LPL Investment Holding, Inc. (



UBS Healthcare Services Conference

March 23, 2012 08:10 am ET


Robert J. Moore – Chief Financial Officer & Treasurer


Alex Kramm – UBS Investment Bank



Kramm – UBS Investment Bank

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Well, welcome to day two of the Asset Gathering Conference. We are going to get started with, I guess a new addition to this conference. Having heard from some other wealth management firms, it will be interesting to hear from I guess the largest independent provider of such services, so delighted to have LPL Financial here and hear more about their story.

Robert J. Moore

Thank you Alex, good morning. I am Robert Moore, the Chief Financial Officer for LPL Financial and I am joined by colleague Trap Kloman, who is Head of our Investor relations. I would like to thank UBS for inviting us along to this conference.

The corporate mission that we’re on is to ensure that investment advice is delivered to all Americans by an investment advisor, who operates in a conflict free environment supported by leading edge technology and a highly motivated business partner.

The advisor is our customer and we help them manage the complexity of their business. We are the leader in the industry and have been for more than 15 years. We now rank number four by a number of advisors and number five by revenue. We are number one in supporting community banks and credit unions with a nearly 40% market share. And most recently, through our acquisition of National Retirement Partners, we have become a major provide to 401(k) plans.

As noted in the upper portion of this slide, we are able to attract advisors from across all industry channels. This is a strong contributor to future growth and distinctive to our model in terms of the diversity we are able to support.

The left hand chart shows the strong growth in our advisor base since the year 2000 when we went self-clearing. 70% of the growth has been organic with most of the acquisition growth occurring in 2006 and 2007. Self-clearing is a critical differentiator to our business model and reinforces our value proposition and ability to further grow the business. It is an investment that can be made only by firms at scale, but once made it is highly leverageable in both service and economic terms.

Shown here on the upper left hand side of this slide is the basis for the economic rationale for why an advisor would joint LPL. Obviously there are other factors leading to us attracting advisors, but the opportunity to double income and establish equity in their own business is compelling.

Importantly, we also create enhanced economics for our advisors and other independent firms. A 2010 PWC Study which we commissioned concluded that our advisors are approximately 18% more profitable than their peers and other independent broker dealers.

The four pillars of our business model are shown on the right hand side of the slide. We are a leading technology provider, fully integrated to meet the rising complexity involved in delivering advice. We are unparalleled in our ability to support our advisors through ongoing training and best practices.

Our independent research draws from the collective capabilities of more than 40 investment professionals, delivering due diligence, market commentary, asset allocation recommendations and daily dialog in support of our advisors. Finally, we are a clear leader in conflict-free compliance, driving low levels of complaints and an exemplary regulatory track record.

These four pillars are unmatched in the independent channel and are at the heart of our distinctive offering, all this results in strong net promoter scores and high rankings in the J.D. Power Full Service Investor Satisfaction Survey.

Sometimes it’s helpful to discuss the things that we don’t do, in helping you understand who we are and what we stand for. We don’t have proprietary trading or product manufacturing. We don’t own a bank or have investment bankers. We don’t compete against our customers by going directly to their clients and offering online trading.

And by working with more than 500 partner firms and providing access to over 10,000 investment products, we are the standard in giving the word, ‘open’ to architecture. What our customers and investors receive in LPL is a dedicated mission-driven business that is capital light, free to grow and positioned for success. This makes LPL the partner of choice for advisors that want the freedom of true independence.

The combination of the information that I provided thus far is a strong operating model which has the highest retention rates in the industry, a well diversified customer base, comparatively low levels of interest rate sensitivity and high levels of recurring revenue.

We see opportunities to continue to improve our operating margins through our service value commitment initiative. This will enhance our already strong free cash flow generation and our low consumption of capital allows us to have higher pay-outs for our advisors, strong reinvestment in technology and service, while maintaining flexibility for acquisitions.

It is worth highlighting that the majority of our higher margin attachment revenues are derived from our move to self-clearing. There’s rightly been a fair amount of attention given to our cash products program. With more than $22 billion in assets, our cash program is a valuable and valued activity for the company and our customers.

For competitive reasons, we do not provide specific information about the underlying contracts with our depository partners. However, we have been highly transparent about the allocation of balances and yields between our money market options and the insured cash account offering, as well as their sensitivity to changes in interest rates.

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