LPL Financial CFO Matt Audette Discusses Business and Financial Performance

Question: We’ve recently made a few announcements about our expenses, including the purchase of AdvisoryWorld, a leading provider of digital solutions serving the wealth management industry. Can you share details about how LPL has increased its levels of investments over the past few years?

Audette: We believe that improving technology and service and making it easier to do business with us are the best things we can spend money on at this point. In the areas that matter most to our advisors, we have continued to increase our spending levels. As an example, we’ve increased our investment in technology by about 15% a year for several years. If you go back to 2015, we were spending about $60 million a year, and in 2018, we are spending about $120 million. We’re planning to spend $135 million next year.

We recognize the importance of making it easier to do business with us. Providing our clients with improved capabilities and technology and improving the service experience will help our advisors become more efficient and grow their own practices. And when they win, we all win.

Question: Debt levels continue to be an important topic. Your team spends a great deal of time planning for multiple economic scenarios, insuring the firm invests in our advisors’ businesses regardless of the economic cycle. Can you elaborate on the changes the team has made to target debt levels?

Audette: We are focused on positioning our balance sheet to help drive growth, not distract from it. Our principle is to make sure we position ourselves so that, in the event of a market downturn, our balance sheet is strong enough that we can continue to support and invest in our advisors and their practices, continue delivering new capabilities to advisors and continue bringing new advisors to LPL. With that as the principle, we have lowered our target debt levels by about one third.

Question:  Can you discuss how repurchasing shares impacts the balance sheet? Can you explain what we’re doing there?

Audette: Our first priority is to invest in our advisors, as previously mentioned. After that, we target leaving at least $200 million in cash on the balance sheet so we’re in a position of being able to absorb a downturn or something else unexpected. Then we seek to return capital to shareholders through dividends and share repurchases. We see share repurchases as a more flexible way to return capital to shareholders, with a similar economic impact as dividends. With our prior share repurchase authorization nearing completion, we’ve established a new $1 billion authorization, which we anticipate completing over roughly the next two years.

Question: What is your outlook for LPL going forward?

Audette: I’m incredibly excited to be at LPL and look forward to the years to come. It’s a great time for advisors, employees, and shareholders to be at LPL. As we reflect on 2018, and as we look forward, we are investing hundreds of millions of dollars to enhance capabilities, technology, and service. We think that makes our value proposition even more compelling for advisors and will help them differentiate and win in the marketplace. For LPL employees, it is energizing to support the best independent advisors in the industry, to work hard every day to serve them even better, and to attract new quality advisors to our platform. And for shareholders, which many of our advisors are, we are committed to creating long-term value by staying focused on core business growth and executing with excellence.

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Forward-Looking Statements

Statements in this article regarding LPL Financial Holdings Inc.’s (together with its subsidiaries, the “Company”) future financial and operating results, growth, plans, priorities and outlook, including forecasts and statements related to the Company’s future expenses and investment levels, future technology investments (including outlook for 2018 and 2019), improvements to the Company’s capabilities, technology or services as a result of its initiatives, programs, investments or strategic acquisitions, future debt levels, future share repurchases, future advisor recruitment efforts as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements.  These forward-looking statements are based on the Company's historical performance and its plans, estimates and expectations as of December 11, 2018.  Forward-looking statements are not guarantees that the future results, plans, intentions or expectations expressed or implied by the Company will be achieved.  Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive, and other factors, which may cause actual results, levels of activity or the timing of events to be materially different than those expressed or implied by forward-looking statements.  Important factors that could cause or contribute to such differences include: changes in general economic and financial market conditions, including retail investor sentiment; the success of the Company in attracting and retaining financial advisors and institutions; the Company’s future brokerage and advisory assets levels and mix; the Company’s success in executing its operating plans; the performance and costs of third-party service providers; changes to the Company’s offerings and services in response to current, pending, and future legislation, regulation, and regulatory actions, and the effect that such changes may have on the Company’s gross profit streams and costs; execution of the Company’s capital management plans, including its compliance with the terms of its credit agreement and the indenture governing its senior notes; the price, the availability of shares, and trading volumes of the Company’s common stock, which will affect the timing and size of future share repurchases by the Company; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company’s 2017 Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A filed on February 27, 2018 (collectively, the "2017 Annual Report on Form 10-K"), as amended or updated in the Company's Quarterly Reports on Form 10-Q or subsequent filings with the SEC.  Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements whether as a result of new information, future developments or otherwise, even if the Company's expectations change, and you should not rely on those statements as representing the Company's view as of any date subsequent to December 11, 2018.