Image source: The Motley Fool.

DATE

Thursday, July 30, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer - Richard Steinmeier
• President and Chief Financial Officer - Matthew Jon Audette

Need a quote from a Motley Fool analyst? Email [email protected]

TAKEAWAYS

• Adjusted EPS -- $5.84 for the second quarter, representing a record for the company and driven by strong organic growth and expense discipline.
• Total Client Assets -- $2.6 trillion, up 10% from the first quarter of 2026, reflecting higher equity markets and organic growth.
• Organic Net New Assets -- $23 billion, which represents an annualized growth rate of 4%.
• Gross Profit -- $1.62 billion, a sequential increase of $26 million.
• Commission Advisory Fees -- $486 million net of payout, a sequential decline of $1 million.
• Client Cash Revenue -- $457 million, down $3 million from the first quarter due to lower average cash balances.
• Client Cash Balances -- $56.9 billion at the end of the second quarter, representing a sequential decrease of $2.2 billion.
• Adjusted Pre-tax Margin -- Approximately 39.3% for the quarter.
• Core G&A -- $519 million in the second quarter, down $13 million from the previous quarter and below the prior outlook range.
• 2026 Core G&A Outlook -- Management lowered the full-year guidance range to $2.14 billion to $2.165 billion, reflecting efficiency gains.
• Recruited Assets -- $25 billion for the quarter, the strongest level of recruiting in nearly two years excluding large institutional wins.
• Asset Retention -- 97% for the quarter and the trailing 12 months, driven by advisor experience and technology investments.
• Share Repurchases -- $309 million in common stock repurchased during the quarter, with a new $2.5 billion authorization approved by the board in July.
• Commonwealth Integration -- Management estimated run-rate EBITDA of approximately $435 million once the acquisition is fully integrated.
• Payout Rate -- 87.4% in the second quarter, an increase of 22 basis points sequentially due to seasonal production builds.
• ICA Yield -- 36 basis points, which management expects to increase by 10 basis points in the third quarter following a shift to cash-based tiering.
• Transaction Revenue -- $83 million, up $2 million sequentially due to record trading volumes, though management expects a decline of roughly $5 million in the third quarter.
• TA Loan Amortization -- $142 million in the second quarter, with an expected increase to $150 million in the third quarter due to strengthened advisor recruiting.
• Preliminary July Metrics -- Management reported preliminary organic growth of approximately 3% and total cash balances of $54.1 billion as of late July.

SUMMARY

Management at LPL Financial Holdings Inc. (LPLA +0.41%) reported a focus on the integration of Commonwealth Financial Network and the expansion of technological capabilities via the Latitude platform. The company stated that strategic priorities include improving operating leverage through efficiency gains and the application of artificial intelligence to advisor workflows. Management indicated that capital allocation remains focused on supporting organic growth, completing mergers and acquisitions, and returning capital to shareholders through an expanded share repurchase program. The company noted that it has re-engaged its institutional recruiting pipeline following a period of capacity management during the Commonwealth integration.

• CEO Steinmeier highlighted the J.D. Power rankings where Commonwealth and LPL were ranked first and second respectively for independent advisor satisfaction, noting that "Commonwealth's award is its 13th straight No. 1 ranking."
• The company launched Latitude, a unified technology experience, and Cyan, an AI agent designed to automate routine maintenance and identify growth opportunities for advisors.
• CFO Audette indicated that the company is shifting its ICA yield methodology "from an asset based tiering structure to a cash balance based tiering structure," which is expected to increase the yield run rate by 20 basis points over two quarters.
• Management reported that Commonwealth asset retention is currently in the "mid-80s" with a target of reaching 90% retention by the time of the fourth-quarter conversion.
• CEO Steinmeier stated that the company had previously paused large institutional onboarding to focus on the Commonwealth transition but has now "cleared the decks for us to have the ability to have more material conversations."
• The payout rate is expected to increase by approximately 80 basis points in the third quarter, driven by seasonal factors and corporate advisory pricing reductions that went into effect on July 1.
• In response to a stock price dislocation during the quarter, the company accelerated its share repurchase program to $309 million, significantly higher than the initial $125 million plan.

INDUSTRY GLOSSARY

• Cyan: LPL's proprietary artificial intelligence agent integrated into its advisor platform.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization.
• ICA: Insured Cash Account, a program where client cash is swept into interest-bearing bank accounts.
• Latitude: LPL's unified technology ecosystem for financial advisors and their clients.
• NNA: Net New Assets, a measure of the net flow of client assets into the firm.
• RIA: Registered Investment Advisor, a firm or person that provides investment advice for a fee.
• TA Loan Amortization: The accounting of transition assistance loans provided to advisors as they move their practice to the firm.

Full Conference Call Transcript

Operator: Good afternoon, and thank you for joining the Second Quarter 20 Earnings Conference Call for LPL Financial Holdings, Inc. Joining the call today are Chief Executive Officer, Richard Steinmeier and President and Chief financial officer, Matthew Jon Audette. Richard and Matthew will offer introductory remarks, and then call will be open for questions. The company would appreciate if analysts would limit themselves to only 1 question. To ask a follow-up, please re-enter the queue. 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 strategies 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 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 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 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.

Richard Steinmeier: Thanks, operator. And thank you to everyone for joining our call. it is a pleasure to speak with you again. After a strong start to the year, we continued our momentum in Q2. We delivered improved organic growth during the quarter, while driving recruiting pipelines to record levels. We made meaningful progress in preparing to onboard Commonwealth Financial Network. And we drove material improvements in our operating leverage. We achieved this in a rapidly evolving environment as elevated macroeconomic uncertainty, and market volatility at the start of the quarter gave way to a sharp market recovery during the quarter. Serving as the latest reminder of the value of professional advice and the resilience of our model.

Underlying this consistent performance, was the exceptional work and dedication of our teams including the talented colleagues who joined us from Commonwealth. In recognition of these efforts, JD Power ranked Commonwealth and LPL number 1 and number 2 for independent adviser satisfaction. Commonwealth's award is its 13th straight No. 1 ranking This is a remarkable achievement and a meaningful validation of the complementary nature of our organization and the culture we are building together. Now to highlight some of our Q2 results, in the quarter, total client assets were $2.6 trillion up 10% from Q1, as organic growth was complemented by higher equity markets. We attracted organic net new assets of $23 billion representing a 4% annualized growth rate.

Our second quarter business results translated into another quarter of strong financial performance with record adjusted EPS of $5.84. Turning to our strategic plan, we remain unwavering in our strategy and our aspiration to be the best firm in wealth management. To that end, we remain focused on 3 key priorities. 1, preserving the client centricity the firm was built on,, 2, empowering our employees to deliver exceptional outcomes for our advisers and institutions and their clients, and 3, delivering improved operating leverage. Continued execution across these priorities will help us sustain our industry leading growth while advancing the effectiveness and efficiency of our model. With that as context, let's review a few business highlights from the quarter.

In Q2, recruited assets improved to $25 billion. Prior to large institutional wins, this was our strongest quarter of recruiting in nearly 2 years. During Q2, we continued to advance opportunities into the later stages of our recruiting pipeline, And despite the strong pull through, the overall pipeline reached a new record. This positions us well for improved organic growth in the second half of the year. In our traditional markets, we added approximately $23 billion in assets during Q2, maintaining our industry leading capture of advisers in motion, while continuing to expand the depth and breadth of our recruiting pipeline. With respect to our expanded affiliation models, we delivered another solid quarter recruiting roughly $2 billion in assets.

Turning to overall asset retention was 97% for both the second quarter and over the last 12 months. This is a testament to our continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the ongoing evolution of our service and operations functions. Now let's turn to Commonwealth. The integration is progressing well, and we remain on track to onboard Commonwealth Advisors in the fourth quarter. In terms of asset retention, we are in the mid-80s today, and we continue to work towards our target of 90% retention of client assets. From an operational standpoint, we are nearing the completion of the technology and capability builds needed to help facilitate a seamless conversion.

Key initiatives include advancing our householding capabilities, and modernizing our case management platform to support a more connected end to end service experience. For existing Commonwealth advisers. When combined with the introduction of a single relationship agreement, this creates a more flexible relationship centric model that improves the client experience enhances adviser productivity. These capabilities not only enable the Commonwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisers and institutions.

In parallel, we are ramping up our training efforts to ensure that our Commonwealth teammates are positioned to continue delivering exceptional service to existing Commonwealth advisers and that Commonwealth advisers and their support staff are ready to hit the ground running following the conversion to the LPL platform. In closing, the second quarter was another strong quarter for LPL. I want to take a moment to thank our entire team both at LPL and Commonwealth, for the dedication and hard work that drove these results. And contributed to the recognition from J.D. Power. We are building something special and I am incredibly proud of the passion and dedication our teams bring to supporting our advisers.

As we look ahead, remain well positioned to serve as a critical partner to our advisers and institutions to continue delivering industry leading organic growth and to maximize long term value for shareholders. With that, I will turn the call over to Matthew.

Matthew Jon Audette: Thanks, Richard. I could not agree more. It was a tremendous quarter. As the team continues to deliver remarkable results. To reiterate some of these highlights, we delivered solid improvement in organic growth, continued to advance our adviser experience, drove improved operating leverage through ongoing efficiency gains and better monetization of the value we deliver to clients, progressed our preparation to onboard Commonwealth, and executed on our capital allocation strategy. We closed the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and given the dislocation in our stock price, accelerated share repurchases. These efforts resulted in strong second quarter business and financial performance and position us well for the second half of the year.

Now turning to a few highlights from our Q2 business results. Total client assets were 2.6 trillion up 10% from Q1 as continued organic growth was complemented by higher equity Total organic net new assets were 23 billion and approximately 4% annualized growth rate. As for our Q2 financial results, the combination of organic growth, and expense discipline led to an adjusted pretax margin of approximately 39.3% and record adjusted EPS of $5.84. Gross profit was 1.62 billion up 26 million sequentially. As for the key drivers, commission advisory fees net of payout Were 486 million down 1 million from Q1.

Our payout rate was 87.4%, up 22 basis points from Q1 largely due to the typical seasonal build in the production Looking ahead, we expect our payout rate will increase by approximately 80 basis points in Q3, driven by typical seasonality as well as the previously announced reductions to our corporate advisory pricing that went into effect on July 1. With respect to client cash revenue, it was 457 million down $3 million from Q1 primarily reflecting lower average cash balance. Overall client cash balances ended the quarter at 56.9 billion down $2.2 billion Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 60% within our target range of 50% to 75%.

Looking more closely at our ICA yield, it was 36 basis points in Q2, unchanged sequentially. 1 item of note is that we are shifting our client sweep rate methodology from an asset based tiering structure to a cash balance based tiering structure. As a result, as we look ahead to Q3, we expect our ICA yield to increase by 10 basis points. As for service and fee revenue, it was $209 million in Q2, down $2 million from Q1. Looking ahead to Q3, we expect service and fee revenue to increase by approximately $5 million driven by revenues from our annual focus comp. Moving on to Q2 transaction revenue.

It was $83 million up $2 million from Q1 driven by record trading volumes and 1 additional trading day during the quarter. As we look ahead to Q3, we expect transaction revenue to decline by roughly $5 million Now turning to our acquisition of Commonwealth. As Rich mentioned, the transaction continues to progress well, and we remain on track to onboard Commonwealth Advisors in the fourth quarter. As for the financials, accounting for current market levels, we now estimate run rate EBITDA of approximately $435 million once fully integrated. Now let's move on to expenses starting with core G&A. It was $519 million in Q2, down $13 million sequentially and below the low end of our outlook range.

Reflecting our continued progress in driving greater efficiency, and reducing our cost to serve. For the full year, given our progress to date, we are lowering our core G&A outlook range. We now anticipate 2026 core G&A to be in a range of $2.14 billion to $2.165 billion give you a sense of the near term timing of this spend, we expect Q3 core G&A to be in the range of $540 million to $560 million Turning to TA loan amortization. It was $142 million in Q2, up $6 million from Q1. As we look ahead to the third quarter, we expect TA loan amortization to increase to approximately $150 million reflecting strengthening adviser recruiting.

As for promotional expense, it totaled $79 million in the second quarter, up $3 million from Q1 driven by increased conference spending. Looking ahead to Q3, we expect promotional expense to increase to approximately $95 million driven by conference spend. To depreciation and amortization. $110 million in Q2, up $4 million sequentially. Looking ahead, we continue to invest in technology and expect Depreciation and amortization to increase by roughly $8 million in Q3. Moving to our tax rate. It was approximately 26.4% in Q2, and we expect a similar level in Q3. Regarding capital management, we ended Q2 with corporate cash of $430 million down $137 million from Q1.

As for our leverage ratio, it was 1.9x at the end of Q2 near the midpoint of our target range. Moving on to capital deployment. Our framework remains the same. Focused on allocating capital aligned with the returns we generate. Investing in organic growth first and foremost, pursuing M&A where appropriate, and returning excess capital to shareholders. In Q2, we deployed capital across our entire framework. As we continue to invest to drive and support organic growth, close the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and returned capital to shareholders.

Specific to share repurchases, while our initial plan was to repurchase $125 million of our stock in Q2, The dislocation in our share price presented an attractive to deploy additional capital. So we accelerated repurchases to $309 million. Additionally, in July, our board approved a new $2.5 billion repurchase authorization. With $300 million planned for the third quarter. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth deliver operating leverage, and create long term shareholder value. With that, operator, we are finally ready to open the call for questions.

Operator: Certainly. And as a reminder, ladies and gentlemen, please limit yourself to 1 question each. If you would like a follow-up question, you may reenter the queue. Our first question comes from the line of Alexander Blostein from Goldman Sachs. Your question please.

Alexander Pozkin: Hi, good afternoon. Thank you for taking the question. I was hoping to start with the outlook on organic growth. Obviously, June saw a nice pickup, and you talked about recruiting pipeline looking pretty robust. So maybe spend a minute on how you view organic growth for the half of the year, whether or not NNA can sustain above 5% And, also, coupled with that, we continue to hear a pretty competitive landscape for recruiting. Curious how that squares away with your with the outlook seeing for the back half of the year? Thanks.

Richard Steinmeier: Yeah. Hey, Alexander. it is Richard. Thanks for the question, and nice to hear from you. So maybe let's talk about the recruiting. Well, let's talk about organic growth for the balance of the year. I think we saw that we have got a rebound this quarter up to 4%. Look. there is a couple things that drove that. First is that we saw adviser movement move back in line with historical norms. that is important for us. As we capture a disproportionate share of the advisers in motion, any movement to that overall you know, adviser movement, we are going to be 1 of the winners who benefit in that movement.

And so let's say, you know, there is a macro movement improvement that helped us align with our long term share capture of advisers in motion. Second, you know, and this continues, and you heard in prepared remarks, Commonwealth is largely coming towards the end of the recruiting and education event. We still have advisers out. To continue to progress with them, to problem solve with them, to get to solutioning with them, And so it is not completely-- you know, over. But as we have continued on that journey, we have seen more and more of our capacity to go back into the marketplace and engage directly with advisers.

And so when you think about that second half of the year, we should be able to return to more normalized levels, not only of recruiting, but continuing to build pipeline And so that makes us confident in our ability to deliver mid to high single digit growth over time if you extend even further out and look at our long term outlook, I think this is where we even strengthen our conviction even further. We continue to be the disproportionate winner in our traditional markets. We have an unmatched value proposition and actually continues to strengthen.

When we look at the wirehouse and regional adviser movement, largely, we have been continuing to gain consideration, which is really important for us because as we speak to those advisers, we more often than not are 1 of the winners in those conversations, but we have to get into more conversations So we do that by closing our capability gap, which we continue to do in quarter and throughout the balance of the year. I alluded to some of those even in prepared remarks. And continuing, more importantly, to actually position our brand actively in the marketplace. So you saw us do that a year ago with our brand campaign.

Additionally, we have announced a partnership with the PGA of America that we think will continue to progress Our representation not only to advisers, but to their high net worth end investors, which is critically important as they consider firms that they are going to consider moving to. And maybe lastly, in the institutional channel, this is 1 where we had to pause a little bit in our consideration of large opportunities to bring on to the platform because of the Commonwealth transition was so extensive and the build was so comprehensive.

And now as we move towards being on the other side of that and finishing our capability build, it opens up our ability to continue to progress pipeline in the institutional channel with opportunities to onboard them. You marry that with low attrition and things and steady contribution from same store sales. And, again, I look at that longer outlook and say, okay. I think we have a strong ability to sustain mid to high single digit growth. Maybe lastly to that competitive environment, I think it is completely fair representation. It remains spirited. We saw about a year ago, we saw a move in, market TA levels. They have continued to persist at higher elevated levels.

And from our perspective, stay disciplined on returns. TA is part of our conversation with advisers, but it is not the driver. Kinda repeat this pretty regularly, but advisers who are changing firms first about capabilities, technology, and service. They then think about ongoing economics. And third, they think about upfront economics. So you put that all together, We feel incredibly strong in our ability to not only sustain our performance to improve it over the latter half of the year.

Operator: And our next question comes from the line of Steven Chubak from Wolfe Research. Your question please.

Steven Chubak: Hi. Good afternoon, Richard and Matthew, and thanks for taking my question. I was hoping to get an update on the pricing review. Pause. Steven. I like that pause. That is our fault. We were not gracious hosts there. Thank you. That you are not, but all is forgiven. Rest assured. Was hoping to get an update on the pricing review just now that you are further along in the diligence process, what has been some of the early feedback from advisers as you have explore potential pricing changes?

And what are some of the key milestones that need to be met as part of the review to get you and the board comfortable with adopting or implementing any such pricing changes to minimize the reliance on cash economics?

Richard Steinmeier: Yeah. Hey. Thanks, Steven. So like we said last quarter, we are actually doing that work. I think you know, we need to make sure we take that time as you probed properly to think and ensure that any potential solutions that we come up with, 1, that they are well considered, that we are looking at it from all angles, that it is aligned with our long term strategy, and that it creates value for our advisers for our institutions, and for the clients that they serve. And so give you a little bit of color why this may take us a little more time. We have exploded the types of advisers and institutions that we serve.

If you think about the 2 business models that we have, in our adviser business, we have grown our affiliation models pretty dramatically, and that looks like different profiles of the advisers. Who have different compositions of their book. And similarly on the institution side, we no longer just serve banks and credit unions. We serve large regional banks. National banks, We serve product manufacturers. So the complexity of the type of clients that we serve is pretty comprehensive. Maybe extensive. We have got to make sure, and we are engaged with those clients to ensure as we build any solution and evaluate those solutions across 32 thousand advisers, 1 thousand+ institutions, and 8 million end investors.

That they work the solutions work across those clients and their operating models. The levers are very clear to us. But as we go through the work, we have to make sure that it works for those constituents and that is the update that we have on the work. We are doing that work. We do not have any precise updates on the completed work to date. But we will make sure to update you when there is more to share.

Operator: Helpful, Kyle. I appreciate Our next question comes from the line of Daniel Fannon from Jefferies. Your question please.

Dan Fannon: Greg, thanks. Matthew, I was hoping you could expand upon the G&A outlook. If the numbers continue to come in better than you have forecast, As you think about the back half of the year, are there are you still implementing some of these efficiencies to think about the ongoing benefits? Or is obviously, what you are putting in the numbers today is that, you know, realistic based upon the you know, what you guys have done so far?

Matthew Jon Audette: Yeah, Daniel. I mean, I think you look, if you look at the trends, like, think the headline answer is, I think, an evergreen thing. I mean, the continued investments whether it be automation, efficiency, AI driven things, that do 2 things. They not only, you know, improve our efficiency and drive down our cost. They also improve our value proposition with our advisers. So I think that is something we are gonna consistently do. And I think what you are seeing so far this year is some outperformance on the pace at which we are able to do these things.

So I think it is been you know, a couple quarters in a row, we have been able to deliver more efficiencies than we expected. And we are able to lower the guidance for the year. To underscore, the guidance for the year includes everything that we have worked on and everything that we expect to work on. And I think you have seen us. there is been periods where we have met that. there is been periods where we have done better than we expected. So I think that now core G&A growth of 4.5%, 4% to 5.5%, prior to Commonwealth is our best estimate right now.

But I think if you broaden that out, I think there is each and every year, I think we are gonna be able to continue to drive investment And, again, underscore it is not only about efficiencies, but it is improving the value proposition in our experience with our clients. Thank you.

Operator: Thank you. And our next question comes from the line of Devin Ryan from Citizens Bank. Your question please.

Devin Ryan: Greg. Hi, Richard. Hi, Matthew. Lot of good stuff in here. I want to ask about, Richard, a point you made, advisors, care about capabilities in tech when they are thinking about moving firms. And so with that said, would it be good to get some color on this AI platform Latitude? I saw you just launched that or announced it a couple days ago. And so just be good to hear about kind of functionally what are the capabilities for advisers. Are there ways you can think about framing, you know, how it can help their productivity?

And then how differentiated is it, versus just table stakes I know that may connect back to your recruiting pitch or just making the firm more attractive. for institutions to think about partnering with you? Thank you.

Richard Steinmeier: Yeah. Thanks, Devin. So I think, 1, technology has always been important for advisers who are considering moving firms. it is usually 1 of the first things we go through. In fact, recently, we continue to accelerate in our home office visits, our tech demos earlier in the sales process. The reason being that what feedback we get from advisers is that there is a material differential differentiation in our capabilities and technology than the competitors that they are looking at. And I would tell you, as we get through a tech demo, what we see is we win in head to head more often than we did even a year ago.

Because through the last couple of years, you have seen us continue to enhance our investments made in technology. I think the Latitude announcement is a reflection of that. We reflected that we have invested nearly $2 billion over the last few years in building the core foundational capabilities in our data, security, adviser technology, and AI, Latitude is the reflection of our unified tech experience that ties all of that together. it is a crisper way to reflect integrated nature of our technology ecosystem that we think is a really good reflection to advisers. And as they get in, they see the connectivity across all of that.

No longer a separation of the adviser work station and the end investor capabilities and the workflows and the cyber environment. And now the introduction for us of Cyan, our AI agent, It helps us actually operate across all of the adviser workflows and deliver contextual real time intelligence. And so specific to your question, when we look at just Cyan and we look at how does that improve the operation effectiveness of an adviser's practice. Well, a couple of our high impact use cases that we are launching with include the ability to identify growth opportunities for advisers in their practice.

As they probe into it, natural language processing, to identify ways that they can grow, actions they can take, And, actually, 1 of the things that is really impressive is a button that simplifies the next actions they should take to prioritize improving their growth against the verticals that they choose to grow. Second, you know, there is other things that we have done there to make them more efficient in their practice. We introduced jump as a way to, you know, record and then get actions coming out of meetings.

But now we are introducing through Cyan the ability to take financial plans that they have already developed to synthesize those plans, for insights to the end investor, as well as ways to deliver that to the adviser that are much more efficient than they are doing today. And 1 other high value use case is automating routine maintenance tasks. So instead of having to go into the system to make address changes, we actually just go into the agent, say you are making an address change. You indicate the change of address. And then it is automatically propagated across the entire ecosystem of Latitude.

I think these are good examples of a firm that is positioning itself to lead in technology making investments, enabled through AI, that further differentiate us from our competitive set. And as we have not only shown our capabilities, Devin, but as we have demonstrated our road map for AI to advisers who are considering the firm. It usually is a significant point of differentiation between us and the other firms they are evaluating.

Operator: Excellent. Thanks, Richard. Thank you. And our next question comes from the line of Michael Cho from JPMorgan. Your question please.

Mike Cho: Hi, good evening. Thanks for taking my question. I just wanted to touch on pricing as well, not so much the work that you are doing now, Richard, but the pricing adjustments that you announced last year and you implemented some earlier this year and Matthew, you called out, you know, some of the other parts starting in July as well. So just given some time that is passed, you know, have you seen any adjustments in adviser behavior since announcement and implementation And any key takeaways here from an LPL perspective?

And if you see other opportunities to potentially mark to market maybe some of LPL's more enhanced offerings, maybe in, you know, in light of Latitude and Cyan as well? Thanks.

Matthew Jon Audette: Yeah, Michael. I mean, I will just I will just, resummarize them for you. I think the headline is things have played out as we expected. So I think when we announced those, we walked through the 3. I will take you through the components. But we had expected a net improvement in margins kind of in incorporating everything that you had just walked through of about 1 percentage point. And that is largely what is played out. So just as a reminder, there was 1 in each of the core, in Q1, Q2, and Q3. So Q1 was the new fees on brokerage accounts. In Q2, it was fees on the direct mutual fund business.

And those 2 things together led to an increase in service and fee revenue by about $40 million per quarter. And then the last change coming, which I talked about in prepared remarks, it is coming in Q3. Was reductions on pricing in our advisory really to make them, you know, even though they are already competitive, even more competitive And that those pricing reductions will show up as an increase in payout of about $20 million a quarter. So the net of all of that is around $20 million a quarter, $80 million annualized. Right in line with where we thought.

And to the broad point, I think it just positions us as we talked about when we announced them, the first 2 fee increases were really to bring fees in those 2 areas in line with market. And then the third area in advisory, I think, is making a platform that was already competitive and value prop-wise even more competitive. So I think it is really played out how we thought.

Operator: Thank you. Our next question comes from the line of Craig Siegenthaler from Bank of America. Your question please.

Craig Siegenthaler: Thanks. Good evening, everyone. So similar question, but I want to see if you could potentially change your revenue share arrangements with asset managers. And I wonder if you view this as a future earnings lever given that your size increase and you are a scaled retail distribution partner? So and what I am getting at is could LPL increase its underlying economics on ETFs mutual funds, and SMAs? Thank you.

Matthew Jon Audette: Yeah. Hey, Craig. This is Matthew. I will just say what, you know, what Richard went through in detail as far as what we are looking at on economic and things we would change. that is where our energy is. I think that there is other things that, you know, once we are done with concluding, is there something to do there or not? If there is other things to look at, we would take that up. But I think when you look at our overall economic the thing that we are staring at is cash sweep that, I just underscore everything that Richard said. Thank you.

Operator: And our next question comes from the line of Michael Brown from UBS. Your question please.

Mike Brown: Greg. Good afternoon. Thanks for taking my question. You have observed that your advisers, when they adopt your business solutions, they tend to grow 2x faster than advisers that do not. As you think about the Commonwealth cohort and the transition there, what are your expectations for their adoption of your subscription based services? Like, your CFO and marketing solutions? And do you think that there is kind of similar opportunity set for the Commonwealth Advisors?

Richard Steinmeier: Hey, Mike. it is Richard. Thanks. So first, you are right. We observed that as advisers actually begin to outsource more of the work they do themselves, They put themselves in a position to go to the core advice delivery and you see that not only through marketing and CFOs you see it also through OCIO solutions, paraplanning solutions. And so anytime when an adviser is thoughtfully reorganizing the structure of their office, to drive productivity and drive deeper engagement with clients. We see accelerated growth. We also see that inside of our managed models that have a lot of those offerings embedded inside.

So when you look at our strategic wealth services as well as our Linsco offering, we see faster growth there as well because of the support system that is provided and the solutions that are embedded in those off Commonwealth actually has a subset of the business solutions capabilities and services. In fact, they have some that are differentiated from us around practice management. And some growth support as well. And so there are elements already. We see that Commonwealth Advisors are faster growing advisors. More productive advisors. And so they have been embedding those capabilities and driven outsized same store sales growth.

We would anticipate as we get into the conversations, further conversations with Commonwealth Advisors, there is a lot of our solutions that are attractive to them. I think the CFO and marketing solutions are attractive. I think 1 to maybe put on your radar screen is liquidity and succession solution. Which we find also accelerates growth in advisers practices as they go through liquidity and succession we find that there is a pretty strong demand from Commonwealth advisers as Commonwealth was building a solution that was similar but was not as robust and was not as far along in its deployment as our liquidity and succession solutions are.

So I would say across a cadre of solutions, there is an appetite from Commonwealth Advisors. I would say it skews more heavily towards liquidity and succession. Because they had some of the solutions that we have already available inside of Commonwealth Financial now.

Operator: Great color. Thank you for all that, Richard. Thank you. And our next question comes from the line Brennan Hawken from BMO Capital Markets. Your question please.

Brennan Hawken: Hi. Thanks for taking my question. This is a little bit more of an abstract question. there is among some investors, there is some debate about whether or not AI tools could eventually lead to some hybrid solutions, you know, which marry AI with advisers and potentially come at a lower price point. You know, you talk to a lot of advisers. what is the adviser view on that? Is that you know, considered a real risk? And, you know, is there anything that could be done to insulate from this risk if it does end up emerging? Thanks.

Richard Steinmeier: Hey, Brennan. it is Richard. Thanks for the question. I think when you look into AI solutions, what you see is you kind of either look at it as a glass half full or glass half empty. Let me give you the glass half full case. What you are gonna see is a pretty significant enhancement in the workflows that exist certainly first inside of our ecosystem, our ability to process work, our ability to drive straight through processing, our ability to make it just easier to do business.

And when you look at the workflows that exist inside of an adviser's practice, scheduling, preparing for meetings, running alternative investment solutions, actually running the solution set you see there is material opportunity to improve the efficiency of an adviser's practice. When you take those 2 things together, we stare into what we think will be a pretty significant enhancement in the availability of capacity at an adviser's practice level. In fact, many of the folks that sit inside of an adviser's practice think of the CSAs, I think there is a potential for them to get much more productive and move to much more interesting and challenging work of beginning themselves to deliver advice.

And so as we look at the automation of an adviser's practice of the workflows inside of the practice, we think that there is gonna be capacity to serve more end investors. And so we have not seen a material reduction over the last several decades in spite of many new innovations that the advisory fee is driven down in any material way. But I would tell you the offset to that would be we think even if that were to occur, the advisers inside of their practice would have the ability to grow the practice and grow the number of clients and the assets they serve and serve them in ways that they serve their best clients today.

And so we view delivering the automation and AI as enhancing the adviser's practice. We think it will strengthen their ability to go to market and it will actually allow them to spend more time in advice delivery, in context setting, and helping take decisions with end investors. So that is the theory to our case. I think we believe strongly in it, and that is largely what we hear from our advisers. They are more excited about the potential of AI than they are scared of the impact of AI. And we support that, perspective as well.

Operator: that is interesting color. Thanks, Richard. Thank you. And our next question comes from the line of Michael Cyprys from Morgan Stanley. Your question please.

Michael Cyprys: Hey, good evening. Thanks for taking the question. Just wanted to ask about expense growth. Just curious how you would characterize that underlying pace of 4% to 5.5% core DNA growth that you referenced relative to a multiyear profile. And then when you layer in AI initiatives, I guess, meaningful could that be on a multi-year profile when you look out? And as you think about AI, I guess, where do you see some of the biggest opportunities to change processes and workflows that could be the most meaningful and really drive the needle on the bottom line as you look out over the next couple of years?

Matthew Jon Audette: Yeah, Michael. I think that, I mean, the opportunity is huge. I mean, I think, like, most folks, I think you are gonna be balanced in how much you are investing to improve an experience, give you more capacity to invest and drive your value proposition, versus expand your op margin. And I think you see us balancing that. I think just looking at, you know, just this year, I think you are starting to see a good taste of what we can do and deliver I think, relatively, reasonable expense growth, especially when you look at the last few years.

While at the same time, you know, delivering an increased capability set starting to reinvigorate organic growth, and doing that all, I think, at that 4% to 5.5% where we estimate now to be, is quite a good balance. When you think about, like, AI, so just kinda the end of your question there on the on the areas. I mean, I think for us, I put it in 3 broad categories where first is directly serving the adviser, and Richard hit on this a little bit, in talking about Latitude. Talking about Cyan. But those are things where I am just underscoring what he said.

Like, the benefits of that, are not only on the value prop for advisers, but they lead directly, to efficiencies on our side. Things that would typically have been a phone call or an email and multiple steps and processes in both sides can just be completely processed through by that agent. I think the second 1 is just pointing all that-- right at our internal infrastructure or back office, meaning service and operations, that can just that is where it can materially, improve the cost structure and the efficiency. And then the last 1 would just be in our technology development. Right? The coding and the tech builds itself.

Where we are already seeing the ability to not only build things much cheaper than they were historically, but build them at a faster pace. And I think you put those things together, and I think it goes back to a little bit of my headline point in the answer that not only can we drive efficiencies in the cost side, but we are gonna be in a position to be able to improve and deliver a value prop I think, better and faster than most. So I think, you know, it is an exciting view over the next several years of being able to do that, but that helps with color on how we think about it.

Operator: Great. Thank you. Thank you. And our next question comes from the line of Benjamin Budish from Barclays. Your question please.

Benjamin Budish: The prepared remarks, you talked about a pricing change at NDI that is going to benefit a little bit in Q3? So if you could explain the mechanics of that change a little bit more? How does it work? what is the rationale for doing it? Is there particular behavior that you are looking to incent? How should we be thinking about that going forward? Thank you.

Matthew Jon Audette: Yeah. You bet, Benjamin. I mean, I think it is primarily driven by the Commonwealth integration. So when you look at as we prepare to onboard Commonwealth, how we, LPL, have priced cash-based tiering has been based on the level of AUM that the household has with us. Commonwealth prices it based on the actual level of cash balances that they have. So what we are doing going forward is just shifting to an integrated approach that is cash-based balance tiering, and that also aligns us with our independent peers. So it is got a benefit there.

Now as to why that leads to an increase, in returns, when you look at the price tiering, right, to perhaps state the obvious, you pay less on smaller balances and more on the larger balances. And as we have talked a bit about, I think for a long time, our advisers have their clients in cash in relatively small levels. We are probably at about 2 years now where the average amount of cash per account at LPL has been around $5 thousand. It really has not moved below that for 2 years.

So the net result of that, is more cash at those lower tiers, and that will lead to an increase in the ICA yield on a run rate basis. Of about 20 basis points. And those changes that I referred to are going to go into effect in August, so kind of in the middle of the quarter. So you can view that as half of it coming in Q3. And then the second half coming in Q4.

Operator: Okay. Great. Thank you. And our next question comes from the line of Jeffrey Schmitt from William Blair. Your question please.

Jeffrey Schmitt: Hi. Thank you. Question on the institutional channel. You have sort of taken a pause, it sounds like, through the Commonwealth deal. How would you characterize your pipeline today? Has that been building? And are you seeing demand for outsourcing increase versus a year ago? Or has that been fairly stable?

Richard Steinmeier: Yeah. Hey, Jeffrey. Thanks for the question. So first, you are right. I mean, we had to take an intentional pause not necessarily in our engagement in the marketplace, but around our ability to onboard. We just first and foremost, making sure that we got the Commonwealth onboarding capability build ahead of everything else. And so it did put a pause on how we progressed opportunities in the pipeline. If I reflect on maybe just for a second kind of our positioning in the marketplace. So first, in that institutional market, we are the absolute leader in the institutional space and have been as such for years.

And the institutions we serve support $590 billion of client assets in their wealth businesses, and that is multiples greater than those of our next closest competitor. As we position in our conversations and actually with folks who have onboarded with us we have a really compelling value proposition We accelerate the growth of the firm as they come on. We actually improve their margins. And we reduce regulatory and compliance risk And maybe most importantly across that, especially when you think about us relative to competitors, we have proven our ability time and again to actually transition very complex, large scale organizations and their wealth businesses seamlessly. And so maybe lastly in that, we also have signature clients.

And 2, I would say, you know, 2 of our most recent joins in Prudential and First Horizon clients that I think are thriving on our platform. And reflect the ability that has demonstrated that improved efficiency as well as accelerated growth. So you put that all together, I think what we have is a building of our reputation in the marketplace to serve large institutions. We are more engaged now certainly than we were a year ago.

Large institutions, not only with the number of institutions, but actually the size and complexity of some of those institutions continues to grow. that is probably emphasized more even on the product manufacturer side The bank market is a tried and true market as we continue you will see us continuing to talk to larger and larger banks. And maybe let's talk just about banks for a second. Much of the focus on banks is on efficiency and driving greater efficiency. And in the wealth business, that is no exception.

So the conversations we are in are with larger institutions on the bank side who are looking at efficiencies and looking at ways for which they can compete and be competitive across the board and largely that includes outsourcing wealth. And so we continue to see a building in the pipeline there, and we actually now have cleared the decks for us to have the ability to have more material conversations. So feeling better about where we are there than we were certainly a year ago.

Operator: Great. Thank you. Thank you. And our next question comes from the line of Bill Katz from TD Cowen. Your question please.

Bill Katz: Thank you very much. Good evening, everybody. Just maybe a 2 part if I could squeeze it in. On Commonwealth, excuse me, can you let me know what the cash is as percentage of client AUA? And then, Matthew, I would be curious if you would give us an update on how things have been trending into July on both flows and client cash. Thank you.

Matthew Jon Audette: Alright. Very aggressive, Bill. Operator said 1. I will do 2. Do not worry about it. Look. On Commonwealth, their cash balances have the whole time they have been with us are a little bit below ours. So we have been we are at a little above 2%. They are a little bit above 1%. So they just have much, much lower cash balances, and it and it is always been that way. With respect to how the third quarter is going so far, so for July, on the cash side, couple days remaining, but it is shaping up as you would expect in the first month of the quarter, which is primarily the impact of advisory fees.

So those hit in the first month, that reduced cash by $2.8 billion Outside of that, cash balances have been flat. So if you if you put those 2 things together, July cash has decreased by only the impact of fees, and that puts cash at around $54.1 billion. On the organic growth side, similar impact Month 1 is usually the lowest month of the quarter because advisory fees hit in that in the first month. Outside of that, we are seeing organic growth continuing to pull through as we have noted on the recruiting picking up. And you put those 2 things together, that would put July organic growth in the zone of around 3%.

Operator: Thank you for accommodating the 2-parter. You are welcome. Thank you. And our next question comes from the line of Michael Brown from UBS. Your question please.

Mike Brown: Okay. Great. Thanks for taking my follow-up. I wanted to just follow-up on Steven's question at the beginning. And I guess as you evaluate the potential transition toward platform fees, can you clarify, should investors view that work you are doing today as primarily developing a playbook that would only be implemented if the competitive dynamics or client behavior created meaningful pressure on cash sweep economics? Is management increasingly inclined to make that shift proactively kind of regardless of whether those pressures materialize. And then if it is the latter, what gives you confidence that moving first creates value rather than a disadvantage?

Particularly if competitors are slower to follow or really choose not to make a similar change at all?

Richard Steinmeier: Yeah. Hey, Mike. Thanks a lot. And you know, I think Bill, look at what Mike did. He actually reentered the queue and got his second question in. So learning event for all of us. So, look, if the question is, you know, whether we are going to be a leader or a follower I think the most important thing is we actually need to get the right answer. And that is actually the work that we are doing. it is why the evaluation is so comprehensive in nature. As I mentioned before, you know, with 32 thousand advisers and 1 thousand institutions, We are a market leader. We are already in that position.

And we are comfortable making decisions that lead the market if that is where things land. Got it. Thank you, Richard.

Operator: Thank you. This does conclude the question and answer session of today's program. I would like to hand the program back to Richard Steinmeier for any further remarks.

Richard Steinmeier: Thank you, operator, and thank you all for joining. We look forward to speaking to you again in October, and have a great night.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.