Q1 2025 LPL Financial Holdings Inc Earnings Call
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Speaker Change: I will now turn the call over to Mr. Steinmeier.
Speaker Change: Thanks, operator.
Steinmeier: Thank you to everyone for joining our call it's a pleasure to speak with you again.
again.
Steinmeier: It's been a strong start to the year for LPL. We delivered another quarter of strong business performance. We reported excellent financial results and we reached an agreement to acquire Commonwealth, significantly accelerating our progress towards our vision to be the best firm in wealth management.
Steinmeier: We accomplished this against a challenging operating backdrop with rising macroeconomic uncertainty.
Steinmeier: It's periods like this that serve as a reminder of the value of professional advice, the importance of our responsibility to support our advisors and the strength and resiliency of our business model.
Okay, now let's turn to our Q1 results.
Steinmeier: Despite market headwinds during the quarter, total assets increased to a new quarterly high of $1.8 trillion as we attracted record organic net new assets of $71 billion, representing a 16% annualized growth rate.
Steinmeier: Our first quarter business results led to strong financial performance with record-adjusted EPS of $5.15
Steinmeier: Now let's turn to our strategic plan and our growth across our organic and inorganic activity initiatives.
Steinmeier: Our vision is clear. We aspire to be the best firm and wealth management. To do that we are focused on three key priorities.
Steinmeier: One, pursuing novel and differentiated strategies that enable the firm's sustained success, two, creating an extraordinary employee experience, so employees in turn deliver an unparalleled client experience.
Steinmeier: and three leading the firm with operational excellence through increased incensionality and rigor. Effectively executing on these focus areas will help us sustain our industry leading growth while delivering improved operating leverage.
Steinmeier: With that as context, let's review a few highlights of our business growth. In the first quarter, recruited assets were $39 billion, bringing our total for the trailing 12 months to a record $167 billion.
in our traditional independent market.
Steinmeier: We added approximately $20 billion in assets during Q1, a record for the first quarter of the year.
Steinmeier: This improves on our already industry leading capture race of advisors in motion while also expanding the breadth and depth of our pipeline. With respect to our expanded affiliation models, strategic wealth, independent employee, and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $2 billion in assets.
Steinmeier: 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.
Steinmeier: Next, we added approximately $1 billion of assets in the traditional bank and credit union market. We also continued to make progress with large institutions. We're during the first quarter, we onboarded the retail wealth management business of Wind Trust Financial and completed the transition of potential advisors onto our platform.
Steinmeier: Our momentum continued in Q2. Where in April , we announced that first horizon would onboard its wealth management business to our institution services platform.
Steinmeier: Turning to overall asset retention, it remains industry leading at 98% for the first quarter and over the last 12 months. 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 functions.
Steinmeier: As a complement to our organic growth, we closed and on boarded the acquisition of the Investment Center and advanced our work to on board and integrate atria wealth solutions for which the conversions began last weekend.
Now.
Steinmeier: As for our planned acquisition of Commonwealth Financial Network, I can't underscore enough how honored we are to be partnering with the team at Commonwealth as we jointly engage with their advisors to articulate the power of combining our two firms.
Steinmeier: I've personally had the good fortune of speaking with a number of Commonwealth advisors, and the more time I spend with them, the more I understand the power of this distinguished community [inaudible]
Steinmeier: Many of these advisors have worked together for decades, supported by a highly responsive management team that has cultivated a unique culture and family-like atmosphere. I have the utmost conviction in the value of preserving and fostering the Commonwealth community.
Steinmeier: We remain steadfast in our commitment to delivering on this tremendous opportunity to bring together the best of two great firms.
Steinmeier: We will preserve Commonwealth's industry-leading service experience which has garnered the number one independent advisor satisfaction with JD Power for 11 consecutive years.
Steinmeier: and we'll build upon that with an upgraded best-of-breed platform including more flexible technology, a more comprehensive product set, extensive research, and unique capabilities like LPL's liquidity and succession offer.
Steinmeier: By preserving the Commonwealth experience for advisors and maintaining continuity in the broader community and culture while also leveraging the substantial resources and capabilities of LPL, we will deliver an unparalleled offering for independent financial advisors with Commonwealth at LPL.
Steinmeier: We are still in the early endings of the retention effort, but are tracking to our plan and in line with our expectations with respect to advisor commitment.
Steinmeier: We spent the last several years building out the team, processes, and capabilities to execute large and complex onboarding, all geared towards ensuring a frictionless experience for transitioning advisors. We are now focusing those resources on this important opportunity to ensure that we deliver a seamless transition.
Steinmeier: In closing, the first quarter was a strong start to the year, and we feel great about our position as a critical partner to our advisors and institutions while we continue to maximize long-term value for shareholders. With that, I'll turn the call over to Matt.
Matt: This focus led to another quarter of strong organic growth in both our traditional and expanded market, as we onboarded the wealth management businesses of potential and wind
Matt: and are preparing to onboard first horizon later this year. As a complement to our strong organic growth, we close and onboard at the acquisition of the investment center in March. Continue to prepare to onboard our atrium masters.
Matt: and, lastly, entered into an agreement to acquire Commonwealth Financial
Matt: So as we look ahead, we are more excited than ever by the opportunities we have to serve and support our growing advisory, while continuing to deliver an industry-leading value composition and drive organic growth.
Now, turning to our first quarter business results [inaudible]
Matt: Total Advisory and brokerage assets were 1.8 trillion, up 3% from Q4, as record organic net new assets, more than offset lower equity.
Matt: Total Organic Net New Assets were 71 billion and approximately 16% annualized growth rate.
Matt: Prior to the onboarding of WinTrust Advisors in the remaining prudential asset, our annualized organic growth rate was approximately 7%, a strong result both on an absolute and relative basis.
Matt: On the recruiting front, Q1 recruited assets for 39 billion, which included 16 billion from wind trucks.
Matt: Prior to large institutions, recruited assets were approximately 22 billion, a record for the first quarter of the year.
Matt: As for a Q1 financial result, the combination of organic growth and expense discipline led to an adjusted pre-tax margin of approximately 40% in record adjusted EPS of $5.15
Gross Profit was 1,273 million, up 45 million sequential
Matt: As for the components, commission advisory fees net of payout were 363 million, up 50 million from Q4.
Matt: Our payout rate was 86.8%, down 100 basis points from Q4, largely due to the seasonal reset of the production bonus at the beginning of the year.
Matt: Looking ahead to Q2, we anticipate our payout rate will increase by approximately 60 basis points driven by the typical seasonal build and the production.
Matt: With respect to client cash revenue, it was $408 million, up $11 million from Q4, as average cash balances increased during the court.
Matt: Overall, client cash balances into the corner at 53 Bill, down two billion sequentials.
primarily driven by advisory fees paid during court.
Matt: Within our ICA portfolio, the mix of fixed rate balances into the quarter at roughly 60% within our target range of 50 to 75%.
Matt: Looking more closely at our ICA yield, it was 337 basis points in Q1, up to 2 basis points from Q4, driven by higher yields on our fixed rate contract renewals.
Matt: As we look ahead to Q2, based on where client cash balances and interest rates are today, as well as the yields in our new fixed-rate contracts, we expect our ICA yield to be roughly flat to Q1.
Matt: As for service and fee revenue, it was 145 million in Q1, up to 6 million from Q4, driven by strong organic growth and higher IRA fee.
Matt: Looking ahead to Q2, we expect service and fee revenue to increase by approximately 5 million sequential. So, during my conference meetings in the underlying growth of the business, I would like to
Moving on to Q1 Transaction [inaudible]
Matt: It was $68 million, up to $6 million sequentially due to increased trading volume [inaudible]
Matt: As we look ahead to Q2, we expect transaction revenue to be roughly flat.
Matt: Now let's move on to our recent large institutional emblems as well as our close and upcoming acquisition.
Matt: as for large institutions. In Q1, we onboarded wind trust and completed transition of credential onto our plan.
Collectively, Deeson Boardings added over 80 billion of clients.
Matt: In terms of M&A, we recently started the onboarding of Atria Advisory, which will continue for the next few months and expect to close our acquisition of Commonwealth in the second half of this year.
Matt: These acquisitions are expected to add nearly 350 billion of client assets to our platform.
Now let's turn to expenses, started with 14 [inaudible]
Matt: It was 413 million in Cuba. For the full year 2025, we're seeing early returns on our renewed focus to drive operating leverage into this.
Matt: As our efficiency efforts have slowed the growth of 4Gnet As a result, we are lowering the upper end of our outlook range by 15 minutes.
Matt: We now anticipate full-year 2025 core GNA to be in a range of 1,730 million to 1,765 million.
Matt: which includes 170 to 180 million of expenses related to prudential in atrium, but it's prior to expenses associated commonly.
Matt: To give you a sense of the near-term timing of this plan [inaudible]
Matt: As we look ahead to Q2, we expect poor GNA to be in a range of 435 to 445 million
Matt: Moving on to Q1 promotional test. It was 152 million, down 21 million from Q4, primarily driven by lower credential related onboarding cost.
as well as seasonally lower conferences.
Matt: Looking ahead to Q2, we expect promotional expense to increase by approximately 20 million, driven by conference spend, as well as increased transition assistance resulting from strong
Matt: Turning to depreciation and amortization. It was 92 million in Q1 flat sequentially. Looking ahead to Q2, we expect depreciation and amortization to increase by roughly 5 million
Matt: As for interest expense, it was 81 million in Q1, down 1 million sequentially due to lower interest expense that are floating with
Matt: In addition, in early April , we issued 1.5 billion of senior notes to finance a portion of the acquisition common.
Matt: As a result, in Q2, we expect interest expense to increase by approximately 20 million sequentially [inaudible]
Matt: Lastly, a reminder that until the closing of commonwealth, we will earn interest on the proceeds from our recent capital.
Matt: As such, we expect interest income to increase by approximately 30 million to financial aid.
Matt: Regarding capital management, we ended Q1 with corporate cash 621 million, up 142 million from Q4.
Matt: As for our leverage show, at the end of Q1, it was 1.8 tonne [inaudible]
Matt: As a reminder, we expect to close our acquisition of Commonwealth in the second half of this year.
Matt: And following the close, we expect our leverage ratio to be approximately 2.25 top.
Matt: A little above the midpoint of our target range of one and a half to two and a half times [inaudible]
Matt: To uphold our commitment to maintaining a strong and flexible capital position.
Matt: We pause share of our purchases following the announcement of our planned acquisition of common
Matt: Following the close, we have a plan to reduce leverage closer to the midpoint of the range by the end of 2026.
Once we on board Commonwealth, we will revisit Cheripurst
Matt: Guided by our leverage ratio at that time and our overall capital allocation frame.
Moving on to Capital Deploying
Matt: Our framework remains focused on allocating capital aligned with the returns we generate.
Investing in Organic Growth, First and foremost [inaudible]
In Q1, we deployed capital across our entire frame.
Matt: as we continue to invest to drive and support organic growth.
Matt: Allocated Capital to M&A, both within our liquidity and succession program, as well as the acquisition of the investment center.
Matt: And lastly, return capital to our shareholders, buying back $100 million of our shares.
Matt: In closing, we delivered another quarter of strong business and financial results [inaudible]
Matt: As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage, and create long-term shareholder buy.
With that operator, please open the call for questions.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press star, then the number one or your telephone keypad. We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Devin Ryan with Citizens Bank. Your line is now open, please go ahead.
Great. Hi, Rich Ira. Matt, how are you?
Good to hear from you
Speaker Change: You as well. On commonwealth, Rich, I heard the prepared remarks, but it would be great to get some additional context just on...
Speaker Change: How the conversations have been going anecdotally, if you can frame how far through the recruiting process you are and how the financial packages are coming together relative to what you modeled and then
Speaker Change: Interrelated, on the other side, the reaction from LPL advisors and other advisors in motion, you're speaking with them, assuming others could be excited about what this could look like, pro forma, or at least curious, so I'd love to get some thoughts on that as well. Thank you.
Yeah, thanks, Evan.
Speaker Change: I like the way you were able to package a bunch of questions together there that didn't technically violate a single-question role, but definitely had nuance in it. So, maybe let's kind of hit this thing head on, and if I don't hit all of...
of the sub-elementary.
Speaker Change: just come back to me. So I would say, you know, on balance, the transaction is going very well.
Speaker Change: We announced at the end of March, and so we're about five weeks into the effort [inaudible]
Speaker Change: And so that's still quite early, as especially as you head through.
Speaker Change: I'd event like this where folks really cherish Commonwealth and so they need a little bit of time, the advisors, you know, to reflect on.
Speaker Change: the announcement as well. But we're progressing in line with our expectations. As I mentioned, trucking towards our 90% retention target. We've seen there's been ample chatter in the marketplace around the deal, but that really speaks to the importance of the Commonwealth franchise and quite honestly the quality of their buzzers.
Speaker Change: It's exactly what we expected to see with a franchise of this quality.
Speaker Change: So, we've spent the last several weeks working closely with the Commonwealth team and I've been really engaged personally with their advisors [inaudible]
Speaker Change: The collective team has been engaged in person in a virtual meeting. Good news is they've had conferences recently so we've had joint conference participation with the advisors.
Speaker Change: to share the, you know, forward-looking LPL value proposition plus Commonwealth proposition together. We have regular engagement with the Commonwealth leadership team.
Speaker Change: on how to make sure that we're reflecting this properly back to all of the advisors. And in every manner of human interaction, just even in just this week alone, I chowed out a couple of great conversations that I personally had with.
Speaker Change: Dan and Carrie Peniece during a reign soaked by pride in Scottsdale with 21 other advisors and family just
Speaker Change: You know, I was out on a wine tasting tour, actually blind wine tasting with Reagan-Sailer, West Botto, and other advisors, again, having casual interactions. I had lunch on Sunday in Sacramento with Leslie Roper Day.
What's it only whose brother is the drummer for the band, Kate?
Speaker Change: and Landon Tommachko and just having those interactions to hear where they stand and of course the advisors are wanting to make sure they do proper diligence and they're wanting to understand this continuation of Commonwealth and I think those, I would reflect those conversations as really productive folks listening, asking really great questions as you might expect from real professionals.
Speaker Change: But what those discussions have really reflected for me and the two conferences I've attended the last two weeks is that Commonwealth is a very tight community that oftentimes feels far more like a family.
Speaker Change: and we are deeply committed to keeping that community intact, safeguarding their experience, their cultures, their capabilities. And so with LPL, Commonwealth Advisors can look forward to all of what makes Commonwealth great plus the enhancements that will improve their overall experience while together.
including preserving the brand. [inaudible]
Speaker Change: The Premium Service Model, their leadership team, committing meaningful resources to train and onboard.
Commonwealth Financial Network Service Professionals. [inaudible]
Speaker Change: to continue to deliver the service to the existing Commonwealth Advisors, and will deliver capabilities that preserve the key elements of the adviser experience as well like robust feedback mechanisms etc.
Speaker Change: Beyond all of that, we'll facilitate a seamless transition, as seamless a conversion as possible, and we've demonstrated a peerless track record of executing scale conversions with over 90% of Commonwealth accounts moving without repaying.
Speaker Change: And so, in addition to all of that, Commonwealth advisors will benefit from our best-of-breast platform, more flexible technology, comprehensive products that, expensive research, unique capabilities like LNF.
Speaker Change: But all in all, we feel great about the value proposition we're delivering to Commonwealth advisors.
Speaker Change: I feel great about the shape of the transaction itself. Now.
Speaker Change: You asked specifically about how LPL advisors have reacted, and I would tell you on balance.
Speaker Change: It is almost nearly universal in LPL advisors being incredibly supportive of joining together with Commonwealth. So many of our advisors have deep friendships with Commonwealth advisors.
Speaker Change: Like us as a firm, they've held them in high regard for years and look forward to being part of a bigger ecosystem that includes both of the advisor sets.
Speaker Change: They also know that so much of the culture that we're talking about at Commonwealth is actually going to be delivered back into LPL more broadly.
so the enhancements of our service experience.
Speaker Change: The ability to capture feedback real-time and then disposition and act on that feedback, the responsive culture at, again, in an aligned environment that quite honestly, these are the two best firms in the 1099 marketplace. They support independent advisors unlike any
Speaker Change: and the advisors recognize that harmony of those two firms coming together, and so...
Speaker Change: Across the board, I just keep getting high fives and handshakes from our LPL advisors about the thought of bringing those best of breed capabilities that Commonwealth has into LPL while being able to be party to a community that has some of their best friends as well.
Speaker Change: Thank you for that question, Mr. Ryan. Your next question comes from the line of Steven Chubak with Wolf Research. Your line is now open, please go ahead.
Stephen Chibak: I get after noon, Richard Madden, and thanks so much for taking my questions.
Speaker Change: Welcome, buddy. Good to hear from you. I did want to, of course, I did want to ask on expenses. So encouraging to see the tightening of the core GNA range and moving that upper bound lower.
Speaker Change: I was hoping we can get some additional context around the source of those efficiencies and your confidence and the ability to deliver positive operating leverage.
Speaker Change: while still making the necessary investment in the services platform and deploying that firm wide leveraging the commonwealth offering.
Stephen Chibak: Yes, I think the headline is that the conviction is high. I think even when you just look at what we talked about...
Stephen Chibak: on guidance for just this quarter. I think when you, maybe a little bit of context first in our core GNA growth rates, as you know well, going back just a couple years ago, we're in the double digit range, 15% in 2023, and just the plans for this year to be down to 6% to 8%.
Stephen Chibak: And then, you know, just one quarter in a year, I think you know as well, is not very often that we would update our guidance just after one quarter. And I think that gets to the heart of your question on the confidence that we have in delivering operating. [inaudible]
Stephen Chibak: and we're making great progress already and these to your question on the things that we are doing in the source of those.
Stephen Chibak: It's kind of basic things, but I think we are very focused on executing its automating manual processes.
Stephen Chibak: It's reducing friction in the system. It leads to fewer calls into the service center. It leads to fewer errors and documents that both frustrates advisors and our teams in our site have to process them.
Stephen Chibak: So, it's the types of investments that I think it's a rarity where you can invest a dollar in something. Not only does it reduce costs.
Stephen Chibak: So kind of a three-for-one on what we're delivering here. So I think our conviction is high, and of course we'll continue to update along the way, but this is something, and maybe just to add to it, it's not just about our conviction is high for 2025.
Stephen Chibak: I think this is something that has really been something we've focused on before but I think with the focus, the enhanced focus we have now, I've described as more ingrained in our culture.
Stephen Chibak: Because this, again, to repeat the point. If we can do something that improves our client experience, our employee experience, and drop savings to the bottom line, meaning our investor experience, there's, you know, it's kind of a no-brainer to really, really focus on that [inaudible]
Stephen Chibak: And I think you're a point in how we can continue to do that while still investing in the services groups, still investing to deliver and support the Commonwealth experience.
Stephen Chibak: They're related. That is the reason that we can do that. The reason that we can deliver and support those services and those capabilities because we are getting more efficient, more effective.
Stephen Chibak: and the rest of the company. So it's all connected, but headline point perhaps is obvious. We're excited about the progress we've made so far and our conviction on continuing to do this from any time.
Speaker Change: Thank you for the question, Mrs. Schubak. Your next question comes from the line of Michael Sieprys with Morgan Stanley . Please go ahead.
A red chain mat, thanks for taking the question.
Speaker Change: Maybe just on the recruiting pipeline, maybe you could just speak to that for a moment, just in terms of how you see that [inaudible]
Speaker Change: shaping up in this more volatile backdrop here across the market. It's curious what you're seeing, what your expectations are.
Speaker Change: for LPL, but also the broader industry, the DC advisor movement, flowing of change, you think they're scope for advisor movement to pick up, and how are you seeing the pipeline shape up across your various channels? Thank you.
Rich: Yeah, hey, thanks Michael Trish, so maybe kind of let me try to hit those in turn. I think as we've looked over now...
We've seen a-
Rich: A new normal in the advisory movement. It's moved to about 5% movement in or around that range. Historically, we have been used to seeing advisory movements sitting at 6, sometimes questioning a size of 6.5% range, and so when you think about the environment that we're in today, it does feel like we're in a new normal. Now for us...
Rich: While we see that as potentially the new normal and would be opportunistic that were to move higher, UCS continuing to deliver improved results.
Rich: because that's reflective of our win rates continuing to move higher. I think you can see that in our Q1 results.
Rich: seen that sustainably over the last quarters as well as the last couple of years. We have heard a little bit in the marketplace around an enhanced competitive landscape. That doesn't feel much different than the competitive landscape we've been in before, but we have.
Rich: Heard, as you have heard, from several peers that they are intended to change their transition assistance to try to more capture, but I would remind you [inaudible]
Rich: that as we talk to advisors and we probably talk to more advisors on the move than any other firm in the industry, they're looking for a firm that has capabilities, technology, service, that is unparalleled, that's the first.
Rich: Then they look at ongoing economics, for which I can tell you even in the throes of this
Rich: Commonwealth Recruiting Event, what we see from ourselves relative to competitive peers are they may be throwing large TA, but their ongoing economics are not compelling relative to hours.
Rich: And the third thing that advisors will look at is transition assistant rates. And so we feel really confident that the appeal of our model continues to strengthen, and that we should be able to maintain our industry-leading capture of advisors' emotions. Now,
Rich: Specific to an environment that looks a little more volatile. And I think that's what we've seen recently as a little more volatility. Historically, when we've seen more volatile market environment, you will see sometimes advisors push out moves.
That's what we're used to. Those advisors don't not move [inaudible]
Rich: But there are often times they don't want to be out of the marketplace during a highly volatile
Experience for their end investors of their clients [inaudible]
Rich: So you can see the push that may move and give you a little bit of idiosyncratic results quarter to quarter, but over a longer arc, those advisors are still going to move farms
Rich: We continue to see in our pipelines that we're having really good conversations. We continue to see the pipelines grow, but I would say I'm probably a little bit wary of what will happen in a continued volatile market just around the margins, as to whether some of that movement doesn't push out a quarter or two. [inaudible]
Speaker Change: Question, Mr. Cyprys. Your next question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.
Alex Bluestein: Hey, good afternoon, everyone. So maybe just building on that last question around the current environment, it feels like the underlying client, the wealth client, the customer has been kind of hanging in a little bit better in this market sell-off than what we've seen in the past.
Alex Bluestein: So maybe talk a little bit about just the, you know, same-store sale dynamics in the book that you've seen through this market volatility to want to extend that difference, maybe from other periods of market sell-off. And as part of that, the obligatory question on cash and where that stands would be helpful. Thanks.
Thank you.
Alex Bluestein: You want me to take Sam's dress out as you take cash? Yeah.
Thanks out.
Speaker Change: So let's talk about things for sales. So for us, things for sales has been a real point of emphasis, certainly over the last couple of years, to continue to build more support into our advisors and give them the tools and capabilities to consistently grow their practice.
Speaker Change: We've done that through building more growth coaching programs, through having more active engagement in financial planning, being active.
Speaker Change: in the marketplace to help our advisors as they think about workers to advisory. And you can look at some even teaming and structure of teams. And so we've continued to enhance our support of our advisors as they're same-store sales by building a robust team and support network to help them implement not only best practices, but even...
Speaker Change: Not just learn about best practices, but in practice, you know, if they want to do more planning, our business solutions come into the fold in a very material way. We've got support of high network services and helping them win high network cases as well. We have paraplanters in advanced planning teams that can help them not only with straight forward planning, but with advanced planning capabilities, including tax planning.
Speaker Change: and the state planning. So for us, we've been building a more and more robust set of services and solutions in support of our advisors. And likewise, we've seen strengthening in our same-store sales that we think hope is going to be sustainable across a longer arc.
Speaker Change: In this market segment, I think you're probably right during this movement. We've seen what you get to in volatility, Alex, it's a little bit different than the advisor discussion we just had, which is that in volatility, advisors may stay put.
Speaker Change: In volatility for end investors is a flight to quality, and in fact what you will see is more often than not a flight out of robo solutions, self-served solutions, self-directed solutions into advisors reflecting this resilient.
Speaker Change: And investors are looking for support, they're looking for advice, they're looking for guidance [inaudible]
Speaker Change: You will see that in the form of financial advisors. And so it wouldn't surprise me that across highly volatile times what you would see as advisors seeing winning more and more new clients while losing less clients at the same time. So that's kind of maybe a broad brush strokes over same store sales and I'll let Matt hit the cash.
Matt: And now it's given we're sitting here in May. I'll give maybe a bit of a comprehensive update on April , starting with cash to your question. So...
Matt: As I think you know well, but just to emphasize to everybody, there are two seasonal factors in April from a cash standpoint. The biggest is anal tax payments typically occur primarily in that month.
Now that reduced cash for us by around two and a half billion.
Matt: And in the normal month, one of a quarter advisory fees are the highest month in the first month of the quarter, which brought cash down around a billion cents. You put those two things together, just from a seasonal standpoint, cash was down over a little over four billion in the month.
Matt: Outside of that, though, normal activity, I had cash grow by almost $3 billion. Do you net all of that out in April cash decreased by about $1.3 billion?
Matt: to a total of around $51.8 billion, which I would describe as being a bit better than typical or a bit better than expected for the month of April .
Matt: On the organic growth side, similar seasonality for April , both of those items, taxes and advisory fees, also reduce NNA.
Matt: Buy about 3 percentage points, and when you factor that in, April organic growth came in around 4%. So 7% prior to those two seasonal factors.
Matt: One thing I would remind though for NNA for Q2 is those large OSJ separations that we discussed a few quarters back.
Matt: They collectively served around 20 billion of assets. Nine billion of that has all boarded so far through Q1.
Matt: So we have 11 billion to go, which we expect the majority of that to be in Q2 and potentially into Q3 So just keep that in mind for the quarter
Matt: And then lastly, given, again, we are sitting here in May, just pointing to where April overall AUM ended with the market headwinds offsetting the organic growth that we had, April ended right around where March did, so around 1.8 trillion.
Matt: So, a little bit of a unique update given. We're already sitting here a month, too, but hope that helps
Speaker Change: Thank you for that question Mr. Blostein. Your next question comes from the line of Dan Fan with the Jeffries. Please go ahead.
Dan Fenn: Thanks. Good evening. You guys obviously have a lot going on on the platform. I was hoping to get an update on the integration and onboarding of Atria and Peru and really how that's tracking versus the original kind of estimates and expectations you gave us when those deals were announced.
Sure. I'll start with Atria.
Dan Fenn: Overall, is we're on track, right? If you remember, we closed Q4 last year. We're on track to meet our estimate of 80% retention.
Dan Fenn: which would be around 88 billion of assets. And then in terms of the run rate EBITDA, nothing has changed there. Even despite a little bit of a market pullback, we anticipate still hitting that run rate benefit from an EBITDA standpoint of 150 million by the end of this year. And then in terms of a market pullback, we anticipate still hitting that run rate benefit from an EBITDA standpoint of 150 million by the end of this year.
Dan Fenn: And then maybe just an update on the conversions which have be got. We mentioned that a little bit in the prepared remarks, but we've got as a reminder, seven conversions to do in total. We just did the first two just this last weekend. Two conversions with two different custodians, which is not an easy thing to do. [inaudible]
And I'll tell you, overall the conversions went really well. [inaudible]
And I think it's just the testament to that team.
Dan Fenn: the capabilities that we built, the experience that we have in really doing the conversions. So those went well, so five more to go, and those will happen over the next couple quarters. And then the revenue and expense synergies really follow for that. So headline is going well and in line with those with those estimates. Thank you very much.
Dan Fenn: With respect to credential, we've now completed that onboarding, which led to an overall 67 billion of assets coming onto the platform, 27 billion of that was this quarter, and that was a bit better than the numbers at announcement which we're expected to be 60 billion.
Dan Fenn: So that flows through a bit to the EBITDA contribution as well, so we had initially expected a 70 million run rate.
Dan Fenn: and with those incremental assets as well as syncing up the rest of the model, we now expect to hit a run rate of 80 million of EBITDA from Financial.
Dan Fenn: We're about through the quarter, we're about halfway there on the path
Dan Fenn: and so the rest of the synergy it will come through.
Dan Fenn: and one of the big drivers of that is the cash balances as they make their way into our cash suite program. That's driven by trading activity.
Dan Fenn: So that will shift over the remainder of this year. Hard to predict because it is trading activity, but I think we've done this enough times if history is a guide by the end of this year, the majority of those balances will shift it over. So that should lead to that 80 million of run rate EBITDA financial.
Dan Fenn: Thank you for that question, Mr. Fenn. Your next question comes from the line of Mike Brown with Wells Fargo. Please go ahead.
Thank you very much.
Okay, great. Hi, good afternoon.
Speaker Change: So the pace of institution win has continued at a high pace. I just wanted to check in how is the pipeline looking for activity there and what is kind of the right cadence for you now on an annual basis?
Yeah, thanks. Appreciate the question, it's rich.
Speaker Change: So I think maybe I'll take a step back and we'll answer the question but I don't want to give you a heads up.
Speaker Change: Maybe a bit of a broader perspective. You know, as we look at, we look at a couple of markets. First is we look at the large bank market where we really have sort of leadership in that market and we've successfully attracted $120 billion in assets. So they were the first to rise in, which we announced earlier.
Speaker Change: That large bank opportunity sits around $1.5 trillion dollar market opportunity [inaudible]
I'm gonna like our position in that market [inaudible]
Speaker Change: because we're usually the first call you're going to make, as you begin exploring thinking about partner-doubt source model, and we continue to make enhancements to our experiences and delivery in that marketplace to continue that leadership.
Speaker Change: And then subsequently, we've expanded our offering into that insurance video as well as product manufacturers which for us again represents an additional $1.5 trillion mark opportunity.
Speaker Change: Matt alluded to, we completed that conversion eventually into June 1, which I think as well gives us a run rate client at scale who can reflect to the experiences, the ease of the transition, and then the ongoing value and partnership. Now, all of those.
Speaker Change: Both leadership in those two marketplaces would reflect in our pipeline as we continue to add to a deep lift of potential partners considering
I'm proud of what you know.
Speaker Change: I would give you one other perspective coming here, and given the critical work we have had of us to complete the HR onboarding and to prepare for the acquisition of Commonwealth,
Speaker Change: We're really focusing our resources on delivering a seamless experience for those new advisors joining our platform and while ensuring we continue to deliver great experience for our existing advisors. I wouldn't expect too much by way of other large announcements for the time being.
Speaker Change: Question, Mr. Brown. Your next question comes from the line of Bill Katz with T.D. Cohen. Please go ahead.
Bill Katz: Okay, thank you very much for taking a question this evening. Just coming back to the knock-on effects with the Commonwealth Transaction, Lawrence said now, in terms of what the strategic responses by some of the smaller players and whether or not the combination or the pro-former combination
Bill Katz: might unlock more opportunities to consolidate strategically versus just through regular way financial advisor wins. Thank you.
Thank you.
So, um...
Speaker Change: I guess, Bill, I'll take a cut at it, that's rich. And then you redirect me if you don't feel like you're getting the answer to the question you asked.
So...
Speaker Change: I think what we've seen in the marketplace is a lot of activity regarding Commonwealth advisors as I had alluded to, but to be completely frank with you.
Speaker Change: It's just going to be a struggle for them to be competitive, relatives who are robust set of capabilities [inaudible]
Especially, when you think about how we have ...
Speaker Change: been very clear on that we are keeping the Commonwealth experience, we are keeping the brand, we are keeping the service associates that deliver their experience today, we are keeping the culture, the community, the trips.
Study Groups [inaudible]
Speaker Change: to practice consultants, power and practice consultants that help them grow. You look at that and say that has been an exceptional franchise with an exceptional leadership team that has delivered support for advisors over 46 years to put that together with LPL, and it is very hard bill.
Speaker Change: to come credibly forward as an alternative to that, and I say whether you're small or whether you're large, you do not believe there is a credible alternative that is close to our experience, and when you put on top of that, the fact that we are going to go through...
A non-conversion event [inaudible]
Speaker Change: Meaning that largely these advisors, as I mentioned, over 90% of their accounts will not have to be repapered.
and they will keep.
Thank you.
Continued the continuity of the service experience. [inaudible]
They will not change their brand.
Speaker Change: They will not have to explain to their clients a major change. They will not have to be out of the marketplace for 30, 60, 90 days as they work through repapering.
I think it leads to...
Speaker Change: I'm hopeful that we will continue to reflect our capabilities, stay humble.
Speaker Change: and have the Commonwealth Advisors realize that this vine firm will be the leader, not just in the 1099 segment, but across wealth management. And quite honestly, I would say for advisors you want to be with a term that is changing the industry, not reacting to industry change.
Speaker Change: And that's the orientation of this farm. We are shaping where the industry is headed.
Speaker Change: We are pushing forward to serve advisors new and differentiated ways while recognizing that advisors are number one constituent, and we serve them [inaudible]
Speaker Change: Now, you asked about whether small firms can continue to participate in the marketplace. I'm sure they will have the ability to carve unique.
Positions in the market.
Speaker Change: But I think day by day it becomes more challenging for players that are not at scale to compete effectively with firms.
Like ourselves, we not only have scale, capacity to invest.
Speaker Change: but have been committed, and I think we are unique in the marketplace and that we have committed to the flexibility.
Speaker Change: to ensure that unique communities and service experiences that have first been demonstrated through our newer affiliation models but subsequently will be demonstrated through our Commonwealth partnership, where we will allow them to feel flexible and small, while gaining the scale and capabilities of a leading player in the marketplace. [inaudible]
Speaker Change: Just think it gets challenging day after day for smaller players to continue to compete. Doesn't mean it's impossible. There are some great players in the marketplace, but I think it's harder.
Speaker Change: Good question, Mr. Katz. Your next question comes from the line of Jeff Schmitt with William Blair. Please go ahead.
Jeff Schmitz: Hi, thank you. How does your internal capacity look for onboarding deals and partnerships? Obviously, you've done quite a few just curious if you're seeing any constraints. We need to build that out further as these deals get bigger, or do you think you can continue with deals at this pace?
Speaker Change: Hey Jeff, I'll answer that one. I think just maybe building a little bit on what Rich was saying earlier in my comments. I think from a capacity standpoint, in a team standpoint, I think we've built a great team and tools and capabilities to bring, if you just look at what we've done the last 12 months and we're working on it right now.
To be able to have a really, really high capacity [inaudible]
Speaker Change: I think that said when you look at what we have in front of us specifically right now on beginning the atrium conversions.
Speaker Change: and specifically getting ready for Commonwealth. Building on Rich's point earlier, I think that the recruiting pipeline continues to be quite large. The dialogue continues.
It's gonna be quite good [inaudible]
Speaker Change: But I think from a timing standpoint, we're going to be quite focused on those two initiatives and doing those really really well.
Speaker Change: for those teams and those advisors. So I wouldn't expect any announcements over the large fields in the near term, because I think we've got enough to focus on right now, but that doesn't take away from the opportunity that we would have over the long term. It's more of a prioritization of the work that we have in front of us right now. [inaudible]
[inaudible]
Speaker Change: Thank you for that question, Mrs. Schmitt. Your last question comes from the line of Benjamin British with Barclays. Please, come ahead.
Speaker Change: Hey, this is Chris O'Brien on Forbend. I wanted to hit on a nudie sales. It looks like they've been pretty strong at LPL and when we look at the LIMR data
Chris O'brien: It looks like LPL is outperforming meaningly. So is there any way you can just tell us what you're seeing in terms of activity and annuity sales? And how much of this growth has been driven from the recent acquisitions? Thank you.
Speaker Change: Yeah, I think on, I mean, we are the, you know, a large, large distributor of annuity. So it's a strong part of our business. I think that when you just look at the trends...
Speaker Change: In this quarter, I think you've got two things going on. You know, one is bringing through a provincial fully on board, right? They're a big part of their business is annuity sales.
Speaker Change: It is insurance and I think when you see the trends in sales commissions and specifically annuity
Speaker Change: Just looking at this core. That's probably three-fourths of it. It's really potential coming fully on board and ramped up on the platform. And the other core is our core business. And I think it speaks to the diversification of serving and supporting both the advisory business and a brokerage business.
Speaker Change: and being in an environment where whether it be the volatility, the level of interest rates.
Speaker Change: Whether it be verifiable annuities, fixed annuities, that's a product that matters and is relevant to a lot of our advisors clients. I think we have that offer, so I think that 25% of that growth is really just our overall client base, wanting and needing and having those products.
Speaker Change: That said, there is a macro driver in that, so as interest rates kind of have leveled off as volatility has started to come down I wouldn't be surprised if sales commissions because they are primarily driven by those products come down a bit in future quarters But I think back to our core offering it is a big part of our core offering and as we grow the business with firms like Credential this is an area where you see those benefits come [inaudible]
were in the audience.
Thank you for that question, Mr. Badeesh.
Speaker Change: That concludes our Q&A session. I will now turn the call back over to Mr. Steinmeier for closing remarks.
Speaker Change: Thank you so much operator, and thank you all for joining us. We look forward to speaking with you again in July . Have a great night.
Speaker Change: That concludes today's call. Thank you all for joining. You may now disconnect.