LPL Financial : at Bernstein Strategic Decisions Conference Transcript

Published: 2025-05-30 11:29:16 ET LPLA

Published on 05/30/2025 at 11:29

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EDITED TRANSCRIPT

LPLA.OQ - LPL Financial Holdings Inc at Bernstein Strategic Decisions

Conference

EVENT DATE/TIME: MAY 28, 2025 / 12:00PM GMT

OVERVIEW:

Company Summary

All right, I think we can get started here. So good morning everyone, and thanks for joining this early session with LPL Financial. I'm delighted to have Rich Steinmeier, CEO at LPL, for the first time at the SDC Conference.

As many of you know, LPL is one of the fastest growing players in the US wealth management space, with almost $2 trillion in client assets, driven by a long track record of strong organic growth and strategic acquisitions.

‌Rich took over as CEO late last year. Prior to that, he served as the Chief Growth Officer, and before that, Rich had senior leadership roles at UBS, Merrill Lynch, as well as working for McKinsey. So Rich, thank you very much for joining the SDC.

Thanks, [Christian]. It's great to be here.

Good. So just quick housekeeping. You can send questions to Pigeonhole via some QR codes somewhere, so you can find that and I guess, send the questions, and I'll try and get them to Rich. So let's just start, Rich, it's been a very busy start to your time as CEO, doing the largest deal in LPL's history, and dealing with significant policy and micro uncertainty.

So just reflect on your time as CEO so far, how have your views on the company evolved? Kind of what changes are you making relative to maybe the prior management team?

Yeah, I was part of the prior management team, so I'll say we haven't made tremendous changes.

Look, I think it's been a busy seven months. I'm really proud about the progress that we've made. So much of this is a continuation of the strategy of the firm. I think we are very solidly participating in two market trends that are macro trends that continue to move.

The first is the movement to independence. We hold ourselves out certainly as the strongest player in the independent channel. And in addition to that, participating in this movement, in the institutional market of outsourcing/partnerships, banks, credit unions, now increasingly insurance firms as well.

A couple of things we've done over the last maybe seven months that are pivots, we have heightened our focus on operating margin. That's one thing that is starting to pull through. Maybe some of you saw that in our Q1 earnings, but that is a culmination of investments we've made over the last several years to drive greater efficiency in the operating experience.

I think, as we think about it, as you think about calls even into a call center, we view those as a flawed experience inside of the operating environment. And so taking a really keen eye into all of the things that drive, I wouldn't even say dissatisfaction, but drive inefficiency in the operation of an advisor's business, getting to the root cause of those, leaning those out, applying lean principles, and then designing them out into the experience, is beginning to take shape in how we think about the cost curve for servicing advisors, not just in service but in operation.

So elevation of the operating margin. I think one other thing which you'd see culminate a little bit in the Commonwealth acquisition is this heightened orientation to driving an exceptional service experience. That's not just getting the right answers to questions that come in, that is actually an orientation towards really being responsive to advisors, creating many more ways to ingest their feedback, to disposition that feedback, to act on it, and to close the loop back with advisors.

And so those are two areas that I would say, we've changed, we've elevated the import that will continue to drive, I think, improvements not only into the client experience but the overall operating performance of the firm.

Great, and I'd love to dig into the margin debates at some point, but let's stick to growth for now. You joined in 2018 and maybe I'll give you credit for this, but since then, EPS has compounded 20%. Organic growth has doubled from 4% to 8%, which is best in class in industry. Maybe just help us contextualize what's driving the outsized growth, and how you think about maybe that sustainability of that growth going forward.

Yeah, when I joined the firm in 2018, I'd come from the wires, and I think there was this perception even inside the firm that there was a "less than" element of how the independent broker dealers operated and I was struck by the capability set that we had at LPL that I thought really competed with the wires in a very toe to toe fashion, but I don't think that a lot of folks in the marketplace really experienced us that way or believed that to be the case.

And so one of the first things that we pursued was expanding our affiliation models. The reason we did that was we needed greater access points into independence, because independence is not a model, it's actually a belief that the advisor owns their own business. And so there's a continuum of how you deliver an experience there.

And so we introduced an independent employee channel, a supported independent channel, we enhanced our capabilities as a custodian to be a counterparty to RIAs. And so the first step was really expanding the access point. And it didn't just mean that new advisors went into those channels, it meant that we were relevant and so much of that strategy was around enhancing consideration.

That was around having more advisors actually actively engage us because when they actively engaged us we found that disproportionately we would actually win relative to competitive set. So step one, I think investors would have viewed that as a TAM strategy.

I would view that more as a consideration strategy to be a relevant counterparty to as many advisors in the marketplace who are moving as possible, and that doesn't mean they move into those models, it means that they consider us and then they ultimately work through what is the appropriate model, and I think that was step one.

I think the second step was as we accelerated growth, and that was the beginning of the acceleration of growth, I think it was more confidence in ourselves, knowledge about where we were competitively, and then expanding our addressable market.

As we began to accelerate growth, we reinvested and you see that over that course of those kind of four years where we build out capabilities where there were gaps. We identified that there were material gaps and that's where we thought about how relevant are we not just a TAM strategy, but how relevant are we to those advisors that are moving and what are the key inhibitors from where we get disqualified in the sales process.

And we have a pretty rich and robust feedback loop inside of our sales process, so the identification and building out of new capabilities to make ourselves more relevant, and then you pair that with I would say a second to none value exchange in the marketplace, and all of a sudden our win rates began to increase.

And what you see that manifest in was our market share of advisors changing firms dramatically increased over that kind of five year arc, which culminates in us having industry leading growth, and I don't think we're giving that up anytime soon because we continue to pursue that strategy, but now we've moved out of -- so many those gaps have been closed -- you get into what I would say again is a second to none value exchange with capabilities that are no longer compromised. And in fact we're on the cusp of those capabilities being stronger than the players that I used to work at.

And so you marry that with an unbelievable value proposition and you get -- you don't have to have independence or capabilities. You kind of get the best value proposition and the best capabilities. And I think it's really hard to stop. So that's we're on the cusp of that, and so I'm excited about that being the next leg in our journey. .

M&A has also been just a key part of your growth strategy. I count close to six deals in the last couple of years, almost half a trillion of AUM, but it does feel like the Commonwealth deal that you recently announced was a step function change in your ability to attract the best talent, your ability to serve advisors, maybe talk through what makes Commonwealth special, what exactly you want to preserve in the Commonwealth model and transfer to LPL.

I would agree with you. I think that the Commonwealth transaction is a bit of a watershed deal for us and what I mean by that is that was a firm that could have ultimately paired with anybody in the marketplace. I think it was a very robust process that they went through, and I think the decision process that ultimately culminated in us winning that transaction was that the founder of the firm asking the leadership of the firm and they're in a partnership model, what firm do you think if we partnered with will be the most successful for our advisors over a five year arc? That is a huge validation to LPL.

They had any other firm they could have chosen to go with, and they chose not based on a monetary consideration. Obviously there are monetary considerations, and so you've got to be in the ballpark, but they chose it based on where they thought the advisors would have the best opportunities to succeed.

And I think if you think about that is not where a lot of folks would have positioned this firm five years ago. And it goes into, and I know you'd asked about the growth, maybe one of the things that I didn't hit not only do we take more advisors in the marketplace, but we have one of the lowest, if not the lowest attrition rate of our existing advisors.

And so there's commonly held narrative in the space that you know we're too big, et cetera. And I would tell you that the data doesn't support that. And so driving growth is not only satisfaction with advisors but low attrition rates and then helping advisors be successful, which is I think ultimately how that decision got made.

But if you take that, Christian, and put that together, the Commonwealth has an exceptional service experience, as I mentioned a little bit earlier. The way that they receive feedback, the way they ask for feedback, the way it's dispositioned, which means it's distributed across the firm.

The way that they then close the loop, they actually build towards the capability gaps that are identified by their existing clients or the flaws in their systems. So they have a really rich and robust feedback system. In addition to that, they empower the servicing associates not just to get answers to the questions that advisors are asking when they call in, but to actually solve their problems.

And I think that empowerment is one other thing that we want to really emulate. And in addition to that, they have a fully aligned incentive system across their associates for the client satisfaction. And so there's so much of this in their responsiveness. They are really an ultra-responsive firm to advisors' needs. We want to ingest that in.

We want to make sure we're taking that on, and then serving that up to the broader population. And so you ask what do we want to keep in place for Commonwealth? Well, number one is the brand. The brand is fantastic. Advisors are really proud of being affiliated with Commonwealth.

The second is, they have a common set of experiences. It starts with, you could think of things as easy and tangible as conferences. But they have an advisor development program called Power in Practice that is fantastic as well.

The IP in that program is really well regarded. And so this consistency and commonality of experiences that they live inside of this community, plus the service experience, and then us emulating that feedback system, I think that is the body of those things that we want to keep common. And then so much of that we want to bring over into our broader experience.

And as you then evaluate maybe as we get out of looking at this transaction, on the backside of this, you will see that we will have elevated our service experience. We will have elevated our ability to ingest and disposition and act on feedback.

We will also open up our conversations with more wirehouse advisors because I think that is where, as wirehouse advisors look to independence, there are two names that they look to, it's LPL and Commonwealth. And I think the Commonwealth had a higher tier experience, and so I think that is a pretty validating event for us to have the firm that is the premium 1099 model have chosen to partner with us, going forward.

Awesome. So Richard, we're sitting here in two years' time. How do we judge the success of the deal, the Commonwealth deal? I know we have a couple of targets around -- I'm going to EBITDA of the company from $120 million to north of $400 million. You have some retention targets. But talk about financially and strategically or service wise, how we judge the deal's success in a couple of years.

Yeah, given that we're at the SDC, well, I'll start with strategy. I also have an affinity for strategy. I think -- I do think that there's so many questions in the marketplace about "are we going to sustain what makes Commonwealth great?" and the answer is, we're going to.

This is a strategic deal as much as it is a transaction about coming together of two different firms. This is actually about taking what is best with each of the firms individually and elevating them because I didn't mention -- while there are things we're keeping common or keeping consistent at Commonwealth, they are going to gain access to our capability set, our robust, rich business solution support, et cetera.

And so I think, how would you measure the success of this transaction? I think one, obviously the short-term evaluation will be the retention of the advisors. We continue to track and feel good about our engagement, and we're pretty robust in the way that we model these and the way that we track the duration of how those re-recruiting conversations go.

And we feel pretty comfortable about where we stand relative to targets there. But I think the judgment will not just be on EBITDA because that's relatively straightforward. We retain the advisors, we move to self-clearing. We actually put them onto our client works platform, and I think you're going to see that pull through. It's not that complex to figure out.

Disclaimer

LPL Financial Holdings Inc. published this content on May 30, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 30, 2025 at 15:27 UTC.