. I think this is something that we've been working on since the good fortune of onboarding some of the larger financial institutions, BMO, and M&T, in 2021. And so our guiding principle when we explore any growth initiative, whether it's an organic win, like the large institutions, or even an acquisition like Atria, is to ensure that we're going to continue to deliver an exceptional experience to our existing advisors and that then we provide a seamless transition for advisors that are joining our platform.
Yes, so I think listen relative to.
Speaker Change: Onboarding. These these programs and making sure that we.
Speaker Change: We have the ability to support and scale them I think.
Speaker Change: It is something that we've been working on since the good fortune of Onboarding.
Speaker Change: Some of the larger financial institutions, Nemo and <unk> in 2021, and so our guiding principle when we explore any growth initiative whether it's.
Speaker Change: Organic when like the large institutions or even an acquisition like atria is to ensure that we.
Speaker Change: We're going to continue to deliver an exceptional experience to our existing advisors.
Speaker Change: And then we provide a seamless transition for advisors that are joining our platform.
Dan Hogan Arnold: And in that spirit, we've continued to evolve our transition approach. We've iterated, we've improved, and we've gotten a lot better. Over the last few years, we've established a discipline operating rigor; we use seasoned run books and automation, all in the spirit of delivering a high-quality, successful outcome that is repeatable and sustainable. And with each iteration, as I mentioned, we continue to enhance the efficiency and efficacy of how we execute the onboarding process.
Speaker Change: That spirit, we've continued to evolve our transition approach.
Speaker Change: As we reiterated we have improved and gotten a lot better.
Speaker Change: Over the last few years, we established a disciplined operating rigor we use season run books and automation all in the spirit of delivering a high quality successful outcomes that are repeatable and sustainable.
Speaker Change: And with each iteration as I mentioned, we continue to enhance the efficiency and efficacy of how we execute the onboarding process now the important part about that is.
Dan Hogan Arnold: The important part of that is... That certainly improves and enhances the quality that we deliver but also the pace at which we can deliver it. And I think as we continue to go forward with each iteration, we adopt new ideas, new concepts, new ways of doing things in a simpler and faster way.
Speaker Change: That certainly then improves and enhances the quality that we deliver but also the pace at which we can deliver these in.
Speaker Change: As we continue to go forward with each iteration, we adopt new ideas, new concepts, new ways of which to.
Speaker Change: To do them in a simpler and faster way and we will continue to work on that and iterate that I think will help us not only deliver an industry leading onboarding experience.
Dan Hogan Arnold: And we'll continue to work on that and iterate on that, I think it will help us know and deliver an industry-leading onboarding experience, do it in the simplest and fastest way possible in the marketplace. So that's sort of the context of how we think about increasing the capacity to support that ongoing opportunity. And then your second question, please remind me what it was.
Speaker Change: But do it in the.
Speaker Change: The simplest and fastest way possible. So that's sort of the context of how we think about increasing the capacity to support our ongoing opportunity.
Speaker Change: And then your second question.
Speaker Change: What it was.
Operator: Sorry, just the, you know, the competitive positioning in the banks channel, institutions channel, after you guys integrated HR, because they were a sizable player there, and now you have, you know, obviously more presence in that channel with them eventually under your umbrella. Yeah, so again, I think we've seen that marketplace as sort of an emerging opportunity where we took a novel concept back in 2020-ish and began to offer it to the marketplace and establish a significant advantage from just, Having market share, developing and growing IP around how to support and serve those clients, and then, And then ultimately, continuing to evolve our capability set to make sure that we can help them in terms of their risk profile or posture around this business line or service, increase or enhance financial results or financial performance of their programs to create operational efficiency and scalability into their programs and then ultimately to support them with growth, do that within this value proposition, and then have the advantage of.., history and the experience of operating and working with these clients. The better practice at onboarding through the change management, a very complex effort that gives. [inaudible] clients.
Speaker Change: Sorry, just.
Speaker Change: The competitive positioning in the bank channel institutions channel. After you guys integrate HR because there were sizeable player. There now you have obviously more presence in that channel with them eventually under under your umbrella.
Yes, so again I think we've seen that marketplace as sort of an emerging opportunity, where we took a novel concept.
Speaker Change: Back in 2020 as soon began to offer it to the marketplace and the established.
Significant.
Speaker Change: Advantage from just having market share developing and growing IP around how to support and serve those clients.
And then.
Speaker Change: And then ultimately.
Continuing to evolve our capability set to make sure that we can help them in terms of their risk profile a cluster around this business line, our service increase or enhance.
Speaker Change: Actual results performance or.
Speaker Change: Are there programs to.
Speaker Change: To create.
Speaker Change: Operational efficiency and scalability into their programs and then ultimately to support them with growth.
Speaker Change: If we can do that within this value proposition and then have the advantage of.
Speaker Change: History and experience of operating in working with these clients.
Better practice at Onboarding through the change management, a very complex effort I think gives us a distinct advantage.
In the marketplace that.
Speaker Change: We think really resonates when we go out and share that with any perspective.
Dan Hogan Arnold: So I think we feel great about our positioning in the marketplace. The insights and perspectives that we can bring forward that have enriched our value proposition. Again, it's, it's hard to do if you hadn't had the. That's how we think about that leadership, and we think it's pretty durable and an interesting ongoing growth opportunity. Awesome. Thanks.
Speaker Change: New clients. So I think we feel great about our positioning in the marketplace.
Speaker Change: Insights and perspectives that we can bring forward that is enriched our value proposition that again is it's hard to do if you hadn't had the.
So that's how we think about that leadership, we think it is pretty durable and an interesting ongoing growth opportunities.
Speaker Change: Awesome great. Thanks, so much.
Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Steven Chubak with Wolf Research. Your line is open. Please go ahead. Hi, good afternoon, Dan. Good afternoon, Matt.
Speaker Change: Thank you and one woman as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Steven <unk> with Wolfe Research. Your line is open. Please go ahead.
Steven: Hi, Good afternoon, Dan Good afternoon, Matt.
Operator: So I wanted to start with a follow-up on just the liquidity and succession discussion. Matt, you alluded to some of the limitations on the pace of deployment. But I was hoping you could just speak to the cadence now that this has been launched externally that we should be contemplating. And given the higher year-on-year payout ratio guide for 2Q, when should we expect to see those reductions in the advisor payout rate as some of that liquidity and succession accretion really starts to come through?
Steven: So I wanted to start with with a follow up on just the liquidity in succession discussion, Matt you alluded to some of the limitations on the pace of deployment.
Steven: I was hoping you could just speak to the cadence now that this has been launched externally that we should be contemplating and given the higher year on year payout ratio guide for <unk>.
Should we expect to see those reductions in the advisor payout rate as some of that liquidity and succession accretion really starts to come through.
Operator: Yeah, I think on that last point, right? I think when you look at the payout, there's a handful of things going on. But I think you're already seeing it within the payout rate, just based on the 27 deals we've done so far. So maybe if you just looked at the payout rate year-over-year for Q1, so just to eliminate kind of that seasonal production build. And as a reminder, the Q1 payout for last year had a 40 basis point kind of catch-up one-timer. So overall, payout was flat year-over-year, but there were two things in there that actually drove payout up a little bit. The first is, kind of building on what Dan was just talking about, the institution channel.
Speaker Change: Yes, I think on on that last point right I think when you look at the payout. There is there is a handful of things going on but I think you're already seeing it within within the payout rate just based on the 27 deals we've done so far so maybe if you just looked at.
Speaker Change: Payout rate year over year for Q1, so just to eliminate kind of seasonal production build.
And as a reminder, the Q1 payout for last year had a 40 basis point kind of catch up one timer. So overall payout was flat year over year.
Speaker Change: And there are two things in there that actually drove payout up a little bit. The first is kind of building on what Dan was just talking through the institution channel and the growth in the institution channel, which I think has a much higher payout.
Matthew Jon Audette: And the growth in the institution channel, which I think you know has a much higher payout than the average, also has a much lower cost-to-serve, lower TA rates. When you get down to things, the bottom-line economics, like operating margins, are quite compelling. But if you're just looking at the payout rate, you're going to see that grow as that business grows. And then we had some pricing reductions or pricing investments on our corporate advisory platform. We had announced those last year, and those took effect in the first quarter.
Speaker Change: Average also has a much lower cost to serve lower ta rate. So when you get down to things.
Speaker Change: <unk> line economics, like op margins quite compelling, but if youre just looking at the payout rate youre going to see that grow as that business grows.
And then we had some pricing reductions are pricing investments on our corporate advisory platform. We had announced those last year that took effect in the first quarter. She had those two things that bias payout up.
Matthew Jon Audette: So you had those two things that biased payout upward, but then liquidity and succession did drive payout down to offset that. So there are moving parts in there, but you are absolutely starting to see that show up in the payout rate. Maybe not on an individual quarter-to-quarter basis, just given the size of our overall business, but you are starting to see that over time. I think on the capacity point. And I'm not sure where you're specifically going with that, so maybe just follow up if we're not hitting that, but I think overall, when you look at whether it's internal or external, and you think through the process to onboard these teams, make sure we're putting the proper field management in place, all the complexities associated with it, that's really where the 30 to 40 deals per year come earlier. A really helpful color, Matt.
Speaker Change: But then liquidity and succession did dry payout down to offset that so there are moving parts in there. But you are you are absolutely starting to see that show up in the payout rate.
Speaker Change: Maybe not on an individual quarter to quarter, just given the size of our overall business, but you are starting to see that over time.
I think on the capacity point.
Speaker Change: And not sure were specifically go with that so maybe just just a follow up if we're if we're not hitting that but I think overall when you look at whether it's internal or external and you think thrill think through the process to onboard. These teams to make sure we're putting the proper field management in place all of the complexities associated with it that's really where the.
Speaker Change: <unk> 30 to 40 deals per year comes from just to make sure that we're bringing those onboard in a way that really delivers the strategic value of that Dan was describing earlier.
Matthew Jon Audette: And for my follow-up question, just a question on cash levels and, you know, expectations around reinvestment, just given the significant number of fixed-rate contracts coming due, I believe roughly $6 billion over the next three quarters. Where are those six contracts going to get renewed relative to that 240 basis point back book? And should we expect that it's all going to be renewed in fixed-rate contracts, given that we are starting to see some signs of cash stabilization?
Speaker Change: That's really helpful color, Matt then for my follow up just a question on cash levels and.
Speaker Change: Expectations around reinvestment just given the significant number of fixed rate contracts coming due I believe roughly 6 billion over the next three quarters.
Speaker Change: Where are those fixed contracts going to get renewed relative to that 240 basis point back book.
Matt: And should we expect that that's all going to be renewed in fixed rate contracts given that we are starting to see some signs of cash stabilization.
Matthew Jon Audette: Yeah, I mean, on the plans to renew, I think we like being in the center of that range, that 50% to 75% range, which is where we are now. So we'll make, you know, decisions and judgments about that.
Speaker Change #100: Yes, I mean, I think on on the on.
Speaker Change #100: On the plans to renew I think we like being in the center of that range that 50% to 75% range, which is where we are now so we'll make decisions and judgments about that but I think with a stable cash balance and being at 65% I think it's a fair assumption to assume our plans would be to renew.
Matthew Jon Audette: But I think with a stable cash balance and being at 65%, it's a fair assumption to assume our plans would be to renew. When you look, maybe just to look at the next quarter, so not to go too far out, the maturities, that $2 billion of maturities are towards the end of the next quarter. And those specifically are at 200 basis points right now, so they're kind of below that average for the year.
Speaker Change #100: When you look maybe just to look at the next quarter. So not to go too far out the maturities that 2 billion of maturities are towards the end of next quarter.
Speaker Change #100: Specifically are at 200 basis points right now so they are kind of below that average for the year and if you look at where we would typically place in the three to five year range.
Matthew Jon Audette: And if you look at where we would typically place them in the three to five year range, where that marketplace is, I think, you know, in today's market, you can assume in the 450 basis point range is where we'd place them. So, of course, things could move between now and the end of Q2. But, you know, where we're sitting right now, you'd be going from 200 basis points up to the mid 450s on that $2 billion. Very helpful, Matt.
Speaker Change #100: That marketplace is I think in todays market you can assume in the 450 basis point range is where we place those so of course things can move between now and the end of Q2, but where we're sitting right now you'd be going from 200 basis points up to the mid 40 <unk> on that $2 billion.
Speaker Change #100: Very helpful. Matt Thanks for taking my questions.
Operator: Thanks for taking my question. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Michael Cyprys with Morgan Stanley. Your line is open. Please go ahead. Great, thank you. Good afternoon.
Speaker Change #100: Okay.
Speaker Change #101: Thank you and one moment as we move on to our next question.
Speaker Change #101: And our next question is going to come from the line of Michael Cyprus with Morgan Stanley. Your line is open. Please go ahead.
Operator: Maybe just circling back to the enterprise channel, you guys have had a lot of success there over the past couple of years. I'm just hoping you could talk a little bit about the pipeline for new mandates and how those conversations are evolving. And then on the Pru platform, more broadly on that, I was hoping maybe you could speak a little bit about the platform that you've customized and built for Pru, just how that differs from what you've done with other enterprise clients, and how you might be able to take this sort of capability set into other channels or markets over time. We have to.
Michael J. Cyprys: Great. Thank you good afternoon, maybe just circling back to the enterprise channel you guys have had a lot of success there over the past couple of years I was just hoping you could talk a little bit about the pipeline for new mandates. How those conversations are evolving and then on the <unk> platform more broadly on that I was hoping maybe you could speak a little bit into the platform that you have customized and built for Peru.
Michael J. Cyprys: Just how that differs from what you've done with other enterprise clients and how you might be able to take the sort of capability set into other channels or markets over time.
Michael J. Cyprys: Yes, so with respect to the institution pipeline.
We have.
Dan Hogan Arnold: Continued opportunity to get swings in the batter's box in the large bank space. Obviously, we had an established series of a number of years of success in bringing those clients on and, and the success that those institutions are having once on the platform from a financial performance standpoint from new capabilities, solutions, and features. I think it certainly reinforces the value that the model can provide them and thus helps us in those ongoing dialogues about other opportunities within the bank space.
Michael J. Cyprys: Continued opportunity too.
Michael J. Cyprys: It swings in the Batter's box in the large bank space.
Obviously, we had to establish series of a number of years of success in bringing those clients on and the success that those institutions are having once on the platform.
Performance standpoint from new capabilities and solutions and features.
Michael J. Cyprys: I think certainly reinforces the value.
Michael J. Cyprys: That's the model can provide them and thus helps us in those ongoing dialogues with other opportunities within the bank space, that's about a trillion dollar opportunity or marketplace and so there is there's a number of opportunities that remain out there.
Dan Hogan Arnold: That's about a trillion dollar opportunity or marketplace. So there are a number of opportunities that remain out there, and we're encouraged by the dialogue that we're having in that part of the market. And then I think also with the win with Peru, right, we expanded that market to include management solutions that are owned or operated by product manufacturers and specifically insurance companies.
Michael J. Cyprys: We're encouraged by the dialogue.
Michael J. Cyprys: And that part of the marketplace and then I think also.
Michael J. Cyprys: With the win with Peru, right, we expanded that market to include.
Michael J. Cyprys: Alright.
Wealth management solutions that are that are owned or operated by product manufacturers and specifically insurance companies and I think that certainly that win.
Michael J. Cyprys: Created the opportunity to have a number of dialogues.
Michael J. Cyprys: Companies that are.
Michael J. Cyprys: Similar in nature to Prudential, and certainly exploring the possibilities of outsourcing where an outsourcing solution wasn't always available in that part of the marketplace and so though.
Michael J. Cyprys: Longer sales cycle and the sort.
Michael J. Cyprys: Longer iterative pumps.
Consultative approach to that we are encouraged.
Dan Hogan Arnold: And I think that certainly when the opportunity to have a number of dialogues is created, companies that are similar in nature to a prudential and certainly exploring the possibilities of outsourcing where an outsourcing solution wasn't always available in that part of the marketplace. And so though a longer sales cycle and a sort of longer iterative consultative approach to that, we are encouraged by the Emerging Dialogue and Discussions we're having in that part of the month. I think that's your first question. Your second one...
Michael J. Cyprys: By the emerging dialogue and discussions we're having in that part of the market and pick up the first.
Michael J. Cyprys: First question your second one.
Dan Hogan Arnold: Sorry, the first part was just about the pipeline for new mandates and conversations, and then the second part was just around the approved custom-built platform and opportunities to take that elsewhere to other markets. Yes, thank you.
Speaker Change #102: Sorry, the first part was just on the.
Pipeline for new mandates in conversations and then the second part was just around those approved custom built platform and opportunities to take that elsewhere to other markets or channels over time.
Dan Hogan Arnold: So, I think I answered the first one. So, on the second half, with respect to, you know, some of the capabilities that we're thinking about, relative to proof, part of the opportunity in exploring that and solving for that was, I think, creating what I think are two interesting applications that are somewhat novel in the marketplace today. The first one is the expansion of our platform that will enable the product manufacturer and the LPL suite of products to exist in a single experience.
Speaker Change #103: Okay, yes. Thank you sorry, so I think I answered the first one so on the on the second half with respect to.
Speaker Change #103: Some of the capabilities that we're thinking about relative to Peru.
Speaker Change #103: The opportunity in <unk>.
Speaker Change #103: Flooring that and solving for that was I think creating what I think are two interesting applications that are that is somewhat novel in the marketplace. Today. The first one is the.
Speaker Change #103: Expansion of our platform that will enable the manufacturer and the LPL suite of products to exist in a single experience. If you think about that relative to insurance as an example that can be a really important element differentiator, where you get a really seamless.
Dan Hogan Arnold: If you think about that relative to insurance as an example, that can be a really important element and differentiator where you get a really seamless, integrated solution set across your entire product. Again, that's kind of a novel concept and hypothesis that a lot of folks are thinking, wow, that would be a really interesting thing to solve for, I think, inside this opportunity. We're solving for that, so we're really encouraged about that. And again, once you do that, that can be valuable to any number of other larger institutions that might value it. A second one would be an integrated operating platform that embeds workflows and connectivity not only to our systems but to the parent and third-party systems. They do!
Speaker Change #103: <unk> integrated solution set even higher.
Speaker Change #103: Higher product offering.
Again, thats kind of a novel concept.
Hypothesis that hypothesis of a lot of folks thinking while that would be a really interesting.
Speaker Change #103: Thing to solve for and I think inside this opportunity.
Speaker Change #103: We're solving for that so we're really encouraged about that and again once you do that that can be valuable to many a number of other different film larger institutions it might value that second one would be.
Speaker Change #103: An integrated operating platform that Embeds workflows activity not only through our systems to the parent third party systems and so.
Speaker Change #103: It's.
Speaker Change #103: It's kind of a cool operational efficiency again across the landscape.
Speaker Change #103: Duke.
Dan Hogan Arnold: It makes it easy for them to collaborate, operate, and work with us in a very integrated way. So those are, I think we think are really, again, interesting and differentiating for them, but also applicable to others, to other potential clusters. Hope that helped. Thank you.
That makes it easy for them to collaborate operate and work with us in a very integrated way. So those are just tools.
Speaker Change #103: I think we think are really again interesting and differentiating for them, but also applicable to other.
Speaker Change #104: Two other potential prospects I hope that helps thanks.
Operator: Just a follow-up question, if I could, just on client cash. Just curious about your... underlying client behavior, realize the cash allocation is a bit lower today versus historical. But when you look at the customer behavioral trends under the hood with cash going in and out of the account, just curious, is there anything different now that you're seeing relative? Hey, Michael.
Speaker Change #105: Great. Thank you just a follow up question if I could just on client cash just curious what youre seeing in terms of underlying client behavior and realize the cash allocation a bit lower today versus historical but when you look at the customer behavioral trends under the hood with cash going in and out of the account just curious if there's anything different now that you're seeing relative.
Speaker Change #105: <unk> historical and as you kind of look out from here or is there a certain macro or rate environment that you think would be helpful. In terms of capitalizing cash allocations to Brian tire.
Matthew Jon Audette: Yeah, I think, and I think you can see it in our metrics, I think we've seen, you know, stability in the category of near full deployment for quite some time now, right? You look at Q1 results, and cash balances kind of remained in that, you know, just above 3% zone, largely coming down just by fees in the quarter. So I think you're starting to get to that place where you're really at full deployment. And I think from an environmental standpoint and where things could go, I think history is the best guide.
Brian: Hey, Michael Yes, I think the headline is I think you can see it in our metrics I think we've seen stability.
Michael J. Cyprys: In the category of near full deployment for quite some time that really look at Q1 results in cash balances kind of remained in that just above 3% zone largely coming down just by fees in the quarter. So I think youre starting to get to that place where you're really at full deployment.
Michael J. Cyprys: And I think from from an environment standpoint, and where things could go I think history is the best Guide I think we're in a place where.
Matthew Jon Audette: I think we're in a place where, you know, clients are fully deployed, the equity markets are rising, interest rates are high, and they're fully deployed in the market. And I think we've, when we've seen environments that are, you know, the opposite of that, where they're in more of a defensive position, you see cash balances come back up, right? That doesn't, you know, feel like that, of course, in the moment, but I think that is the behavior we've seen time and time again.
Michael J. Cyprys: Clients are fully deploy the equity markets are rising interest rates are high and they are fully deployed in the market and I think we've seen environments that are the opposite of that where they are in more of a defensive position you see cash balances come back up right that doesn't.
Michael J. Cyprys: Feel like that of course in a moment, but I think that is the behavior, we've seen time and time again.
Operator: And I think that's the dynamic we would expect to continue. All that being said, I'd just emphasize we are seeing that stability where cash is really coming down for things like paying fees and things, as opposed to deployment in the marketplace which has gotten pretty stable in the last quarter or so. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Dan Fannon with Jefferies. Your line is open. Please go ahead. Thanks. Good afternoon.
Michael J. Cyprys: And I think that's the dynamic we would expect to continue all that being said I'd. Just emphasize we are seeing that stability, where cash is really coming down for things like paying fees and things as opposed to deployment in the marketplace has gotten pretty stable in the last quarter or so.
Speaker Change #107: Great. Thank you.
Speaker Change #108: Thank you and one moment as we move on to our next question.
Speaker Change #108: And our next question is going to come from the line of Dan Fannon with Jefferies. Your line is open. Please go ahead.
Operator: Matt, I was hoping you could talk about the factors that are going to get us or get you towards the low or the high end of your G&A growth for this year, and now that we're four months in, kind of where you think you're tracking based upon current trends. Yeah, I mean, when you look at just the first quarter, right, from an annualized rate, we're at the low end of that guidance. And I think when you look ahead to Q2, we'd probably be in something in a similar zone.
Daniel Thomas Fannon: Thanks, Good afternoon, Matt I was hoping you could talk to the factors that are going to get us or get you towards the low or the high end of your G&A growth for this year and now that we're four months and kind of where you think you're tracking based upon current trends.
Matt: Yes, I mean, I think when you look at just the just the first quarter right from a from an annualized rate. We're at the low end of that guidance.
Matt: And I think when you look ahead to Q2, we would probably be something in a similar zone. So I think we're we feel good that we are tracking towards our guidance overall I think the things that can move.
Matthew Jon Audette: So I think we're, we feel good that we are tracking towards our guidance overall. I think the things that can move us within that range are similar to things that have been in previous years, which is more about our levels of organic growth, opportunities that we see during the year that really drive, whether it be variable costs, variable compensation, or the costs associated with that growth. But the headline I would give is that we feel comfortable landing within that zone. And just a reminder that it's prior to expenses associated with prune atria, and to the extent that those impact core DNA, we'll give updates later in the year on that. The headline is, "We feel good."
Matt: Within that range or similar things that are in the prior year. So it's just more about our levels of organic growth.
Matt: Opportunities that we see during the year that really drive well.
Matt: It would be variable variable costs variable compensation.
Matt: Are the costs associated with that growth, but the headline I would give is we feel comfortable of landing within that zone.
Matt: Just a reminder that is prior to expenses associated with Peru and atria.
Matt: The extent that those impact core G&A.
Matt: We will give updates later in the year on that.
Matt: Your line is we feel good.
Dan Hogan Arnold: Understood. And then, Dan, I was hoping you could provide some updated thoughts around the DOL rule. Obviously, we got the full proposal last week. Any changes to how you were thinking about it and what you said previously? Yes, so let me see that hot topic over the last week since its release.
Speaker Change #109: Understood and then.
Speaker Change #109: Dan I was hoping you could provide some updated thoughts around the Dol rule, obviously, we got the full proposal last week any.
Dan: Changes to how you were thinking about it and what you said previously.
Dan: Yes so.
Dan: Ed.
Speaker Change #110: Ill topic over the last week since the release.
Dan Hogan Arnold: But, look, the headline is, I think, the final rule reflects... Thank you, which we believe is a good thing for investors. As you probably have seen, the rules are scheduled to become effective in September.
Speaker Change #110: But look the headline is I think the final rule reflects.
Speaker Change #110: Hopeful changes from the original proposal and generally better aligns with the Sec's Reg bi.
We believe is a good thing for investors.
Speaker Change #110: And as you.
<unk> seen the rules are scheduled to become effective in September.
Operator: Although there is a one-year transition period for firms that acknowledge fiduciary status and comply with specified content, that's probably a long-winded way to say it. And there's probably a year timeline for getting any changes that need to be required or made in your compliance programs in place, such that, You know, all those. That said, our team is working to finalize the design and implementation of our compliance program. And again, we feel good about that preparation and the ability to execute around an effective framework, effective dates, and framework that we've seen thus far.
Speaker Change #110: Although there is a one year transition period confirms that acknowledged ashish Dallas and comply with <unk>.
Speaker Change #110: Specified standards, so that's probably a long winded way to say there is that.
Theres, probably a year timeline in and around.
Speaker Change #110: Getting any changes that need to be required are made into compliance programs in place.
Speaker Change #110: You can still build those new responsibility.
Our team is working to finalize the design and implementation of our compliance program and again, we feel good about the preparation and the ability to execute around the effective.
Speaker Change #110: Framework effective dates and framework that we've seen thus far.
Operator: We're able to leverage some of the work we did in 2016, which ultimately wasn't implemented, in addition to some work that we've already done connected to REGBEYOND. You know, at the same time, there are a few areas, like around rollovers, where we'll have to deploy new approaches and solutions, but again, we think, you know, they're solvable. All that said, it's safe to assume that there will be litigation challenging the rules.
Speaker Change #110: We're able to leverage some of the work we did in 2016, which ultimately wasn't implemented.
Speaker Change #110: In addition to.
Speaker Change #110: So some work that we've already done.
Speaker Change #110: Beyond so.
Speaker Change #110: At the same time, there are a few areas like around rollovers, where we will have to deploy new approaches and solutions again.
Speaker Change #110: They're solvable ports.
Speaker Change #110: That's all of that said, it's safe to assume that there will there will be litigation challenging the rule.
Operator: As there was a case with successful litigation we saw back in response to the 2016. All of that could potentially impact the compliance approach that any of us take in the timeline. Jury's out on that, but we do think it was a better landing spot than the original.
Speaker Change #110: As there was a case.
Speaker Change #110: The successful litigation saw back.
Speaker Change #110: The response to the 2016.
Speaker Change #110: So all of that could potentially impact.
Speaker Change #110: Both the compliance approach that any of the stake in the timeline.
So okay.
Jury's out on that.
Speaker Change #110: We do think it was a better landing spot originally.
Speaker Change #111: Great. Thank you.
Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Bill Katz with TD Cowan. Your line is open. Please go ahead.
Speaker Change #112: Thank you and one moment as we move on to our next question.
Speaker Change #112: And our next question is going to come from the line of Bill Katz with TD Cowen. Your line is open. Please go ahead.
Operator: Thank you very much for taking the questions. So, just going back to cash for a moment, to the extent that we follow the forward curve from here, and I appreciate your comments, Matt, that there's some cyclicality longer term looking at this, but just sort of using your current AUM base, even if I apply an 8% growth rate against that and sort of assume a 3% allocation, and I adjust for quarterly billing. Should we be thinking of a scenario of sort of flatter client cashiers until a more strident change of interest rates as we sort of think through our models? Well, I think you're walking through your model there, Bill.
William Raymond Katz: Thank you very much for taking the questions. So just coming back to cash for a moment.
William Raymond Katz: The extent that we.
William Raymond Katz: We follow the forward curve from here and I. Appreciate your comments meant that there's some cyclicality longer no longer looking on this but just using your current base, even if I have sort of apply an 8% growth rate against that and so assume a 3% allocation in IHS for quarterly billings should.
William Raymond Katz: Should we kind of think of a scenario of sort of flatter.
William Raymond Katz: Cashier until a more striking change of interest rates as we saw I think because of our models.
Speaker Change #114: Well I think youre walking through your model there Bill I think the headline point is if.
Matthew Jon Audette: I think that the headline point is that if you're assuming the environment remains the same, I think assuming cash is fully deployed in the market, I think it's a good assumption. I think the point you're making is that we continue to grow, and that growth does come with cash. So I think modeling that versus the fees we pay and things of that nature, I think it's a good way to look at it. And maybe to bottom line it, I think when you look at cash as a percent of AUM where we are in that low 3% zone, you're certainly getting the point of friction from going below that when you've got to have a certain amount of cash to manage rebalancing, paying fees, and facilitating withdrawals. You're just experiencing natural resistance when you get down to the levels that we are.
Speaker Change #114: We are assuming the environment remains the same I think assuming cash is fully deployed in the market.
Speaker Change #115: It's a good assumption.
Speaker Change #115: I think we're to the point I think the point you are making as we continue to grow that growth does come with cash.
Speaker Change #115: So I think that.
Speaker Change #115: On that versus the fees, we pay and things of that nature.
Speaker Change #115: I think it's a good way to look at it and maybe the bottom line and I think when you look at the cash as a percent of AUM, where we are in that low kind of 3% zone, you're certainly getting to the point of.
Speaker Change #115: Friction from going below that when you've got to have certain amount of cash to manage rebalancing paying fees facilitating withdrawals. So just a natural resistance when you get down to the levels that we are.
Matthew Jon Audette: So I think that was where you were probing, but those levels would be what makes sense to us. And there's certainly cash that comes along with growth if that's what you're trying to do. Okay, thank you. That is helpful.
Speaker Change #115: So I think that was where you were probing but.
Speaker Change #115: Those levels will be what makes sense to us and they are certainly cash that comes along with growth if thats, what youre trying to confirm.
Operator: And then just one clarification and one question. You mentioned that your ICA yield might be down a couple of basis points quarter-on-quarter. And I guess I'm a little surprised just given the high reinvestment rates and you're getting more payable gross spread on the Fed Fund on the variable side. So could you just maybe explain that?
Okay. Thank you that's helpful. And then just one clarification and one question you mentioned that your ICA yield might be down a couple of basis points quarter over quarter.
Speaker Change #115: Yes, almost surprised just given the high reinvestment rates.
And you are getting more favorable gross spread on a fed fund on the variable side. So can you just maybe explain that but the broader question I have is.
Operator: But the broader question I have is going on to just the liquidity and services opportunity; could you talk a little bit about maybe the external one, Dan? You sort of highlighted that you sort of secured your first one, so congrats on that. What's the shape and size of that look like?
Speaker Change #115: Going on to just the.
Speaker Change #115: Liquidity and services opportunity.
Speaker Change #116: Excuse me can you talk a little bit about.
Speaker Change #116: Maybe the external one Dan you sort of highlighted that you saw a security first of all so congrats on that whats the shape and size of that look like and then just from a Devil's advocate perspective, if youre getting 60 basis points on that incremental deployment.
Operator: And then just from a devil's advocate perspective, if you're getting 60 basis points on that incremental deployment, why not ratchet that up and slow some of the lower gross profit ROA but larger transactions on the enterprise side? Maybe help me understand the puts and takes as you think about capital allocation. Thank you so much.
Speaker Change #116: Why not ratchet that up and slow some of the lower gross profit ROA.
Speaker Change #116: Larger transactions in the enterprise side, maybe help me understand the puts and takes as you think about capital allocation. Thanks, so much.
Operator: All right, so I'll start with part one of your seven-part question there, my man. I think on the ICA yield, just the timing. So I think when you look at the decline quarter over quarter, the fixed rate maturity that I think we would, you know, reinvest at, you know, from 200 basis points to 450, that comes at the very end of the quarter. So if you just look at where cash balances are at the moment, you would just have a movement of those variable ones.
Speaker Change #116: Okay.
Alright ill start with part one of your seven part question there.
Speaker Change #117: I think I think on the ICA yield and just the timing. So I think when you look at the decline quarter over quarter.
The fixed rate maturity that I think we would reinvest that from 200 basis points to 450 that comes at the very end of the quarter.
Speaker Change #117: So if you just look at where we're cash balances are at the moment.
Speaker Change #117: You would just have a movement of those variable once I think the point I would hit is it truly that maturity just coming at the end of the quarter. So youll see that benefit pull through assuming it comes in at the at the rates that we talked through there in the marketplace right. Now you just see that come through in the third quarter.
Operator: So I think that the point I would hit is that it's really that maturity just coming at the end of the quarter. So you'll see that benefit pull through, assuming it comes in at the rates that we talked through. They're in the marketplace right now. You just see that come through in the third quarter.
Matthew Jon Audette: I think about the L&S economics, and maybe I'll just give a comment there and then turn it over to Dan. I think it's not necessarily about pure, you know, decisions on capital allocation, where to put it. I think it's about these advisors and finding, you know, a succession offering that works for them and doing it in a way that is very thoughtful and helpful and lands them on our platform and really hits the marks of the really strategic benefits of the transaction itself.
Speaker Change #118: I think on the LLS economics, so maybe I'll just give a comment there and then turn it over to Dan I think it's.
Speaker Change #118: It's not necessarily about pure decisions on capital allocation, where to put it I think it's about these advisors and finding a succession offering that works for them and doing in a way that is very thoughtful and helpful and land them on our platform and really hits the marks of the the really strategic benefits of the transaction.
Matthew Jon Audette: And I think that's what leads to, you know, our thoughts on the capacity of 30 to 40 a year, as opposed to just some, you know, financial choice. And maybe, Dan, if there's anything you want to add to that, yeah.
So and I think thats, what leads to our thoughts on the <unk>.
Speaker Change #118: <unk> of 30 to 40, a year as opposed to just some financial choice and maybe Dan if there's anything you want to add to that.
Dan Hogan Arnold: So, Bill, you were speaking to the opportunity set. Again, I, you know, it goes back to. In many cases, what we're solving for is... sessions for these advisors. And I think given the size of that need has driven the proliferation of maybe innovation in that area to try to solve for it. And so, you know, if it's, if there are 300,000 advisors in the marketplace, and a third of them are going to retire over the next 10 years, that would be your total opportunity set, I think.
Dan: You were speaking to the opportunity set again.
Dan: Goes back to.
Dan:
Dan: In many cases, what we're solving for is one.
Dan: And succession for these advisors and I think.
Given the size of that need has driven the proliferation of maybe innovation in that area to try to solve them.
Dan: Sure.
Dan: And so.
Dan: If it's 300000 advisers in the marketplace and a third of them are going to retire over the next 10 years that would be a total opportunity set I think.
Dan Hogan Arnold: For now, a lot of these transactions have been targeted at a little larger practices because to do these transacts, it's a complex administrative process to work through them, and so it's probably not fair to say then that it's all the hundred thousand that are retiring in the next ten years is the opportunity set. That said, the administrative complexity to do these deals will certainly get easier as everyone in the marketplace learns, iterates, and evolves how to do that.
Dan: We're now a lot of these transactions have been targeted for a little larger practices because to do these transactions. It's just it can be a complex administrative process to work through it so.
Dan: It's probably not fair to say, it's all 100000 that are retiring in the next 10 years as the opportunity set that said the constraints around the administrative complexity to do these deals we will certainly get easier as everyone in the marketplace learn iterate some malls.
Dan: How to do that and that constraint then we'll allow that capacity to go up.
Dan Hogan Arnold: And that constraint then will allow that capacity to go up. And, you know, as firms learn how to onboard these folks and do it in a highly successful way, then again, I think that constraint will go up, and you'll see an increased number and sizes of these over time. So that's how we think about the opportunity set and make sure that we have the compelling value proposition. I am here to support these folks once they transition over and once we serve them in the context and capacity that they are being served in. FOIA, LPL, and that's it.
And in his firm's learn how to onboard these folks and do it in.
Dan: Our highly successful way, then again I think that constraint.
Dan: <unk> will go up.
Dan: Youll see increased number and size of these <unk>.
So that's how we think at least about how we think about the opportunity set makes sure that we have a compelling value proposition.
Dan: To support these folks once they transition over and once we served in the context and capacity, but they are.
Dan: Being served in us.
Dan: As an employee of LPL in buses all hopeful.
Dan Hogan Arnold: Part of a transition of a succession plan over the five-year period of time, we're delivering value and capabilities that we've built into a lot of our affiliation models that enable us to do that. [inaudible] We do think, again, it's a compelling opportunity that is relevant for folks that are in traditional employee-based models. It's relevant for anyone that has their own independent business, trying to explore how to transition to business and create a.
Dan: As a part of our transition of the succession plan over a five year period on we're delivering value and capabilities that we built with a lot of our affiliation model.
Dan: Enable us to do that really efficient effective way. So we can scale that where we couldnt. We didn't have the three or four years of experience in building those capabilities and so I think it's just that front end administrative operational work doing these deals and as again you can get.
More efficient item will scale it up.
Dan: We do think again, knowing opportunity that has some relevant or folks that are in traditional employee based models, which relevant for anyone that has their own independent business.
Just trying to explore huddle.
Dan: Transitioning business and creative.
Dan: Session outcomes.
Dan: Them. So it is a relevant business across.
Dan: Oh, sorry, a relevant opportunity across the industry.
Dan Hogan Arnold: Again, I think we'll continue to innovate, evolve, and get better and better at it. I don't suspect we'll have competition in the marketplace because it's a big problem to solve, but we think we've got a good head start and a good infrastructure on which to leverage and scale. Thanks for taking all the questions.
And again I think we will continue to innovate evolve and get better and better at it.
Dan: I suspect we will have competition out in the marketplace, because it's a big problem to solve a problem. We think we've got a good head start.
Dan: Infrastructure, which to leverage and scale.
Speaker Change #119: Thanks for taking my questions.
Operator: Thank you, and one moment as we move on to our next question. And our last question is going to come from the line of Benjamin Budish with Barclays. Your line is open. Please go ahead.
Speaker Change #120: Thank you and one moment as we move on to our next question.
Speaker Change #120: And our last question is going to come from the line of Benjamin <unk> with Barclays. Your line is open. Please go ahead.
Operator: Hi, good afternoon. Thanks for taking the time to ask the question. I wanted to first ask you one more question on cash levels, but maybe ask about the April update more holistically. So on cash, it sort of sounds like your comment about the variable piece moving with, you know, given the timing of advisor payments and taxes, perhaps cash continues to decline in April, but you also sound quite optimistic on the recruiting pipeline. Any color you can give on in terms of what you're seeing there in terms of net new assets in April? I know the Yeah, you bet.
Benjamin: Hi, good afternoon. Thanks for taking the question I wanted to first maybe one more follow up on cash levels, but maybe asking about the April update more holistically. So on cash it sort of sounds like your comments about the variable piece moving with given the timing of adviser payments and taxes, perhaps cash continues to decline in April but you also sound quite optimistic on the recruiting.
Benjamin: Pipeline any color you can give on in terms of what youre seeing there in terms of net new assets in April I know the month is almost at an end.
Matthew Jon Audette: I mean, we've got one more day of data to see, but the headline I'd give you on April is it's shaping up to be a bit better than you would expect, especially given the seasonality that you hinted at in your question of what you see in April. So starting first on client cash balances, the two seasonal factors that do hit April are first to your point taxes. Right taxes get paid in April.
Speaker Change #121: Yeah, you bet, Matt I think we've got one more day of data.
Speaker Change #122: But the headline I'd give you on April is it shaping up.
Speaker Change #122: Better than you would expect especially given the seasonality that you hinted at in your question of what you see in April.
Speaker Change #122: So starting first on client cash balances. The two seasonal factors that do hit April are first to your point taxes right taxes get paid in April that for us typically reduces cash by about a 1 billion and a half.
Matthew Jon Audette: That, for us, typically reduces cash by about a billion and a half. And then the second factor is advisory fees, those primarily come out in the first month of the quarter, April obviously being the first month of Q2. That reduces cash by about $1.4 billion. So those two seasonal factors together, all else equal, would drive a decline of nearly $3 billion in cash sweeps for the month. But to the point on stability, outside of those factors, we actually have seen cash balances grow by over a billion.
Speaker Change #122: And then the second factor is advisory fees, those primarily come out in the first month of the quarter April obviously being the first month of Q2 that reduces cash by about 1 billion four so those two seasonal factors together.
Speaker Change #122: All else equal would drive a decline of nearly $3 billion in cash sweep for the month.
Speaker Change #122: But to the point on stability outside of those factors, we actually have seen cash balances grow by over $1 billion. So you net it all out in.
Matthew Jon Audette: So you net it all out, and cash balances for the month of April are down just a billion and a half from where we sit right now. And then to your point on organic growth, we're continuing to see the strength that we talked about in Q1. Those same dynamics, taxes and advisory fees, do hit N&A in the month of April. That would reduce N&A by about $3 billion, or about 3%. But outside of that, when you factor in the recruiting levels that we've had, that ramp that's come into April, as well as the strength we continue to see from a strength in the month of April, we're seeing organic growth in the 5% to 6% zone, which, as a reminder, April is typically the slowest month of the year from a growth standpoint. So at 5% to 6% for that month, I think it's a solid start to the quarter. Great
Speaker Change #122: And cash balances for the month of April are down just to 1 billion and a half.
Speaker Change #122: Where we sit right now.
Speaker Change #122: Then to your point on organic growth, we're continuing to see the strength that we've talked about in Q1.
Same dynamics taxes and advisory fees do hit M&A in the month of April.
Speaker Change #122: That would rousseau would reduce M&A by about $3 billion or about 3%.
Speaker Change #122: But outside of that when you when you factor in the recruiting levels that we've had that have that ramp.
Speaker Change #122: That's come into April as well as we continue to see from our strength in the month of April we're seeing organic growth in the 5% to 6% zone, which as a reminder April is typically the slowest months of the year from a growth standpoint.
Speaker Change #122: So at 5% to 6% for that month I think.
Speaker Change #122: Our solid start to the quarter.
Operator: And then maybe my follow-up, just in terms of promotional expenses, I guess I have two questions. One, can you unpack a little bit the Prudential-related expenses? I guess how much was in Q1, and then for the step-up you indicated in Q2, how much are you expecting that's pro-specific versus the increase on the TA side? And then, at a high level, can you kind of just walk us through what happens over the next, like, year, say, with Prudential and Atria?
Great and then maybe my follow up.
Speaker Change #123: Just in terms of promotional expenses I guess two questions. One can you unpack a little bit the Prudential related expenses I guess, how much was in Q1 and then for the step up you indicated in Q2 how much.
Speaker Change #123: Are you expecting thats proved specific versus the increase on the Ta side and then at a high level can you kind of just walk us through what happens over the next like year or say with Prudential and atria Prudential I understand there are promo expenses coming off for atria, presumably there is a separate M&A spend but ta which should be ramping up. So how are you thinking about the growth in that line over the next say.
Operator: For Prudential, I understand there are promotion expenses coming off. For Atria, there's a separate M&A spend, but TA should be ramping up. So how are you thinking about the growth in that line over the next, say, four quarters? Thank you.
Speaker Change #124: Four quarters. Thank you.
Matthew Jon Audette: I think when you look at... specific to Q1 and Prue. We had about $17 million of promo-related expenses related to Prue and Q1. We'd actually expected in the low $20 million range.
Yeah, you bet I think when you look at.
Specific to Q1 in Peru.
We had about $17 million of promo related expense related to Peru in Q1, we.
Speaker Change #124: We had actually expected in the low $20 million range, it's a little bit why promotional came in a little bit better than we had guided and the reason why next quarter is up by about $10 million is really a shifting of the timing of spend related to Peru.
Matthew Jon Audette: It's a little bit why promotion came in a little bit better than we had guided and the reason why next quarter is up by about $10 million. It's really a shift in the timing of spend related to Prue. I think when you look at the overall year to your question on what's going to drive promotion, and I'll get to the pretty specific pieces of that, but I think there are really three factors when you look at the full year. And the first, in Q1, is organic growth, right?
Speaker Change #124: I think when when you look at the overall year to your question on what's going to drive promotional and I'll get to the proved specific pieces of that.
Speaker Change #124: But I think there's really three factors when you look at the full year and the first in key one is organic growth rate is.
Matthew Jon Audette: And specifically from recruiting, which we talked a little bit about earlier in the call, primarily the level and amount of recruited AUM that comes onto the platform with Q1 at a record prior to large financial institutions. The good momentum we have going into Q2, I think we feel like that will be a key driver of promotional expense going up this year for a very good reason, that it's the recruited assets coming on the platform with TA rates really stable.
Speaker Change #124: And specifically from recruiting that we've talked a little bit about earlier on the call primarily the the level of an amount of recruited AUM that comes onto the platform with Q1 at a record prior to large financial institutions. The good momentum we have going into Q2, I think we feel like that will be a key driver of promotional expense going up this year.
Speaker Change #124: <unk> for very good reason.
Speaker Change #124: The recruited assets coming on the platform with Ta rates really stable.
Matthew Jon Audette: The other item is our conference spend, right? So that is really in line with the size and scale of the firm. Our conferences are where we get together, we connect with our advisors, they're really important, really valuable, and we would scale that with the size of the firm.
Speaker Change #124: The other item is our conference spend right. So that is really in line with the size and scale of the firm. Our conferences are aware, we get together, we connect with our advisors. They are really important really valuable and we would scale that with the size of the firm and then lastly to deploy on your question on Prudential Atria really wouldn't impact promotional this.
Matthew Jon Audette: And then lastly, to the point in your question on Prudential, Atria really wouldn't impact promotional spending this year, but Prudential would. And just as a reminder about that deal overall, we estimate $325 million of spend to bring them on. $200 of that is in the technology spend that Dan gave a little bit of color on earlier. And then the other $125 is really onboarding integration costs. That's what shows up in promotional. We've incurred a little over $40 million so far through the first quarter.
Matthew Jon Audette: So the remaining $80 to $85, that will primarily come through in the remainder of this year. So those are the drivers, and hopefully that gives you a little bit of a double-click on Prudential itself. Very helpful. Thank you. Thank you, and I would now like to hand the conference back to Dan Arnold for any closing remarks. I just want to thank everyone for taking the time to join us this afternoon and look forward to speaking with you again. This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change #125: Sure, but prudential wood.
Speaker Change #125: And just as a reminder for that deal overall, we estimate $325 million of spend to bring them on 200 of that is in technology spend that Dan gave a little bit of color on earlier and then the other 125 is really onboarding integration costs, that's what shows up in promotional.
Speaker Change #125: We have incurred a little over $40 million, so far through the first quarter. So the remaining $80 to 85 that will primarily come through in the remainder of this year. So those are the drivers and hopefully that gives you a little bit of a doubleclick on prudential itself.
Speaker Change #126: Very helpful. Thank you.
Speaker Change #127: You bet.
Speaker Change #127: Thank you and I would now like to hand, the conference back to Dan Arnold for any closing remarks.
Dan Hogan Arnold: Yes, I just want to thank everyone for taking the time to join US. This afternoon, and we look forward to speaking with you again next week.
Speaker Change #128: This concludes today's conference call. Thank you for participating you may now disconnect.