Good afternoon and thank you for joining the Third Quarter 2024 Earnings Conference Call for LPL Financial Holdings Inc. Joining the call today are our Chief Executive Officer, Rich Steinmeier; and President and Chief Financial Officer, Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions. The company would like – would appreciate if analysts would limit themselves to one question and one follow-up each. The company has posted its earnings press release and supplementary information on the Investor Relations section of the company’s website, investor.lpl.com. Today’s call will include forward-looking statements, including statements about LPL Financial’s future financial and operating results, outlook, business strategy and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management’s current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties, the company refers listeners to the disclosures set forth under the caption forward-looking statements in the earnings press release as well as the risk factors and other disclosures contained in the company’s recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company’s earnings release, which can be found at investor.lpl.com. With that, I will now turn the call over to Mr. Steinmeier.

Thank you so much, operator. As a long-time listener and first-time caller, it’s great to speak to everyone on today’s call. For those that haven’t met me, I’m Rich Steinmeier, and it’s my privilege to serve as LPL’s Chief Executive Officer. I joined the firm in 2018, following roughly a decade working in wealth management at a couple wirehouses, after having started my career in management consulting. I joined LPL with the mandate to accelerate our growth, and for the past six years, have worked closely with Matt and the rest of our leadership team, to set our strategic vision, and to build and execute on the plan to achieve that vision. Looking forward, our opportunity is clear to assert our leadership and shape both the advisor and institutional markets. Our focus is on creating the culture, strategy, and capabilities, to achieve sustainable outperformance by serving as an indispensable partner to our advisors and institutions, while delivering long-term value to shareholders. Okay. With introductions complete, let’s turn to our results. In the quarter, total assets increased to a record $1.6 trillion, as we attracted organic net new assets of $27 billion, representing a 7% annualized growth rate. This was on pace with the past 12 months, during which we brought on nearly $100 billion of organic net new assets, representing approximately 8% growth. Our third quarter business results led to strong financial performance with an adjusted EPS of $4.16. Next, let’s turn to our strategic plan and recent growth across our organic and inorganic initiatives. As a reminder, our long-term vision is to become the leader across the advisor-centered marketplace. To do that, our strategy is to invest back into the platform, and provide unmatched flexibility in how advisors can affiliate with us, and to deliver capabilities and services to…

Are you telling me that was a Halloween event on Friday? That’s what I normally wear, I figured the white onesie you were wearing was what you wore on Fridays.

The Men in Black theme.

Who knew? Well, thanks, Rich. I’m glad to speak with everyone on today’s call. I too feel exceedingly fortunate to serve this great firm in an expanded capacity, as LPL’s President and CFO. To echo Rich’s sentiment, we have built an advantaged position in the advisor-mediated market, and have a tremendous opportunity to extend our leadership. I look forward to partnering with Rich and continuing to enhance value for all of the stakeholders we serve. Turning to our results, in the third quarter, we remained focused on serving our advisors, growing our business and delivering shareholder value. This focus led to another quarter of strong organic growth in both our traditional and new markets, and we are preparing to onboard the wealth management businesses of Prudential and Wintrust. As a complement to our strong organic growth, we closed on the acquisition of Atria earlier this month. In addition, we entered into an agreement to acquire The Investment Center, which we plan to onboard in the first half of 2025. So, as we look ahead, we remain excited by the opportunities we have to serve and support our growing advisor base, while continuing to deliver an industry leading value proposition and drive organic growth. With respect to our third quarter business results, as Rich mentioned, it was another quarter of strong growth, with an annualized growth rate of approximately 7%, or 9% prior to the planned separation from misaligned large OSJs. On the recruiting front, Q3 recruited assets were $26 billion, which prior to large institutions, was a new quarterly high. Looking ahead to Q4, in addition to the expected onboarding of one of our largest institutional partners, Prudential, we continue to have a strong pipeline. However, I would note the natural seasonal headwinds to advisor movement during the back half…

Thank you. [Operator Instructions] Our first question comes from Alex Blostein with Goldman Sachs. Your line is open.

Hey, good afternoon, everyone. Rich, Matt, congrats to both of you on new and expanded roles. That’s good stuff. Rich, I was hoping we could start with you given this is your first opportunity to speak with a broader kind of investor and analyst group in your new role, obviously, the CEO of the firm, maybe spend a couple of minutes on the key priorities for the business over the next one to two years. What are the key areas of focus are likely for you to be? And is there going to be sort of any strategic change in direction for the business?

Great. Thank, Alex. Thanks for congratulating Matt and I on the expanded role. I actually really appreciate it. So as we jump in as a newly formed management committee into moving the business forward. I’d say there are three top priorities that we’re thinking about every day. The first are, that we have got to maintain the client centricity that this firm is known for, that is in serving our advisers, our institutions and allowing them to serve their end clients with distinction. It’s what the firm was built on. And so for us, that is one of the top priorities as we advance making sure that we don’t lose sight of what’s made us special. Second, which is a slight pivot is to empower our employees. This is the ability to take the employees who sit at the all levels of this firm who are deeply connected with our clients and empower them to take the decisions to help those clients achieve success in however they may define it. And so for us, that’s about putting in place a decision-making framework and a control framework that allows all of our employees to have the authority to make better decisions in support of our clients. It will allow us to feel nimbler and more direct in serving the clients. The third priority is driving operating leverage. We have had the privilege of high levels of growth extended over the last couple of years. And as I mentioned in remarks, we have had Matt take over all of the operations, service, compliance and supervision to try to drive and continue to drive operating leverage and value for our shareholders. But one thing, Alex, that I would point out that is not going to change is actually our strategy. Our long-term vision…

Great. Thank you for that perspective. Very helpful. Matt, I guess since you dressed up as Johnny Cash, let’s talk about cash. You guys and the industry broadly put up really nice growth in cash balances for the first time in a while, obviously, much, much welcome development for you guys in the space. Maybe unpack a little bit what have been sort of the sources of growth and totally understand the hesitation of sort of calling the bottom on cash balances. We’ve tried to do that before, and that hasn’t played out yet. But are you starting to see a more durable kind of outlook on – just based on the – where recruited assets are and the outlook for growth on cash balance is starting to grow over time from these levels.

Yes, Alex. I think on your point of calling the bottom, it’s always tough. But I think just to reiterate some things that we’ve talked a fair bit about in the past that I think are relevant now as you just start to hone in on when you’re looking at cash sweep, those are cash balances that are largely operational. So you’re starting to get down to what is really the amount of cash necessary to do things like rebalancing, paying advisory fees, facilitating withdrawal, things of that nature. And where – when we look at that as a cash as a percent of AUM, right, that has been coming down. We’ve stabilized the last couple of quarters and just under 3% zone. But even if you look at the few quarters leading up to that, a big part of the driver – the primary part of the driver was really the denominator, I mean the market is going up, so that percentage came down. So if you look at it just as cash balances on an average per account, they have stabilized for a few quarters at just over $5,000. So to your point, it’s always tough to call a bottom. But I think when you look at where we are right now, with the amount of cash that’s in there really is the cash necessary to manage accounts. So then I think you pivot to really what does our growth outlook look like because as you bring in new accounts, if those on average are $5,000, you can – you’ve got strong organic growth like we do, and you do couple that with a stabilization, you can start to be in a place where you could see cash balances start growing again, right? So it’s hard to promise that, but I think the dynamics that would lead to that are there, and we’ll see how that plays out.

Great. All right. Thank you, both.

Thank you. Our next question comes from Steven Chubak with Wolfe Research. Your line is open.

Hi, good afternoon, Matt, and welcome, Rich. Just echoing Alex’s remarks, congrats to both of you on the new and expanded roles. Rich, maybe just starting with you, since you’ve been the primary architect of the growth strategy, these last six years, I thought it might be helpful if you could lay out your either strategic vision or growth priorities, specifically for the institutional and private wealth channels just given those are much larger TAMs, you’re increasing your share, but the penetration is still quite low. And what does that success just look like for you over the next five years across both of those channels?

Thanks, Steven. I will take those each in turn. So let’s start with the institutional channel. So as you know, we’ve had some nice success in the recent past, but maybe I’d start this discussion a little bit earlier because while we’ve had an acceleration certainly in our participation in the institutional channel in the last five years, this story starts decades ago, this firm has always served community banks, credit unions and built capabilities to actually serve them. And as we build those capabilities and committed to the growth in that channel, we started to attract really progressive firms, Old National Bank, South State, Webster, Simmons, and we grew our sophistication in the ability to serve larger institutions. As we did that, we made a concerted effort probably around 2020 to say there’s a real opportunity inside the large bank channel. And that opportunity for us is because the demand of serving and delivering a wealth business which used to sit with lower thresholds to be able to participate, those were growing because of the expectations of regulatory changes of the needs to deliver an outstanding platform and the expectations of what end investors were requiring. And so we had a pivotal moment around 2021. When we had a leader in M&T choose us and that was probably one of the first times that a firm above $20 billion in wealth had chosen to partner with an outsourced firm. And at that point, it actually changed the dynamic in the marketplace from large firms being asked, why on earth would you outsource, to starting and ask the question of the leaders asking why aren’t you considering outsourcing and partnering with a world-class partner. And that’s not just the M&T, but it’s the credibility of a Doris Meister and Matt…

Really helpful insight, Rich. Just a follow-up for Matt. Over the past year, we’ve seen a pretty meaningful decoupling between the share price and NNA, your stock currently trading at a pretty steep discount to wealth peers despite generating much stronger NNA and in a consistent fashion mind you. It clearly suggests the market is just not willing to capitalize that stronger organic flow momentum. I wanted to get your perspective just on what you believe the market is underappreciating first. And second, why not consider leaning more aggressively into buyback just to take advantage of this valuation disconnect that exists today?

Yes, Steven. I think there – we certainly view the stock as undervalued, maybe hitting the – leaning into buybacks first, which we are restarting as I covered in the prepared remarks, I think one of the really important things that I think we are unwavering on is having a strong balance sheet for many reasons. I think a lot of them are obvious, but maybe some of them are less obvious in that, if that is also a contributor to the driver of organic growth, right? When you look at the businesses that we serve and support being with a partner that’s going to be able to withstand environments where interest rates go down or the equity markets go down, and not have to look inward and reduce their levels of investment like some other firms that they’ve come from, that is a really important thing. So I think when we look at our capital allocation, it’s all in a construct of being within that leverage target range. And then I think when you click down within that, we continue to focus on driving returns, which includes share repurchases I think the returns on organic growth are better. The returns on M&A have been better, but the returns on share repurchases are compelling. So I think we would anticipate allocating capital to all those areas. I think to the first part of your question, I think from a market disconnect standpoint, I think there certainly is one. It’s tough to understand how and why other than I think our conviction on the investments we’re making that are going to drive long-term value that when you’re doing things like bringing on a Prudential and that certainly does require a lot of upfront investment, upfront capital, that not only is a compelling return for that particular opportunity that opens up a broader market. These are all things that are an example of things that just drive long-term value. And probably not the first time in the history of the markets where the long-term opportunity is perhaps underappreciated. Certainly not underappreciated by us, which is why we’ve got the conviction to keep doing what we’re doing. So hopefully, that helps.

Well said, Matt. Thanks so much for taking my questions.

Thank you. Our next question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Great, thanks, Rich. Matt, good afternoon and congratulations on the well-deserved expanded roles. Maybe just one on liquidity and succession for you. Great to see your first of platform deal. Maybe you could just update us on the traction you’re seeing and remind us how much capital you’re deploying to this and anticipate deploying into this over the next 12 months relative to, say, the last 12 months? And more broadly, strategically, how you’re thinking about the opportunity set here unfolding as you look out over the next couple of years?

Hey, Michael. It’s Rich. Thank you so much for the kind words at the beginning. I’m going to start, and then I’m going to hand it over to Matt around the capital deployment. And so let’s start with the momentum inside of liquidity and succession. I think you got to start with the background of how big is the opportunity. And so we think that over the next 10 years, we expect to see one-third of advisers retire in the industry. And as you look at the independent segment, which is the fastest-growing segment in the marketplace, there really wasn’t a mature set of solutions to help those advisers retire. In fact, in the past, those solutions largely were seller financed moving from one adviser to the next, but the risk was often borne by the adviser who is selling the business. And so in 2022, with that backdrop, we came at this, I would say, from a different angle than many folks. We started – we had – in fact, it was driven by our existing clients asking us, please provide us a solution because we want to stay with LPL. We don’t want to have to sell away and we don’t want to lose control of our business. And in listening to those clients like we do on so many different things, we comprise an offering that, one, helps those advisers monetize their business at a fair market rate. Two, it identifies and supports the next generation of advisers, we call those the G2 advisers, where we will build a relationship with those advisers to help finance them in buying back that practice from the founder or the practitioner as it stands. And in fact, 70% of those transactions that we’re involved in have an identified G2 adviser…

Yes, Mike. I think of use of capital. I think on the external side, it’s early, right? Kind of hard to have a sharp estimate on where that goes from a capital allocation standpoint other than to underscore what Rich said the opportunity set there is quite large. But it’s all volume dependent. So I just go back to kind of the key metrics and that we use on these deals, we’re typically during the $10 million to $20 million zone, if you look at those internal deals per deal, we’re doing 6 to 8 times EBITDA is largely the zone that we land. We’ve done about 40 so far and the purchase prices have kind of been in the middle of that zone, so call it, $0.5 billion. So that’s probably a good way to think about going forward from here. And then I think external deals would just add on to that, probably at a lower multiple because you’re getting not only – you’re basically getting two things. You’re getting the recruiting economics, which are typically at 3 to 4 times, and you’re doing the L&S transaction, which is at 6% to 8%. So on average, there’s probably a multiple that’s a little bit lower. So than an internal. So hopefully, that helps guide you.

Great. Thanks so much. And just a follow-up question, coming back to one of your strategic priorities was to drive operating leverage. I was hoping you could elaborate on some of the steps you might take to drive operating leverage in the business, what we might see there? What sort of magnitude do you think is achievable over the next couple of years and what success might look like there?

Yes. I mean I think when you look at just the areas where we add costs, right, as we grow, it’s a great insight to see where we can get more efficient and get more leverage and really drive down our cost to serve. So it’s in the areas that have the largest headcount. And as Rich covered kind of the areas that I’m largely responsible for now. And I think when you look at what we’re doing there is you’ve got a combination of investing in efficiencies, things like robotics, you’ve got opportunities as we improve our technology, as we improve our capabilities, the reasons that advisers may need to call our service center would decline, which allows you to grow this business without adding more heads there. So there’s just a host of areas, Mike, where the more that we invest in efficiencies, the more that we improve our technology, the more that we get deeper and deeper into our expertise in all these different areas, the things that we’re driving costs will come down. So I think it’s a classic just cost to serve opportunity set that really has allowed us, if you just look at this year and this quarter, where we’re delivering on quite strong levels of growth, but we’re – our core G&A guidance is really within the range of where we started the year. And the reason for that is our cost to serve is coming down. And I think that’s the focus and the intent that we’ll have going forward as well.

Hey Mike, it’s Rich. I’d love to add just one thing to that. One thing I wouldn’t overlook in the construct of how we improve operating leverage is actually our organizational alignment. So the guy sitting across from me, who has demonstrated that he is one of the best CFOs in wealth management with an eye towards making sure he understands how the business is put together also now leads the largest components of cost for the firm. He understands how to responsibly deploy capital to build efficiencies to achieve sustained improvement in our operating costs while doing that inside of that environment of being both the CFO and President. And so I think there’s a lot of harmony in that evolved organizational alignment that should allow us to continue to make progress against that operating leverage.

I don’t think anybody heard that, if you mind repeating it.

Yes, do it every day and twice on Sunday.

Great. Thanks so much.

Thank you. Our next question comes from Craig Siegenthaler with Bank of America. Your line is open.

Rich, Matt, first just wanted to offer you both a congrats on the expanded roles.

Thank you.

Thank you.

My question is on free cash flow conversion, and I’m looking at Page 15 of the release. We saw positive sequential growth and year-over-year growth in corporate cash balances, although the growth was smaller after backing out the excess cash at the regulated subs. Given the return of the buyback, how should we think about your cash and liquidity objectives at the company and the holdco? And really what metrics are you focused on?

Yes, Craig, I think when you look at the two big metrics that we’ll focus on really is overall leverage, right? So 1.5x to 2.5x target range. I think we’ll – between the mix of cash flow that we generate and deploy and the borrowings that we use, which I think is a more efficient use of capital than equity is really being in that range. And then allocating that capital to the areas that we’ve talked through. So organic growth, M&A, share repurchases. I think maybe specifically on your point on cash itself, that was elevated the last couple of quarters as we did opportunistically go to market in May when the markets were quite good to raise the cash to get ready to close on Atria. So when you go into Q4, you should expect to see that cash level – that corporate cash level to come back down to where we typically operate, which is in that 200-plus zone, which is the amount of cash we typically like to keep around. But then you’ll see leverage more in that – right in the middle of that range of kind of call it around 2x. So that’s where we like to anchor. And then based on where we are from a leverage standpoint, just take that liquidity and apply it to our capital allocation framework like we always have.

Thank you Matt. My follow-up is on your alternative investment offering. I was wondering if you could remind us what the offering looks like today between both private market strategies and drawdown funds and also semi-liquid vehicles? And do you have plans to expand this offering further, which could enhance your recruiting effort?

Hey Craig, it’s Rich. I’ll take that one. So let me start at the end of your question, which is do we intend to expand this platform further? The answer is yes. It goes to the journey that we’ve been on, which is that we started to serve really exceptional independent advisers. We then expanded our total addressable market by being very intentional at looking at wire house and regional advisers. And as we began to have success into those wires and regionals, the demand to join our firm continue to increase, but some of our capabilities were short of the absolute need that those advisers may have been used to at the other firms. And so that would center on alts [ph], some of our banking capabilities. And as I mentioned, the further extension of our wealth management platform and specifically our UMA. Inside of alts, over the last year, we’ve made significant progress in building towards a world-class platform. The first thing we did was expand our custodial and operational capabilities. And the second was then beginning the material expansion of our shelf of alts themselves. This is a multiyear effort. In fact, now we have over 20 folks working full time inside of the alts to go through diligence as well as to position to our adviser base to help them understand solutions and help them position them to their clients. In addition to those capabilities, specifically this year, we began a new – we’ve deployed a new alternative investment order entry system which we launched in the second quarter with a pilot set of advisers and have gotten a lot of feedback on. And in fact, we have used that launch in the second quarter to build and enhance what we call AIOE, our Alternative Investment Order Entry system so that it is much more intuitive and have better capabilities in support of a broad deployment at the end of the fourth quarter. The feedback that we’ve got from the advisers who went on the pilot has been incredibly positive. And as they’ve learned into our expanded capabilities in response to their feedback, it’s only gotten stronger. So we look forward over the next year to finalizing that build reflective of the needs of those advisers and continue to expand that breadth of product offerings to achieve not only the opportunity to support our existing advisers, but as you mentioned, make us more attractive inside of those high net worth oriented advisers that either sit as what we would call maybe high net worth dabblers inside of the wires and regionals or those that are inside of the private wealth channels themselves. That goes to a little bit of maybe one of the earlier questions that I was answering. So you’re spot on. This is a capability that is important to us that we have made investments in and we’ll continue to make investments in until it becomes a world-class capability for us.

Thank you, Rich.

Thank you. Our next question comes from Mike Brown with Wells Fargo Securities. Your line is open.

Great. Thank you for taking my questions. I appreciate all the background, Rich, on the institutional side of the business, and the momentum is clearly very strong there. Can you just speak to the constraints in growing in that channel? What is the kind of annual pace that you could tackle there when you’re considering that $1.5 trillion opportunity. And as you onboard some of these bigger complex clients like Prudential, can that speed of onboarding begin to pick up?

Absolutely, Mike. Thank you for the question. I would note that Mike is the first person that has not congratulated you on your expanded role. So I also feel the same way you do, Mike. I think he should have just be a little more humble. So let’s get into that question as well.

There’s still time I can congrats on [indiscernible] answer from you both.

Okay. Let’s talk about the constraints on the institutional segment. There’s a couple of things. If you think about accelerating the pace in an institutional segment, one of the differences between an adviser segment in the institutional segment is that the sales and engagement process is quite a bit longer. If you think about our engagement with Prudential, we actually were in discussions for a couple of years before we got to contracting, which then led us to a pretty sizable build – to build those capabilities. Now the good news is for incremental initiatives or incremental partnerships that we would have for so many of them, we won’t have that long build cycle because we will have built the capabilities certainly inside the product manufacturer segment. On the bank side, we’re the leader in capabilities. And so that again, that’s going to have a longer sales cycle. That’s not going to look like years, it’s going to look like probably a nine-month sales cycle, you’re going to see an RFI and an RFP and they’re going to go through decisioning and then you’ve got contracting. And then you can think of anything between six months to 12 months as a time frame for which we’re preparing to onboard that. And so what you’ll get, Mike, is as you’re building momentum, some of that you’re not going to see in the short term is because as firms I specifically mentioned inside of the product manufacturer space, as they see through the Prudential transition and successful Prudential transition as they then raise their heads and start to get into an engagement process with us, you’re going to have a pretty sizable lead time. And so that’s one of the things you would see. Now you specifically asked about constraints so let’s…

Yes. Yes. Very helpful. And then just for a follow-up, as you to build on the operating leverage comments. Just hoping to maybe get a little sneak peek on to 2025. The annual core G&A growth for 2024 was 7.5% to 8.5% prior to Pru and Atria. I’m just trying to think through, is that perhaps the right range to consider for 2025? Or what’s the puts and takes there, Matt?

Yes, Mike. We’re in that planning process now. So we’ll come back like we normally do in the year-end call and give that guidance. But I think that maybe the higher level things I would hit is one, just keep in mind, we’ll have Pru and Atria for the full year effect of that in 2025. So if you kind of put that aside, I think and just reiterate what we talked about on this call, I think our focus will be continuing to invest to drive organic growth at the same time delivering that operating leverage. And I think – this year, I think, is a good example of those growth rates starting to come down and balance those two things versus 2022 and 2023, where we had more of an outsized investment. So we’ll have that same perspective going into 2025, but we haven’t landed those plans yet. It will be guided by the opportunities we see to invest and drive growth and by the opportunities we see to invest and deliver operating leverage and – but those principles be the thing that guides us.

Okay, great. Thank you. And congrats to both of you.

Thank you. That’s all the time we have for questions. I’d like to turn the call back over to Rich Steinmeier for closing remarks.

Thank you, operator, and thank you all for joining us. We look forward to speaking with you again in January. Have a great night, and have a safe and happy Halloween.

Thank you for your participation. You may now disconnect.