Please ensure Javascript is enabled for purposes of website accessibility

Why LPL Financial Holdings Inc. Stock Is Plummeting Today

By Jordan Wathen – Feb 12, 2016 at 12:46PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An earnings miss and worries about a Department of Labor ruling are pummeling LPL Financial shares.

What: Shares of LPL Financial Holdings Inc. (LPLA 0.93%) are down more than 35% at 11:20 a.m. ET as the market digests the company's fourth-quarter earnings.

So what: Harmed by a slump in the financial markets, LPL Financial's fourth-quarter results failed to live up to expectations. It reported adjusted earnings of $36 million, or $0.37 per share, well below the analyst consensus estimate of $0.51 per share.

On its conference call, the company's chairman and CEO, Mark Casaday, noted that "brokerage sales were the slowest for the year and advisory fees were down due to the equity market decline at the end of the third quarter. Alternative investments were a large factor, as commissions were down by about 75% from a year ago."

LPL Financial expects declining markets to further weigh on its results in the future. "Like many of our peers, we saw a drop in brokerage sales activity across products throughout the year as volatile markets led to uncertainty. We would expect to see cash from retail investors build up, and we did. We believe this lower level of brokerage sales is likely to continue," Casady said.

Notably, its two largest revenue line items, commissions and advisory revenue, fell by 12% and 5%, respectively, from the year-ago period.

A Credit Suisse analyst lowered his price target on the stock from $44 to $28 per share, while giving a "neutral" rating. Wells Fargo reduced its rating from "outperform" to "market perform" following its fourth-quarter earnings. 

Now what: A recent ruling from the Department of Labor has made the industry less profitable, even if it may create better outcomes for financial advisory clients. The ruling will expand the fiduciary responsibilities of advisors such that more investing advice falls under a fiduciary standard, which requires that the interests of the investor are put first.

Currently, many financial products fall under a "suitability standard," which gives financial advisors the flexibility to make recommendations that are merely "suitable" for their clients' needs, while considering the interests of the advisor and the firm. The transition is quite a hurdle for LPL Financial, which generates more of its revenue from brokerage services than advisory.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

LPL Financial Holdings Inc. Stock Quote
LPL Financial Holdings Inc.
$218.48 (0.93%) $2.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.