Good day, ladies and gentlemen, and welcome to the LPL Financial Holdings Third 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. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Chris Koegel, Senior Vice President and Head of Investor Relations. You may begin.

Thank you, Vicki. Good afternoon and welcome to the LPL Financial third quarter 2016 earnings conference call. On the call today are Mark Casady, our Chairman and CEO; and Matt Audette, our CFO. Mark and Matt will offer introductory remarks, and then we will open the call for questions. We ask that each analyst limit their questions to one question and one follow-up. Please note that we have posted our earnings release on the Events & Presentations section of the Investor Relations page on LPL.com. Before turning the call over to Mark, I'd like to note the comments made during this conference call may include certain forward-looking statements concerning such topics as our future revenue, expenses, and other financial and operating results; improvements in our risk management and compliance capabilities; the regulatory environment and its expected impact on us; industry growth and trends; our business strategies and plans; as well as 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 actual, financial or operating results or the timing of matters 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 and discussion of these measures, please refer to our earnings press release. With that, I'll turn the call over to Mark.

Thank you, Chris, and thanks to everyone joining our call today. We're pleased to have generated strong results again in the third quarter. Over the last three quarters, we have felt momentum building. Our long-term investments and multi-year efforts to improve service, technology, and risk management are coming to fruition for our business and our advisors, while our businesses become more efficient at the same time. Our employees leading our DOL efforts have developed thoughtful plans and innovative solutions, and we believe these have positioned LPL and our advisors to respond to this regulatory change from a position of strength. Advisor sentiment is improving as they experience the benefits of our strategy and investments, and we are seeing increased demand from prospective advisors and institutions. We're also excited about the additional growth opportunities that the change in regulatory environment is enabling. I will expand on these points on today's call, but we are feeling good about our progress. Let me first summarize our third quarter business and financial results. Our total brokerage and advisory assets exceeded $0.5 trillion at the end of Q3, a significant milestone that demonstrates the success of our advisors and the strength of our model. Our net new advisory assets increased at an 8% annualized rate in the third quarter, supported by continued strong recruiting. Excluding an institutional client that was acquired by another bank that operates its own broker dealer, net new advisory assets would have grown at a 10% annualized rate, we would have had 88 net new advisors. This follows second quarter results, including net new advisory assets, growing at a 6% annualized rate and 100 net new advisors. Q4 is also off to a good start, so we're pleased with our recruiting progress. Our third quarter business results, combined with disciplined expense…

Thank you, Mark, and I'm glad to speak with everyone on today's call. Before we get into the details of the quarter, it's good to look at our results in context of our long-term objectives. And, as a reminder, we want to grow assets organically and benefit from market growth, grow gross profit faster than our assets and be disciplined on expenses to drive greater operating leverage and EBITDA growth. We also want to maintain a strong balance sheet, while staying dynamic in our capital allocation to grow earnings per share. And if we look at our results, we improved on those measures, so we feel we're making progress. Now let's get into our Q3 results. We had another good financial quarter, driven by solid fundamentals, disciplined expense management, and effective tax planning. As we expected, these results were partially offset by a seasonally higher payout rate and greater core G&A and conference expenses. As a result, we had $0.58 of earnings per share in Q3. Let's now discuss our brokerage and advisory assets, which were $502 billion, up $14 billion or 3% sequentially. Net new advisory assets were $4.1 billion or an 8% annualized growth rate. This was up from $2.8 billion or a 6% annualized growth rate in the prior quarter. These Q3 results include the impact of an institutional client that was acquired by another bank that operates its own broker dealer. Excluding this impact, brokerage and advisory assets would have totaled $505 billion and net new advisory assets would have been $4.7 billion in the quarter or a 10% annualized growth rate. As for gross profit, it was $347 million in Q3, up $2 million or 1% from the prior quarter. This was driven by increased conference fee revenue from Focus and account termination fees from…

And our first question comes from Devin Ryan with JMP Securities. Your line is now open.

Hey, thanks. Good afternoon, everyone.

Hi, Devin.

Hey. Maybe just coming back, I know you spoke a little bit about this, but the sales-based portion of commissions softer, and you've seen kind of a levelized move on the variable annuity side or the annuity side. I guess a couple ones. One, is it fair that we shouldn't expect much, I guess, average compression as you do the same on the mutual fund side? And then, just trying to think through with respect to fixed indexed annuities, it looked like that was a little bit softer. So I'm just curious if that was tied to just some uncertainty kind of ahead of the DOL Rule?

Let's take the last question first. We did have an increase in fixed annuities about a year ago, so you're just seeing more of a return to the normal levels there, so nothing particularly unusual about that. I think it is probably a little bit related to the interest rate environment where the world seems to anticipate an increase in Fed funds rate, and this is relatively sensitive interest rate money. And so I think that explains that as a return to normalization. On the mutual fund commission question, important to understand that what we're doing is standardizing the commission charge across all mutual fund families, no matter which fund family you choose, the commission would be the same. And based on what we see in the marketplace, our discussions thus far with mutual fund sponsors and our belief about what is fair compensation that we won't see much substantial change to the average commissions we have today that make their way through the P&L. So not much change really anticipated there.

Okay. Great. And then, with respect to expenses, I appreciate the updated guidance around it. I'm just curious, when thinking about the messaging here because you have brought it down a couple of times, is that just conservatism? As the year has kind of going on, you've gotten a better picture, or have you actually found more areas where there are savings than maybe you realized as the years progress? I'm just trying to think about – because when you look at next year and where starting point is already 1%, I think, at the midpoint, just trying to think about how you're thinking about messaging now given that you have had a couple of cuts here.

Yeah. Sure, Dev. I think we're in the ballpark of your latter point, not the former. I think when we lay out our expectations, I think we lay out goals that I think are stretched goals for us to go execute upon, and I think the team overall has just gotten better and better at being executing on productivity and efficiency. And within that, I think getting better and better at allocating our resources to where they're needed most. So I think it's just been a great team effort on getting the productivity and efficiency that we need. Now, when we look to 2017, I think the things to keep in mind are both – our planned increases in technology, right. So just emphasizing what I said in the prepared remarks, we are focused first and foremost on doing the spending that we think we need to drive growth, and technology is a great example of that. So we're focused on increasing technology next year. We have to continue to implement DOL, not only from an implementation expense standpoint but we're going to have the ongoing expenses as well. So I think there's some fair reasons that even if you kept all other expenses flat, you'll likely have an increase next year. So hopefully, that's a bit of helpful color, but I think the foundation of everything that's happened throughout this year is I think the group is just getting better and better at productivity and efficiency.

And our next question comes from the line of Christian Bolu with Credit Suisse. Your line is now open. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker): Good afternoon, guys.

Hi, Chris. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker): Mark, you sound more bullish on the recruitment pipeline than I've heard you in a while. Curious if you could provide a bit more color on what's driving this optimism? And then, any sort of sense on what kind of channels you're getting share from and the type and size of advisor that's likely to come onto the platform? And then, also, if you – I don't know if it's possible, if you could comment at this point to the 400 net new advisor target that you targeted a couple of years ago.

Yes. So I think we're doing a few things, Christian, is we are seeing a significant increase in volume of inquiries. And so, therefore, we call it the pipeline, right, of those who are likely to consider us to move and who seem likely to move. And that's really what we're seeing is we're seeing a significant increase in that activity, which leads to better recruiting results. So we would certainly feel comfortable with net 400 that we've used historically as a goal for the business. I think some things that are a little bit different are the institutions. So we specifically mentioned those in the prepared remarks, that we're seeing banking institutions really asking themselves the question, should we retain our brokerage structure in the sense of owning our own broker-dealer. We want to stay in the wealth management business, but we can outsource that broker-dealer activity to LPL, and then we really, at the bank, focus on the advisors and serving our clients. It's something that one of our clients did a couple of years ago, where they basically turned over their broker-dealer, shut down their RIA, and now use ours, and it has been a significant improvement for them in terms of growth and in terms of retention of their advisors. And now we're just seeing larger programs come to talk to us about that as well. So we're seeing more opportunities to potentially move that business, and that business moves very nicely because it's basically all moved at once. There isn't sort of the rebuilding that has to occur within an independent practice, and these are larger bank programs than we typically have seen as an organization. And then the third area I'd point to is the continued movement from weak platforms in the independent space…

Well, it's – all things in life of M&A are built on price, right. And so, look, we're always looking for opportunities in which we can make sure that we make shareholders a good return on the capital that's used, and we would look to maximize our capital structure to do that, which certainly could include leverage and obviously we have a significant amount of cash as well. So we feel very well prepared for any M&A opportunities that come our way, and we do feel like the market is getting into better alignment related to pricing, generally speaking. And I will say, although we don't think of it so much in recruiting, we are seeing some interest in much smaller independent broker-dealers about just shutting down and moving on to become what is sometimes called an OSJ, or an office within LPL. We've had some of that happen in this year's recruiting. We see more of that, and we do see what I would describe as some small scale M&A potentially coming up as well. So I don't want to over promise here, but I do think we're starting to see, again, some forces align as smaller brokerage firms just recognize there is a lot to invest in. The cost of investing in DOL is about the same for all of us, and in our case it's spread over a significant business. In other cases, it's over a fairly small business. So that's what will lead to M&A, in our view.

And our next question comes from the line of Steven Chubak with Nomura. Your line is now open.

Hi, good afternoon.

Hello.

So, Mark, I had a question relating to one of your earlier remarks on the better economics for advisory, and clearly you guys have made really good progress converting a lot of clients from brokerage to higher fee advisory, which is clearly net accretive. But one of your large wirehouse competitors, which is eliminating commission-based activities in retirement accounts, indicated that they may consider rebating some of those incremental fees ahead of the DOL. I didn't know if you anticipated making any changes of that sort to potentially rebate fees for those clients that you're looking to convert, given that that does technically fall under the BIC.

Yes. Their answer to that is a very specialized answer, which it relates to commissionable activity that would have occurred within the last two years in an account. When you move it into advisory, you can't have just charged a commission two months ago or a year ago and then move them into an advisory product and charge the same. This happens all the time in conversions, so we don't see that as an issue for us at all, and it's unique to their decision to not support investors in the way they want to be supported. We are here to stand for investor choice and to help support our advisors to serve the investor needs that are there and we think that's the right decision for investors. We think that's the right decision for our shareholders, we think that's the right decision to support our clients, the advisors. So we're approaching this from a very different perspective than those who are choosing to leave or abandon this part of what investors have as a need.

Thanks, Mark. And then, switching gears for a moment and probably a better question for Matt on the leverage strategy is we're still getting a lot of inbound from folks on some of the changes to your guidance. I think it might be helpful if you could articulate what has really fundamentally changed over the last 12 months since you made that initial decision to lever up to 4 times. As I think about the backdrop, the final DOL proposal which came out was a bit better than feared, which you noted not only on multiple conference calls, but even in an 8-K. Rates are higher and ICA yields are better than your guidance, and markets are in fact higher. And yet the actions that you've taken, at least on the leverage side, would suggest a complete opposite. And I was hoping that you could speak to really what has changed over the last 12 months to drive this difference or adjustment to your leverage levels and targets?

Yeah. Sure, Steven. So, I think a few things. When you go back to a little over a year ago and the setting of the target at 4 times and then bridge us to where we are today, I mean, I think the big thing that has been different is just simply the level of volatility in the market. A couple of examples; the volatility in January and February, I don't think is anything anybody would have anticipated. The vast majority of folks, I don't think, anticipated Brexit at the end of June. And the volatility associated with that and its impact on our earnings and, therefore, the impact on our leverage ratio is, I think, just higher than you would have thought sitting back in Q4 2015. So, just that volatility has been much bigger. I think in addition to that, the market's acceptance of risk has really changed than where it was back in Q4. So you put those two things together and the main driver, the primary driver we have is making sure, as I said in the prepared remarks, that our leverage ratio is at a level we can deploy capital with confidence. So we want to make sure that we are at that level. When you look at our target of four times, which again, we're sitting at 3.6 times today, so we're not talking about much more below where we are right now. But being a half to three quarters of return below that target gives us the ability to absorb a lot more volatility and still deploy capital, whether it'd be in share repurchases or recruiting or M&A, to drive value for shareholders. So hopefully, that gives you a fair bit of color. But really what's changed is the level of volatility that we saw and the market's acceptance of leverage on the balance sheet.

And our next question comes from the line of Bill Katz with Citigroup. Your line is now open.

Okay. Thanks very much for taking the questions. Just staying on the DOL theme for a moment, sort of reading through even the more recent FAQs that came out – sort of a two-part question here. Just want to talk a little bit about how you're thinking about the payout grid; is there any risk to that? And then, as I think about the implications of the DOL, could you talk a little bit about what you're seeing at the FA level around the economics for the wrap fee business?

I'm not sure I understand the last part of your question, Bill.

Just wondering if there is any downward pressure on wrap fees that the broker or the financial advisors are charging their clients within the focus on reducing costs?

No. We're not seeing that at all. I think the numbers bear that out, and it makes sense, right. In a case of a wrap fee, Bill, they're doing a financial plan. There's regular meetings with the investors. There's a lot of services that go with that fee, and those services are obviously valued by investors, and that's why we see continued strength in that number and don't anticipate that changing. Obviously, advisors always need to make sure that they're providing good value to investors, and that's what results in their clients giving them more assets or them wanting prospective advisors – investors as well. So let's go back to your DOL question. The FAQs obviously just came out, so we're doing the normal needing to review and kind of reading every line and crossing every T and dotting every I, but I think our preliminary review was this felt good to us in terms of the decisions we've made thus far and doesn't do anything other than affirm the direction that we're heading. So I feel very good about that. We don't see any changes to the grid. What we are doing is standardize commissions of both across taxable and tax-free accounts. That's important to understand. So, as we make changes to our business, in terms of commissions for variable annuities or commissions for alternative investments or for mutual funds, that is true for both types of accounts. So we're anticipating the SEC is going to have something somewhat like this. And, if not, it is just a good practice to make this a little bit more simple to understand for consumers and for advisors alike. We're also seeing that, in the direct business, which, as you recall today, is unique to the independent broker-dealer market. We still allow that today, but coming in April, we'll stop allowing that, and that is where our mutual fund direct account comes into play. Zero fees for consumers, and again that will be used both for tax-free and taxable accounts, which is important. So I think that's important to understand that that gives us very – quite a positive because that brings new assets to the platforms that aren't there today. So, in the end, we know that what's happening in compensation just highlighted by the DOL or the normal day to day life is that the comps got to really be driven by what is best for investors and the way that investors want to be served. So it is either appropriate that they're in an ongoing fee-for-service account, known as advisory, or it is appropriate they're doing the occasional transaction within brokerage. And, ultimately, if we come back to that premise – that principle, if you will, that is what really what matters is doing right by investors, and that will serve the business well over time.

Okay. And just my follow-up and thanks for taking my questions this afternoon. A number of asset managers continue to talk about the shifting landscape of what it's going to be like to be a winner, quote-unquote, on distribution platforms going forward. So I guess a two-part question is, what would that look like on a go forward basis? I'm thinking about maybe just the number of plays you have on the platform as well as like at the product line level? If you could provide some insight, that would be very helpful.

Yes, I'd be happy to, Bill. And I certainly understand and we hear, of course, the same thing. Dan Arnold, our President, and I have just sort of finished a listing tour with a number of the leaders of asset management companies to make sure I understand their perspective. I think let's come to first principles, which is ultimately asset managers have to deliver value to investors, right. They've got to be able to get good returns for their accounts. So they're active managers, they've got to provide traceable and clear product – returns to investors. So that is sort of an obvious principle that is there, but sometimes not so obvious when you look at the results. Secondly, that the world is going to get more narrow. Meaning there is going to be a smaller set of products that one can support. We have 130 fund families today in brokerage. We are going to have fewer in the new world because we have to standardize commissions, and that won't work for all of the mutual fund companies. And there will be some that, as we curate the shelf and think about it in context of the DOL and just in general making sure we're doing the right job by investors, as you would expect that number to come down. Our mutual fund direct account will have somewhere around 15 mutual fund families in it as opposed to the 130 that are available today. And that, obviously, is a significant narrowing, but the good news is that represents by far almost 100% of the assets. I mean, there is just a large concentration as you'd expect once you get beyond even the top 10 of mutual fund families. So we do see the shelf space narrowing. We do see the number of relationships narrowing, and we see that creating a better ecosystem for the investor, the end client for the advisor, for the money manager, and, of course, for LPL.

And our next question comes from the line of Chris Shutler with William Blair. Your line is now open. Chris Charles Shutler - William Blair & Co. LLC: Hey, guys. Good afternoon. First, on the expenses, a couple of quick questions there. I just want to confirm the non-recurring bonus payments. Did that occur in Q3, or is that still to come in Q4? And, on the – I guess, stepping back, more broadly, looking at the guidance for next year, Matt, you talked about productivity and efficiency. But maybe get a little bit more specific in terms of what areas are being cut to enable you to spend more on technology and DOL?

Sure, Chris. So, on the bonus, that was paid in Q3, so that expense is fully in the third quarter. When we look at 2017 and I would focus on productivity and efficiency, and we don't use the nomenclature cut. I think when you think about where we're investing our dollars, I think technology is a great example. It's not only an investment to drive solutions for advisors, it's in to drive automation. So the more we spend on technology, the more we automate, the more that productivity and efficiency can fall to the bottom line. There is no one large area where those savings are coming from other than everywhere. So that's the voice I would provide. It's really just a team effort on thinking through being productive and efficient, knowing every dollar that we save can either go into something that can drive value for our advisors or, ultimately, just be delivered to the bottom line for shareholders. Chris Charles Shutler - William Blair & Co. LLC: Okay. And then, switching gears, Mark, at what pace do you expect the assets to move from directly held to the mutual-fund only brokerage account? And is there a good potential, do you think, for that pace to be accelerated?

Well, I think we'll have to wait and live into it, right. What is important is that that starting in April of next year, you will need to bring all of your assets that today are done on a direct relationship to LPL's platform. You don't necessarily need to move your historic assets, but any new ones would be there, and obviously those should be nice amounts of flows. We are anecdotally hearing from advisors who are saying, well, gee, if I'm going to use the new mutual fund account at LPL, I should just move the assets that are out there. It will make it easier for me because I just then will work with one operating platform. It will be easier for my client who now gets multiple statements and so this is all a good thing. And, by the way, it is free for your client, so that's even better. So, as we look at it, we think that that will cause some movement of assets, but we've really tried not to predict it because it is awfully hard to tell. And the secret in life, as you know, is to keep creating substantive improvements in reporting and economics and the like, which allow us to bring more assets in. But we do think it will certainly be beneficial and it will certainly offset any continued weakness in commissions and offset the sort of short-term change happens when people go from commissionable business to advisory. Just hard to tell with any certainty what that is. So that's why we use the word manageable because, as we look at it, it all seems quite manageable given the change that I talked about in the opening remarks that have really already gone through the commission business.

And our next question comes from line of Ken Worthington with JPMorgan. Your line is now open.

Hi. Good evening. Thank you for taking my questions. I guess, first, I'm trying to get a better understanding of how the transition from brokerage to advisory driven by the new DOL Rules kind of impacts the typical account. So, if a hypothetical brokerage account holds only mutual funds and it transitions to an advisory account, is it likely that all the funds just kind of simply migrate initially from A shares in a brokerage account to maybe advisor institutional shares of the exact same funds in the new advisory account? Or under the DOL Rules, is the advisor really forced to evaluate each of the individual mutual fund holdings and therefore the conversion leads to like a completely new set of mutual fund investments? Like how does that look?

Yeah, the mechanics of it all. So the first thing we want to come to is a taxable account. Because if it's taxable, typically, there is gains given the market results we've had over the last seven years or eight years. So the client, unless they are looking to take gains for tax purposes typically doesn't like to. So they're going to map, as you say from an A share to probably an I share, in most cases, an institutional share class as you describe, and that is going into a fiduciary account. So, fiduciary account is, by definition, exempt from the DOL's best interest contract standard. But, of course, if it's tax – if it's a rollover account, there are already DOL Rules that are in place for many years in advisory today. So it's really a very simple process, and in my experience, most of it is moved over in exactly that way from the same mutual fund company going from an A share to an I share. And then, essentially, what happens is, you do look for that commissionable situation. So, let's say, it's an investment that was made five years ago. That doesn't give rise to that commission rebate we were describing before, but if it happened to have been something that was six months ago, you would need to do a rebate to deal with that. And, again, that's normal. Nothing unusual about that and not material in terms of that change. And then, basically, our new services that you're providing to your client and the client obviously needs to have those and want those as part of that service, and the pricing, of course, is quite different because it's ongoing advice for an ongoing fee. So, just lots of discussion to make sure that that's the case. But the mechanics are actually pretty straightforward. And one of the tools that we've built actually allows an advisor in beta right now to move an account over and keep the same account number, which, as you know as a consumer, just makes life easier, so you can keep your same account number. So we're trying to make this as easy as possible for consumers in terms of changes that they want to have in the way that they're serviced as it relates to either their tax-free account or their taxable account.

Okay. And then, on the – like same question on the retirement side since there is no pent-up gains, does the mapping still look very similar, or is that – is there a chance, or is it likely or does it always happen that the mapping completely changes because there is nothing kind of restricting the advisor or the end customer from migrating from one set of old investments to something completely new in the new retirement advisory account?

Yeah. It's a great question, and again, my experience is that most of the time, even on a tax-free account, there is not much change. Because there was a reason why that investment was a good investment for that consumer. As you say, there is not a tax issue here, so you would have more flexibility. But my experience is, if that was a good investment to have fund company A in your account in a brokerage situation, it's still a good investment in your advisor relationship. Where you might see some change would be if you want to use a different platform. So, if you want to use one of our centrally managed platforms, model work (51:25) portfolios or, let's say, it's a small account, you want to use Guided Wealth Portfolios, which is our Robo solution, so that's the case. And certainly, our experience here is that mutual funds beget mutual funds, that if it's a change, it's typically that there is something about that fund that the advisor doesn't feel as confident about and wants to change to another mutual fund has been our experience. That's why you see a very little encroachment of ETFs on our platform. It's about 2% per year on the advisory side. There is none in brokerage, and it's because basically the advisors understand the value that money managers are providing and are good at making sure that that's a good fit for what the investor is trying to do as well.

Awesome. Thank you very much.

And our next question comes from the line of Michael Cyprys with Morgan Stanley. Your line is now open. Michael J. Cyprys - Morgan Stanley & Co. LLC: Hi. Good evening. Thanks for taking the question. I was just hoping to get into the guidance a little bit for 2017 on core G&A. Can you just talk a little bit about how you're thinking about the risk of, say, that core G&A in 2017? Are they coming in higher or lower than what you are guiding to? And so if we're on this call a year from now and expenses are either higher or lower than that, what in your view, would have driven that outcome?

Michael, that sounds like you want a guidance on guidance. I don't think I've heard that question before. We'll let Matt see how he answers it.

Yeah. So, carefully, Mark. So, good question. I mean, I think we put a lot of time and effort into our guidance, right. So I think if you're sitting here in hindsight, and I don't really have any specifics for you, other than we're always aiming to deliver bottom-line results that are great for our shareholders, right. So the range that we put out has two big areas of investment. It's increasing our technology spend and spending what we need to implement and the ongoing expenses associated with DOL. And I think our – we've got confidence that we'll deliver in that range. Predicting where we are a year from now is – I'm not sure. I just feel confident based on what we were able to deliver in 2016 that we'll be able to hit the range that we've laid out for 2017. Michael J. Cyprys - Morgan Stanley & Co. LLC: And let's say the DOL expenses come in a little bit higher than what you're thinking today, what levers do you have within your business, say, to offset that? For example maybe passing on through higher regulatory compliance costs to FAs? Is there sort of a fee that you could implement at your discretion? And then what sort of flexibility do you have to adjust the advisor payout?

Sorry, go ahead.

Well, yes, so I'll start. Just in thinking about expenses overall, I'd say a couple of things. One, one of the success factors, I think, in what we've been able to deliver in 2016 that I think helps with respect to your question is not only have we been able to deliver the productivity and efficiency, I think the team has demonstrated ability to pivot when needed, meaning allocate costs on the things that matter. So, if DOL ends up costing us more, I think I feel confident that we can adjust our priorities and spend what's needed there and delay something else that we would need to delay or just deliver more productivity to the bottom line. Second point I would make is just, again, looking at what we've delivered so far, and I think the team's focus on implementing DOL that started well before I started here a year ago, you just got a lot of internal resources and expertise on implementing this, meaning that the third-party costs that we've had to use to implement DOL sitting here today versus a year ago have come down a bit. So I think the risk of the DOL expenses being materially larger than we think – of course it's there, but I just think it's a little bit lower given how much the internal team has been working on this for quite some time.

Yeah. The only thing I'd add is you asked specifically about fees and the like, and while there is always that flexibility to change payout grids or to change charges, we don't really see the need to do that. And, in fact, what we've been trying to do is grow volume growth and asset gathering by helping advisors to be competitive and also to change these policies related to things like direct business that will be helpful. And where that accrues to shareholders is it just drives significantly more assets to the platforms that are better fits for investors, that is more of what they need, and also are more profitable for us. And it also allows us to bring on board assets that we today don't get any economics on as well. So we think that's the right strategy and feel very comfortable that that's going to give us some lift that we are not experiencing today. So there is both the combination of expense flexibility that Matt described and what we would describe as being conservative about asset growth related to those policy changes, I think gives us plenty of confidence about the guidance we're giving you for 2017. Michael J. Cyprys - Morgan Stanley & Co. LLC: Great. Thanks for taking my questions.

Sure.

And our next question comes from the line of Chris Harris with Wells Fargo. Your line is now open.

Thanks. Hey, guys. What are the characteristics of the advisors you're seeing in the pipeline? And I'm specifically wondering how productive they are versus your current advisors.

The recruited classes tend to continue to have the characteristic of being more productive or having higher production levels than the average advisor who is here. That is for a number of reasons, one of which is that – remember that we have a geographic dispersion here. So I sometimes use the small town that I grew up in, Columbus, Indiana, as an example, where it is 30,000 people there, and it is a small place, and if somebody makes a couple hundred thousand dollars a year in revenue in their practice, they live quite well. And that market, for the most part, we've covered. And so what we're seeing is more the urban centers being the location for recruiting, because we're seeing more come from the more traditional employee models, the wirehouses, and we're also, of course, seeing the independent opportunities for us. We've had some public announcements about some large group practices that have moved with significant assets. So that's the other characteristic I'd add, is just large relatively complex businesses that we have an ability to move quite well. We have specialized teams that do nothing but make those transitions really easy for investors and advisors and feel good about our ability to manage the complexity of a move like that. There is not many who can do that. And then, finally, it is this institutional mix. It's been a little low on the institutional side, say over the last couple of years. And that is for a range of reasons, but the main part here is that the larger programs are starting to make some changes in the way they think about the wealth management business, to offload their fixed costs and essentially rent that cost from us, right, at an incremental rate, which is quite good for them and quite good for us overall. And then, in general, we're seeing a pickup as advisors assess the platform they're on and recognize they're not hearing from their management teams about what the solutions are for DOL and they're moving along. So we really do like the average size of the class, the average production we're seeing, and we like the larger group practices they're moving and the institutions.

Okay. Great. And then one clarifying question on the new leverage target. Do you guys want to get to the new target prior to buying back any stock or might you consider buying back stock at the same time you are approaching the leverage target?

Yeah. Chris, I think the timeline is over the next few quarters. We want to be very deliberate about it, keeping in mind we're at 3.6 times today. And if you look at the excess cash we have on our balance sheet, we're effectively at 3.1 times. So I would state very broadly on deployment of capital, and as I think a more tangible example from a recruiting standpoint, we're deploying capital today. So I think there is a bunch of different scenarios that could be in parallel; we could wait. I think it's more about deploying that overall cash and where we see the recruiting pipeline, which is one of the many things that we have in front of us to deploy capital. But it really depends on how that plays out.

Okay. Thank you.

And our next question comes from the line of Doug Mewhirter with SunTrust Robinson. Your line is now open.

Hi, good evening. I just had one question. Obviously, you're going to be working hard to standardize your mutual fund commissions for the DOL reasons. That was spelled out pretty clearly. And so I'm wondering, considering you have a range of commissions right now that you're trying to get it to one number, do you think that that standardization will push the average – the ending average ends up near the higher end of that range, the lower end of that range, or you think that the result will end up being roughly the same as you are now?

Well, again, we're still trying to make sure and understand what's the art of the possible here given the FAQs coming from the DOL and given our discussions with various product providers. And that's important to us. So, as we look at it, what we see today is something that probably won't adjust the average much in terms of the category. It's a big category for us in terms of volume. We have – we believe that, based on the analysis we've done, that it will be fairly close to what it is today.

Okay. Great. Thanks. That was all my questions.

Thank you.

And our next question comes from the line of Alex Kramm with UBS. Your line is now open.

Yeah. Hey, good evening everyone. Just wanted to come back to recruiting for a second, thanks for all the color you have given so far. But if I look at the FAQs that the DOL has put out, it seems like they are really focused on conflict of interest when it comes to recruiting. And maybe this is something you can expand on a little bit. Like how you think it's going to change the recruiting environment and the kind of packages that people are paying to basically for firms like you to really cover all their behinds, I guess, to make sure there is no conflict of interest. And how, maybe, this could be different for, like, wirehouses versus your channels? So just basically asking like, hey, how do you think the risks are to recruiting paying packages and how this could, I think, change recruiting holistically over the longer or medium-term?

Yeah. So I think we've certainly continued to evaluate this guidance from the DOL as you expect us to. We don't believe that really the majority of our transition assistance is affected. It's – ours is typically tied to some activity they're doing. They're setting up a new office, they're buying computer equipment and the like. So we're helping enable them in the business. So that's where we're different than the wirehouses have been. We do think that, broadly speaking, similar to the disclosures that FINRA proposed but didn't actually make their way through, that the wirehouses in general are trying to move away from what I would describe as a high payment mechanism of moving of advisors. And this may very well give them the excuse to do so. That means that we would have fewer competition for the movement of advisors who are looking to make a change in their business. That can only be a good thing from our perspective and of course, it is a good thing to make sure there is transparency in disclosure related to consumers around why individuals change and the like. So that's our perspective on it, thus far, is that is only – all good as we look at it.

Okay. Fair enough. I guess, second topic, then, just for a second. I think I've asked this in the past, but you made this comment and you made it again today that the advisory business is a better business or higher margin business for you. Can you just flesh it out a little bit because sometimes I worry a little bit that – and please correct me if I'm wrong, that you're thinking mostly around the GDC side, and it's really the revenue per asset, which is clearly higher on the advisory side, but how about some of these other ancillary items? Can you flesh it out a little bit in terms of what kind of fees you're picking up in a brokerage account that are outside of commissions and what kind of fees you're picking up in an advisory account that are outside of advisory fees and how this could differ and how behavior is a little bit different than just (1:03:50) driving some of these fees? Thank you very much.

Yes, absolutely. So I understand there is a lot of complexity to the way these things are done, but quite simply, it's the total return on assets basically, right, that we're looking at. So it's all of those fees together, whether it's sales commissions, whether it's the ongoing advisory fees, remembering that we only keep 10%. Those numbers, it's the account charges, it's whatever is there. So we boil it down to an ROA view, which tells us basically that advisory is a more profitable business line for us, which makes sense. There is more services that are being offered, so, therefore, there is more we need to do to help the advisor, the investor, in that case. So that's the broad comment. And Matt, you might want to go.

Yes. Sure. I mean, I think from – we disclosed the overall, to Mark's point, ROA at 28 basis points, and I would just say directionally, Alex, from an advisory standpoint, we are above that average, call it in the low to mid 30s. On the brokerage side, we are below that average in the low to mid 20s. And I think that's just how to think about where all the gross profit shows up that Mark described.

All right. Thanks for clarifying that again.

Sure, of course.

And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Mark Casady, Chairman and CEO, for closing remarks.

Well, thank you, everyone, for joining our call today. We look forward to speaking to you in the next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.