Q4 2024 LPL Financial Holdings Inc Earnings Call
Good afternoon and thank you for joining the fourth quarter 2024 earnings conference call for LPL Financial Holdings, Inc.
Speaker Change: Joining the call today are Chief Executive Officer Rich Steinmeier and President and Chief Financial Officer Matt Audette.
Speaker Change: Rich and Matt will offer introductory remarks and then the call will be open for questions. The company would appreciate if analysts would limit themselves to only one question. To ask a follow-up, please re-enter the queue.
Speaker Change: 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: Today's call will include forward-looking statements, including statements about LPL financials, future financial and operating results, outlook, business strategies and plans, as well as other opportunities and potential risks that management foresees.
Speaker Change: Such forward-looking statements reflect management's current estimates or beliefs that are subject to known and unknown risk 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 risk and uncertainty, the company refers listeners to the disclosures set forth under the captioned forward-looking statements in the earnings press release.
Speaker Change: as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission.
Speaker Change: During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com. With that, I will now turn the call over to Mr. Steinmeier.
Speaker Change: Thanks so much, Operator. And thank you to everyone for joining our call.
It's a pleasure to speak with you again
Speaker Change: Before touching on our fourth quarter results, I'd like to reflect on a few of our key accomplishments during 2024.
Speaker Change: Against an evolving market backdrop, we remain focused on serving our advisors and institutions, growing our business, and delivering shareholder value.
Speaker Change: We delivered industry-leading, organic asset growth of 10%, with contributions from both our traditional and new markets.
Speaker Change: including the onboarding of one of our largest institutional partners, Prudential Advisors.
Speaker Change: We set recruiting records in both our independent advisor and institutional channels. As a complement to that strong organic growth, we closed on the acquisition of Atria and entered into an agreement to acquire the Investment Center.
Speaker Change: In addition, we continue to advance our pioneering liquidity and succession program, where we close 22 deals.
including five with external practices.
Speaker Change: Finally, we delivered impressive financial results with record-adjusted earnings per share of $16.51.
Speaker Change: Okay, now let's turn to our Q4 results. In the quarter, total assets increased to a new high of $1.7 trillion, as we attracted record organic net new assets of $68 billion, representing a 17% annualized growth rate.
Speaker Change: Our fourth quarter business results led to strong financial performance with the adjusted EPS of $4.25.
Speaker Change: Next, let's turn to our strategic plan and growth across our organic and inorganic initiatives.
Speaker Change: As a reminder, our long-term vision is to become the leader across the advisor-centered marketplace.
Speaker Change: To do that, our strategy is to invest back into the platform, provide unmatched flexibility in how advisors can affiliate with us, and to deliver capabilities and services to help maximize advisors' success throughout the life cycle of their businesses.
Speaker Change: Doing this well gives us a path to sustainable industry leadership, not just in the independent and institutional markets, but across all of wealth management.
Speaker Change: It's a bold aspiration, but one I'm confident that we can achieve.
Speaker Change: Over the near term, we are amplifying our focus on three key priorities.
Speaker Change: One, to maintain the client centricity that this firm was built on.
Speaker Change: Two, to empower our employees to deliver exceptionally for our advisors and their clients.
and three, to deliver improved operating leverage.
Speaker Change: To help us achieve this, during the fourth quarter we shifted our organizational structure and leadership to better align our teams, sharpen our focus on key priorities, and increase accountability.
Speaker Change: As part of these changes, we recognize outstanding individual contributions with the largest class of internal senior promotions in our history.
Speaker Change: Together, these actions strengthen our ability to leverage our tremendous talent to execute on our long-term vision.
Speaker Change: With that as context, let's review a few highlights of our business growth.
Speaker Change: In the fourth quarter, recruited assets were $79 billion, bringing our total for the year to $149 billion, both of which represent records. In our traditional independent market, we added approximately $13 billion in assets during the quarter, which contributed to record full-year recruited assets of $71 billion, exceeding our prior high by more than 40%.
Speaker Change: This improves on our already industry-leading capture rates of advisors in motion while also expanding the breadth and depth of our pipeline.
Speaker Change: With respect to our new affiliation models, Strategic Wealth, Independent Employee, and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $2 billion in assets. 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 sustainable growth.
Speaker Change: We also continue to make progress within the large institutional marketplace.
Speaker Change: where during the fourth quarter we onboarded the retail wealth management business of Prudential.
Speaker Change: It's only been a couple of months, but there are already signs that the integrated experience and enhanced capabilities we delivered are improving their attractiveness in the marketplace for advisors.
Speaker Change: Our momentum continues in Q1, where earlier this week, we onboarded WinTrust Financial's wealth management business for our institutional services platform.
Speaker Change: As a complement to our organic growth, we closed the acquisition of Atria Wealth Solutions
Speaker Change: welcoming their approximately 2,200 advisors, 160 institutions, and home office staff to the LPL family.
Speaker Change: The transaction is progressing well and we remain on track to meet our 80% retention target.
As for our broader business...
Speaker Change: Asset retention remains industry-leading at 98% over the last 12 months.
Speaker Change: This is a testament to our continued efforts to enhance the advisor experience through the delivery of new capabilities and technology and the evolution of our service and operations.
Speaker Change: In closing, the fourth quarter was a capstone on another outstanding year.
We are well positioned.
Speaker Change: to serve as an indispensable partner to our advisors and institutions.
Speaker Change: to continue delivering industry-leading organic growth and to maximize long-term value for shareholders.
Speaker Change: All of this is driven by the dedication and hard work of our fantastic team.
Speaker Change: So, above all, I want to thank them for their efforts.
Speaker Change: And with that, I'll turn the call over to Matt. All right. Thanks, Rich. And I'm glad to speak with everyone on today's call.
Matt Audette: As Rich mentioned, 2024 was a strong year for the firm as we delivered meaningful growth and progressed our capabilities, leaving us well-positioned to continue to serve and support our nearly 29,000 advisors.
Matt Audette: grow our business, deliver shareholder value, and advance our key strategic priorities.
Turning to our fourth quarter business results.
Total advisory and brokerage assets were $1.7 trillion.
Matt Audette: Up 9% from Q3. This continued organic growth was complemented by our acquisition of Atria, which added 88 billion of assets in Q4.
Matt Audette: Total organic net new assets were $68 billion, an approximately 17% annualized growth rate.
Matt Audette: Prior to the onboarding of Prudential advisors, our annualized growth rate was approximately 7%.
A strong result, also on an absolute and relative basis.
Matt Audette: For the full year, total organic net new assets were $141 billion, or an approximately 10% growth rate.
Matt Audette: On the recruiting front, Q4 recruited assets for a record $79 billion.
which included 63 billion from Prudential.
Matt Audette: Looking ahead, given our strong pipelines, we expect our recruiting momentum to continue into 2025.
Matt Audette: However, I would note the natural seasonal headwinds to advisory movement in the back half of December typically carry into January.
So we expect recruiting to ramp throughout Q1.
Matt Audette: As for our Q4 financial results, the combination of organic growth and expense discipline led to adjusted EPS of $4.25.
Of course, profit was $1,228,000,000 up $100,000,000 sequentially.
Matt Audette: As for the components, Commission advisory fees net of payout were $313 million, up $39 million from Q3.
Matt Audette: Our payout rate was 87.8%, up 30 basis points from Q3, due to the seasonal build in the production bonus and the onboarding of Prudential.
Matt Audette: With respect to client cash revenue, it was $397 million, up $25 million from Q3, as the sequential growth imbalances more than offset the impact of lower short-term interest rates.
Matt Audette: Overall, client cash balances end of the quarter at $55 billion, up $9 billion sequentially.
which included approximately $4 billion from Atria and Prudential.
Matt Audette: The remaining $5 billion of cash balance growth was our largest sequential increase since the second quarter of 2022.
Matt Audette: A strong result even when considering the natural seasonal build in Q4.
Matt Audette: Within our ICA portfolio, the mix of fixed rate balances was roughly 55% within our target range of 50-75%.
Matt Audette: Looking more closely at our ICA yield, it was 335 basis points in Q4, up three basis points from Q3, driven by higher yields in our fixed rate contract renewals.
Matt Audette: As we look ahead to Q1, we expect continued tailwinds from the yields in our new fixed rate contract to be partially offset by the full quarter impact of the November and December rate cuts.
Matt Audette: And as a result, we expect our ICA yield to increase by a few basis points.
Matt Audette: As for service and fee revenue, it was $139 million in Q4, down $7 million from Q3.
due to lower conference revenue in IRA.
Matt Audette: Looking ahead to Q1, we expect service and fee revenue to be roughly flat.
Matt Audette: as the full quarter contribution from Prudential is offset by lower conference revenue and OSJ termination.
Moving on to Q4 Transaction Rules.
with $62 million, up $3 million from Q3.
Matt Audette: As we look ahead to Q1, trading activity levels remain roughly in line with Q4.
Matt Audette: However, I would note there are three fewer trading days than there were.
Matt Audette: So we expect transaction revenue to decline by a few million sequential.
Now let's move on to Atria and Prudential.
starting with Adria.
Matt Audette: Overall, the transaction is progressing well, and we remain on track to onboard our ATRI advisors this year.
Matt Audette: As for Prudential, we onboarded $40 billion of assets in Q4, and expect the remaining $23 billion to onboard in Q1.
Now let's turn to expenses, starting with Gordian.
bringing our full-year core DNA to 1,515,000.
which was within our outlook range.
Matt Audette: For the full year, prior to the impact of atrium prudential, we grew 2024 core GNA by approximately 8%, roughly half the rate we grew in 2023.
Matt Audette: As we look ahead to 2025, we remain focused on delivering operating leverage in the business.
Matt Audette: In recent years, we have ramped investments to scale our business and drive greater efficiency.
Matt Audette: So, while we will continue to invest to drive and support growth, the benefits of our ongoing efficiency efforts are slowing CoreGNA growth in 2025.
Matt Audette: As a result, we plan to grow our core DNA in a range of 6 to 8 percent.
Matt Audette: In addition, we'll have the full year impact of expenses related to atrium credential, which adds $170 to $180 million.
Matt Audette: This brings our overall expectation for 2025 for G&A to be in a range of 1,730,000.
to 1,780,000.
Matt Audette: to give you a sense of the near-term timing of this event.
Matt Audette: As we look ahead to Q1, we expect CoreGNA to be in a range of $420 to $430 million.
Moving on to Q4 Promotions.
It was $173 million, down $3 million from Q3.
Matt Audette: as lower conference expense was partially offset by seasonal increases in marketing spend.
Matt Audette: as well as transition assistance related to our strong recruiting and the acquisition matrix.
Matt Audette: Looking ahead to Q1, we expect promotional expense to decrease to approximately $160 million, driven by lower prudential-related arm.
Matt Audette: Looking at share-based compensation expense, it was $26 million in Q4, which included a $12 million impact related to the departure of our former CEO.
Matt Audette: As we look ahead to Q1, we expect this to return to a more normalized level for roughly $20 million.
Matt Audette: Turning to depreciation and amortization, it was $92 million in Q4, up $14 million sequentially.
Matt Audette: In addition to technology development related to Prudential, as we noted last quarter, we recently went live with two new internal data sets.
Matt Audette: Capability delivery technology and service experiences is the number one priority as they think through firms in that regard, but I think youre seeing is the payoff in the marketplace of our value exchange to advisors being Unparallel, you see an increasing amount of advisers recognizing that our capability sets, our technology and the way we oriented.
Matt Audette: Serving our clients differentiate it and so the conversations are actually getting easier not harder for us as we enter into recruiting conversations second those advisors are going to look at ongoing economics and again here as we take a look at how we compete in the marketplace, we feel really competitive as to how we can help advisors grow.
Matt Audette: And achieve success, which isn't just financial payout, but also the ability to grow and sustain their practices and then last the priority is usually going to be around CA rates, which have been stable in the marketplace and for which we're consistently competitive on those but.
Matt Audette: To say, how I think how do we think about our ability to win ongoing and sustain that performance over a longer arc I do think it represents a demonstration of the payoff of the investments we've made in our model and our capabilities expanding advisers choice in affiliating with our firm and building greater capabilities not only for advisers, but institute.
Matt Audette: <unk> to choose to join US one of the things that's probably a little bit understated is actually the dedication and the performance of our World class business development team. This is a team that is made up of individuals who come to work every day to reflect two advisors, how they could join this firm to improve their performance.
Matt Audette: And so their practice and I am just blown away I had the privilege of leading that team for a number of years and feel that they are the best team by far in the marketplace and demonstrate that quarter in quarter out.
Speaker Change: But you asked specifically about whether we can keep up that momentum and I think the answer in short Steven is yes.
Speaker Change: We continue to strengthen that value proposition, we continue to out invest competitors and the ability to build new capabilities and service new market. We continue to get demonstrated wins that actually validate us in new markets not only in our private wealth market and our large institutional market, but a continuing progress and the momentum in serving <unk>.
Speaker Change: Your house and regional advisers through our new models as well.
In addition to that we've plugged in a new capability over the last year and a half around liquidity and succession and as Youre aware a third of advisors are going to retire over the next 10 year arc, having a distinctive liquidity in succession solution that allows advisors to monetize their life's work without having to have it homogenize and move that to the next generation.
Speaker Change: Advisors is differentiated in the marketplace and quite honestly resonating and so as I take that altogether in spite of the fact that obviously, we're happy to have a stronger kind of denominator in that mathematical equation. You asked about I think we feel confident in our ability to sustain our performance in the range of organic growth that you had articulated.
Speaker Change: And that we've articulated over the last couple of years.
Speaker Change: And hey.
Speaker Change: If I could add Stephen some Richard I play a role as well here I think you hear the passion and excitement there I'll just throw in some empirical data that I'm sure you know, but that's 10% to 13% was the growth rates. We had in 2020 in 2020, one, which I think we're good look and years of a challenging year and.
Speaker Change: In a year of kind of where things were right in the tailwind and then if you look at 2022 Youre at 8%.
Speaker Change: With our <unk> at 1.1 trillion. If you look at 'twenty two 'twenty three we grew at 9% with AUM of $1 four trillion and we grew at 10% this year with APM ending at $1 seven trillion.
Speaker Change: So up to you if you extrapolate or not but I think the trends I think are pretty compelling.
Speaker Change: Yes, I'm not extrapolating just to make sure.
Speaker Change: The riches give me a thumbs up here I don't know what that means.
Speaker Change: Jokes aside hopefully that data was helpful.
Speaker Change: Color is extremely helpful and that's it for me unless Noah on January cash levels in which case I'll certainly get back in the queue. Thanks, So much all right well I'll just blurted out if known does stevenson enough to get back yet.
Great way to close thanks, Matt.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Alex <unk> with Goldman Sachs. You May proceed.
Speaker Change: Hey, good afternoon, guys. Thank you for the question as well.
Speaker Change: Other one for you around organic growth, but maybe more from a organic revenue side of things one of the.
Speaker Change: Sort of pillars of the growth algorithm has been to improve kind of revenues on assets over time and part of that has been growth in the central and managed accounts centrally managed assets. If we look at the results of this quarter, obviously very meaningful step up its likely due to prove but I was hoping you can unpack.
Speaker Change: The organic growth has been in that part of the business.
Speaker Change: Are you seeing the most uptake and when you zoom out a little bit more.
Speaker Change: Some of the most needle moving areas, where you see improvement in return on client assets over the next couple of years.
Speaker Change: Yeah, I'll start with essentially managed and rich if you want to take the longer term plan I think youre right.
Speaker Change: There's definitely a lot of Peru in that in that number essentially manage M&A was 25 billion in the quarter 18 of that was from Prudential, where other advisory assets within there. So outside of that you have call it $6 5 billion.
Speaker Change: Think of that as core growth during the quarter and that was a record by far but our prior record was $4 four.
Speaker Change: That will set this year and last quarter. So I think what you see in centrally managed.
Speaker Change: It is really our focus on making sure. We're building tools capabilities services that are supportive of our advisors I think centrally managed as a great example of that we continue to invest in making sure. It's priced right capabilities are correct and it can support advisers in their asset management asset allocation part of their roles and jobs. So they can.
Speaker Change: Can spend more time on what's most valuable for them, which is what their clients.
Speaker Change: So I think that's just a key part of our value prop and investment and I think thats why youre starting to see that there isn't any numbers continue to improve.
Speaker Change: Hey, Richard Yeah, So maybe Alex just to follow up on one thing that I think is important as we think about that centrally managed as well I think it's critically important to recognize that we actually have our own advisory platforms. So as advisors evolve and grow their business over time as they look at that brokerage to advisory mix and when it's appropriate for there.
Speaker Change: It is deeply integrated and easy for them actually move from one account type structure to another and I think us owning an understanding of having that direct feedback from nearly 29000 advisors on whats best to deliver capabilities and advisory is incredibly important because then we can go and build those capabilities directly.
Speaker Change: But if you think about you asked about some other areas, where we may continue to see a positive.
Speaker Change: Mix shift I would double down not just on centrally managed but we still think there's a pretty sizable opportunity as advisors look at their books and the way they choose to serve their clients move from brokerage to advisory and so I think youll see continued movement from brokerage to advisory and time.
Speaker Change: As well, we look at the ability to expand our suite of offerings.
Speaker Change: For us that's a meaningful opportunity if we think about banking and lending for our advisors to continue their progression in serving their clients on both sides of the balance sheet with integrated capabilities that we would have on the banking and lending side around cash management as well as lending capabilities against their portfolios.
Speaker Change: Maybe last couple of things I would think about it.
Speaker Change: As we think about the continued progression I think you'd look at our scale and Mac impromptu came up with that growth in our AUM, but as we continue to grow scale that means that our product and platform sponsorship partnerships are more important we become an incredibly important component of distribution and so thinking about how we monetize the business.
Speaker Change: And our partnerships on the asset management side.
Speaker Change: One area, where we think theres good opportunity and lastly, as we kind of drove our arms around this.
Speaker Change: <unk> exchange that I alluded to at some point in time, you continue to think about potentially the ability to price our services aligned with the value that we deliver to advisors and their end investors.
Speaker Change: There is an opportunity there to continue progression.
Speaker Change: That.
Speaker Change: Velocity that you alluded to.
Speaker Change: Great Awesome, thanks, very much guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Devin Ryan with JMP Securities You May proceed.
Devin Ryan: Thanks, So much I rich hi, Matt.
Devin Ryan: Wanted to ask a question on Prudential clearly early days of integration, but it sounds like it's going really well and so with that said I just would be great to hear about more of the capabilities from that you've kind of integrated there that are resonating. The most and then how you expect those advisors to grow their books of business relative to <unk>.
Devin Ryan: Average LPL advisor and then just more broadly how Peru is perhaps a catalyst for more conversations and either insurance or enterprise more broadly assuming it has been.
Yes, thanks, Kevin.
Speaker Change: I'll start out Matt do you have any.
Devin Ryan: And promptly things you want to scribble on that no Pat and add too.
Speaker Change: Happy to create that space, So, let's talk about coming out I think.
Devin Ryan: Look in all honesty, we're incredibly proud.
Devin Ryan: I am so proud of the team and what we deliver to be able to deliver on time.
Devin Ryan: For Prudential their advisers and their clients.
Devin Ryan: Fantastic organization, they took a tremendous leap of faith with us that we could build those capabilities deliver them and I am just so proud that we were able to deliver for them.
Devin Ryan: Regards to the capabilities I think.
Devin Ryan: <unk>.
Devin Ryan: Devin This is one of those things that you think about those insurance based advisors, who are both doing insurance business as well as wealth business and so many firms that's a swivel chair.
Devin Ryan: [laughter] arrangement that Youre working through we're working on one platform to think about your insurance assets another platform and in many cases multiple platforms. So think about our brokerage platform an advisory platform and you may even have additional add on tools as we have a page that we put together.
Devin Ryan: Herbie Rampage shot up Kirby.
Devin Ryan: On that page it actually goes through when we talk to our institutional partners, we end up being the counterparty and the partner, whereas to replace up to 15% to 16 vendors that they are pulling together on the technology compliance supervision CRM et cetera.
Devin Ryan: And so theres a simplified operating environment that is easier to understand there is.
Devin Ryan: A singularity of the client experience, where an adviser can actually see their clients either re 60 view of that client all in one place open accounts in one place sell annuities in one place and it just makes it a lot easier for them to do their business instead of having to have the swivel chair, where they're logging into multiple systems that simplicity married with an eye.
Devin Ryan: I'll tell you it's not just the integration of those capabilities. It is also that we have leading experiences in terms of our <unk> rate is best in class and that runs the operations group, but gotten the <expletive> rate below 2% that's not in good order and you'll see that a lot of different firms will have that number.
Devin Ryan: 20% to 30% <unk> rate. So what happens is these advisors will come over they'll get better capabilities, it's easier for them to do their business.
Devin Ryan: As well not not more of their business doesn't get bounce back you have that you get happier advisors.
Devin Ryan: That leads to the ability to attract more advisers in the marketplace and that's where we feel pretty confident Prudential has a fantastic brand name in the marketplace. They actually have a tremendous offering to advisors and so we're hopeful that us coming together and that partnership will allow them to accelerate their growth.
Speaker Change: Question or the second part of the question that you had asked was how do you think about the growth of the Prudential advisors relative to other advisers on our platform now it's not been long enough and not a demonstrated long enough time for us to say, okay. We see absolutely that they will grow at a higher or lower rate than the rest of the devices on the.
Speaker Change: So I will use some intuition than maybe historical experience to share with you <unk>.
Speaker Change: Credential actually has lead generation outside of from Prudential into their advisers into their wealth advisors and so having a lead generation source not unlike banks give the advisors and advantage in their ability to grow because they are growing likely more new client relationships than another advisor might grow.
Speaker Change: In addition, I think you see credential, bringing new more new to the industry advisors in and so as now they'll start with lower denominators, but on average you would see a new to industry adviser that is actually being.
Speaker Change: Presented the opportunities for leads you would expect that they might grow faster in time.
Speaker Change: Then a more mature adviser in the ecosystem.
Speaker Change: Third part of your question and the one question format was.
Speaker Change: With regards to Prudential.
Speaker Change: How do we think about that.
Speaker Change: Presenting an opportunity for other financial institutions similar to Prudential to engage in conversations with lesser to essentially win.
Speaker Change: I would tell you that our team was out in New York technically in New Jersey just.
Speaker Change: Two nights ago and went to dinner with some of the Prudential leadership team and they were incredibly bullish on our partnership on how we delivered.
Speaker Change: <unk> indicated that they are of course getting calls from their compatriots across the industry around what is that opportunity how has it gone.
Speaker Change: I don't think I'm embellishing, when I say that I feel like this team collectively and Prudential had a lot to do with that delivery. There was a lot of them their place too.
Speaker Change: This team pulled off an exceptional delivery doesn't surprise me because we've been building those capabilities to do it and I would imagine that Devin in time that will result in more more firms in the industry, considering us as a potential partner for them as well.
Speaker Change: That was.
Speaker Change: Fantastic. Thanks, Rich I appreciate you answering my three questions in one thanks, so much.
Rich Steinmeier: Thank you.
Bill Katz: Our next question comes from Bill Katz with TD Cowen You May proceed.
Bill Katz: Great. Thank you very much just thinking through the sort of modest shift of interest rate expectations. How are you thinking about if any kind of refinement to your sort of management of the fixed versus floating give very good disclosure in your supplement around your reinvestment rates.
Bill Katz: And so the pick up from what you pick up variable versus fixed, but just give it a potential for higher for longer backdrop.
Bill Katz: Do you think about maybe that range does that shift a little bit as duration shifts a little bit in your mind, just trying to think about that over the longer term and secondly, secondarily. Thank you for the tighter opening remarks not lost on me. Thank you.
Yeah.
Bill Katz: Alright, you're welcome Bill.
Speaker Change: I think on the on the fixed target I think the headline is our plans won't change, meaning we like being in that 50% to 75% range or.
Speaker Change: We're at the low end of that range now and I think we will and that's more about the building.
Speaker Change: Building cash balances in Q4 will move back up into the midpoint of that range, but I think the environment itself other.
Speaker Change: Other than on the extremes I don't think is going to have us move really beyond trying to be in that range in the midpoint.
Speaker Change: Like to target a rolling portfolio not to try and be clairvoyant on where rates are going to go because tomorrow. We could have a completely different view on where are they going to go we just want to be steady and consistent and that usually means three to five year rolling portfolio in the midpoint of that range and you'll you'll likely see us move back up to that in Q1.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Brennan Hawken with UBS you May proceed.
Brennan Hawken: Hi, good afternoon, thanks for taking my questions.
Speaker Change: Curious a little bit on <unk>.
Brennan Hawken: DNA.
Brennan Hawken: There's been some really strong growth there I know that you guys have been investing in the tech platform and I'm guessing that that has had something to do with some of that but also some of the capabilities on the enterprise side.
Brennan Hawken: When we're thinking about.
Brennan Hawken: Normal potential growth rate, though it seems like we're back to that few million per quarter sequential that you referenced.
Brennan Hawken: And so is that the right way to think about as we progress through 2025 and is the X factor for the progression. If you guys continue to have wins in enterprise and adding capabilities and that could put some upward pressure. There is that the right way to think about it or would you would you adjust me.
Brennan Hawken: I think you are in the right ballpark I mean, I think the big increase.
Speaker Change: Paid very well attention theyre prepared remarks Tonight.
Speaker Change: The big increase this quarter is pretty unique to Prudential and rolling out a couple of new data centers, which you are not going to do every quarter. So that's why going forward to getting back to that more normalized a few million dollars.
Speaker Change: I do think on the institution side and the technology necessary that outside of Prudential that hasnt been a huge driver I mean, I think as rich articulated very well Prudential is a very big.
Speaker Change: Big technology build with a lot of capabilities and that was from a from an integration standpoint $325 million 200 million of that was technology that drives and goes into that depreciation over time that that was a little bit unique I think if you're thinking about just institution gross overall, it certainly could be a driver.
Speaker Change: It wouldn't be something at the level of our Prudential typically because that was about building the capabilities not only for that new platform, but also to get prudential onto that platform of the tools and capabilities. They need so that one's a little bit of an outlier.
Speaker Change: Great Thanks for that clarity.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Cho with Jpmorgan you May proceed.
Michael Cho: Hi, Good afternoon, guys. Thanks for thanks for taking my question here.
Michael Cho: I just wanted to touch on expenses and the efficiencies I mean, Matt you talked to are kind of slowing core G&A growth and given the efficiencies that you're experiencing and I think you've touched on a few areas in the prepared remarks I was hoping you can unpack kind of operationally, where you've actually been able to attract a lot of these efficiency and where might there be more.
Michael Cho: Head and just.
Michael Cho: More broadly.
Michael Cho: On this journey core outside.
Michael Cho: Outside of more operating leverage in the years ahead, I mean, how would you characterize maybe the 2025 expense profile the margin profile on this on this journey to topple more leverage at home.
Michael Cho: Yes, I'll give I'll give some perspective, there and I think maybe the.
Michael Cho: A broad point is not only about efficiencies on the expense side, there's opportunity on the revenue and the monetization side. So I'll start more on the on the expense side maybe.
Maybe rich can jump in on the revenue side.
Michael Cho: And maybe the key thing is we're really continuing the things that we've been doing for the past few years and especially in 2024, and it's really about us dialing up the efforts and focus on that and specific to your question. These are investments to really drive efficiencies in and they don't sound like theyre exciting things, but they're very effective and draw.
Giving operating leverage which is automating manual processes and.
Michael Cho: In large groups like operations like service.
Michael Cho: A fair bit about on this call that big.
Michael Cho: Digging large institutions on board and just getting more <unk>.
Michael Cho: <unk> and effective at doing that not only in a cost effective way, but in a more actually.
Michael Cho: The lower the cost is actually the faster we get them on as well. So it's not only lower costs, it's a benefit to those to those clients as well.
Michael Cho: So I think when we maybe getting specific to to your point as we look ahead to 2025.
Michael Cho: And maybe with some context in 2024, right, where we delivered double digit organic growth 10%.
Michael Cho: With a core G&A growth rate in the 8% range around 8% and I think youre starting to see that operating leverage benefit continue into 2025, where if you look at our guidance in the 6% to 8% range prior to the full year impact crew and atria.
Michael Cho: I think shorthand that down the middle which I think many many of you well at 7% right Thats a second year in a row.
Michael Cho: With expense growth coming down while I think you've heard us have confidence that we're going to continue to invest and continue to drive organic growth and so theres some real power in that and I think our confidence on the opportunities for us to continue to make those investments continue to drive those opportunities is high, especially when you couple it with I think a new.
Rich Steinmeier: Focus and perspective on the revenue side as well maybe rich.
Rich Steinmeier: Yeah, I will jump in on the revenue, but I actually wanted to embellish just one small thing there I think it's important that you know.
Rich Steinmeier: You all as a community to have gotten to know Matt that pretty well over the last couple of years, certainly as a CFO, but for the last.
Rich Steinmeier: A couple of years he has run our operations our risk functions, our compliance function and now more recently, our service and supervisory functions as you think about the discipline required not only to kind of think through.
Rich Steinmeier: Where you can have efficiency gains it actually also requires the operating rigor to stay on top of it set targets act against those targets and then hold ourselves accountable to achieve those outcomes, so that rigor and discipline that you've maybe come to experience from the CFO side, we get to experience as well as.
Speaker Change: And operator on the other side and so it's not just the plans, it's actually the oversight and talent to execute against our plan and we've made I alluded to some of the organizational changes that we made in the fourth quarter one of those notably to me is that we introduced an operating committee that is led by Matt <unk> President and CFO.
Speaker Change: To continue to make sure that we're actually progressing against that operating margin improvement now.
Speaker Change: I stepped out for a minute do you mind repeating that yes, yes.
I think I think bill Katz would not appreciate me repeating remarks, given the you gave us a complement on the sink the nature of the opening remarks, you get every one of my answers is incredibly long so I apologize bill.
Speaker Change: I'll say I alluded to it a little bit earlier, though it's not just the expense side. It also is the monetization side. So when you think about the monetization side do you want to look at those assets you want to look at your ability to monetize those assets definitely want to look at your ability to expand your participation in other.
Speaker Change: And other components of the wealth spectrum that we're not participating in I mentioned banking and Theres a lot of things that we're looking there to continue to expand our monetization of the assets.
Speaker Change: I mentioned as well partnerships on the asset management side.
Speaker Change: And then pricing and so we're looking at this in a balanced picture and recognize that there are opportunities on both sides of that equation for us to sustainably work towards growing operating leverage and margin.
Speaker Change: Wonderful thanks, guys.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Dan Fannon with Jefferies. You May proceed.
Speaker Change: Thanks, Good evening I wanted to follow up on just the cash discussion.
Speaker Change: December obviously very nice build some of that seasonal.
Speaker Change: Im curious if theres anything underneath that in terms of behavior outside of the on boarding of some of the transactions and then maybe as we mentioned earlier just update us on kind of the January trends.
Speaker Change: Both I guess, maybe on cash or anything on M&A, that's worth highlighting.
Speaker Change: Yeah, you got it all I'll, then I'll start with.
Speaker Change: Organic growth first.
Speaker Change: And just a couple of seasonal items as a reminder, I know you know, but just to hit them that January is a lower entertainer month by by nature, two things driving that the lower recruiting that we've talked about a little bit earlier in December that that kind of flows through.
Speaker Change: Into the first month of the quarter, usually the first half of January and then it ramps up in the second half and then second is advisory fees. The biggest month of the quarter for advisory pieces. The first months. So those two things make January a lower M&A months now specific to this January for US. There's two there's two items that will drive it the other way, which is we have.
Speaker Change: <unk> $23 billion of Prudential assets that have it onboard yet I think a decent amount of those will come on in January as well as when trust on boarded in January with 15 of those $16 billion of assets coming on board.
Speaker Change: So.
Speaker Change: When you pull all that together and just looking prior to Prudential and wind Trust, we would expect January to finish somewhere in the 3% to 4% range.
Speaker Change: Which is similar to what we've seen in prior quarters and then building from there in February and March usually in the mid to high single digits in those months.
Speaker Change: That would typically bring the quarter to around 6%, which would be a good outcome for Q1, and then when you layer on top of that.
Speaker Change: It's coming from Prudential and win Trust I think will be in our Q1 organic growth thats, probably more in the mid teens.
Speaker Change: So I think a really compelling result, and strong set up for Q1 on the growth side.
Speaker Change: On the on the client cash.
Speaker Change: So January is as you noted it's got some seasonal as well.
Speaker Change: Two things to note there first same factor on the same item on fees those come out primarily in the first months of the quarter that is about $1 6 billion.
Speaker Change: Of impact and then second that December cash build that we typically see due to things like tax loss harvesting other repositioning.
Speaker Change: I'm sure you saw this the build this year was larger than most and it was just at just under $5 billion.
Speaker Change: And those balances start to go back into the market in January we've already started to see that.
Speaker Change: So far just over $2 billion of that $5 billion has been deployed back in the market. So you put all those factors together in January cash balances are sitting just under $51 5 billion.
Speaker Change: And maybe just a little another perspective that I think it would be helpful. Just to look at the overall flows of Q4 and January to get it right because that eliminates that noise of that December and January.
Speaker Change: <unk> buildup and then January redeployment. So if you just look at that and look at it prior to the $4 billion of cash that came on from Peru, and atria. If we just look at those four months meeting Q4 and January cash sweep is up around 1 billion and a half over that four month period.
Speaker Change: So I think if you go back to the stability, we started seeing earlier in the year and then you look at that four month trend I think we're really starting to see some stability in cash.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Chris Allen with Citi. You May proceed.
Speaker Change: Yeah evening, everyone. Thanks for taking the question I wanted to talk a little bit about the high net worth channel Kristina.
Speaker Change: Christine area of focus.
Speaker Change: <unk> platform maybe.
Speaker Change: Maybe you could talk about where you are in terms of currently expanding youre selling agreements on the old platform.
Speaker Change: And any color just around how you think about the revenue monetization opportunity longer term there.
Rich Steinmeier: Yes, Chris it's rich.
Rich Steinmeier: Thank you so much for the question. So let's start maybe you started with also.
Rich Steinmeier: Let's start with the high net worth channel I think it's probably a better place to start.
Rich Steinmeier: For us I think you've seen us be pretty systematic over the course of the last several years in expanding our affiliation models part of that with intentionality was as we were able to build and capabilities to continue to serve more sophisticated advisors, who are servicing larger and more complex and.
Rich Steinmeier: Investors.
We felt increasingly comfortable that we could then launched sequential models into the marketplace that not only allow our existing advisers to affiliate in that way, but allowed us to be attractive externally in the marketplace. So when we think about the high net worth segment that is a segment that we would.
Rich Steinmeier: As we size that as a five trillion dollar market opportunity and I mentioned, we've been building those capabilities and I'll talk about <unk>, but it also has to do with you've heard us allude to banking in development capabilities.
Rich Steinmeier: And some complex financial planning in addition.
Rich Steinmeier: One of the things, we've been really confident and I hope you've seen this is that as we built new offerings in the marketplace. We feel that they are really differentiated in the way that we package capabilities in our high net worth offering our private wealth offerings no different we actually.
Rich Steinmeier: Unlike many other firms in our high net worth space leased the advisors the autonomy to run their own business. They keep the ownership of their practice and they get enhanced ongoing economics paired with all of the capabilities you would expect to see at a competitors' private wealth.
Rich Steinmeier: Shop, as well and so for US we feel that that has led to a incredibly differentiated offering in the marketplace and feel really good about the first full year in 2024 that were in the market. It already had four teams joined serving approximately $2 billion in assets as they come over and met with several of those teams and as they've come over we've heard that.
Rich Steinmeier: Say theyre actually overwhelmingly positive around our capabilities and their experiences with LPL and that's a great way to start out and bring out an offering. So I think we are looking forward to continuing to mature that offering and so much of this is now for us is less about the capabilities because I think we're solidly there it's about getting more consideration in the marketplace by winning.
Rich Steinmeier: More large and sophisticated teams, but specifically on the capabilities I alluded to banking I alluded to enhanced ability to.
Speaker Change: Deliver financial planning, we have a trust company that it is incredibly sophisticated as well to help serve but you mentioned al.
Speaker Change: <unk> is an incredibly important component of our high net worth advisors ability to serve her or his clients we.
Speaker Change: We recognized a couple of years ago that we did not have the platform and capabilities that we needed to be competitive and as such we began a multi year journey to deliver capabilities.
Speaker Change: Around all the first for US was last year, which we delivered mid year building, a custody and operational capability on our platform and that ability to custody alts meant that we now have the ability to onboard 2500 products available to transfer and hold inside of our custody, which is really important to advisors that they.
Speaker Change: Change firms.
Speaker Change: Second leg on that journey that we've been building over the latter half of the year and we're already in pilot, which will deploy over the first half of this year is actually launching an enhanced selling experience for advisors, who are looking to buy <unk> on behalf of their clients that is fully digitized with esignature capabilities.
Speaker Change: Significantly simplify the subscription process. So now you've got those two core capabilities and maybe you said that last point that you asked about them you have to expand your shelf of alternative investments and for US we recognize we need private equity and private credit products from reputable sponsors to be credible in that space and so over the.
Speaker Change: <unk> of 2024, our alternatives with selling agreements that are available for sale on our platform more than doubled as we exited the year with greater than 80 selling agreements our intention over the course of 2025 is to continue to grow that dramatically. So that we sit in a fully competitive slash best in class position.
Speaker Change: In regards to our inventory available for sale.
Speaker Change: With a custody platform that is second to none and with a selling process that we think is incredibly strong in the marketplace. You put those three together, we think that advisers will get more comfortable on our platform.
Speaker Change:
Speaker Change: Positioning alternatives as a credible and important component of.
Portfolios for their clients I wont speak exactly to what we think that would mean in terms of the monetization improvement, but back to maybe that operating margin question. That's another one that I would put in there which is a full set of capabilities to continue to grow the monetization on the platform. So works.
Speaker Change: The number of different dimensions. Thanks for the question.
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Kyle Voigt with K VW you May proceed.
Kyle Voigt: Hi, good evening everyone.
Kyle Voigt: Maybe just a question on the pacing of atria synergy realization as we move through 2005 and towards that $150 million EBITDA run rate.
Kyle Voigt: What should we expect is the rough split between revenue and cost driving those synergies on the cost side, how much synergy realization is baked into that $170 million to $180 million of.
Kyle Voigt: Core G&A just so we can think about the trajectory of that part of the core G&A base as we move into 2026.
Speaker Change: Yeah, Kyle I think you get some click down there that.
Speaker Change: We don't we don't really really have on those specific components, but I think the core part of the question on where we're going to realize the synergies. They are both on the revenue and expense side, it's largely around around when the onboarding of cars right. So I think you've got the numbers right on on there at $40 million run rate now they will build up to a $150 million in it.
Speaker Change: Really it's just around the Onboarding. So if you think about kind of mid this year.
Speaker Change: As we start to onboard those we'll give clarity as that happens, but that's really the event. So it's not a kind of a slow build throughout the year. It really is centered around the <unk>.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Cyprus with Morgan Stanley You May proceed.
Michael Cyprus: Hey, good evening. Thanks for taking the question wanted to circle back to your comments around enhanced monetization of assets.
Michael Cyprus: I spoke at length about the alts opportunity I was hoping maybe you could double click on banking lending and other asset management opportunities. There maybe you could elaborate on that what we might see from LPL here 25, how meaningful could this be over time and maybe you could talk about your aspirations here.
Michael Cyprus: Yeah.
Michael Cyprus: Okay, it's rich.
Speaker Change: Thank you so much Michael so let's start when you think about.
Speaker Change: That banking set of capabilities I think the first as we think about it is we're not going to not going to kind of break any tremendous news here, but cash management accounts and the ability to actually handle transactional capabilities inside of brokerage construct is incredibly important.
Speaker Change: And so we are building in partnership with third Party Bank.
Speaker Change: And cash management account that we will bring out in the first half of this year to allow our advisors to have a more extensive relationship with the clients and you could imagine there.
Speaker Change: Can you achieve the direct deposit there, where they're helping bill pay integrated.
Speaker Change: And so our cash management account would be a foundational element as you would think about expanding beyond traditional investments to move more moving onto that other side of the balance sheet.
Speaker Change: And that you are talking about security baseline of credit.
Speaker Change: So that would be securities based lending.
Speaker Change: Currently have margin lending, but in addition to that today, we use third parties.
Speaker Change: To position securities baseline of credit loans.
Speaker Change: In lines that can be drawn upon by generally high net worth investors.
Speaker Change: We're building that capability internal to ourselves that means that the ability to open the account service the account to establish the line to draw the line to close the line all of that operational engagement that goes on will make it easier for advisors factually.
Speaker Change: Establish those lines of credit as well as to manage the lines of credit there'll be integrated into our client works platform as well as be integrated into our account view platform with you and investors and so we think making it easier simpler and more integrated will be an incredibly important component as we move forward into cash and then into.
Speaker Change: Lending as well so I think if you think about both of those.
Speaker Change: We we draw out and look at other competitors in the marketplace and look at their penetration of their clients into those.
Speaker Change: Those opportunities and we view that as the opportunity set and so you guys are probably as deep as we are and looking at some of the better competitors. There. So that's how we look about it and then say, okay. We want to achieve industry, leading penetration of those solutions over an arc of multiple years.
Speaker Change: And you probably can figure out the monetization that's attached to those solutions as well we do the same math and then it drives our conviction and that drives our investment of capital again, something that is a good solution for our advisors good solutions for their clients.
Speaker Change: And ultimately good for LPL as well.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jeff Schmitt with William Blair You May proceed.
Speaker Change: Hi, rich map.
Speaker Change: One more question on core G&A.
Speaker Change: And just following up on Matts answer earlier, but you've kind of pointed to growth being below your organic growth target next year. I guess my question is should we expect that to be the new norm going forward or at least over the medium term.
Speaker Change: To keep that lower than organic.
Speaker Change: Are there any cuts to get to the bottom end of that range or is that all efficiency driven.
Speaker Change: Yes, Jeff I definitely didn't give a target for next year.
Speaker Change: But I think the I think the key is that continuing to drive down.
Speaker Change: Our core G&A growth will continue to drive organic growth. However that may play out I think the dialogue back with Steven I'm, a little bit earlier at the start of the call I think is probably a good way to think about that.
Speaker Change: And I think what to what gets US there I think 6% to 8% when you just look at it.
<unk> of our growth.
Speaker Change: Size of our activity the variable expenses that can come along.
Speaker Change: With the growth rates that we have that's why we typically have a range I think when we think about the efficiencies embedded in there I think the core part of your question I think we've got really good line of sight on what we need to go do the investments we need to make the actions we need to take that will deliver those efficiencies and it's just all about executing and getting it done.
Speaker Change: So I think the range is more about uncertainty on things are usually pretty positive which is the levels of organic growth because that comes with a lot of upfront variable expenses.
And so it's more of the range is usually more about that.
Speaker Change: Okay, great. Thanks.
Speaker Change: Thank you.
Speaker Change: And our final question comes from Steven <unk> with Wolfe Research you May proceed.
Speaker Change: Oh, we're already talking about January so everybody already hearing rumblings, yet I know you already talked about January but not where it wasn't touched on and then it has come up and I at least I've read a number of press reports.
Speaker Change: Is the changes that you've implemented to payouts in pricing across the platform in recent months, whether it's the DTA. Some changes to production bonuses I was hoping you could just speak to your philosophy around how you're implementing these pricing changes and how we should think about the financial benefits as we look out to 'twenty five and beyond.
Speaker Change: <unk>.
Speaker Change: Sure. So I'll start with DCA enriched inesculent jumping on the production boats I think <unk>, that's just a little bit of the nuances of the account and how it works Stephen it's priced.
Speaker Change: As a fee per account as opposed to based on balances. So when you have balanced growth and I'm sure you can see like we did.
Speaker Change: On average ECA balances really the only way to eventually affect that is to periodically change the fee.
Speaker Change: That account so that's why we changed that fee.
Speaker Change: Numbers for you, we've got about a million and a half of those accounts.
Speaker Change: And based on the.
Speaker Change: The fee changes that we make that made.
Speaker Change: That will be a quarterly run rate benefit of about $4 million to $5 million beginning when that sea change takes effect on February 1st she'll get partial benefit in Q1, and then ramping up there that one is really about just the nuances of that product and when balances move around eventually you have to move the fee up or down.
Speaker Change: And it can go either way, depending on where balances scope.
Speaker Change: Rich on the.
Speaker Change: Yeah.
Speaker Change: Thanks Steven.
Speaker Change: I think if you look at the production bonus change I think you could maybe draw a conclusion here.
Speaker Change: Historically, we want to make sure that we have been pricing, our offering and the appropriate value exchange to our clients.
Speaker Change: That has meant for several years, we've taken price reductions so that we can have incredibly competitive advisory platforms.
Speaker Change: And be positioned well in the marketplace to make sure that our advisers things that were the best partner for them, but if you look over the last several years, we've made tremendous investments in capabilities. We have made tremendous investments in supporting advisers through business solutions capabilities through technology investments through enhancements to the <unk>.
Speaker Change: That we built our affiliation models as well as how our field management team goes to market and support of advisers advisory.
Speaker Change: Support teams as well.
We feel that there is an incredibly strong value proposition here and as you go to market. It is a responsible approach to look at the value exchange and the value delivery and price for value delivered we.
Speaker Change: We believe that we are incredibly high quality firm with an incredibly high quality offering to our clients and believe that there is an appropriate price for that in the marketplace and so as we continue to look at that that's one of the levers we will look at to identify making sure that we're competitive and making sure that they are successful, but also making sure that we're pricing for value.
Speaker Change: And that would be a reflection of our intention to price for value.
Speaker Change: Melissa and thanks, so much for accommodating the follow up.
Speaker Change: Thank you I would now like to turn the call back over to Mr. Steinmeier for any closing remarks.
Speaker Change: While cats I just want you to know about the go for 22 minutes, so get ready.
Speaker Change: No everybody. Thank you so much for joining us.
Speaker Change: Many of you may know yesterday with lunar new year and today at LPL I got to celebrate the year of the snake with Hawaiian Dan celebration hosted by our Asian employee resource groups and I can tell you. It was absolutely pure joy and so for you. We appreciate you spending the time with us and I wish you joined prosperity for the year ahead, and we look forward to speaking with you again in May.
Speaker Change: Thank you.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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