LPL Financial Holdings Inc. Q3 FY2025 earnings call

• Q3 results: Total assets at record $2.3T, organic net new assets $33B (7% annualized growth), adjusted EPS $5.20 (25% y-o-y increase).
• Recruiting: Q3 recruited assets $33B, trailing 12 months $168B. Traditional independent market added $12B, expanded affiliation models added $3B. Attracted 4 $1B+ practices.
• Acquisition of Commonwealth: ~3,000 advisers and staff onboarded, tracking 90% retention target with 80% of assets signed. Commenced work on capability build and onboarding planning.
• Asset retention: 98% in Q3 prior to misaligned OSJ assets offboarding.
• Strategic plan: Focus on client centricity, empowering employees, and driving operating leverage. Monetization initiatives to streamline business solutions, adjust pricing on advisory and brokerage platforms.

In the third quarter, total advisory and brokerage assets reached $2.3 trillion, driven by the acquisition of Commonwealth and organic growth. Organic net new assets were $33 billion, representing a 7% annualized growth rate. Adjusted EPS was a record $5.20, an increase of 25% from the previous year. Recruited assets in Q3 were $33 billion, with the trailing 12-month total at a record $168 billion. The acquisition of Commonwealth added $275 billion of assets in Q3. The traditional independent market added approximately $12 billion in assets during Q3, and the expanded affiliation models contributed roughly $3 billion in assets.

• 2025 G&A outlook lowered to $1.86 billion to $1.88 billion.
• Q4 ICA yield expected to decrease to roughly 345 basis points.
• Q4 service and fee revenue expected to be roughly flat sequentially.
• Q4 transaction revenue expected to be ~$70 million.
• Monetization initiatives to increase trailing 12-month adjusted pretax margin by approximately 1 percentage point in 2026.
• Commonwealth onboarding expected in Q4 2026, with run rate EBITDA expectation ~$425M.
• Atria onboarding complete, run rate EBITDA expected ~$155M.

• Market uncertainties impacting adviser movement and TA rates.
• Integration risks associated with the Commonwealth acquisition.
• Dependence on successful execution of pricing adjustments and cost initiatives to maintain competitive position.

Q: How is the Commonwealth integration tracking relative to the original plan and when can recruiting teams focus more externally?

A: The Commonwealth transaction is progressing as planned. Nearly 80% of assets have signed to stay. As retention progresses, recruiting teams ring-fenced for Commonwealth will begin to pivot back to external advisers in the second half of the year.

Q: Clarify the 100 bps net margin benefit from pricing changes and how it enhances the value prop?

A: The 100 bps improvement is solely from pricing changes. Advisory pricing is being lowered to be more competitive, and brokerage pricing is being raised to align with market levels, enhancing growth opportunities.

Q: On the Commonwealth 90% retention target, is the timeline the Q4 '26 onboarding target or could it be sooner?

A: The 90% target is tied to the Q4 '26 onboarding, but reaching 90% before then is possible. Final retention is measured at onboarding, with run rate EBITDA of ~$425M expected at that time.

Q: Update on alternative investments and digital assets progress?

A: On alternatives, by end of 2025, expect 120 alts available for sale. Digital assets: 5 cryptocurrency ETFs on the platform, monitoring competitive landscape. These enhance appeal to advisers and support revenue monetization.

Q: Expectation on TA rates progression as rates come down?

A: TA rates are expected to come down as interest rates decrease. Driven by market dynamics, number of advisers moving, and return hurdles, with focus on value proposition for advisers.