Shares of LPL Financial drop 2.38% in after-hours trading Thursday following the firm’s second quarter earnings report. While adjusted earnings per share (excluding some one-time expenses) surpass analyst expectations, official earnings per share results fall short.
LPL Financial reports adjusted earnings per share of $3.88, marking a 2% decrease from the same period last year, yet surpassing analysts' estimates of $3.71. On a GAAP basis, the company reports earnings per share of $3.23 and total revenue of $2.93 billion. Analysts surveyed by FactSet had anticipated GAAP earnings of $3.43 and revenue of $2.89 billion.
As the largest independent broker-dealer in the nation, LPL Financial continues to grow its advisor force through recruitment and acquisitions. The firm announces a record advisor head count of 23,462 at the end of the quarter, an increase of 1,520 from the previous year.
Total advisory and brokerage assets rise 21% year-over-year to a record $1.5 trillion, partly driven by strong equity markets. Advisors are also bringing in more funds, with organic net new assets reported at $29 billion for the quarter, up from $21.7 billion during the same period last year.
“Over the past quarter, we remained focused on our mission of taking care of our advisors, so they can take care of their clients,” says CEO Dan Arnold. “This focus led to another quarter of solid business and financial results, reinforcing our momentum.”
Like other brokerage and wealth management firms, LPL Financial sees a decline in client cash balances, which fall $6 billion year-over-year to $44 billion and $2 billion sequentially. Over the past 18 months, clients have been shifting cash from lower-paying sweep accounts to higher-paying options such as money-market funds. This process, known as cash sorting, has impacted other companies like Charles Schwab.
Investors and analysts are also concerned about potential pricing pressures on interest rates paid on customers’ uninvested cash. Wells Fargo and Morgan Stanley recently announce they are raising interest rates paid on investors’ cash, which may impact net interest income, a key profit center. These changes have triggered a sell-off in wealth management stocks, including LPL Financial.
