Q2 2025 LPL Financial Holdings Inc Earnings Call

Operator: Good afternoon, and thank you for joining the second quarter 2025 earnings conference call for LPL Financial Holdings Inc. Joining the call today are our Chief Executive Officer, Rich Steinmeier, and President and Chief Financial Officer, Matt Audette. 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. The company has posted its earnings press release and supplementary information on the investor relations section of the company's website, investor.lpl.com. Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies, and plans, as well as other opportunities and potential risks that management foresees.

Good afternoon and thank you for joining the second quarter 2025 earnings conference call for LPL Financial Holdings, Inc, joining the call today are our chief executive officer rich steinmeier and president and Chief Financial Officer, Matt audit.

Rich and Matt will offer introductory remarks and in the call will be open for questions. The company would appreciate if analysts, would limit themselves to only 1 question to ask a follow-up, please re-enter the queue the company has posted its earnings. Press release in supplementary information on the investor relations section of the company's website. Investor.pdf

Operator: Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties, the company refers listeners to the disclosures set forth under the caption "Forward-Looking Statements" in the earnings press release, as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com. With that, I will now turn the call over to Mr. Steinmeier.

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.

Search, forward-looking statements reflect Management's, current estimates or beliefs and are subject to known, and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements.

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

Rich Steinmeier: Thanks, operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again. After an outstanding start to the year, we delivered another quarter of strong business performance and excellent financial results while continuing to advance key initiatives. We entered the second quarter against a backdrop of elevated macroeconomic uncertainty and market weakness. While markets rebounded sharply as the quarter progressed, questions remained regarding the resiliency of the equity market. In this rapidly evolving operating environment, our advisors continued to serve as a steady hand, helping to guide their clients and reinforcing our commitment to support them. Okay, now let's turn to our Q2 results. In the quarter, total assets increased to a record $1.9 trillion. A solid organic growth was complemented by a higher equity market. We attracted organic net new assets of $21 billion, representing a 5% annualized growth rate.

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

Thank you, operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again.

After an outstanding start to the year, we delivered another quarter of strong business performance, and excellent Financial results while continuing to advance key initiatives.

We entered the second quarter against a backdrop of elevated macroeconomic uncertainty and market weakness. While markets rebounded sharply as the quarter progressed, questions remain regarding the resiliency of the equity markets.

In this rapidly evolving operating environment, our advisors continued to serve as a Steady Hand Helping to guide their clients and reinforcing our commitment to support them.

Okay.

Now, let's turn to our Q2 results.

In the quarter total assets increased to a record, 1.9 trillion dollars a solid, organic growth, was complemented by higher Equity markets.

Rich Steinmeier: Our second quarter business results led to strong financial performance with the adjusted EPS of $4.51, an increase of 16% from a year ago. Next, let's turn to our strategic plan and progress across our organic and inorganic initiatives. Our vision is clear. We aspire to be the best firm in wealth management. To do that, we are focused on three key priorities: 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; and three, leading the firm with operational excellence through increased intentionality and rigor. Effectively executing on these focus areas will help us sustain our industry-leading growth while delivering improved operating leverage. With that as context, let's review a few highlights of our business growth.

We attracted, organik net, new assets of 21, billion dollars, representing a 5% annualized growth rate.

Our second quarter business results led to strong financial performance, with an adjusted EPS of $4.51, an increase of 16% from a year ago.

Next, let's turn to our strategic plan, and progress, the ac across our organic and inorganic initiatives.

That enable The Firm sustained success.

2, creating an extraordinary employee experience. So, employees in turn deliver an unparalleled client experience.

and 3 leading the firm with operational, excellence through increased intentionality and rigor,

Effectively executing on. These Focus areas will help us sustain our industry-leading growth while delivering improved operating Leverage

Rich Steinmeier: In the second quarter, recruited assets were $18 billion, bringing our total for the trailing 12 months to $161 billion. In our traditional independent market, we added approximately $15 billion in assets during Q2, where, despite a broader slowdown of industry-wide advisor movement, we maintained our industry-leading capture rates 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 RAA offering, we delivered another solid quarter, recruiting roughly $3 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. Next, we added approximately $1 billion of assets in the traditional bank and credit union market.

With that is context. Let's review a few highlights of our business growth. In the second quarter recruited assets were 18 billion dollars, bringing our total for the trailing 12 months to 161 billion.

In our traditional independent Market, we added approximately 15 billion dollars in assets during Q2 where despite a broader slowdown of industry-wide advisor movements. We maintained our industry-leading capture rates 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 Raa offering, we delivered another solid quarter recruiting roughly 3 billion dollars 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.

Rich Steinmeier: We also continued to make progress with large institutions, where we announced that First Horizon would transition its wealth management business to our institutional services platform. As a reminder, First Horizon supports approximately 120 financial advisors, managing roughly $17 billion in client assets, which we expect to onboard later in Q3. Turning to overall asset retention, it remains industry-leading at 98% for the second 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. As a complement to our organic growth, in July, we completed the conversion of Atria Wealth Solutions. This is no small feat when you consider that Atria had seven distinct broker-dealers that use multiple custodians.

Next, we added approximately $1 billion of assets in the traditional bank and credit union market.

We also continue to make progress with large institutions, where we announced that first horizon would transition, its wealth management business to our institutional Services platform.

As a reminder.

First Horizon supports approximately 120 financial advisors managing roughly $17 billion in client assets, which we expect to onboard later in Q3.

Turning to overall asset retention, it remains industry-leading at 98% for the second quarter.

And over the last 12 months, this is a testament to our continued efforts to enhance the adviser experience through the delivery of new capabilities and technology, and the evolution of our service and operations functions.

As a complement to our organic growth in July, we completed the conversion of Atria wealth Solutions.

Rich Steinmeier: This is a testament to our experienced team and the diligent investments we've made in recent years, and it highlights our differentiated transition capabilities relative to the rest of industry. As for retention, we're still finalizing results, but anticipate asset retention landing at approximately 82% ahead of our initial target of 80%. Now, as for our pending acquisition of Commonwealth Financial Network, our leadership team has had the pleasure of spending focused time with Commonwealth advisors and leadership over the last four months. This has been time well spent helping to foster increasingly constructive conversations. Today, we have a better understanding of what's important to them, preserving and fostering the Commonwealth community and culture. Plus, we've had the opportunity to showcase the resources and capabilities at LPL.

This is no small feat. When you consider that Atria had 7, distinct broker dealers that use multiple custodians.

This is a testament to our experienced team and the diligent investments we've made in recent years, and it highlights our differentiated transition capabilities relative to the rest of the industry.

As for retention, we're still finalizing results. But anticipate asset retention landing at approximately 82% ahead of our initial Target of 80%.

Now, as for our pending acquisition of Commonwealth Financial Network,

our leadership team has had the pleasure of spending focused time with Commonwealth advisors and Leadership over the last 4 months.

This has been time well spent helping to Foster increasingly constructive conversations.

Today, we have a better understanding of what's important to them: preserving and fostering the Commonwealth community and culture.

Rich Steinmeier: The combination creates a firm with the scale, the experience, and the permanent capital needed to serve and support their growth for decades to come. As a result, we have made steady progress with advisor commitments and remain on track to achieve our retention target. We expect to close the transaction tomorrow morning and are excited to hit the ground running as we prepare to onboard this community of advisors. To summarize, we are pleased with the second quarter results, and we feel great about our position as a critical partner to our advisors and institutions while we continue to create long-term value for our shareholders. With that, I'll turn the call over to Matt.

Plus, we've had the opportunity to showcase the resources and capabilities that LPL provides. The combination creates a firm with the scale, the experience, and the permanent capital needed to serve and support their growth for decades to come.

As a result, we have made steady progress with advisor commitments and remain on track to achieve our retention Target.

We expect to close the transaction tomorrow morning and are excited to hit the ground running as we prepare to onboard this community of advisers.

To summarize.

Matt Audette: Thanks, Rich. I'm glad to speak with everyone on today's call. To Rich's point, it's been an active quarter, with the team delivering tremendous results at a rapid pace. To reiterate some of those highlights, we delivered another quarter of industry-leading organic growth, launched our first-ever national marketing campaign, continued to make progress in the institutional channel as we prepare to onboard First Horizon, successfully onboarded Atria, and completed all pre-close work for acquisition of Commonwealth. Our discipline execution continues to translate into strong business and financial results, with our cost-efficiency work pulling through to sustainable improvements in our margins. Now turning to a few highlights from our Q2 business results. Total advisory and brokerage assets were $1.9 trillion, up 7% from Q1, as continued organic growth is complemented by higher equity markets.

We are pleased with the second quarter results and we feel great about our position as a critical partner to our advisors and institutions while we continue to create long-term value for our shareholders with that, I'll turn the call over to Matt.

Thanks Rich. I'm glad to speak with everyone on today's call.

To Rich's point, it's been an active quarter with a team, delivering tremendous results at a radical pace.

To reiterate some of those highlights.

We delivered another quarter of industry-leading organic growth.

Launched our first-ever national marketing campaign.

Continued to make progress in the institutional channel as we prepare to onboard first arrivals.

Successfully. Onboarded Atria.

And completed all pre-close work for acquisition of common.

Our discipline, execution continues to translate into strong business and financial results.

With our cost efficiency work pulling through to sustainable improvements in our margins.

Now, turning to a few highlights from our Q2 business results.

Total advisory in brokerage assets were 1.9 trillion up 7% from q1 as continued, organic growth as complemented by higher equity.

Matt Audette: Total organic net new assets were $21 billion and approximately 5% annualized growth rate, a strong result both on an absolute and relative basis. On the recruiting front, Q2 recruited assets were $18 billion, contributing to $161 billion over the trailing 12 months. With respect to large onboardings, during the quarter, we successfully completed the conversion of Atria's seven broker-dealers, continued to prepare for First Horizon, which we expect to onboard in Q3, and we're progressing towards closing Commonwealth as planned. As Rich mentioned, we expect to close the transaction tomorrow and convert Commonwealth's assets to our platform in the fourth quarter of 2026, which has moved out slightly from our original timeframe as we've begun to scope the tech and operational work required to ensure advisors have an exceptional experience.

Total organic, net. New assets were 21 billion and approximately 5% annualized growth rate.

A strong result both on an absolute and relative basis.

On the recruiting front Q2 recruited assets were 18 billion contributing to 161 billion over the trailing 12 months.

With respect to large on, boardings during the quarter, we successfully completed the conversion of Atria 7. Broker dealers.

Continue to prepare for first horizon.

Which we expect to onboard in Q3.

And we're progressing towards closing Commonwealth estimates.

As Rich mentioned, we expect to close the transaction tomorrow and convert Commonwealth assets to our platform in the fourth quarter of 2026.

Matt Audette: At close, we continue to expect run rate EBITDA to be roughly $120 million and approximately $415 million once fully integrated, which is underpinned by our 90% retention target. With that as context, and given the timing of the close, we'll include Commonwealth in our guidance items today. I would just note, given we have not yet closed the deal, there could be some variability in the line item geography. Looking at Q2 financial results, the combination of organic growth and expense discipline led to an adjusted pretax margin of approximately 38% and adjusted EPS of $4.51. Gross profit was $1,304 million, up $32 million sequentially. As for the key drivers, commission and advisory fees net of payout were $349 million, down $14 million from Q1. Our payout rate was 87.3%, up approximately 60 basis points from Q1, largely due to typical seasonality.

Which has moved out slightly from our original time frame. As we begun to scope the tech, and operational work, required to ensure, advisors have an exceptional experience.

At close, we continue to expect, run rate, ebita to be roughly 120 million.

And approximately 415 million once fully integrated.

Which is underpinned by our 90% retention Target.

With that is context and given the timing of the close. We'll include Commonwealth in our guidance items today.

I would just note given we have not yet closed the deal. There could be some variability in the line item geography.

Looking at Q2 Financial results.

The combination of organic growth and expense discipline led to an adjusted pre-tax margin. Approximately 38%

In adjusted EPS of $4.51.

Gross profit was 1. 134 million up 32 million sequential.

As for the key drivers commission and advisory fees net of payout for 349 million down, 14 million from q1.

our payout rate was 87.3% up approximately 6 basis points from q1,

Matt Audette: Looking ahead to Q3, we anticipate our payout rate will increase to approximately 87.6%, driven by the typical seasonal build in the production business, as well as our acquisition of Commonwealth. With respect to client cash revenue, it was $414 million, up $5 million from Q1. Overall client cash balances ended the quarter at $51 billion, down $2 billion sequentially, primarily driven by continued elevated levels of net buying activity. Within our ICA portfolio, the mix of fixed-rate balances ended the quarter at roughly 65%, slightly above the midpoint of our target range of 50 to 75%. Looking more closely at ICA yields, it was 342 basis points in Q2, up five basis points from Q1, as higher renewal rates on our fixed-rate contracts offset lower average cash balances.

Largely due to typical seasonality.

Looking ahead to Q3, we anticipate our payout rate will increase to approximately 87.6%.

Driven by the typical seasonal build in the production bonus as well as our acquisition common law.

With respect to client cache Revenue.

It was 414 million up 5 million from Q.

Overall client cash balances ended. The quarter at 51 billion Down 2 billion sequentially, primarily driven by continued elevated levels of net buying activity.

Within our ITA portfolio, the mix of fixed rate. Balance is end of the quarter at roughly 65%.

Slightly above the midpoint of our target range of 50 to 75%.

Matt Audette: As we look ahead to Q3, based on where client cash balances and interest rates are today, as well as the Commonwealth-related cash, we expect our ICA yield to be roughly flat sequentially. As for service and fee revenue, it was $152 million in Q2, up $7 million from Q1, primarily driven by strong organic growth. Looking ahead to Q3, we expect service and fee revenue to increase by approximately $20 million sequentially, driven by revenues from our annual focus costs, as well as our pending acquisition of Commonwealth. Moving on to Q2 transaction revenue, it was $61 million, down $7 million sequentially due to lower trading volume. As we look ahead to Q3, we expect transaction revenue to increase by approximately $5 million sequentially, primarily driven by Commonwealth. Now let's turn to expenses, starting with core G&A.

Looking more closer to ICA yields, it was 342 basis points in Q2 up 5 basis points from q1 as higher renewal rates on our fixed rate contracts offset lower average cash balance

As we look ahead to Q3 based on where a client cash balances and interest rates are today, as well as the Commonwealth related cash.

We expect our ICA yield to be roughly flat sequentially.

As for service and fee Revenue. It was 152 million in Q2 up. 7 million from q1.

Primarily driven by strong organic growth.

Looking ahead to Q3, we expect service and fee revenue to increase by approximately $20 million sequentially.

driven by revenues from our annual Focus costs.

As well as our pending acquisition of commas.

Moving on to Q2 transaction method.

1 million down 7 million, 7 million sequentially due to lower trading blocks.

As we look ahead to Q3, we expect transaction Revenue to increase by approximately 5 million sequentially, primarily driven by Common.

Matt Audette: It was $426 million in Q2, below our outlook range for the quarter, as we continue to make progress on our renewed focus on driving operating leverage in the business. For the full year 2025, given our cost initiatives are tracking ahead of schedule, we are lowering our 2025 outlook to a range of $1,720 million to $1,750 million, which includes $170 to $180 million of expense related to Prudential and Atria. Additionally, given the expected close of Commonwealth tomorrow, we factor these expenses into our overall core G&A outlook and expect an incremental $160 to $170 million. As a result, our new core G&A outlook range is $1,880 million to $1,920 million. To give you a sense of the near-term timing of the spend, in Q3, we expect core G&A to be in a range of $495 to $510 million, including Commonwealth.

Now, let's turn to expenses, starting with 4G.

It was 426 million in Q2 below our Outlook range for the quarter as we continue to make progress on our renewed, focus on driving operating, leverage in the business.

For the full year, 2025 given our cost initiatives are tracking ahead of schedule.

We are lowering our 2025 Outlook to a range of 1,720 million to 1,750 million.

which includes 170 to 180 million of expense related to credential and Agri

additionally, given the expected close of Commonwealth. Tomorrow, we Factor these expenses into our overall 4 DNA Outlook and expect an incremental 160 to 170 million.

As a result, our new core DNA Outlook range is 1 billion 8880 million to 1,920.

To give you a sense of the near-term. Timing of the spend. In Q3 we expect 4G and a to b in a range of 495 to 510 million including commodities.

Matt Audette: Moving on to Q2 promotional expense, it was $164 million, up $12 million from Q1, primarily driven by conference spend and transition assistance resulting from our strong recruiting. Looking ahead to Q3, we expect promotional expense to increase by approximately $35 million, driven by conference spend, as we will host our annual focus conference next month, as well as transition assistance related to Commonwealth. Turning to depreciation and amortization, it was $96 million in Q2, up $4 million sequentially. Looking ahead to Q3, we expect depreciation and amortization to increase by roughly $5 million. As for interest expense, it was $102 million in Q2, up $22 million sequentially, driven by our April debt issue. Looking ahead to Q3, given revolver balances following the close of the Commonwealth transaction, we expect interest expense to increase by approximately $5 million from Q2.

Looking ahead to Q3, we expect promotional expense to increase by approximately 35 million driven by conference spending as we will host our annual focused Conference next month.

as well as transition assistance related to from

turning to depreciation amortization. It was 96 million in, Q2 up 4 million sequential.

Looking ahead to Q3 we expect appreciation and amortization to increase by roughly 5.

As for interest expense, it was 102 million in Q2 up 22 million sequentially.

Driven by our April debt issuance.

Matt Audette: Moving on to our tax rate, it was approximately 26% in Q2. Looking ahead, we expect Q3 to be around 27%, as we anticipate recording a reserve on a couple of tax payers. Turning to capital management, as a reminder, we funded Commonwealth through a combination of corporate cash, debt, and equity. We ended Q2 with corporate cash at $3.6 billion, up $3 billion from Q1, which included proceeds from our capital raising. Following the close, we expect corporate cash to come back down closer to our management target range of roughly $200 million. And as such, we expect Q3 interest income to be approximately $40 million. As for our leverage ratio, it was 1.23 times at the end of Q2.

Looking ahead to Q3 given a revolver balance is following the close of the Commonwealth transaction. We expect interest expense to increase by approximately 5 million from us to

Moving on to our tax rate, it was approximately 26% in Q2.

Looking ahead. We expect Q3 to be around 27% as we anticipate recording a reserve on a couple of tax benefits.

Turning to Capital Management.

As a reminder, we funded Commonwealth through accommodation of corporate cash debt and equity.

we ended Q2 with corporate cash at 3.6 billion Up 3 billion from q1 which included proceeds from our capital rate,

Following the clothes. We expect corporate cash to come back down closer to our management. Target range of roughly 200 million.

And as such we expect Q3 interest income to be approximately 40 minutes.

Matt Audette: In line with the plans we shared previously, we expect our leverage ratio to be approximately 2.25 times following the close, with a path to deleverage to approximately two times by the end of 2026. Moving on to capital deployment, our framework remains focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate, and returning excess capital to shareholders. In Q2, the majority of our capital deployment was focused on supporting organic growth and M&A, where we continue to allocate capital to our liquidity and succession solution. To uphold our commitment to maintaining a strong and flexible capital position, we paused share repurchase, which we will revisit once we onboard Commonwealth. In closing, we delivered another quarter of strong business and financial results.

As for our leverage ratio, it was 1.23 times at the end of Q2.

in line with the plans we shared previously,

We expect our leverage ratio to be approximately 2.25 times following the close.

With a path to Del leverage to approximately 2 times by the end of 2026.

Moving on to Capital deploy.

Our framework remains focused on allocating Capital aligned with the returns. We generally

investing in organic growth. First and foremost.

Pursuing m&a, where appropriate and returning excess Capital to shareholders.

In Q2, the majority of our Capital deployment was focused on supporting organic growth and m&a where we continue to allocate Capital to our liquidity and succession solution.

To uphold our commitment to maintaining a strong and flexible Capital position. We pause, share a purchase.

which we will revisit once we onboard common law,

Matt Audette: 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 value. With that, operator, please open the call for questions.

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

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 values.

With that operator, please open the call for questions.

Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. As a reminder, please limit yourself to one question. To ask a follow-up, please re-enter the queue. Our first question comes from the line of Alex Blossin from Goldman Sachs.

Thank you at this time. I would like to remind everyone in order to ask a question. Please press star 1 1 on your telephone keypad and wait for your name to be announced to withdraw your question. Please. Press star 1 1 again. As a reminder, please limit yourself to 1 question.

To ask a follow-up. Please re-enter the queue.

Alex Blostein: Hey, guys. Good morning. Good evening. Good morning. Long day. I was hoping we could start with a question around Commonwealth. Obviously, it's a big focus for investors. Congrats on the deal, I guess, closing here tomorrow. But Rich, maybe to start with how the conversations with the team are evolving. You guys are clearly sticking with a 90% retention expectation, so a little bit of color on what gives you confidence in being able to achieve that. And then financially, Matt, I was hoping you maybe could hit on reasons behind keeping EBITDA run rate at 120 to start off, despite the fact that the asset levels are a decent amount higher from the time you announced the deal. Thanks.

Our first question comes from the line of Alex blowing from Goldman Sachs.

Hey guys, good morning. Uh good evening. Good morning long day. Um I I was hoping we could start uh with a question around Commonwealth obviously. It's a it's a big Focus for investors. Um congrats on the deal I guess, closing here tomorrow but which maybe to start with how uh the conversations with the team are evolving, uh you guys are clearly sticking with a 90% retention expectation. So a little bit of color on. What gives you confidence in being able to achieve that and then financially and that I was hoping you maybe could hit on uh reasons behind uh keeping ibida run rate uh at 120 to start off. Despite the fact that you know, the asset levels are are are decent amount higher from the time you announced the deal. Thanks.

Rich Steinmeier: Hey, thanks, Alex. It's Rich. I'll start out and then hand that second part over to Matt. So on Commonwealth, I think we've had four months of fever-pitched engagement with them, where we have gotten to know the advisors, the leadership team, and more broadly, the employees better and better. And what we thought before we got into this partnership has been completely reinforced, which is that the Commonwealth team has built something truly special. They set the mark for what it means to serve independent advisors. Hopefully, you've seen just a few weeks ago, Commonwealth received their 12th consecutive number one ranking from JD Power for independent advisor satisfaction. And as we've stated continually, we are committed to preserving that unique culture, the advisor experience, the brand. And in fact, we will only enhance what they already receive with the combination of the LPL capabilities with that Commonwealth experience.

Rich Steinmeier: Beyond that, we'll actually transfer so much of those learnings of that exceptional delivery of the client experience, reception of advisor feedback, ingestation of that disposition, and changing capabilities to the broader LPL base. So we feel really great about that moving over there as well. As we've gotten closer to the close of the transaction, which we announce is tomorrow, we anticipate tomorrow, we've also begun the cross-pollination of our cultures. We've connected with advisors, employees, leadership to better understand the secret sauce behind their success. Just recently, 27 Commonwealth employees attended the LPL summer bash in our Fort Mill campus. We sent emissaries from LPL up to Commonwealth's annual wing-eating contest and cornhole tournament. We are, in just over a week, we'll have 70 Commonwealth advisors and home office staff scheduled to join our annual focus conference.

Hey, thanks, Alex, this is Rich. I'll start out. And then in that, um, second part over to Matt. So, um, on cam wealth. Uh, I think we've had 4 months of, um, fever pitched engagement with them, where we've gotten to know the advisors the leadership team. Um, and more broadly, the employees, uh, better and better. And, and what we thought before, we got into this, uh, partnership is been completely reinforced, which is that the Commonwealth team has built something truly special. They set the mark for what it means to serve independent advisors. Um, hopefully you've seen just a few weeks ago, Commonwealth received their 12th, consecutive number 1 ranking from JD Power, for independent advisor satisfaction. Um, and as we've stated continually, we are committed to preserving that unique culture. The advisor experience the brand, uh, and in fact, we will only enhance, um, what they already received with the combination of the LPL capabilities with that Commonwealth experience, um, beyond that we'll actually transfer so much of those learnings of that exceptional delivery.

Feedback ingestion of that disposition, uh and and changing capabilities uh to the broader LPL base. So we feel you know, really

Great about that, moving over there as well. Um, as we've gotten closer to the close of the transaction which we announced this tomorrow. Um, we anticipate tomorrow. Um, we've also begun the cross-pollination of our cultures. Uh, We've connected with advisors employees leadership to better understand the secret sauce behind their success. You know, just recently, 27 Commonwealth, uh, employees attended the LPL summer bash in North Fort Mill campus. We sent them a series from LPL, um, up to Commonwealth annual Wing eating contest in cornhole tournament.

Rich Steinmeier: And as of tomorrow, I'm really excited to announce that Commonwealth CEO Wayne Bloom will join the LPL management committee upon the close of the transaction. As for the transaction itself, I feel like we're progressing things according to plan. From an operational standpoint, the teams have been working closely to complete the pre-closing work, and we're on track to close that deal tomorrow. With respect to integration planning, we're early in the journey, but we've scoped the work to ensure we're preserving the experience for Commonwealth advisors on the other side of the conversion. We expect that to take place Q4 of next year. With respect to the advisor retention, Alex, which you asked specifically about, at this stage, I feel good.

We are in, uh, just over a week. We'll have 70 Commonwealth advisors and Home Office staff scheduled to join our annual Focus Conference. Um, and as of tomorrow, I'm really excited to announce that Commonwealth CEO Wayne Bloom will join the LPL Management Committee upon the close of the transaction. As for the transaction itself, uh,

Rich Steinmeier: We've engaged with so many advisors, and for those Commonwealth advisors who are prioritizing the Commonwealth experience, their community, the technology, service, ongoing economics, and really staying at their forever home for their business and their clients, staying with Commonwealth is their only option. But like as with any transaction or competitive recruiting event, some advisors will prioritize differently. That exact dynamic is contemplated in our retention target. To that end, we continue to feel confident about our ability to capture 90%, which does mean we understand that 10% of the advisors will make a different choice and go somewhere else. All that being said, there's nothing that's been surprising in terms of competitive response or advisor decisioning. Maybe it's been a little bit noisier in the trades than we had expected, but that's of little consequence.

I feel like we're progressing things according to plan from an operational standpoint, the teams have been working closely to compete, the complete, the pre-closing work and we're on track to close that deal tomorrow. Um with respect to integration planning, we're early in the journey but we have scoped the work to ensure, we're preserving the experience for Commonwealth advisors on the other side of the conversion and we expect that to take place Q4 of next year. Um, with respect to the advisor. Retention, Alex, would you ask specifically about at this stage? I feel good. Um, we've engaged with so many advisors

And for those Commonwealth advisors who are prioritizing the Commonwealth experience their Community, the technology service ongoing economics.

Rich Steinmeier: So to summarize, we remain extremely excited about the partnership, and the deal is progressing according to plan. I'll turn it to Matt.

Matt Audette: Yeah, thanks, Rich. Yeah, so on the run rate EBITDA, AUM is definitely up, but cash balances are down a little bit. So they kind of roughly offset. So the mix of that run rate EBITDA, you could say, has improved a little bit, but that's the reason it hasn't changed.

And really staying at their forever home for their business. And their clients staying with Commonwealth is their only option. Um, but like as with any transaction or competitive recruiting events, some advisers will prioritize differently that exact dynamic is contemplated in our retention Target. So then we continue to feel confident about our ability to capture 90%, which does mean, we understand that 10% of the advisers, will make a different choice and go somewhere else. All that being said, there's nothing that's been surprising in terms of competitive response or advisor. Decisioning maybe it's been a little bit noisier in the trades than we had expected, but that's of little consequence. So, to summarize, we remain extremely excited about the partnership. And the deal is progressing according to plan, I'll turn it to Matt. Yeah, thanks Rich. Yeah, so on, on the, uh, on the Run rate, even with the um, AUM is definitely up, uh, but cash balance is, are are down a little bit, so they kind of roughly all set. Um, so the mix of that of that run rate debit to us. Um, you could say it's improved a little bit but that that's the uh, that's the reason it has

Changed.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Steven Chubach from Wolfe Research.

Thank you. One moment for our next question.

Our next question comes from the line of Stephen chubechada.

Steven Chubak: Hi, good afternoon, Rich and Matt. Thanks for taking my question. Matt, it's a question on the expense optimization and specifically the updated guidance for core G&A growth of 5% X deals. Certainly suggests that your efforts to bend the cost curve are clearly bearing fruit. Given you continue to surprise positively versus the original guidance, I was hoping you could speak to whether you see room to drive further efficiency gains from here as we think about the longer-term expense journey. And do you see 5% or better G&A growth as a sustainable long-term target given some of those efficiency efforts?

Matt Audette: Yeah, Steven. I mean, I think the broad point, just to underscore what I said in their prepared remarks appearance, I think we've got really good momentum on the efficiency work. And I think the thing that is really exciting, and I think the thing that has this team collectively working hard together on it, is its efficiencies that not only drive operating margin, but they drive an improvement in the client experience. And maybe to state the obvious, it's easy for everyone to get really motivated and really focused around that. So things are moving faster than we expected. There are things like just automating manual processes in our operations group. There are things where it's reducing friction with advisors, so it's improving that experience, as well as reducing our need to answer calls related to those things.

Uh, good afternoon, uh, Richard, Matt thanks for taking my question. Um, Matt, um, it's a question on the expense optimization and specifically, the updated guidance for core GNA growth of 5% X deals. Certainly suggest that your efforts to bend the cost curve are clearly bearing fruit given you continue to surprise positively versus the original guidance. I was hoping you could speak to, whether you see room to drive further efficiency, gains from here as we think about the longer term expense journey. And do you see 5% or better GNA growth as a sustainable long-term Target, given some of those efficiency efforts

Yes, Stephen, I mean, I think the the broad Point, um, just to underscore what I said in their prepared remarks here is, I think the, the we've got really good momentum on the efficiency work. And I think the thing that um, is really exciting, and I think the thing that has this team collectively working hard together on it, um, is its efficiencies that not only drive operating operating margin, but the drive and Improvement of the client experience. Um and maybe to to, you know, to State the obvious, it's easy for everyone to get really motivated and really focused around that.

Um, so things are moving faster than we expected. Um, we're just, you know, there are things like just automating manual processes in our operations group. There are things where it's reducing friction with advisors, so it's improving that experience.

Matt Audette: And to get to your specific part of your question, I think this is not a one-year thing. I think we have got a long runway here to continue to drive efficiencies before we even get to really starting to deploy the newer technologies that are coming out. So I think we'll have to see each year from a guidance standpoint and what that looks like. But I think from a broad strategic standpoint, I think we have many, many years where we can drive improvements here, not only to op leverage, but also to the experience that we're able to deliver, which dovetails back to this being just the best place for advisors to be and ultimately can be a catalyst for driving organic growth as well.

Also to the experience, uh, that we're able to deliver, uh, which dovetails back to this being just the best place for advisors, to be, and ultimately can be a catalyst for driving organic growth as well.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Craig Siegenthaler from Bank of America. Craig from Bank of America, your line is now open.

Thank you. One moment for our next question.

Our next question comes from the line of Craig, Sean, and Tyler from Bank of America.

Craig Siegenthaler: Thank you. Good afternoon, everyone. I have a question on net new assets in the independent RA channel. Which of the modest outflows this quarter, and can you provide us an update on the long-term growth trajectory in this channel?

Craig, from Bank of America. Your line is now, open.

Thank you. Good afternoon, everyone. I had a question on net new assets in the independent RH channel. Um, what's the cause of the modest outflows this quarter? And can you provide us an update on the long-term growth trajectory in this channel?

Rich Steinmeier: Hey, Craig, can you repeat that middle part about the modest? I didn't hear the middle part about.

Craig Siegenthaler: Sure.

Rich Steinmeier: Yeah.

Craig Siegenthaler: The independent RA channel, I think, had modest negative net new assets this past quarter. So I was just at a question on what drove that, and then maybe you could just refresh us on the long-term growth trajectory in this channel.

Hey, Craig. Can you repeat that middle part about the modest? I didn't hear the middle part about. Yeah, the independent RH Channel. I think had modest uh negative net, new assets, this past quarter,

So, I had a question on what drove that, and then maybe you could just refresh us on the long-term growth trajectory of this channel.

Matt Audette: Yeah, Craig, there's nothing I would highlight there. I think when you look at the growth there, I mean, you can see quarter after quarter after quarter, the growth is really in the corporate channel. We do have a little bit of the misaligned OSJs that we talked about the last couple of quarters that would impact, but there's nothing that I would highlight in particular in the quarter. You can see on those charts that it's the corporate RIA and N&A that really is a huge driver of that area. Rich, anything you wanted to add more on the strategy in that area?

The growth there. I mean, you can see quarter after quarter, after quarter. Um, the growth is really in the corporate Channel. Um, we do have a little bit of the misaligned OJs, um, that we've talked about the last couple quarters that would impact, but there's, there's nothing that I would highlight, in particular, in the quarter. Um, you could see on those charts, that it's the

Rich Steinmeier: Yeah, I think the thing I would say is that we continue to strengthen our offering, Craig, in supporting RIAs. One of the questions I think that you'll see arise is you've seen less flows to the RIA segment. We see more flowing into our corporate RIA. Mostly that has to do with ambiguity around the current regulatory environment. I think the SEC is currently evaluating whether or not they're going to raise a threshold for SEC-level registration of an RIA versus state registration. And so when you see that potentially moving from $100 million up to a billion-dollar threshold, I think you're going to see more folks that are pausing and actually flowing into our corporate shared ADB model. So I think you got to look at those things in tandem to take a look at where do you see overall flows moving into the firm.

Rich Steinmeier: And there will be times when you'll see flows move into our corporate RIA versus independent RIAs. And I would say this is maybe that moment in time where you're seeing a little slowdown of the movement into independent RIAs because of the ambiguity in the regulatory environment. That probably contributes to some of those outcomes.

Corporate. Um, Ria na that really is the key driver of that that area. Um Rich anything you wanted to add more on the strategy in that area. Yeah, I think the thing I would say is that we continue to strengthen our offering Craig in supporting raas. Uh 1 of the questions I think that you'll see a rise is you've seen less flows to the ra segment, we see more flowing into our corporate Raya. Mostly that has to do with ambiguity around the current regulatory environment. I think the SEC is currently evaluating whether or not they're going to raise the threshold for SEC. Level level registration of an RA versus State registration and so when you see that potentially moving from a hundred million dollars up to a billion dollars threshold, I think you're going to see more folks that are pausing and actually flowing into our corporate shared ADV model. Uh, so I think you got to look at those things in tandem to take a look at. Where do you see overall flows moving into the firm and there will be times when you'll see flows move in to our corporate ra versus

Independent RAs, and I would say this is maybe that moment in time where you're seeing a little slowdown of the movement into independent RAs because of the ambiguity in the regulatory environment. That probably contributes to some of those outcomes.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Devin Ryan from Citizens.

Thank you. 1 moment for our next question.

Our next question comes from the line of Devin, Ryan from citizens.

Devin Ryan: Great. Hi, Rich. Hi, Matt. How are you?

Matt Audette: Good. Doing well, Devin. Thank you.

Great. Uh, hi Rich on that. How are you?

Devin Ryan: Good. Great. Another one here on Commonwealth. So first off, great to confirm the retention target there and congrats on closing that here tomorrow. Several industry news wires in recent weeks have talked about how some of these Commonwealth advisors are setting up their own RIAs or are looking into doing the same thing. And maybe that's actually connected to the last answer you made. But Rich, would love to get some thoughts on what this means for LPL in the context of the deal. Do you lose those advisors? Are they in that 10%, or is there an opportunity to continue to work with them? And so just trying to think about kind of the implications of this more broadly. Thanks.

Doing well, Deon. Thank you. Good.

Rich Steinmeier: Yeah. Hey, thanks, Devin. So I think you have seen a little bit more of conversations about options for the advisors. And look, this is a time of enhanced due diligence for Commonwealth advisors. You have to keep in mind those advisors were likely not doing diligence before the announcement of the sale of Commonwealth. And so as they've gone through their evaluation process, which we've been really supportive of, they've explored all kinds of different options. One of those options would be forming their own RIA. And it shouldn't be too surprising given the makeup of the Commonwealth advisors where they skew more towards advisory, and many of them were moving down the pathway to already dropping their licenses.

Great, uh, another 1 here on Commonwealth. So, first off great to, uh, confirm the retention Target there and, and congrats on closing that Year tomorrow. Um, several industry newswires in recent weeks, have talked about how some of these Commonwealth advisors are setting up their own rias or, or looking into doing the same thing. And, and, and maybe that's actually connected to the last answer you made. But Rich would love to get some thoughts on. You know what this means for LPL in the context of the deal. Do you lose those advisors? Are they in that you know 10% um or or is there an opportunity to continue to work with them? Uh and so just trying to think about kind of the implications of this more broadly. Thanks,

Yeah. Hey thanks Devin. So I think you have seen um a little bit more of conversations about options for the advisor. And look this is the time of enhanced due diligence for cam Wealth. Advisors you have to keep in mind those advisors were likely not doing diligence before the announcement of the sale of Commonwealth. And so as they've gone through their evaluation process, which we've been really supportive of, um, they've explored all kinds of different options, 1 of those options would be forming their own Raya and it shouldn't be too surprising given the makeup of the Commonwealth advisors where they skew more towards advisory.

Rich Steinmeier: Keeping in mind, as you go through that evaluation on your own, you can either drop your own licenses to become an IFA inside of a shared ADB model, or you can go set up your own RIA. What you're referring to, Devin, is that kind of conversations and thought about setting up their own RIAs. And usually, it's under this premise of there'll be better economics, enhanced autonomy by setting up your own RIA. And I would say as we've begun doing one-on-one conversations, webinars, et cetera, what we've begun to help them realize, and many have realized, is they may have underestimated the operational lift and the regulatory complexity that comes with running your own RIA. As an RIA, they're responsible for their own regulatory compliance and risk management, in addition to running the responsibilities of a small business like tech and HR.

Um, and many of them were moving down the pathway to already dropping their licenses. Keeping in mind as you go through that evaluation on your own.

Rich Steinmeier: And I just alluded to in the previous answer one of the things that I think is adding ambiguity into whether you set up your own RIA or move under a shared ADB model is that ambiguity in the regulatory environment relative to the threshold for SEC regulation, which is quite a bit easier to work with one regulatory body than working with multiple states. If you even serve a de minimis number of advisors inside, sorry, of clients inside a state, you have to register with that state itself. And so that's a lot of what you see is advisors weighing those options about, does it make sense to do that on my own? Now, specifically to your question, we support independent RIAs. We also support advisors who drop their licenses, their FINRA licenses on our shared ADB corporate RIA.

That comes with running your own Ria. Um, you know, as an RA, they're responsible for their own Regulatory Compliance, and risk management, in addition to running the responsibilities of the small business like Tech and HR and I just alluded to in the previous Answer, 1 of the things that I think is adding ambiguity into whether you set up your own ra or move under a shared ADV model, is that ambiguity in the regulatory, environment relative to the threshold for SEC regulation, which is quite a bit easier um to work with 1 regulator body than working with multiple States. If you even serve at the minimum number of advisors inside, sorry of clients, besides the state you have to register with that state itself and so that's a lot of what you see is advisors weighing those options about. Does it make sense to do that on my own now specifically,

Specifically to your question, we support independent raas.

Rich Steinmeier: And as we've gotten deeper and deeper into these conversations, what the advisors have realized is to keep the Commonwealth experience, community culture, service environment, brand, et cetera, that they've come to love, they can still do that either inside of an RIA construct with LPL or if they want to be an IFA inside of that shared ADB model with LPL as well. So when you hear the evaluation of setting up your own RIA, it doesn't mean that they're going to move. Now, one of the things I think they've also considered is if they choose to set up their own RIA with another custodian, they're going to have to go through a repapering event.

We also support advisors who drop their licenses, um, their FINRA licenses on our shared ADV corporate RA. As we've gotten deeper and deeper into these conversations, what the advisors have realized is that to keep the Commonwealth experience—community, culture, um, service environment, brand, etc.—that they've come to love, they can still do that either inside of an RA construct with LPL or, if they want to be an IFA, inside of that shared ADV model with LPL as well. So when you hear the evaluation of setting up your own RA, it doesn't mean that they're going to move. Now, one of the things I think they've also considered is that if they choose to set up their own RA with another custodian, they're going...

Rich Steinmeier: It means they're going to have to engage their clients, they're going to have to repaper all of their accounts, and they're going to find some lost efficiency and spending some time actually working through that transition, whereas with us, they're not going to have to go through that event as well. So there's a lot for them to consider and weigh. But what on balance we've seen, Devin, is that advisors are seeing that we can support them. They keep their community, they keep their support model, they keep that leadership team that they love. They can do that inside of an RIA or on our shared ADB at LPL. And I think on balance, what we're seeing is we're having very productive conversations there. Again, I would tell you, even at 90%, what you are going to see is announcements of folks that are going to leave.

Rich Steinmeier: But on balance, we think that center of gravity sits around 10%, in spite of the fact that really it seems like each and every one of those stories is being amplified by the trades.

To have to go through a repaying event. It means they're going to have to engage their clients. They're going to have to repay for all of their accounts and they're going to find some lost efficiency uh and spending some time actually working through that transition. Whereas with us, they're not going to have to go through that event as well. So, you know, there's a lot for them to consider in a way. But what on balance we've seen Devin is that advisors are seeing that we can support them, they keep their Community. They keep their support model. They keep that leadership team that they love. They can do that inside of an RA or on our shared ADV at LPL. Um, and I think on balance what we're seeing is we're having very productive conversations there. Again I would tell you even at 90%, what you are going to see is announcements of folks that are going to leave but on balance, we think that center of gravity sits around 10%. Um in spite of the fact that really it seems like each and every 1 of those stories is being Amplified by the traits.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Dan Fannin from Jefferies.

Thank you. 1 moment for our next question.

Devin Ryan: Thanks. Good evening. Wanted to just talk about the recruiting backdrop and your outlook for N&A here as you think about the second half of the year. And maybe also just throw in advisor movement more broadly for the industry and how that compares maybe what you thought earlier in the year to where we sit today.

Our next question comes from the line of Dan Fannon from Jeffrey's.

Uh, thanks. Good evening, wanted to just talk about the recruiting backdrop and and your outlook for nna here, as you think about the second half of the year and maybe you also just throw in, you know, advisor movement more broadly for the industry and how that compares, maybe what you thought earlier in the year to where we sit today,

Rich Steinmeier: Yeah, hey, thanks, Dan. Look, I think you've probably keyed into one of the things that we're seeing as well is that with the macroeconomic uncertainty that exhibited itself in the second quarter, we saw a truncation of some of the advisor movement. And so historically, we think of that advisor churn movement sitting around 5.5% to 6%. It has been truncated over the first half of this year. We see the center of gravity sitting around 5%. And so you see a reduction in the overall movement. A lot of times when advisors are faced with enhanced volatility in the markets, they're going to usually defer a move, reason they don't want to be out of the market for their clients. And so that doesn't mean you're going to see overall movement down over the long term.

Yeah. Hey, thanks Dan. Um, look I think

You probably keyed in to 1 of the things that we're seeing as well, is that, um, with the macroeconomic uncertainty that, uh, that exhibited itself in the second quarter, we saw a truncation of some of the advisor movement. And so historically we think of that advisor churn movement sitting around 5 and a half to 6%. Um, it has been truncated over the first half of this year. We see the center of gravity sitting around 5% and so you see a reduction in the overall movement. A lot of times when advisors are faced with, um,

Rich Steinmeier: You'll just see a pushing out until we get to a more stable environment. And I think we still sit with slightly elevated ambiguity as to what the macro looks like as we still sit on the tailwind or on the back end of some of that uncertainty around tariffs, et cetera. And so we still see into the beginnings of this quarter a more truncated movement environment. But I would highlight that inside of that, we still have industry-leading win rates of the advisors in motion. And for us, I'm really proud of the results we had in the quarter because we recruited $18 billion in Q2 worth of advisors, assets. But in addition to that, we have deployed a subset of our recruiting team against retaining the 3,000 Commonwealth advisors. And as I mentioned, that's progressing pretty well.

Enhanced volatility in the markets, they're going to usually defer a move reason. They don't want to be out of the market for their clients. And so that doesn't mean you're going to see overall movement down over the long term. You'll just see a pushing out until we get to a more stable environment and I think we still sit with slightly elevated ambiguity as to what the macro looks like. As we still sit on the Tailwind, uh, on on the back end of some of that, um, uncertainty around tariffs, Etc. And so we still see into the beginning of this quarter, a more truncated movement environment, but I would highlight that inside of that, we still have industry-leading win rates of the advisors in motion. Uh, and for us, I'm really proud of the results we had in the quarter because we recruited 18 billion dollars in Q2 worth of advisors, um, assets.

Rich Steinmeier: So you take that together, and we feel really good about the results that we've had when you put both of those together, which says that the effectiveness of certainly of our business development team has been really high. We have heard the commentary from some of the competitors talking about changes in the transition assistance and more competitive TA environments. And we're really attuned to that. We recruit more advisors than any other firm in the marketplace. And so we're in more conversations than anyone else. We're aware of the movement in TA. And I would reiterate that TA for us is not the driver of the selection of advisors as to what firm they choose to join. The number one thing that they look for are capabilities, technology, service, the value exchange that comes with the firm. And then second to that are the ongoing economics.

But in addition to that, we have deployed a subset of our recruiting team focused on retaining the 3,000 Commonwealth advisors. As I mentioned, that's progressing pretty well. So you take that together, and we feel really good about the results that we've had when you put both of those together, which indicates that the effectiveness of our business development team has been really high.

Rich Steinmeier: On both of those, we feel we're without peer in the industry. And third in that evaluation of changing firms is the TA rate, which we have seen become more competitive during the course of the first half of the year. So we remain confident that the ongoing appeal of our model positions us well to maintain our industry-leading capture of advisors in motion.

In the marketplace. And so, we're in more conversations than anyone else. We're aware of the movement in PA and I would reiterate that, um, ta for us is not the driver of the selection of advisors as to what firm they choose to join the number 1 thing that they look for our capabilities technology service. The value exchange that comes with the firm and then second to that are the ongoing economics on both of those. We feel, we're without peer in the industry. And third in that evaluation of changing firms is the TA rate, which we have seen become more competitive during the course of the first half of the year. So, um, we remain confident that the ongoing appeal of our model positions us, well to maintain our industry-leading capture of advisors in motion.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Benjamin Buddish from Barclays.

Thank you. 1 moment for our next question.

Devin Ryan: Hi, good evening, and thank you for taking my question. I was wondering if you could kind of comment at a high level about your overall gross profit ROA. It's been declining for a few years now, and I'm sure some of that is mixed, some of that is as you onboard larger enterprises, kind of move up market with larger financial institutions. Just curious, how do you think about how the next couple of years should look, especially ex-cash? How much of this is sort of due to that kind of rapid growth, M&A? How much of this trend can be bucked? How should we think about that sort of medium-term outlook for that KPI? Thank you.

Our next question comes from the line of Benjamin Buddies from Barkley's.

Matt Audette: Yeah, you bet. I mean, I think broadly that as we've grown and as our revenue is diversified, that's not necessarily the best metric to look at, especially in a market where AUM is rising at a rapid pace. And not all of our gross profit is AUM-driven. So I think that's a little bit to your point on seeing gross profit ROA decline. You see that being driven by cash balances. You see that happening in line items like service and fees, where those are fees that are primarily driven by advisor levels and account levels, not AUM levels. When you start to look at the line items that are AUM-driven, like advisory fees, commissions is a little bit more transactional. I think you see a lot more sale there.

Hi, good evening, and thank you for taking my question. Um, I was wondering if you could comment at a high level about your overall gross profit ROA. Um, you know it’s been declining for a few years now, and I’m sure some of that is mixed. Some of that is as you onboard larger enterprises, um, kind of move up market with larger financial institutions. Just curious, how do you think about how the next couple of years should look, especially, you know, xcash? Um, you know, how much of this is sort of due to that, you know, kind of rapid growth M&A? Um, how much of this trend can be bugged? You know, how should we think about that sort of, you know, medium-term outlook for that KPI? Thank you.

Matt Audette: So a long way of saying I think the decline there, I think, is more driven by not every metric or item in that metric is driven by basis points in AUM. Because when we take a step back and look at where and how we're driving revenue, I think we feel very good about our gross profit growth overall, especially when you couple that with the efficiency measures and you start to look at EBITDA ROA and how that grew for the first time this quarter in quite some time when you couple those two things together. So overall, I think we feel really good. I think you just get a little bit of noise in that metric because not everything is really AUM-driven.

Yeah, you bet. Um, I mean I think broadly that as, as we've grown and as our, our Revenue, um, is Diversified, that's not necessarily the best, uh, metric to look at, um, especially in a market where, uh, AUM is is, is rising, um, at a rapid pace. And not all of our gross profit is AUM drip. So I think that's a little bit to your point on seeing gross profit Roa decline. Um, you see that being driven by cash balances, you see that happening, um, in line items, like service and fees. Where those are? Those are, those are fees that are primarily driven, um, by advisor levels and account levels, not AUM level. When you start to look at the, the light items that are AUM, driven like advisory fees, um, commissions is a little bit more transactional, I think you can see a lot more stability there. So, a long way of saying I, I think that a client there, I I think is more driven, um, by not every metric, uh, um, or item in that metric is driven by um, basis points in AUM because we take a step back and look at where and how

we're driving Revenue. I think we feel very good about our gross profit growth overall. Um, especially when you couple that, um, with the efficiency measures and you start to look at ebita um Roa. Uh and how that's, you know, grew for the first time, um, this quarter in in quite some time when you couple those 2 things together. So

Uh, overall, I think we feel really good. I think you just get a little bit of noise in that metric because not everything. Uh, is really AUM driven.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Michael Cypress from Morgan Stanley.

Thank you. One moment for our next question.

Devin Ryan: Hey, good afternoon. Thanks for the question. Just wanted to ask about capital allocation with the deal closing tomorrow. Just how are you thinking about that and the quarters ahead? And then related to that on liquidity succession, I was hoping you could update us on the progress there, how that's contributing to results, and how you anticipate the pace of deals and capital allocation to that going forward from here. Thank you.

Our next question comes from the line of Michael Cyprus from Morgan Stanley.

Hey, good afternoon. Thanks for the question. I just wanted to ask about capital allocation with the deal closing tomorrow. How are you thinking about that in the quarters ahead? Related to that, on the liquidity succession, I was hoping you could update us on the progress there. How is that contributing to results, and how do you anticipate the pace of deals and capital allocation to that going forward from here? Thank you.

Matt Audette: Yeah, Michael. I mean, I think when you look at capital allocation, I think I'd just reiterate what we've talked about a bit on the once we file the close of Commonwealth. I think keeping our plans and intentions about our leverage ratio are key for us, right? So we expect to be at a leverage ratio of 2.25 times close to close. We have a plan to be leveraged down to the midpoint of our range at two times by the end of 2026 as we integrate. So I think that is going to really guide our capital allocation, perhaps specific or not overtly asking your question, but specific to share repurchases. I think we'll reassess those once we've gotten back down to that leverage ratio.

Matt Audette: Within that, though, I think we can continue to drive and allocate capital to organic growth, which typically is our capability development and technology, as well as the TA behind recruiting. And on the M&A front, which is to the second part of your question in L&S, I think that continues to go quite well. As I think we've ended up putting about 10 deals the last couple of quarters in a row. Those are relatively small from a capital standpoint in the $10 to $20 million range each. But they drive a lot of good earnings generation for us. But I think more importantly, there's just a great capability to help advisors transition their practices to the next generation. So overall, it continues to go well.

Yeah, Michael. I mean I think when you look at Capital allocation I think we would just reiterate. Um, we've talked about a bit um on the clo, you know, once we file the closed Commonwealth. I think, you know, keeping a um our plans and intentions about our leverage ratio um are key for us, right? So we expect to be at a leverage ratio at 2.25 times close to close. Um, we have a plan to be leveraged down to the midpoint of our range at 2 times, um, by the end of 2026 as we integrate. Um, so I think that that is going to really guide our Capital allocation uh, perhaps specific um or not. Not overtly asked in your question, but specifically to share with purchases. I think we'll reassess those once we've gotten back down to that to that leverage ratio. Um, within that though, I think we can continue to drive and allocate Capital to organic growth which typically

Matt Audette: The pace has picked up to about 10 per quarter, and it's a good use of our capital that continues to be in our plans while still landing our leverage ratio or deleveraging down to two times.

Um, it's a good use of our Capital. That's that's uh continues to be in our plans uh while still Landing or leverage ratio or deleveraging down to 2 times.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeff Schmidt from William Blair.

Thank you. 1 moment for our next question.

Devin Ryan: Hi, good evening. So for Commonwealth, you're adding 160 or 170 million of core G&A for the deal, and that's around five or six basis points of AUM versus I think LPL is running at nine basis points. I guess, one, is that the right way to look at it? And two, is what would be driving that efficiency difference, if so?

Our next question comes from the line of Jeff Schmitt from William Blair.

Hi, good evening.

So for Commonwealth, you're adding 160 or 170 million of core GNA for the deal and that's around 5 or 6 basis points of awe versus uh I think lpl's running at you know, 9 basis points. I guess 1 is that the right way to look at it and to is you know what would be driving that efficiency difference. If so

Matt Audette: Yeah, Jeff. I mean, I think that I wouldn't get too focused on the initial EBITDA and the initial expense guidance because remember, that is the existing Commonwealth business. We haven't integrated that, which we will through the end of 2026. So I think really as we start to do that work and as we start to get to the run rate EBITDA of 415 million, I think broadly you're going to see a business that from a gross profit standpoint is similar to our business and from a margin standpoint is going to be in the same zone. So I wouldn't get too hung up on the initial run rate numbers.

Yeah, Jeff. I mean I think that I wouldn't get too uh too focused on the initial uh ibitta on the initial expense guidance. Because remember, that is the the existing Commonwealth business.

Um, we have an integrated that um, which we will um through in the end of 2026. Um, so I think really when we, as we start to do that work and as we start to get to the Run rate, even though 415 million, I think broadly you're going to see a business that from a gross profit standpoint um is similar to our business and from a margin standpoint. Um is going to be in the same Zone. Um so I would I would get 2 home hung up on the initial

Operator: Thank you. One moment for our next question. Our next question comes from the line of Kyle Voigt from KBW.

Thank you. 1 moment for our next question.

Our next question comes from the line of Kyle voy from KBW.

Kyle Voigt: Hi, good evening, everyone. Thanks for your question. So it's been a volatile quarter for sweet cash. Obviously, there was a focus on the level of decline in the May cash number. So it's good to see the rebound in June. Just wondering if you could hit on some of the bigger factors that drove the volatility in cash in the quarter, particularly over the past two months. And it would be great to hear if there's been any change in yield-seeking behavior or whether it's been driven by different factors. And then, Matt, maybe you could also update us on July sweet cash as well.

Hi. Good evening, everyone. Uh, thanks for my question. Um, so it's been a volatile quarter for sweep cash. Obviously, there was a focus on the level of decline in the May cash number.

Matt Audette: Yeah, you bet. I mean, I think when you look at the quarter, it really is just driven by two factors. One, in April, which is the primary driver of the decline, just your typical seasonal items, the advisory fees coming out and tax payments. And as you noted, as you got deeper into the quarter, we saw some growth in June growing by $1.4 billion. So I think overall, that's kind of an expected trend that you would see in the balances. But the primary driver, about two-thirds of that, if you look at the cash as a percent of AUM coming down, is just the denominator growing, right? We've got a strong equity market. If you look at our AUM overall, it's growing almost $100 billion on average for the last several quarters in a row. So you just have the denominator growing.

So it's good to see The Rebound in June, just wondering if you could hit on some of the bigger factors that drove the volatility in cash in the quarter, particularly over the past 2 months, and would be great to hear if there's been any change in yield seeking Behavior or whether it's been driven by different factors and then that maybe you could also update us on July sweep cash as well.

yeah, you bet I mean I think when you look at

Quarter. Um, it really is just driven by 2 factors 1. Um, you know, in April which is the primary driver of the decline, just your typical seasonal items. Uh The Advisory fees coming out uh and tax payments. And as you noted as you got deeper into the quarter we saw we saw some growth in June growing by 1.4 billion. So I think overall, um, you know, that's kind of an expected Trend that you would see in the balances. Um, but the primary driver, um, about 2/3 of that, if you look at the cash as a percent of a, um, coming down, it's just the denominator growing, right? We've got a strong Equity Market. Um, if you look at our AUM overall, it's growing, you know, almost a hundred billion on average for the

Matt Audette: Cash balances themselves have been pretty stable around $5,000 per account for quite some time, for several quarters in a row. So I think it's maybe to hit home the point, that percent decline is really just driven by tax payments as well as the denominator growing. Now, bridging into what we've seen so far in July, sitting here almost at the end of the month. Again, first month of a quarter, it's as expected, with that seasonality and specifically advisory fees hitting in that first month of the quarter for July, that's around $1.8 billion of a decline. Outside of that, cash balances were flat, other than that, and fees hitting. And then just to add on to that from an organic growth standpoint, a very similar driver there, advisory fees reducing that in the first month of the quarter.

The last several pours in a row. So you just have the denominator rowing.

Cash balances themselves. Um, have been pretty stable around 5,000 for account, for for quite some time, for several quarters in a row. So I think it's maybe to to hit home the point uh that percent decline is really just driven by tax payments uh as well as the denominator growing. Um

Matt Audette: And then to Rich's point earlier, that slowdown in industry-wide advisor movement on the recruiting side, you'll see that carry over into N&A into the third quarter. We're seeing that in July. If you put that together, we'd expect organic growth in July to be in the 4% zone, which for month one of a quarter, I think is what you would expect. And I'd just highlight that is prior to any additional attrition that we'll have from the misaligned OSJs that are leaving. And just a reminder there, that was an overall $20 billion that we expected to depart. $13 has already departed through Q2. So there's $7 billion more to go. And that's primarily direct business at this point, which is a little harder to see and predict when that's going to leave, which is why I didn't include it in the estimate.

Now, bridging into, uh, bridging into what we've seen so far in July sitting here almost at the end of the month. Um, again first month of a quarter, um, it's as expected, uh, with that seasonality and specifically, uh, advisory fees hitting in that first month of the quarter, uh, for July that's around 1.8 billion of a decline outside of that cash balances were flat, um, other than that, then fees hit. Um, and then just to to add on to that from an organic growth standpoint, uh, very similar, uh, driver, their advisory fees reducing that in the first month of the quarter, um, and then, and then to Rich's Point earlier that slow down in industry-wide advisor movement and the recruiting side, you'll see that carryover into n&a um, into the into the third quarter. We're seeing that in July. So you put that together we'd expect organic growth in July to be in the 4% Zone uh which for for month 1 of a quarter I think is what you would expect um and I just highlight that is prior to any additional um um attrition that will have from the misaligned. Oh,

Matt Audette: But again, no changes in the expected total there of $20 billion this quarter. So hope that helps.

JS, that are leaving. Uh, and just a reminder there, that was an overall 20 billion that we expected to depart 13, has already departed, uh, through Q2. So There's 7 billion more to go. And that's primarily Direct business at this point, which is a little harder to see and predict when that's going to leave, which is why I didn't include it in the estimate, um, but again, no changes in the expected total, there of 20 billion.

so hope that helps

Operator: Thank you. One moment for our next question. Our next question comes from the line of Bill Katz from TD Cowan.

Thank you. One moment for our next question.

Devin Ryan: Great. Thank you very much. Just maybe a couple of embedded questions. Inside of the AUM for Commonwealth, I was wondering if you could update us on the split between cash and the rest of the business. And then secondly, the broader question just on liquidity and succession. What we continue to hear is that private equity firms continue to be quite aggressive in terms of scaling wealth management platforms. I'm wondering, is that having any impact on the deal multiple in terms as you deploy that capital, whether it be internally or externally? Thank you.

Our next question comes from the line of Bill cats from TD Cowen.

Commonwealth. I was wondering if you could update us on the split between cash and um and and rest of the business and then, secondly, the broader question just on the quitting succession of what we continue to hear is that private Equity firms, continue to be quite aggressive in terms of scaling wealth management platforms. I'm wondering, is that having any impact on the deal multiple? Uh, in terms as you deploy that Capital, whether it be internally or externally. Thank you.

Matt Audette: Yeah, Bill, I can take both of those. The cash as a percent of AUM at Commonwealth is a little bit below ours, you know, call it 1.5%, 2% zone. It's a little bit smaller balances there than we have. On the L&S side, I mean, the short answer is no. I mean, I think when you look at the multiples that we're paying, they've been consistent. I think the value prop that we have for a host of reasons, including staying at LPL, staying in our system, the overall support that the team brings when they go into that model, I mean, I could go on and on and on. I think the price has not changed. The value prop is really what's driving that.

Matt Audette: And anything that from a private equity standpoint or the things that you had referenced has really not changed the multiples that we're paying at all.

The cash is a percent of a common law. It's a little bit below, ours, you know, call it 1 and a half 2% Zone. Um, it's a little bit smaller balances there than we have uh, on the LNS side. But the short answer is no. I mean, I think when you look at the multiples that we're paying, they've been consistent. I think the value prop that we have, um, that for a host of reasons, including staying at LPL staying on our system, uh, the, the overall support that the team brings when they go into that model. I mean, I could go on and on and on, um, I think the price, um, you know, has not changed. The value prop is really what's driving that? Um, and and anything that, um, from a private Equity standpoint or the, the things that you would reference has really not changed the multiples that were paying at all.

Operator: Thank you. At this time, I would now like to turn the conference back over to Rich Steinmeier for closing remarks.

Thank you at this time. I would now like to turn the conference back over to Rich steinmeier for closing remarks.

Rich Steinmeier: Thank you all for joining us. We look forward to speaking with you all again in October. Have a good night and go chase down the rest of those MLB trade deadline rumors. So long.

Thank you all for joining us. We look forward to speaking with you all again. In October have a good night and go chase down the rest of those MLB trade deadline, uh, rumors

so long.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

This concludes today's conference call, thank you for participating. You may now disconnect