LPL Financial Holdings Inc. (LPLA) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the LPL Financial Holdings Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I’d now like to turn the conference over to Trap Kloman, Senior Vice President of Investor Relations. Sir, you may begin.

Thank you. Good morning and welcome to the LPL Financial second quarter earnings conference call. On the call today is Mark Casady, our Chairman and Chief Executive Officer, who will provide his perspective on our performance during the quarter. Following his remarks, Robert Moore, our Chief Operating Officer, will highlight drivers of our financial results. And lastly Dan Arnold, our Chief Financial Officer will speak to our capital deployment. We will then open the call for questions. Please note that we have posted a financial supplement on the Events section of the Investor Relations page on lpl.com. Before turning the call over to Mark, I’d like to note that comments made during this conference call may incorporate certain forward-looking statements. This may include statements concerning such topics as earnings growth targets, operational plans, and other opportunities we foresee. Underpinning these forward-looking statements are certain risks and uncertainties. We refer our listeners to the Safe Harbor disclosures contained in the earnings release and our latest SEC filings to appreciate those factors that may cause results to differ from those contemplated in such forward-looking statements. In addition, comments during this call will include certain non-GAAP financial measures governed by SEC Regulation G. For a reconciliation of these measures, please refer to our earnings press release. With that, I’ll turn the call over to Mark Casady.

Thanks Trap and thank you for joining today’s call. Second quarter presented uncertain market conditions that resulted in 1.5% revenue growth year-over-year. Our advisors have been clear and communicating to us the more cautious sentiment that exists among retails investors causing lower investment activity which intensify in June. While we continually strive to provide value added technologies and services to support our advisors to grow their businesses, when faced with this macro driven headwinds it is challenging to produce top line growth in the short-term. At the same time our performance has been impacted by our ongoing commitment to additional investment. Adjusted earnings for the quarter were $0.49 per share down 5.8% relative to the second quarter of 2011. While we are managing our ongoing operating expense to reflect the slowdown in top line performance, we continue to expand investments in key strategic areas to fuel future growth. Specifically, year-over-year earnings were impacted by the added expenses related to the acquisitions of Fortigent and Concord, investment in our retirement platform and the formation of NestWise to address advisor training and enter the mass market channel. In addition, as our business development pipeline remains very active we increased our investment in transition of systems to support new advisor growth. The cost to recruit remain steady but the increased volume resulted in 41% expense growth in business development relative to 2011. Together these incremental items reduced adjusted earnings by $4.1 million and adjusted EPS by $0.04. The 223 net new advisors joining LPL during the quarter, our expenditures to fuel advisor growth continue t produce results. The acquisitions and investments are consistent with our stated objective to provide broad and leading edge solutions to our advisors and to end investors. We have a history of investing in the business through varying market cycles including market downturns. This includes developing our fee based platform in 1990, our move to (inaudible) in the year 200 and our initiation of our independent RIA platform in 2008. These advisor additions and the acquisition opportunities are not planned by quarter or time with stronger market conditions. That’s not the nature of either activity. We recognized such opportunities come in cycles and this period will not persistent definitely. Our strategy continues to be to capture opportunities as they arise as long as we believe the fundamental health of the underlying business remains intact. This sustains our value proposition to our advisors and further sets us apart from many of our competitors. With the challenging market conditions and increased investment impacting results, we are proactively taking steps to reduce our core expense run rate, operationally we continue to provide our advisors and their clients with the high level of service and execution they are accustomed to and stand ready to support them when growth returns. As you expect, we are balancing this approach by pursuing cost management opportunities to control our expenses appropriately. The result is we are better positioned to manage to the uncertain market conditions that will likely persist to the end of 2012. Should conditions worsen we will reassess our levels in investment and degree of expense management. We have a history of been able to swiftly and effectively course correct in the face of deteriorating market conditions. Our experience has led us to see greater discipline in managing the efficiency with which we support our growth today. We have implemented resource planning models to evaluate our [staff need] and launched our service value commitment initiatives based on lean principles. We does not change with shifting market conditions as the need for and value of financial advice, these macro issues and a company investor sentiment are not unique to today. We have great confidence and the relationships our advisors have with their clients and their relationships with us. With investor sentiment does improve we are well positioned to resume our trajectory of strong growth and margin expansion. We know our independent and dedicated business model delivers differentiated value proposition that attracts advisors. This quarter advisor production retention was in excess of 97% and we generated net new advisor growth of 223 advisors and 671 net new advisors over the past four quarters. We continue to see the pipeline filled with advisors from all channels and in particular from the wire houses and independent. Our investments in the high network space, the RIA market and retirement platform have supplemented our strong ongoing success in attracting new advisors. As we do not control the advisors in motion at any time in the marketplace and important measure I track is our net new advisor growth relative to our competitors. The expectation I set for our company is to be in the top three each and every year. We were number two in 2010 and 2011, and I see us on similar trajectory to-date in 2012. I’d like to provide a brief update on our management structure. Over the past year we have evaluated the next several years of challenges and opportunities for the business and start to align the needs of the company with the capabilities and diversity of our leadership team. As previously announced I’m thrilled to have Esther Stearns our former President and COO now leading our subsidiary venture NestWise into the mass market. This move created the opportunity for Robert Moore, who many of you know well to bring his invaluable leadership and array of experience to the role of President and COO. In addition, we have supplemented our existing team with new hires from the industry to have significant financial services experience. These hires include Sallie Larsen, Head of Human Capital; Joan Khoury, our new Chief Marketing Officer; Bob Comfort, our Executive Vice President of Institution Services and Business Consulting; and Mimi Bock, our Executive Vice President of Independent Advisor Services Business Consulting. Most recently we announced Dan Arnold as our CFO, who brings tremendous experience from his roles with our institution services channel and then the strategic development department at LPL. I feel our management team is now in place and in line to continue our record of sustained growth. As we have set some IPO we need top line growth to achieve margin expansion and profit growth. We’ve emerged from previous challenges resulting from the difficult markets in a position of strength and there is nothing fundamentally different about the business model in this current cycle. We managed for long-term growth which we believe is critical for evolving the company in a competitive marketplace and creating value for customers, employees and shareholders. Success is measured by years not quarters and are model continue to deliver strong financial performance overtime. With that I’ll turn the call over to Robert. Thank you.

Thank you, Mark. The challenging market conditions and cautious investor sentiment market share manifest itself in several ways within our performance. For second quarter results two metrics illustrate investor caution; commission for advisor and cash sweep assets as a percent of total assets under management. Annualized commissions per advisor which includes mature and new advisors and excludes advisory revenue primarily reflects investor engagement as it is transaction driven. For the quarter, annualized commissions per advisor were $136,000 nearly 7% lower compared to the second quarter of 2011 and 5% lower than the first quarter. This decline is partially explained by the strong advisor headcount growth this quarter which lowers the average or primarily it is due to reduced transaction activity in relatively flat market levels. Same-store sales of our seasoned advisors were effectively flat as they focused their efforts on the maintenance of their existing client relationships which limited them in engaging in efforts to expand their businesses. As expected in periods of investor caution and longer investment sales cycles, cash sweep assets grew to $23.1 billion or 6.5% of total assets under management compared with 6.3% in the second quarter of 2011. This reinforces the reduced transaction activity resulting in commissions declining to $447 million down 2.7% year-over-year and down 3.5% sequentially. This performance was offset by continued growth in advisory revenues which were a record $268 million for the quarter. Sequentially, advisory revenues grew 6.9% driven by net new flows and strong market performance in the prior quarter. Year-over-year advisory revenues grew 1.5% despite advisory asset growth of 7.9%. Advisory revenues will grow more slowly than the growth rate of the underlying assets during periods when advisory assets on our RIA platform expand at a faster relative rate than advisory asset as a whole. We have seen this pattern consistently since we introduced the RIA platform in 2008. Turning to attachment revenue, strong year-over-year growth in transaction and other fees of 14.7% was driven by our increased in advisor piece for 2012 and the addition of Fortigent. This growth was partially offset by reduced transaction activity this quarter, asset based fees grew by 13.7% over the second quarter of 2011 due in part to rising asset balances benefiting cash sweep and sponsor revenues. I’d like to briefly highlight the sequential performance of our cash sweep revenue. Cash sweep revenue was down less than 1% compared to the first quarter, increases in the average asset balance were offset by a decline in the weighted average fee from 64 basis points in the first quarter of 2012 to 61 basis points this quarter. With these top line conditions in mind I will now turn to our pay out rate which increased 48 basis points year-over-year. We have indicated previously that our overall payout rate will increase during the calendar year due to our production bonus structure. In years past we have seen the rate of this increase accelerate or moderate with advisor productivity but overall balance out over the course of the calendar year. So far this year the growth of larger practices has accelerated this rate, in addition the impact of the UVEST conversion has increased our base line payout to be clear we continue to encourage, support and reward productivity growth of our large existing advisors and practices and seek to attract larger advisors through business development. We value the absolute growth in gross margin they represent and are comfortable with mix shift creating a degree of pressure on the payout rate. There are adjustments we are making to our cost to serve these larger practices as they offer us G&A synergies through time. From an operational perspective we have experienced a meaningful year-over-year increase in our expenses. Our compensation expense is up 14.3% to $93 million and other G&A increased 37% reflecting the numerous investment activities Mark discussed. Conference expense and compliance investment also impacted the growth of other G&A this quarter. In the case of Fortigent, Concord and our retirement IRA rollover program, these investments are already generating revenue but have added corresponding expense and are effectively breakeven. These investments have increased our expense phase permanently by over $5 million a quarter and it will take time before margins catch up to our firm wide average. Similarly our commitment to NestWise has added approximately $2 million in ongoing expense per quarter, while it remains in line with expectations, we do not expect breakeven in this venture until 2014. To provide greater transparency in our performance, we expect that these investments will impact earnings per share by $0.03 to $0.05 in each of the third and fourth quarter of this year, relative to our results in the comparable quarters last year. The greatest variable in this expectation will be the incremental transition assistance which positively or negatively impact this forecast. While the impact of these investment was immediately felt in the second quarter, our effort to manage expenses and gain operational efficiencies will take time. Some benefits will be immediate such as appropriately managing travel and entertainment and scaling back on new hiring. Other benefits are more fundamental to our cost to serve such as examining our G&A requirements to support large branches and opportunities to outsource non-advisor facing back office functions which create permanent efficiencies will take longer to realize. We will start to moderate our growth in operational expenses as soon as the third quarter and our goal remains to manage the business to achieve long-term margin expansion. Separately, as a reminder, we hold our Annual Advisor Conference in August which is the largest of its kind in the industry with over 3,500 advisors and product sponsors representatives attending. In the third quarter on a sequential basis, we will generate about 5 to $7 million in additional fee revenue and invest approximately 12 to $14 million in this event which will impact our promotional expense. As a result of the low top line re growth of 1.5% year-over-year being offset by increased expenses. Adjusted EBITDA declined 9.3% from the prior year to $112 million for the quarter, due to the refinancing of our debt facilities; interest expense declined 26% over the prior year to $13 million in line with expectations. Our tax rate increased to 41.3% for the quarter due primarily to the fact that our level of non-deductible expense remain constant while our overall profitability declined. We affirm overtime our anticipation that the tax rate will be approximately 40%. These conditions resulted in adjusted net income of $55 million and adjusted earnings per share of $0.49 for the quarter. When we take into account the $0.04 per share impact that Mark mentioned from our increased investments and the $0.01 per share from higher tax rate, our adjusted earnings per share would be $0.54. As we evaluate our opportunities for growth and savings in the coming quarters, I’m most encouraged by the performance of several key growth metrics. Advisors, asset flows and account. Mark already described our success in advisor retention and new advisor growth. In addition, we continue to experience positive net advisory asset flows of $2.8 billion for the quarter representing 10% annualized growth rate. The inflow of new accounts remains healthy and importantly consistently above account outflows. The positive trend of these metrics affirms the value of our independent model by both advisors and their clients. The foundation is intact to produce greater top line growth and margin expansion when healthier macro conditions exists. With that Dan Arnold will provide additional context on our capital management strategy. Thank you.

Thanks Robert. It's a great pleasure to speak with all of you today. As I assume my new role as CFO, I’m excited by the compelling initiatives we are pursuing and the long-term strategic direction LPL is setting. There is much uncertainty in the markets today, but it's essential that w balanced the day-to-day needs of the business with its positioning for long-term success. We consistently perform strategic review of the business, to identify opportunities for both growth and greater efficiency. If one thing is certain is that the industry will continue to undergo profound change. And I firmly believe that our independent business model will be at the forefront of this change. One of the distinguishing characteristics of our business model is its ability to consistently generate significant free cash flow, we do not have the capital intensive business, this is driven by the fact that we don’t own a bank, we do not engage in proprietary trading and we do not manufacture products. As a result, we are able to deploy our capital across many opportunities without restricting our investment in the business. This quarter is a great illustration of this consistency and flexibility. We continue to commit capital to grow into business and rewarding shareholders. We spent $18.4 million on our share repurchase program, buying back 600,000 shares, and delivered $223 million to shareholders in the form of the special dividend. From an investment standpoint, we completed the acquisition of Fortigent for $38.8 million at the time of closing and spend $20 million in other capital investments. As of quarter end our cash available for corporate use stands at $341 million. we believe our track record of putting our capital to work is consistent since our IPO. Over the last six quarters, we have invested $83 million in acquisitions, $83 million in capital investments, $145 million in share repurchases and $223 million in the special dividend. For the year we affirm our target range of 60 to $75 million in total capital investments. We continue to utilize share repurchases to offset dilution from our stock option programs and with the announcement of our new share repurchase program of $75 million, we retain the flexibility in the future to be more aggressive. Given our resulting strong capital position, I’m pleased to announce that the board has formally approved the $0.12 per share dividend for the third quarter. This reflects the success of the company and our positive outlook on future capital management. I appreciate your time today and with that I’ll ask (inaudible) to open the call for questions.

Thank you. (Operator Instructions) your first question is from Chris Harris of Wells Fargo. Your line is open.

On the expense rationalization plan, just wondering if we can maybe flush that out little bit more, maybe you can give us little color on the magnitude of the expense savings you guys hope to rationalize both here in the near-term and long-term would be helpful.

I think we approach our expense management philosophy in both tactical and strategic term. So, as I indicated in my script we have taken some steps here to trim expenses somewhat in line with the up weighted expense levels that we are incurring from the result of the Fortigent acquisition, Concord, NestWise, etcetera and over the remainder of the year seeking to essentially neutralize hat as best we can. As we also indicated though there is a more fundamental shift in our approach to operational efficiency and we refer to it in the context of cost to serve, that is broken into component parts that deal with large practices as we mentioned, it also encompasses our core infrastructure and where we can find operational efficiencies within the base core run rate of our functional activities which may lend themselves to outsourcing or other things that we chose to do. Those will take more time, we are much more ambitious about those into the future, not ready to give sort of a range of expectations in terms of the level that we seek, but we do draw a contrast between that and the 2008, 2009 period where we knew we were encountering much more aggressive type of headwinds that required a much more dynamic approach to reducing our cost in the very, very near-term and do much of that on a discretionary basis. We still have those levers. If we find ourselves in those kinds of worsening market conditions, but sitting here today we want to fuel future growth an when you have that kind of advisor expansion as well, just bear in mind so our core growth rate in run rate expenses is about 5.5%. That’s consistent with that level of up weighted activity attached to that new advisor growth. So, we will continue to support operationally and structurally to service those advisors in the way we need to and keep a strong eye towards evolving conditions as well.

Maybe shifting gears little bit, just talking about related trends in the overall business and how you guys did this quarter. If I look at the quarter really advisor growth, I think an asset growth obviously is exceeding probably your expectations and ours and maybe you have lower interest expense now this quarter. Do you have the higher expenses like we talked about but if you back those out you get $0.53, $0.54 in earnings in the quarter and I guess is it basically flat with year ago versus I think your long-term target of mid to high teens. So, I guess my question is if you normalize the expenses, it seems to me that you should perhaps the earnings much higher than you really did in the quarter. And I guess what I’m just wondering is really what’s driving the lack of earnings growth if you normalize the expenses. I know you had lower activity rates, but it seems like that maybe shouldn’t account for all of the delta, so we can expand on that little bit for us, that would be helpful?

Let me take couple of things to think about it; one is we move conference expenses from Q1 of last year, we had two of our three major conferences into one conference in Q1 this year and one in Q2 of this year. So, you are going to see elevated expenses in Q2 that’s really just geography not actual expense growth. Secondly, you have to have top line growth to get bottom-line growth that’s fundamental of business and this business is no different than the other. We have always characterized that as we need growth in the high single-digits to get to that 20-ish percent operating growth level. So, as Robert was saying before, like Robert, don’t feel that we are doing anything other than trying to match expenses to increases in new advisors, their activity which is always greater when they first get on board. And we are still seeing elevated activity with existing advisors that I described as fundamental. It has not resulted in commissions unfortunately, but it has resulted in good asset growth and good account growth and good cash balance growth by their customers. So, that tells us that the fundamentals are all operating that we are seeing activity levels that usually tell us that we will start to see revenue show up at some later date. Of course, the problem with any business is that later date going to be in a couple of month’s time or it's going to be in the couple of quarter’s time, that we always have difficulty predicting. So, I wouldn’t say that we feel that we have an [outside] expense base, we have a top line growth opportunity for us to get more, and with more growth we are basically able to withstand both the investment we are making in these new ventures along with just regular operating expenses as well.

And the only think I’d add to Chris is that, first half of last year was very strong. There is comparables if you will in terms of looking at the rate of growth that was achieved in the first and second quarters of last year when the markets slow down of course, occurred towards the end of the third quarter into the fourth quarter relative to what we are seeing this year.

The next question is from [Alex Williston] of Goldman Sachs. Your line is open. [Alex Williston] - Goldman Sachs: Just to go back to expenses for one second. So, it looks like you guys doing $197 million in expenses right and it feels like some of your cost savings initiatives are not really going to come to fruition in the near-term. So, should we think about the 197 to 200 million is a decent quarterly run rate all else being equal from here?

Yes. [Alex Williston] - Goldman Sachs: And then, Mark, to your discussion around the changes in the business, when you look at your adjusted EBITDA margin is around 40%, one of the lowest I guess since the IPO. Assuming that there is no fundamental change in activity levels or market performance, what gives you guy’s confidence that you could grow that 40% to something little bit higher or again it's 40% kind of the run rate for the EBITDA margin for the next few quarters?

I think it's probably the run rate for the next few quarters and what would change that to the positive is greater top line growth. So, if we see what is essentially operational activity, turning into commissions and greater advisory growth you would certainly see top line grow and that would obviously expand margin. So, we have base level expenses that Robert outlined in his prepared remarks that relate to growth initiatives that we have underway. And what you need is top line growth in order to overcome that headwind of expense and to be able to really create an increase in the margin from 40% back to higher. And what we [predict similar] as much as we could early in the quarter was basically that when you get slow top line growth you are going to have challenges against the margin, but don’t think of that as absolute it's not symmetrical risk, meaning that you are going to see the other side of that when growth returns. And (inaudible) that growth always returned the advisors have mortgages to pay (inaudible) and they have got clients who need help and that result in activity for us in later dates. We don’t see it yet, but again experience tells us that these things happen and they tend to work themselves out over a few months. [Alex Williston] - Goldman Sachs: And maybe just little more on the pipeline that you highlighted and clearly if they are recruiting (inaudible) this quarter. Can you give us anything around the top of the phase you are bringing from a productivity perspective versus the ones you currently have? I know your recruits from the wire house has to be and they are little bit more productive than your kind of current base. Is that still the case or they were all mixed hasn’t really changed?

The mix really for the last several years has been that our recruited class have an higher average production than our existing advisors, part of that is historic, and remember we have been in business for 40, 50 years. So, you get a good strong base of advisors out in smaller towns whereby definition there is a certain activity they can reach. We also have about 20% of our revenues with institutions who by definition particularly have a little lower average production again mainly because there are community banks in smaller town. So, that base tends to keep the averages down. And of course it's a number we can’t really audit from a GAAP perspective that we can only characterize for you, so we can’t give you the absolute numbers of the class, but we know them to be a higher average productions significantly so than what’s here today. So, what we are seeing is actually and where you can see it, I’ll add little more transparency is in the RIA recruiting numbers. You can see it in terms of RIA assets growing and you can see it in terms of large practices moving in that kind of thing, that’s where you typically will have a little more transparency if from outside the company that dynamic is there.

The next question is from Ken Worthington of JP Morgan. Your line is open.

Continuing the trend on the expenses, so I want you to focus on the three line items that moved sequentially and just wanted to hear the reasons or the components for the sequential move, just so I can get a better sense of what’s occurring and what’s not, even though I know you gave guidance overall. So, comp 89 goes to 93 million, I think there is payroll that falls off, you had a deal that came on; about what were they in terms of those two components and if there is anything else promotionally you said there was a conference, how much was that conferences, is it little or is it big and then anything else big in there. And then professional services, I think obviously you recruited lot more there is transition cost, is that increase that delta transition cost or is there something else?

I think you focused on three components one was around compensation, the other was around conferences, the third was about transition essentially. So, let’s take conferences where the expense was just over $6 million higher as a result of the timing issue of moving the conference to the second quarter from the first quarter. As it relates to transition assistance it was up 41% year-over-year and we don’t tend to flag the specific dollar amount involved with that for competitive reasons but you can tell from 41% that’s fairly significant. There is a slightly higher average rate, it has been paid and we talked about that in at least the last two earnings calls. We are comfortable with that in the mid teens type of transition assistance levels, still feels that’s a very high and good use of capital. But the volume level of advisors joining increased and that’s the primary reason for that 41% delta year-over-year. And as it relates to the compensation it's about $2.5 million a quarter I believe for Fortigent add into the quarter.

But payroll taxes fell off I assume going from kind of 1Q to 2Q. So, you still have like 89 to 93, I thought the 89 was elevated in 1Q and you had comp increased more. So, if I look at maybe from 4Q of last year, like [hoping up and awful lot] is that really all permanent or is there other components that can fall off here?

Maybe it would be better if we go back to sort of baseline comparison if you will, because I think you are referring to the unadjusted levels of comp and then going from 89 to 93 million. and that includes stock option benefit, which last year was 4.5 million and this year it was 8.4 million. So, the underlying delta is actually basically only $100,000 in terms of comp and then going from 84.5 to 84.6. So, I think that would tell you the drop off you are seeing from people hitting FICA max and then the increase coming from Fortigent which I said about 2.5 million is really about 3 million just to be clear on that.

Just talk about the [mass] market, you made a big push there, can you talk about how attractive the mass market is versus the mass affluent business from your perspective. And then just philosophically how do you service the mass market differently, can this be uniquely as high margin business for you and any additional information be helpful.

That’s a great question and I really appreciate you asking it because I think it's very important to distinguish few things. Number one is, we absolutely would characterize the investments that we are making as larger than we might normally like given top line growth. We find ourselves in a situation where properties that we really had admired for a number of years in the cases of national retirement partners, Concord and Fortigent became available and therefore, we made the acquisition we made which elevates the expenses in a way we just characterize with you that Robert went through. Then we had always planned on launching NestWise, had been making plans to do it over 18 months to launch as we did in early January which is your mass market question, and that was after really a couple of years of very extensive review and analysis of the marketplace and understanding the best way to enter. And so in a normal year you wouldn’t necessarily chose to have a slowdown in top line growth coming from fundamental same store sales drop off nor would you also then make those investments and acquisition and launch a new venture into the mass market. So, I appreciate the question because it highlighted that range of investments we have made and I want to acknowledge to shareholders that that’s where we find ourselves in a moment of time. We have been here before and my experience in the firm a couple of different times that happened. So, specifically at the mass market we see two things there that I think are really interesting. Number one is, it's a massively underserved market, there really is not a set of advisors or institutions fully dedicated to that space. And it's a group that very, very much needs help. And we are at a time of incredible technology advantages that allow you to go to that market with a very different value proposition. So, what we are launching, we are actually doing test marketing products here in the month of August just a couple of weeks. You know we bought [Veritod] which again was an acquisition that we had hoped to be able to make and came along and together really quickly and again given the pressures of top line you might not admit it, but it's the right long-term decision that gives us an operating platform along with our technology that [let us create] very productive advisors and that’s what we are after. Advisors who can do about two to three times the normal number of accounts that you see a typical independent practice. Once we understand to learn that productivity and we have done it by simplifying the product line that’s available to the mass market. And the mass market will accept that because there is no other products available to them today nor the ability to get the kind of advisor we are talking about, we know that will turn into a highly productive sales force that’s very profitable but we got to get them right. And the second thing is after learning how to train advisors so that they can learn with another served market that can create a standardized set of offerings and be highly productivity that will make some good independent business owners or good independent advisors who can join existing LPL practices whether that’s a financial situations for the independent firms that we support. So, remember we are after two things; one is to be able to go after market underserved. We are thinking that the technology allows us to create a productive sales force and we are after the ability to really create advisors in their second career through the training exercise that we have. As a result of buying [Veritod], we actually have eight registered advisors that just joined us here in July and we have about another 11 in the pipeline who are in the process of joining [Veritod] before and that already gives us a base to be retraining in this new methodology and so far so good in terms of what we are seeing and be able to pick up in terms of much higher productivity. So, that combination of a market is underserved, technology allows the advisory productive and our ability to really train and educate the advisory around how to do that actively that we think will lead to very good profit margins overtime, but of course it's a startup business we have to get fully underway.

The next question is from Thomas Allen of Morgan Stanley. Your line is open.

You clearly have a very strong value propositions for advisors as illustrated by a record net new advisor adds and very low attrition, however, your production expense ratio going up. I understand the mix issue but what’s stopping you from taking more pricing.

I think we have already made some changes there is three fundamental changes I’m not going to detail them for competitive reasons that need to be made in terms of the relationship with some of our branches and they are very, very good partners and we very much value the business that we have with them but they understand that there is some changes that have occurred as a dynamic of the business, in other words how they run their business vis-à-vis our relationship with them. One of those changes will change economics, positively for the company and negatively for them, they understand why and appreciate our position around that and that we already had good discussions with what is literally a handful of branches that are affected by it. And what happening as you are seeing what I will describe as a (inaudible) effect meaning that a large branch is getting momentum of growth because they do an excellent job of managing sales activities at the local level which is a nice service that they are providing the company. They are doing that at a time that’s smaller practices are just having a little harder time getting traction that’s just anomaly that relates to timing. So, we are not going to worry about things that are outside of our control. But within that large practice what’s happening is as they get growth there is a couple different ways they are doing that are essentially causing the production bonus to go up without a corresponding amount of either cost savings by LPL or without a corresponding amount of appropriate margin expansion by LPL. And they understand that for all of us to work well together our commitment creed says that we have to do this profitably and that’s really the basis under which we have gone back we will be doing to make some changes. So, one change has already been in place but effectively is at what you characterize and we have a couple of others that were in discussions about now, that will also help them drive long-term growth but do that with appropriately taking either production bonus that fits production levels that they have. One thing just to highlight Thomas, just to make sure I’m crystal clear, is that remember that while we have a contract that allows either one of the parties to leave in 30 days, the other thing that happens in the contract is it's typically an annualized change. So our practice has always been that while we have been able to change one aspect of relationship because that’s sort of outside the contract anomaly. Another couple of things that are there really have to be timed much more with year end and so we just again how these moments where you have essentially distortion of some type in the marketplace, that’s a production bonus, and will affect it, but we will not be affected, be able to affect it necessarily overnight (inaudible) tied to the calendar.

And then just on the advisory assets to yield and that has come down to past two quarters. I think that’s partially driven by the increase in RIAs, but is that being offset elsewhere, I mean you have very strong non-cash sweep other asset base fees is that offsetting and is it a one for one offset.

They are not related at all just to be clear, and what you are seeing is the average fee is coming down only because of mass. What you are seeing is that RIA, remember we don’t take a percentage of their fee, so their fee is let’s call it 99 basis point is typically for their charge to the client and an LPL advisor who is using the corporate RIAs is charging about 110, 109 somewhere in there. And if you look at it, there is really no [digression] that’s occurring, it's just the mix shift of RIAs being in strong growth mode. And again RIA is typically a little bit larger practices, so you are seeing a little bit more impact that way, but that’s all geography. There is no fundamental issue that exists within those fees. So, there is not a need to offset because the RIA is a very profitable business line for us already. It was in startup mode obviously at the end of ’08 through most of ’09 and then started making profits in ’10 and makes very nice profits today. So, that’s a geography issue. There is a slight change with LPL advisor practice it's down about a basis point over a year, so it was 111 now it's 110, but I describe that as is not important. And so I think the second part of your question is how does the ecosystem work around these different pieces and sometimes you are going to get moments where everything (inaudible) prices are going up, certain practices grow at a certain pace, recruiting is very strong and you are hitting on all cylinders. And other moments where you get couple o cylinders off and that what you describe this quarter reasonably well. And I don’t really see much concern in terms of the fundamentals of the business with the exception being the large practice discussion we just had in terms of things that need to offset one another.

The next question is from Devin Ryan of Sandler O’Neill. Your line is open. Devin Ryan - Sandler O’Neill: Just with respect to the comment about investors exhibiting more cautious behavior. Are you guys seeing any signs that any of this reduction is related to lack of investing fire power or available cash or is it just more just market uncertainty? And is what we are seeing now similar to what you guys saw in the back half of last year or is it something better or something worse?

I think as we look at the in compare the investor behavior and the advisors opportunity to support that and compare that fact to last year, we see very similar trend in the event that occurred last August and in the subsequent performance of those advisors over the next call it 60 days to even extended 180 day period. We see a very similar experience to the events that transpired in April and then that same trend where there tends to be a downward trend and their overall performance and investment activity that usually has some type of bottoming characteristics around it, 60 to 75 days out. And then you see that normal trend begin to recover in an upward trend in that activity and that performance as Mark said, the advisors have clients that have needs and typically they are able to step down and through that counseling that advice help those investors reorient towards solving those goals and objectives. So, we see very similar trends and we think we are seeing that subsequent to the April event of this year. I think we stand very committed that there is the long-term growing need for advice and our advisors ability to step in and serve the needs of those clients and continuing to acquire new clients because of that macro demand and the value proposition they offer at a local level. So, we stand long-term very bullish on their opportunity to grow their practices.

And I think the only other thing I’d add to that is the question is quite different dynamic when the slowdown occurs in Q4, effectively people sort of say, okay, investors are disengaged, I’m going to go ahead and use this time to be with my family and have kind of done pretty well for the year. They were certainly very busy the first three quarters of that year last year. And here you have a very different dynamic where slowdown is occurring in the second quarter and probably triples into the third, don’t know it wouldn’t. It is the summer after all. And would you have our big national conference which always brings part of the field force and for training and discussions. So, the reality is that it's a very different dynamic as they come out of that was sort of the September effect which is really about getting back to work and getting clients (inaudible) and getting business on the books. Devin Ryan - Sandler O’Neill: So, I guess it's fair to say that you are not seeing any concerning trends of just availability of cash or money to put to work in the markets.

No, we’re not. I think the one thing we have seen is some cash deployment by end investors into reducing debt levels and being somewhat more cautious in their overall financial management, but there is no barriers to essentially them reentering the market and being part of a well thoughtful financial plan.

When we have looked at any number of indicators from account growth to cash build up to all of the things you have looked for and although it's a long time ago, this looks a little bit like a three to me, where you had a slowdown earlier in the year and then you had some catalyst that changed it at some later date. And you turned up to be fine, not predicting that because it's hard to predict, but I do think that as Dan was saying we need a catalyst that gets us there. We have the catalyst that takes away activity away for the catalyst that brings it back. Devin Ryan - Sandler O’Neill: And then just one follow-up on your comments on NestWise, I really appreciate the detail that you guys gave there, but can you talk a little bit about the launch of that business in terms of the timing, how long it will take a ramp for us to actually see the revenues and results there, is just your expectation for that. And any color on how we should think about the potential for this business financially for you guys.

Yes, I think the way we try to characterize is we need a couple of years to get it under way in which we are going to absorb losses from it, so that’s his year next year. And you were hoping them get to breakeven to some profitability buy ’14, but where I’d look for I mean what we are holding ourselves to from a board level perspective and from an operating management perspective is are we getting people trained, our advisors getting in there and being created. And if we are seeing a good ratio of number of advisors that we are able to do, we are doing it city-by-city. We picked up first two cities to do with and that does well, we might chose to ramp up to a number of cities at one which would hold our profit, but would result in, you had seen an headcount increases and we will always detail for you as we go forward the headcount increases that are coming through the NestWise experience because as shareholders we want you to see that we are investing our income wisely and forming this new lag of growth. But I do think we are going to need at least a couple of years to get to breakeven to light profitability. And remember dynamic that occur is we might find that NestWise has quite outsized margins in five years time or even have something less than outsized margins in five years time, but produces a significant number of advisors who then go on to join other practices which means they expand their business and grow. So, that’s the experiment that we have in front of us and the challenge of making sure that we are adding value for all of us as shareholders by creating this new line of increases in number of advisors overall at LPL. We think it's a significant opportunity to add new advisors to the company. Devin Ryan - Sandler O’Neill: And then just lastly on the contract renegotiation that hits the cash fees, it looks like there was not a significant impact this quarter from the renegotiation that you mentioned. Do, you guys have any other contracts that are coming due in near-term, you are in the process of renegotiating and should we expect kind of similar impacts or I guess lack of impacts from that activity?

It's a continuous program and it's a portfolio of counterparties and so there is always some level of activity in terms of rollovers as well as additional counterparties that we look to add depository institutions that we look to add. But there is nothing material in terms of large renegotiation process or anything coming due in the near-term that would cause any change in our outlook or guidance relative to the cash sweep program.

The next question is from Bill Katz of Citigroup. Your line is open.

This is actually Steve Fullerton filling in for Bill. I was wondering if you can provide an update on activity levels that you guys are seeing in the 3Q so far.

To get in terms of activity that relate to accounts opening, advisors joining and so forth we are certainly seeing those activities either at elevated levels or certainly at normal levels and those things typically then lead to revenue growth which is of course we are all after, because that we can turn into profit growth. So, that’s a broad brush of activity levels.

Our baseline as we mentioned in our scripts, our baseline belief about advisor and the investor sentiment and our overall conditions. We are going to operate under or unlikely to change much over the remainder of this year. We don’t see anything today that tells us there is a material catalyst for upside in the market nor do we see something that poses (inaudible) although it's an uncertain world out there. So, we have ourselves position accordingly, but in terms of core operating levels our expectations are that investor activity will continue sort of around the levels we see it now and we will discontinue to model that talk to you about as events actually unfold.

The dynamic change that has happened since the ’09 downturn just to highlight that, it might be helpful for everyone on the call is that in the old days I might characterize this business as two or three years on, a year or two off that really went with the market cycle, right? You sort of went through growth period and the overall economy followed by some sort of resettlement or recession or something. And that in terms of slow activity and so forth. So, that was sort of the typical rhythm. And what we certainly notice since 2009 is rhythm that’s really more quarterly. At first, frankly, I thought because we are public to be very honest, but I think as we looked at it and try to evaluate this quarter in light of history, that is one thing that has changed since ’09 is that you are getting two or three quarters on, a quarter or two off and that seems to be (inaudible) that also seems where the markets are performing over the last three years as well and here we are co-related to market activity we always talked to you about that. That’s one fundamental difference, what that means from a management standpoint for us as we talked about with our board, (inaudible) all of you as shareholders, a potential shareholders is that means you have to think through how you manage that differently. So, you get into a year like ’08, right, where it's clear to stay it's scary and it's ugly and all of those things you expect and you lack the heck out of expenses and you pull through. And your competitors are weaker than you were coming out the other side which is exactly what happened and that will be a characteristic that I can find plenty of evidence of in our history as a firm and certainly kind of mirrors what happens at most financial services company. That’s the greatness of the team that allows you to be a bit better, you hope then other. Here what it calls for is fundamental understanding of the by dynamic and this volatility that occurring by quarter and it need to be smart about expenses and by that I mean not actually been overly conservative and that’s a tough message, when you have a quarter like we had for shareholders to here, but I believe we will see in pay off in later quarters maybe not necessarily next quarter or the quarter after that, a much different profile for the business. How I know that is when I look at both our history it's certainly in the 10 years I have been here, and I look at even recent history in terms of something like retirement partners. That was (inaudible) just coming through the IPO. We have certain profile for us in terms of what it could do in it of itself. It was a good acquisition just based on brining 200 advisors into the firm. What was really interesting to us was it has different dynamic for three things; one is we could charge advisors an additional set of fee, they gave them good value and gave us good value to shareholders, that we knew going into it. Two is that we create a much bigger retail business, that’s what we believe we are actually now seeing that. And remember we are beta in Q4 of last year for their automated rollover service, it's now fully up and running and we seeing retail brokerage accounts coming from our rollover services and we are gaining momentum in the number of plans that are signing up for it. Then we said, there is an opportunity we didn’t see in the original investment to go and to implant advise, so we are doing a joint venture with Morningstar, it's in beta now, it will not produce any profits this year that it will be highly valuable to our advisors and to ask a shareholders as that gets fully underway. So, those are good smart incremental investments to make, a mistake for us will be to say, we are just going to shut that down. We have decided that it's going to cost few million bucks extra here in the second half of the year. And we need to save that money and then we don’t do it. And then someone else will bring that service to the market and we will lose our competitive edge and we will lose the opportunity to build much greater profits once we get underway with that service. And that for me is a really good encapsulation of the way to think about this quarter-by-quarter versus year-by-year difference in the business.

And then in terms of the timing of expenses from the conference that you guy said about $6 million lift. Is there a certain timing that we suspect in 2-3 years for certain quarters that we can expect it now in 2Q going forward or is it just going to fall where it may.

In March of next year, both conferences are in March, so next year you won’t have, (inaudible) because you have. There are three major conferences and you will have two of them in the March period from there.

The next question is from Joel Jeffrey of KBW. Your line is open.

Just thinking about the revenue side of the business a little bit here, I mean in terms of the commission in revenue you generated this quarter was down from last year and flat year-on-year. Just thinking about was there any product within that group that was particularly strong more particularly weak or certainly dominated that revenue line?

Seasonal drop off in fixed annuities as one area but nice growth in variable annuities, okay growth in mutual funds, [our funding] were strong inQ2. So, I wouldn’t describe that as much of a mix shift. I think it's overall activity levels that are driving the lower commissions not a particular mix shift of product that occurring. I know that sometimes a question for people and I just sort of remind the callers that mix shift generally were protective against through the way that our gross margin operates in a way that the payout grid operates. We pay out differently based on relative profitability of each line of products. So, you can have a shift in fixed annuities which dropped off from basically due to lower rate and that shift really has not much impact to the gross margin level. So, it wasn’t really a product driven mix shift it wasn’t something that plays through that way, just really overall activities on the commission side in particular being lower than normal.

And then just thinking about buyback a little bit. I mean you guys have bought back shares to offset issue and it sounds like you got another 75 million. How would you think about a buyback in terms of going outside of the offsetting the dilution. I mean is there certain metrics you guys look at in terms of when the [starts] become attractive or anything along those lines that you can help us with?

Of course, as you stated and as we pursued up to this we typically pursued our strategy around buy backs relative to managing dilution. And I think our intent is on that for the remainder of this year as it relates to ’12 dilution. I think we will also continue to assess the macro conditions as well as operating conditions and finally the stock price t consider an alternative approach that may have us pursue more aggressively those repurchase opportunities. I think as we look into even ’13 and assess the repurchases necessary to manage dilution into ’13, that maybe an opportunity to proactively ahead of ’13 pursue buy backs again given the right conditions and the right opportunity to do the right things for both LPL and our shareholders to pursue that more aggressively and certainly as you pointed out with the $75 million repurchase three opportunity we have it gives us the flexibility to do that.

(Operator Instructions) Our next question is from Alex Kramm of UBS. Your line is open.

Actually, I wanted to come back to the NestWise, I apologize for using my one question towards that same question again, (inaudible) profitability by 2014, so you obviously have somewhat of a detailed plan in mind. So, maybe you can be a little bit more specific than you were. And the prior question in terms of, what does that actually mean, does it mean in terms of numbers of advisors on the platform production levels that you expect from these guys. So, any incremental help that will be great.

I think we are best to characterize for you that we view that NestWise will be unprofitable in 2013 and by ’14 it will be breakeven to slightly profitable based on the models that we have seen today, remembering that it's a brand new company which we have made just a brand new investment in a competitor to bring those two platforms together. I don’t think we want to characterize it any further than that. What I want to point is metrics are that you will see us grow number of advisors to the training program and number of cities that they cover. We will certainly give you that transparency to the investment of NestWise overall. Frankly, had we had activity growth in terms o top line growth for the quarter. I think we probably we have a lot less focus on NestWise or the other investments we are making, because this is fairly typical what’s atypical is a combination of having slow top line growth and having several investments going at once. The portfolio is a little [slower] than we would normal have in terms of future growth opportunities. But that doesn’t mean that it's bad, it just means that we have a moment in time where opportunities arose fast than we thought. And I think that gives me an opportunity just to say, that I will say both in terms of pipeline, recruiting and business opportunities for the firm, I’ve never seen a time that we have seen so many good opportunities for future growth. And we are all going to be happy with shareholders that we can go through a slowdown period in which we are planting the seeds for future growth, NestWise, Fortigent and so forth, and new business recruiting. Remember these recruits come in and they have a business activity that is well known to us and tends to ramp with great certainty overtime and when you see this level of recruiting and you see this level of investment and acquisitions, simply these that are small acquisitions dollar wise, that really gives us belief about future growth. We are just not going to characterize the future earnings problem, because we don’t get forward guidance.

I guess one other things we haven’t talked about is M&A, and I think you have been very consistent here in terms of saying you are not really looking for consolidating transactions, but I mean obviously this quarter you see, that you are getting to some degree impacted by the tough environment out there. And I assume some of your competitors are getting impacted even more so. So, do you search engines more interest, more approaches from other firms, do you see maybe prices coming down little bit. And does it changed at all your view on consolidating transactions and maybe just in terms of that, the regulatory environment probably doesn’t help either. I mean do you see that accelerating things as well.

I think you said it all right there and I loved the way you have drawn that, that’s exactly (inaudible) you have a very tough environment for regulatory cost, we are certainly seeing that in our cost base. And that cannot be avoided it has to be done, some of its one-time, some of it is going to be ongoing, and that’s part of what we are trying to sort through now. It's not so much frank for us as it is really the aftermath of both the [FTC and FINRA] deciding to take different approach to the way that they do reviews. That is adding cost to the industry, [FINRA] just raised their fees very significantly in the near-term and those are all things that have to be absorbed as new cost. And so we will work our way through them, we are the market leader and we are going to be quite good coming to the other side, it's going to put a lot of pressure on our competitors. We are seeing that developed, actually isn’t so much an acquisition. Frankly the acquisitions that come up that way are very weak competitors that have field forces that we not particularly we wouldn’t recruit per se the entire group, but there are selective people that would recruit both because of their size and because of their record and good business management that we want. So, we are seeing an opportunity to really do significant business development. You saw that in the results for the quarter and that’s what’s different for us, is we are reinvesting in the business, creating an environment that someone else characterize as quite good for advisors. And I can tell you we are going to make it quite good for shareholders as well. And that recruiting opportunity is really coming out as factors that you mentioned in your question. In terms of acquisitions, quite specifically we continue to look at companies like we have already purchased; essentially technology companies that give us an edge in a market, retirement partners is the most developed example of the idea and one that we are seeing really good growth from and that will turn into profit growth a little volumes, so that’s good. And then we are looking at selective properties that are essentially consolidation place, but we do hold a very rigorous standard for whether we would want to buy them or not based on how many of the advisors we can keep based really on underwriting some of what we would do in recruiting of new practices. So, the reason we wouldn’t take them is because they are either very tiny average production or their business management isn’t up to the standard that we set for this system and for the advisors who are in it. So, those are decisions you want us to make as shareholders of the firm.

I think it will develop overtime, new opportunities for better quality businesses to be for sale as other companies are going through just kind of quarterly on and off period. And they continue to be paint by these narrowness of cash yields and just the cost of increased regulatory reform.

The next question is from Chris Shutler of William Blair. Your line is open.

I know it's early and certainly appreciate that you don’t give guidance, but given all the moving pieces in the expense line and the investments that you are making. We are just hoping you can give us some high level thoughts on how we should think about the margin trajectory in ’13 or maybe say it in another way, is there certain level of revenue growth that you think that you need to achieve in ’13 to be able to expand margins?

I think we stick to what we said all along which is we got to have high single-digits of top line growth to be able to get good margin expansion for the business. So, that is really what we need is growth. Again it will be easy to take down expenses, we can just shut off the things that we are doing in terms of some of these new businesses we are developing. We can certainly make a wave of cutbacks in expenses, but what that will do is set a different process in place, that will set lower service, that will set up less positive environment for advisors, that will not be good for them, therefore, will not be good for us, because they will have a slowdown in business. So, what we are seeing is an opportunity to invest through a slowdown in the top line that’s what’s rally revealed here in Q2. I don’t think it gets much better in next couple of quarters, because that’s just the way these things end to run, but I don’t think if there is any cause for alarm or cause for us to take different action. So, to characterize ’13 is with reasonable backdrop of markets and reasonable backdrop of growth, we think we will see nice margin expansion. If we were to have a significant amount of top line growth, we would see a significant amount of profit growth and margin expansion we have seen that in previous history for this business back in ’06 and ’07. It were years in which we saw that kind of dynamic play through. So, those are all the things. If we were to see a sustained multi-quarter change in the environment, let’s call it this time next year where it does not appear to be growth coming back, and I think we will have to evaluate where we are. But we are not to that point and we think this is the time to forging ahead, even this growth there is because I said in my prepared remarks, we have done this before and it paid off handsomely. Just two decisions and recent memory (inaudible) 2000 that was enormously expensive. It came right on top of the market meltdown at the DOT COM bubble burst and it was brilliant to have done. We would not have the business we have today if we haven’t done that. It's been in fourth quarter of 2008 we launched RIA service, it would have been easy say, let’s not do that in the midst of all of this and the management team and the board felt strongly that there was no better time to launch in that moment and it turned out to be quite right. We had significant growth in ’09 that turned into profits in ’10 and we had significant growth ever since then in fact well ahead of plan almost double of what we plan when originally launched. So, these are moments to breadth deeply and to (inaudible).

So, just to reiterate, if you do achieve high single-digit revenue growth in 2013, that margin expansion certainly [knock off] the table.

That’s right. I mean that is the level upon which we built the guidance around our expansion of 30 to 40 basis points of margin incrementally on an annualized basis.

And then gain if were to see mid double-digits, I want to use the actual numbers, but obviously something that represent significant top line we would do better than 30 to 50 basis point margin that history is total, that’s the case. And we know that’s the case and our modeling out of our financials. So, I think we have three scenarios; one is it stays the same in terms of low growth and we just work our way through as we are now. All we get high singles and that gets the train back on the track in terms of what we talked about during the IPO, because we have the conditions for those success; or three we have a world on which uncertainty goes away for a large part on which there is enormous amount of uncertainty across the U.S. as we all know across the world for that matter. And therefore, you have a catalyst in which you have a very high top line growth and that we know we can turn into significant margin expansion.

Maybe you can talk about the composition of Q2s net new advisors, I know you talked about it little bit by channel mentioning wire house and then independent of seeing particularly strong but maybe just a little bit color if I know the larger practice has also been very strong in (inaudible). So just trying to reconcile the differences there because I’d think if we bring in more larger practices would be, those size is a little bit different on a per advisor basis than what you see with wire house independent or so is the wire house channel.

Well, let me characterize first the channels and then we will go from there. So, we are seeing the strongest recruiting is from the wire houses and independent and it's been that way this year certainly this quarter. And we are seeing an increase in the pipeline from both of those sources as why we sells in more to come in terms of opportunities there. Again it's very tough to figure out by quarter how (inaudible) but we feel good about pipeline building and the mix of business coming. I think you are right to characterize that’s typically somebody who is coming from wire house has higher average production you can see that in those organizations average numbers for their system which are two to three times the average number for us. So, by definition you are going to get someone who comes from XYZ wire house is going to join here, they will join anywhere from 25% higher production to as much as three times higher product per advisor. The independent have really several different types of advisors that can join us but what we are seeing now is as you say the practice joining where what they are doing is essentially moving a group of advisors 20, 30, 40 at a time. But their average production is still higher than our average production because they typically are the large practices within their existing shop and so their average production is still higher than our current average production. And then the other group I’d characterize before you is within the independence are bank and credit union programs which we will receive and their average production is about or slightly lower than our average production because it's a bank program which by definition has larger headcount, but lower average production. When you put it together and finish it off, what you get to is a class that has higher average production overall that are existing and typically that number has been anywhere from 15 to as much as 50% higher in a typical year.

The next question is from Ed Ditmire of Macquarie. Your line is open.

Just wanted to talk a little bit about thoughts around the margin. It strikes me when we are looking at something like 300 basis point step back from 2011 to back half of 2012 and how we will start 2013, I mean you guys are saying is if we get to double-digits growth, we could get as much as (inaudible) per year. And is there a broader transition where we are not really taking an incremental approach to the margin and we are really shifting the focus to bottom-line and net income growth now.

If you are trying to characterize, is there an opportunity to make a different decision which is purely to go for profit growth. There is always that opportunity. I can tell you what I think would likely happen if that’s the case, one is that you would end up starting to change service is fairly dramatically for advisors, and you will start to see I think some degradation in our ability to recruit new advisors in and because your satisfaction levels will go down, with existing advisors our biggest source of referrals in our business. In think secondly, you would see near-term profitability improvement, there is no doubt about that, but I think it would be relatively short lived in last could of years and then you would start to search engines fundamental change in the business. I think what we are probably not characterizing for you well, is that the way you describe the dynamic of how profits would change is absolutely right. We had a roll back in margins through the second quarter and then we will start to roll forward margins on a positive way dynamic, but that doesn’t take into account that, some of the things that we are doing like NestWise and Fortigent and Concord should lead to higher margins beyond that. We will try not characterize those because we are still in experimentation mode, and we have plans that we think would take our margin expansion higher and our absolute profits higher as a business overall. So, that’s we haven’t characterized because again we are still seeing as being several quarters if not even a couple of years away in terms of those investments. So, think of it as core operating business in which you can have choice of maximizing profit or finding the balance between near-term profits and longer term growth that I think we characterized well for you. And then on top of that we are adding additional investments either certainly taking down near-term performance, not what they are doing is setting us up for much higher profit growth in future years we would see [same] headcount. Let’s just use headcount approximately or that and say, if we can do net 400 per year which we have guided you through, we actually have done now little bit higher than that, 500 per year if we include the most current quarter 550 on average. So, that’s good, and that comes from the reinvestment. So, you might see us in another year’s time, I think we feel comfortable telling you it's net 500 on a going forward basis. That would be a fundamental shift in our ability to bring on new advisors. Second fundamental shift will come from NestWise, if NestWise creates the 50 advisors in 2013 we consider that a successful launch of the business, but it wouldn’t be enough to move the needle, but in few years after that we start to move the needle by having 200 or 300 net new advisors per year, that will be significant for us in terms of new store creation and growth of the advisor population which we know sets us up for faster margin growth or higher margin growth and faster profit growth.

It just sounds to be me like what you think all of these investments and the costs that you are incurring now will not only accelerate their earnings per share growth rate over the next couple of years, but within relatively short period you will be earning more than you would have otherwise just in terms of the absolute.

Ed, we would like to talk to you offline about your characterization and margins of 300 basis point and 3% from sort of peak to where they are now. I don’t track that I see about 1.5 to 2% delta which is something we have seen in the past where you had these periods where slower growth and margin pressure exert themselves. And then we have our step change coming out of the period like that when growth re-exert itself and our positioning really takes on the full measure of benefit and we then set a new kind of new and higher plateau the company has consistently shown that ramp up through time. If you look back to the year 2000, we’ve had these stair change steps.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation, you may now disconnect. Good day.