LPL Financial fourth quarter profit surges despite regulatory uncertainty

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Independent brokerage LPL Financial Holdings Inc posted a fourth-quarter profit that surged 56 percent as an increase in advisory assets helped soften the costs of an uncertain regulatory environment. The firm, which provides products and support services to more than 14,000 independent financial advisers, reported net income rose to $41.74 million, or 46 cents per share, in the quarter ended Dec. 31, up from $26.81 million, or 28 cents a share, in the same quarter a year earlier. Total net revenue fell 1.3 percent to about $1 billion. But total brokerage and advisory assets rose 7 percent over the prior year to $509 billion, with a total of $2.5 billion in net new assets. Roughly two-thirds of new assets were from investors interested in financial advisory accounts, and a third went into brokerage accounts.

That is a departure from LPL's legacy client assets, of which 42 percent are held in advisory and 58 percent are in brokerage accounts. The wealth management industry has seen a multi-year trend of clients investing in advisory accounts, where they pay a fee based on their total assets, over brokerage, where they pay a commission per transaction. This trend was amplified in 2016 as firms prepared for the start of the U.S. Department of Labor's fiduciary rule, which aims to put clients' interests first by eliminating conflicts of interest, such as products in brokerage accounts that may pay an adviser a greater commission than others.

The U.S. Labor Department is now preparing to delay that rule. Dan Arnold, LPL's new chief executive who replaced Mark Casady on Jan. 3, said whether the rule is delayed or not, the firm will press on with compliance changes it is making, such as plans to launch a robo-adviser and the standardization of some brokerage product fees.

"A delay would be the next logical step," Arnold said. "But if you create innovation and outcomes that are better, with or without the rule, you continue with those."Casady, 56, joined LPL in 2002. He will remain on LPL's board of directors as a non-executive chair until he retires in March.