We do not manufacture any financial products. Instead, we provide our advisors
with open architecture access to a broad range of commission, fee-based, cash,
and money market products and services. Our product due diligence group conducts
diligence on substantially all of our product offerings. Our platform provides
access to approximately 795 product providers that offer the following product
lines:
• Insurance Based Products
• Alternative Investments
• Structured Products
• Mutual Funds
• Separately Managed Accounts
• Exchange Traded Products
• Unit Investment Trusts
• Retirement Plan Products
• Annuities
The sales and administration of these products are facilitated through our technology
solutions that allow our advisors to access client accounts, product information,
asset allocation models, investment recommendations, and economic insight as
well as to perform trade execution.
Commission-Based Products
Commission-based products are those for which we and our advisors receive an
upfront commission and, for certain products, a trailing commission, or a mark-up
or mark-down. Our brokerage offerings include variable and fixed annuities,
mutual funds, equities, alternative investments such as non-traded real estate
investment trusts and business development companies, retirement and 529 education
savings plans, fixed income, and insurance.
Fee-Based Advisory Platforms and Support
LPL Financial has various fee-based advisory platforms that provide centrally
managed or customized solutions from which advisors can choose to meet the investment
needs of their mass affluent clients and high-net-worth clients. The fee structure
enables our advisors to provide their clients with higher levels of service,
while establishing a recurring revenue stream for the advisor and for us. Our
fee-based platforms provide access to no-load/load-waived mutual funds, exchange-traded
funds, stocks, bonds, conservative option strategies, unit investment trusts,
and institutional money managers and no-load multi-manager variable annuities.
Cash Sweep Programs
We assist our advisors in managing their clients’ cash balances through
two primary cash sweep programs depending on account type: a money market sweep
vehicle involving money market fund providers and an insured bank deposit sweep
vehicle.
Retirement Services
We offer retirement solutions for commission- and fee-based services that allow
advisors to provide brokerage services, consultation, and advice to plan sponsors
using LPL Financial. Our advisors, whether through LPL Financial or through
a Hybrid RIA, serve over 32,300 retirement plans representing at least $83.0
billion in retirement plan assets. These retirement plan assets are custodied
with LPL Financial or various third-party providers of retirement plan administrative
services that provide us with direct reporting feeds. There are additional retirement
plan assets supported by our advisors that are custodied with third-party providers
that do not provide reporting feeds to us. We estimate there are over 40,000
retirement plans served by our advisors with total retirement plan assets of
approximately $118.0 billion. We earn revenue from retirement plan assets that
are custodied with LPL Financial and from those that are not custodied with
LPL Financial, but which are serviced by advisors through LPL Financial. Accordingly,
only retirement plan assets that are custodied with LPL Financial are included
in our reported advisory and brokerage assets.
Other Services
We provide a number of tools and services that enable advisors to maintain and
grow their practices. Through our subsidiary PTC, we provide custodial services
to trusts for estates and families. Under our unique model, an advisor may provide
a trust with investment management services, while administrative services for
the trust are provided by PTC.
Our Financial Model
Our overall financial performance is a function of the following dynamics of
our business:
Our revenues stem from diverse sources, including advisor-generated commission
and advisory fees, as well as other asset-based fees from product manufacturers,
omnibus, networking services, cash sweep balances, and transaction and other
fees for other ancillary services that we provide. Revenues are not concentrated
by advisor, product, or geography.
The largest variable component of our cost base, advisor payout percentages,
is directly linked to revenues generated by our advisors.
A portion of our revenues, such as software licensing and account and client
fees, are not correlated with the equity financial markets.
Our operating model is scalable and is capable of delivering expanding profit
margins over time.
We have been able to operate with low capital expenditures and limited capital
requirements, and as a result have generated substantial free cash flow, which
we have committed to investing in our business as well as returning value to
shareholders.