LPL Financial Annual Report 2014

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FY2014 Annual Report · LPL Financial

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2014
ANNUAL
REPORT

LPL FINANCIAL HOLDINGS INC.
WHAT MATTERS MOST

WHAT MATTERS MOST

People

People
People

Productivity

Productivity
Productivity

Performance
Performance

Some things matter more than others. At LPL Financial, we
understand the answer may be different for each of our financial
advisors and institutions. Because LPL offers a versatile and fully
integrated platform for the delivery of objective financial advice,
our advisors and their clients can focus on the things in life that
matter most to each of them.

Performance

To help clearly showcase the ways we are making a difference as we work to
achieve our mission, we have organized our online annual report in three focus areas:

PEOPLE

PRODUCTIVITY

PERFORMANCE

Visit our expanded online annual report located in the investor relations section of
LPL.com at http://investor.lpl.com/financials.cfm

A MESSAGE FROM THE
CHAIRMAN & CEO

Adjusted earnings per share (EPS) remained flat

year-over-year, as our success in growing the core

business was offset by the cost of resolving

regulatory matters and the impact of low interest

rates. Our ability to continue to grow the business

as we work through these near-term challenges

will create long-term value for our shareholders, as
demonstrated by our strong business development

and retention results: We ended the year with over

14,000 advisors while retaining 97 percent of advisor

production for the year.

@MSCasady

DEAR FELLOW SHAREHOLDER,

IMPROVING OUR OPERATIONS AND THE

Our 2014 results highlight the continuing appeal of
the independent model and reinforce the importance
of the LPL Financial mission: to enable our clients
to focus on creating the personal, long-term
relationships that are the foundation for turning
life’s aspirations into financial realities. This
sense of purpose and focus is the primary reason
today we are the nation’s premier independent
broker-dealer.

2014 FINANCIAL RESULTS

For the fifth consecutive year, LPL increased revenue,

generating a record $4.4 billion, driven by healthy asset

flows and stable investor engagement. Advisory and

brokerage assets grew 8% to $475 billion, while assets

under management per advisor reached a record $34

million. Of note, assets on our platform that support

independent RIAs grew 44% to $91 billion for the year.

CLIENT EXPERIENCE

We have made tremendous progress over the last

several years to ensure that our clients have the best

experience possible and can fully harness the power

of their affiliation with LPL. We began by investing in

leadership and talent and leveraged that foundational

work to build a fully integrated technology function

that is delivering value-added capabilities and solutions.

Next, we enhanced our service quality and speed of

processing, while lowering costs and refocusing our

employees on more value-added functions.

In 2014, we continued executing on our strategy

by further enhancing the client experience and

We have made tremendous progress
over the last several years to ensure that
our clients have the best experience
possible and can fully harness the
power of their affiliation with LPL.

LPL FINANCIAL HOLDINGS INC. 2 014 A NNUA L RE P OR T 1

15000

12000

9000

6000

3000

5000

4000

3000

2000

1000

TOTAL ADVISORS

14,036

13,673

12,444

12,847

13,352

2010

2011

2012

2013

2014

ANNUAL REVENUE

TOTAL ASSETS

[in millions]

[in billions]

$4,374

$4,141

$475.1

$438.4

$3,661

$3,479

$3,113

$373.3

$330.3

$315.6

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

500

400

300

200

100

developing new technology to help drive efficiency

into our advisors’ businesses. We created a new,

dedicated Client Experience and Training team solely

15000

focused on ensuring that our clients have the best

experience possible. We also launched and enhanced

12000

several technology solutions with a focus on simplicity

and productivity as we introduced a new Resource

Center and made improvements to tools such

9000

as Account View, Portfolio Manager, and the

Streamlined Office.

6000

3000

STRENGTHENING OUR RISK MANAGEMENT AND
COMPLIANCE CAPABILITIES

We also continued to strengthen our risk management

and compliance capabilities in 2014 as we initiated a

TOTAL ADVISORS

14,036

13,673

12,444

12,847

13,352

2010

2011

2012

2013

2014

regulatory matters. We incurred a total of $36 million

multi-year redesign of our surveillance and supervision

systems and made significant progress assessing the

ANNUAL REVENUE
[in millions]

in charges related to the resolution of these matters.
TOTAL ASSETS
The regulatory charges for 2014 were approximately
[in billions]

remaining needs of our legacy compliance and risk

four times the level of charges the Company incurred

management capabilities.

5000

While investments in our compliance and controls have

$4,141

strengthened our risk management capabilities, in 2014,
$3,479

4000

we continued to navigate a challenging regulatory
$3,113

environment, which involved the resolution of several

3000

$3,661

2000

ADJUSTED EARNINGS
[in millions]
$2.44
per share

1000

$2.44

2.5

$1.95

$2.03

$248
million

$259

2010

2011

$1.71

$219

$225

$173

300

250

200

150

100

2011

2010
2012
2014
ADJUSTED EARNINGS AND ADJUSTED EARNINGS
PER SHARE ARE NON-GAAP MEASURES

2013

in each of the prior two years.

$475.1

500

$4,374

$438.4

400

$315.6

$330.3

$373.3

The results we have achieved are driven
by the operating principles that guide our
efforts to position LPL to be the leading
destination for advisors in the industry
ADJUSTED EPS
and to maintain a business model that
maximizes long-term shareholder value.

100

300

200

2013

2014

2010

2011

2012

2013

2014

2012
2.0

Importantly, we believe we are taking the necessary

1.5

steps to improve: We are strengthening our business

and our advisors’ businesses by taking responsibility as

1.0

a company for issues discovered by regulators or by us.

We believe the heightened regulatory environment will

continue in 2015, but in all cases, we are focused on

doing the right thing and holding ourselves accountable

by continuing to proactively review our systems and

processes to identify issues and fix them when we

0.5

0.0

or others find them.

LPL FINANCIAL HOLDINGS INC. 2 014 A NNUA L RE P OR T

TOTAL FUNDED
CLIENT ACCOUNTS
[in millions]
4.5

4.4

4.3

4.2

4.0

2010

2011

2012

2013

2014

300

250

200

150

100

ADJUSTED EARNINGS

[in millions]

$2.44

per share

$2.44

$2.03

$1.95

$248

million

$259

$1.71

$219

$225

$173

2010

2011

2012

2013

2014

ADJUSTED EARNINGS AND ADJUSTED EARNINGS

PER SHARE ARE NON-GAAP MEASURES

ADJUSTED EPS

2.5

2.0

1.5

1.0

0.5

0.0

TOTAL FUNDED

CLIENT ACCOUNTS

[in millions]

4.5

4.4

4.3

4.2

4.0

2010

2011

2012

2013

2014

15000

12000

9000

6000

3000

FOCUS ON CREATING LONG-TERM VALUE FOR

ALL STAKEHOLDERS

The results we have achieved are driven by the

operating principles that guide our efforts to position

5000

LPL to be the leading destination for advisors in

the industry and to maintain a business model that

4000

maximizes long-term shareholder value. We are

dedicated to allocating your capital in order to achieve

3000

the highest long-term shareholder value creation,

reinvesting back into the business where there’s

2000

opportunity to earn attractive long-term returns,

and returning surplus capital to shareholders. Most

1000

importantly, we are committed to making decisions

that create long-term value for all stakeholders in

our community, including employees, advisors and

institutions, shareholders, and business partners.

LOOKING AHEAD

TOTAL ADVISORS

14,036

13,673

12,444

12,847

13,352

2010

2011

2012

2013

2014

ANNUAL REVENUE
[in millions]

TOTAL ASSETS
[in billions]

$4,374
$4,374

$4,141

$3,661

$3,479

$3,113

$475.1
$475.1

500

$438.4

$373.3

$330.3

$315.6

400

300

200

100

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

To achieve these goals, we will continue to invest to

simplify and grow our four industry leadership positions:

independent advisors, hybrid RIAs, financial institutions,

In 2015, we will remain focused on increasing our

and retirement plan specialists.

market share by being the leading destination for

advisors in the industry. And, we will continue to

enhance and strengthen our compliance and risk

management capabilities, which we believe will

contribute to an improved control environment

and improved interactions with regulators in 2016

and beyond.

We will continue to unlock value for
independent advisors and institutions by
offering a versatile and fully integrated
platform for the delivery of personal,
objective financial advice.

We will continue to unlock value for independent

advisors and institutions by offering a versatile and

fully integrated platform for the delivery of personal,

objective financial advice. We are optimistic about the

opportunities we have created to deliver positive

results and win in the marketplace. We know that

if we execute consistently on our strategy and

adhere to our operating principles, we will create
long-term value for our shareholders and clients
and continue to attract and retain the best people

in the industry.

Thank you for your investment in LPL Financial.

Sincerely,

Mark S. Casady
Chairman and CEO

LPL FINANCIAL HOLDINGS INC. 2 014 A NNUA L RE P OR T 3

300

250

200

150

100

ADJUSTED EARNINGS

[in millions]

$2.44

per share

$2.44

$2.03

$1.95

$248

million

$259

$1.71

$219

$225

$173

2010

2011

2012

2013

2014

ADJUSTED EARNINGS AND ADJUSTED EARNINGS

PER SHARE ARE NON-GAAP MEASURES

ADJUSTED EPS

2.5

2.0

1.5

1.0

0.5

0.0

TOTAL FUNDED

CLIENT ACCOUNTS

[in millions]

4.5

4.4

4.3

4.2

4.0

2010

2011

2012

2013

2014

2014 FINANCIAL
HIGHLIGHTS

For the year ended December 31,

Consolidated statements of income data:

Net revenues (in thousands)

Total expenses (in thousands)

2014

2013

2012

2011

2010

$ 4,373,662

$ 4,140,858

$ 3,661,088

$ 3,479,375

$ 3,113,486

$4,078,965

$ 3,849,555

$ 3,410,497

$ 3,196,690

$ 3,202,335

Income (loss) from operations (in thousands)

$ 294,697

$ 291,303

$ 250,591

$ 282,685

Net income (loss) (in thousands)

$ 178,043

$ 181,857

$ 151,918

$ 170,382

(88,849)

(56,862)

Per-share data:

Earnings (loss) per diluted share

1.75

1.72

1.37

1.50

(0.64)

Weighted-average diluted shares outstanding (in thousands)

101,651

106,003

111,060

112,119

100,933

Consolidated statements of financial condition data:

Cash and cash equivalents (in thousands)

$ 412,332

$ 516,584

$ 466,261

$ 720,772

$ 419,208

Total assets (in thousands)

Total debt (in thousands)

Other financial and operating data:

Adjusted EBITDA (in thousands) (1)

Adjusted earnings (in thousands) (2)

Adjusted earnings per share (3)

Gross profit (in thousands) (4)

Number of advisors

Advisory and brokerage assets (in billions)

Advisory assets under custody (in billions)

Average number of full-time employees

$ 4,050,993

$ 4,042,831

$ 3,988,524

$ 3,816,326

$ 3,646,167

$ 1,634,258

$ 1,535,096

$ 1,317,825

$ 1,332,668

$ 1,386,639

$ 516,507

$ 511,438

$ 454,482

$ 459,720

$ 413,113

$ 247,621

$ 258,805

$ 225,029

$ 218,585

$ 172,720

2.44

2.03

1.95

1.71

$ 1,325,945

$ 1,248,014

$ 1,112,251

$ 1,030,951

$ 937,933

14,036

13,673

13,352

12,847

12,444

475.1

175.8

3,337

438.4

151.6

3,047

373.3

122.1

2,865

330.3

101.6

2,687

315.6

93.0

2,517

(1) Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation, and amortization), further adjusted to exclude certain non-cash charges and
other adjustments. We present Adjusted EBITDA because we consider it an important measure of our performance. Adjusted EBITDA is a useful financial metric in assessing our operating
performance from period to period by excluding certain items that we believe are not representative of our core business, such as certain material non-cash items and other adjustments. We
believe that Adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of
operations. Adjusted EBITDA is a non-GAAP measure and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities
as a measure of liquidity. Adjusted EBITDA is not a measure of net income, operating income, or any other performance measure derived in accordance with GAAP.

(2) Adjusted Earnings represents net income before: (a) employee share-based compensation expense, (b) amortization of intangible assets, (c) acquisition and integration related expenses,

(d) restructuring and conversion costs, (e) debt extinguishment costs, and (f) other. Reconciling items are tax effected using the income tax rates in effect for the applicable period, adjusted
for any potentially non-deductible amounts. We prepare Adjusted Earnings to eliminate the effects of items that we do not consider indicative of our core operating performance. Adjusted
Earnings is a non-GAAP measure and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of
liquidity. Adjusted Earnings is not a measure of net income, operating income, or any other performance measure derived in accordance with GAAP.

(3) Adjusted Earnings per share represents Adjusted Earnings divided by weighted-average outstanding shares on a fully diluted basis.

(4) Gross Profit is calculated as net revenues less production expenses. Production expenses consist of the following expense categories from our consolidated statements of income: (i) commission and
advisory and (ii) brokerage, clearing, and exchange. All other expense categories, including depreciation and amortization, are considered general and administrative in nature. Because our
gross profit amounts do not include any depreciation and amortization expense, we consider our gross profit amounts to be non-GAAP measures that may not be comparable to those of others
in our industry. You can find additional related information, including a reconciliation of such non-GAAP measures for the years ended December 31, 2014, 2013, and 2012, within this Annual
Report on our Form 10-K for the year ended December 31, 2014. For a reconciliation of such non-GAAP measures for the years ended December 31, 2011 and 2010, please consult our Annual
Report on Form 10-K for the year ended December 31, 2011.

LPL FINANCIAL HOLDINGS INC. 2 014 A NNUA L RE P OR T

LPL FINANCIAL HOLDINGS INC.
FORM 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________to

Commission file number 001-34963

LPL Financial Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-3717839

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

75 State Street, Boston, MA 02109
(Address of principal executive offices; including zip code)

617-423-3644
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock — $.001 par value per share

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive

Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes

As of June 30, 2014, the aggregate market value of the voting stock held by non-affiliates of the registrant was $4.3 billion. For purposes of
this information, the outstanding shares of Common Stock owned by directors and executive officers of the registrant were deemed to be shares
of the voting stock held by affiliates.

The number of shares of common stock, par value $0.001 per share, outstanding as of February 17, 2015 was 96,495,936.

Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders are

incorporated by reference into Part III.

DOCUMENTS INCORPORATED BY REFERENCE

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Business

Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4 Mine Safety Disclosures

Properties
Legal Proceedings

TABLE OF CONTENTS

PART I

PART II

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer

Purchases of Equity Securities
Selected Financial Data

Item 6
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

Item 9A Controls and Procedures
Item 9B Other Information

PART III

Item 10 Directors, Executive Officers, and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Item 13 Certain Relationships and Related Transactions, and Director Independence

Item 14 Principal Accountant Fees and Services

Item 15 Exhibits and Financial Statement Schedules
EXHIBIT INDEX
SIGNATURES

PART IV

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and other information required by the
Securities Exchange Act of 1934, as amended (“Exchange Act”), with the Securities and Exchange Commission
("SEC"). You may read and copy any document we file with the SEC at the SEC’s public reference room located at
100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference room. Our SEC filings are also available to the public from the SEC’s internet site at http://
www.sec.gov.

On our internet site, http://www.lpl.com, we post the following filings as soon as reasonably practicable after
they are electronically filed with or furnished to the SEC: our annual reports on Form 10-K, our quarterly reports on
Form 10-Q, our proxy statements, our current reports on Form 8-K, and any amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Hard copies of all such filings are available free of
charge by request via email (investor.relations@lpl.com), telephone (617) 897-4574, or mail (LPL Financial Investor
Relations at 75 State Street, 24th Floor, Boston, MA 02109). The information contained or incorporated on our
website is not a part of this Annual Report on Form 10-K.

When we use the terms “LPLFH”, “we”, “us”, “our”, and the “Company” we mean LPL Financial Holdings Inc.,
a Delaware corporation, and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in Item 7 - “Management's Discussion and Analysis of Financial Condition and Results of
Operations” and other sections of this Annual Report on Form 10-K regarding the Company's future financial and
operating results, growth, business strategies, plans, liquidity, future share repurchases, and future dividends,
including statements regarding projected savings, projected expenses, and anticipated improvements to the
Company's operating model, services, and technology as a result of its Service Value Commitment or restructuring
initiatives, 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 February 20, 2015. The words
“anticipates,” “believes,” “expects,” “may,” “plans,” “predicts,” “will” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain these identifying words. 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 financial or operating 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; fluctuations in the value of brokerage and advisory assets; fluctuations in levels of net new advisory
assets and the related impact on fee revenue; effects of competition in the financial services industry; changes in
the number of the Company's financial advisors and institutions, and their ability to market effectively financial
products and services; changes in interest rates and fees payable by banks participating in the Company's cash
sweep program, including the Company's success in negotiating agreements with current or additional
counterparties; changes in the growth of the Company’s fee-based business; the effect of current, pending, and
future legislation, regulation, and regulatory actions, including disciplinary actions imposed by federal and state
securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to
pending or future regulatory matters; the Company's success in integrating the operations of acquired businesses;
execution of the Company's plans related to its Service Value Commitment or restructuring initiatives, including the
Company's ability to successfully transform and transition business processes to third-party service providers; the
Company's success in negotiating and developing commercial arrangements with third-party service providers that
will enable the Company to realize the service improvements and efficiencies expected to result from its Service
Value Commitment or restructuring initiatives; the performance of third-party service providers to which business
processes are transitioned from the Company; the Company's ability to control operating risks, information
technology systems risks, cybersecurity risks, and sourcing risks; and the other factors set forth in Part I, Item 1A -
“Risk Factors”. Except as required by law, the Company specifically disclaims any obligation to update any forward-
looking statements as a result of developments occurring after the date of this annual report, even if its estimates
change, and you should not rely on statements contained herein as representing the Company's views as of any
date subsequent to the date of this annual report.

Item 1. Business

General Corporate Overview

PART I

We are the nation's largest independent broker-dealer, a top custodian for registered investment advisors

("RIAs"), and a leading independent consultant to retirement plans. We provide an integrated platform of brokerage
and investment advisory services to more than 14,000 independent financial advisors, including financial advisors
at more than 700 financial institutions (our "advisors") throughout the United States, enabling them to provide their
retail investors (their "clients") with objective financial advice through a lower conflict model. We also support
approximately 4,400 financial advisors who are affiliated and licensed with insurance companies through
customized clearing services, advisory platforms, and technology solutions.

We believe that objective financial guidance is a fundamental need for everyone. We enable our advisors to

focus on what they do best—create the personal, long-term relationships that are the foundation for turning life’s
aspirations into financial realities. We do that through a singular focus on providing our advisors with the front-,
middle-, and back-office support they need to serve the large and growing market for independent investment
advice. We believe that LPL Financial is the only company that offers advisors the unique combination of an
integrated technology platform, comprehensive self-clearing services, and open architecture access to leading
financial products, all delivered in an environment unencumbered by conflicts from product manufacturing,
underwriting, or market-making.

We are a leading financial services provider to independent advisors, RIAs, financial institutions, and
retirement plan business. As a result, we are a market leader with the largest independent advisor base, and we
believe we have the fourth-largest overall advisor base in the United States. Through our advisors, we are also one
of the largest distributors of financial products and services in the United States, with over $77 billion in sales of
mutual funds, annuities, alternative investments, and advisory services accounts in 2014.

We began operations through LPL Financial LLC ("LPL Financial"), our broker-dealer subsidiary, in 1989. LPL

Financial Holdings Inc., which is the parent company of our collective businesses was incorporated in Delaware in
2005. LPL Financial is a clearing broker-dealer and an investment advisor that primarily transacts business as an
agent for our advisors on behalf of their clients through a broad array of financial products and services. Fortigent
Holdings Company, Inc. and its subsidiaries ("Fortigent") is a leading provider of solutions and consulting services
to RIAs, banks and trust companies that serve high-net-worth clients. Through our subsidiary The Private Trust
Company, N.A. ("PTC"), we offer trust administration, investment management oversight and RIA custodial services
for estates and families. Our subsidiary, Independent Advisers Group Corporation (“IAG”), offers an investment
advisory solution to insurance companies to support their financial advisors who are licensed with them. Our
subsidiary, LPL Insurance Associates, Inc., ("LPLIA"), operates as a brokerage general agency that offers life, long-
term care, and disability insurance sales and services.

Our Business

Our Advisor Relationships

Our business is dedicated exclusively to our advisors; we are not a market-maker nor do we offer investment
banking or underwriting services. We offer no proprietary products of our own. Because we do not offer proprietary
products, we enable the independent financial advisors, banks, and credit unions with whom we partner to offer
their clients lower-conflict advice.

We believe we offer a compelling economic value proposition to independent advisors, which is a key factor

in our ability to attract and retain advisors and their practices. The independent channels pay advisors a greater
share of brokerage commissions and advisory fees than the captive channels — generally 80-90% compared to
30-50%. Through our scale and operating efficiencies, we are able to offer our advisors what we believe to be the
highest average payout ratios among the five largest U.S. broker-dealers, ranked by number of advisors, providing
us with a significant competitive advantage.

Furthermore, we believe our technology and service platforms enable our advisors to operate their practices
with a greater focus on generating revenue opportunities and at a lower cost than other independent advisors. As a
result, we believe our advisors who own practices earn more pre-tax profit than practice owners affiliated with other
independent brokerage firms. Finally, as business owners, our independent financial advisors, unlike captive
advisors, also have the opportunity to build equity in their own businesses.

Our advisors build long-term relationships with their clients in communities across the U.S. by guiding them

through the complexities of investment decisions, retirement solutions, financial planning, and wealth-management.
Our advisors support approximately 4.5 million client accounts. Our services support the evolution of our advisors’
businesses over time and are designed to change as our advisors' needs change.

Advisors licensed with LPL Financial as registered representatives and as investment advisory

representatives are able to conduct both commission-based business on our brokerage platform and fee-based
business on our corporate RIA platform. In order to be licensed with LPL Financial, advisors must be approved
through our assessment process, which includes a thorough review of each advisor’s education, experience, and
credit and compliance history. Approved advisors become registered with LPL Financial and enter into a
representative agreement that establishes the duties and responsibilities of each party. Pursuant to the
representative agreement, each advisor makes a series of representations, including that the advisor will disclose to
all clients and prospective clients that the advisor is acting as LPL Financial's registered representative or
investment advisory representative, that all orders for securities will be placed through LPL Financial, that the
advisor will sell only products LPL Financial has approved, and that the advisor will comply with LPL Financial
policies and procedures as well as securities rules and regulations. These advisors also agree not to engage in any
outside business activity without prior approval from us and not to act as an agent for any of our competitors.

Our advisors average over 15 years of industry experience. This level of industry experience allows us to

focus on supporting and enhancing our advisors’ businesses without needing to provide basic training or
subsidizing advisors who are new to the industry. Our flexible business platform allows our advisors to choose the
most appropriate business model to support their clients, whether they conduct brokerage business, offer brokerage
and fee-based services on our corporate RIA platforms, or provide fee-based services through their own RIAs.

The majority of our advisors are entrepreneurial independent contractors that are primarily located in rural

and suburban areas and as such are viewed as local providers of independent advice, many of whom operate
under their own business name. We assist these advisors with their own branding, marketing and promotion, and
regulatory review.

LPL Financial also supports over 320 stand-alone RIA practices ("Independent RIAs") with over 2,700
advisors who conduct their advisory business through separate entities by establishing their own RIAs, rather than
using our corporate RIA. These Independent RIAs engage us for technology, clearing, compliance related and
custody services, as well as access to certain of our investment platforms. These advisors retain 100% of their
advisory fees. In return, we charge separate fees for custody, trading, and support services to the Independent
RIAs. In addition, most Independent RIAs seeking to operate a hybrid model carry their brokerage license with LPL
Financial and access our fully-integrated brokerage platform under standard terms.

We believe we are the market leader in providing support to over 2,200 financial advisors at approximately

700 banks and credit unions nationwide. For these institutions, whose core capabilities may not include investment
and financial planning services, or who find the technology, infrastructure, and regulatory requirements to be cost
prohibitive, we provide their financial advisors with the services they need to be successful, allowing the institutions
to focus more energy and capital on their core businesses.

A subset of our advisors provides advice and serves group retirement plans primarily for small and mid-size
businesses. These approximately 1,500 advisors serve over 31,600 retirement plans representing $80.3 billion in
retirement plan assets custodied at various custodians. LPL Financial provides these advisors with marketing tools
and technology capabilities that are designed for retirement solutions.

We also provide support to approximately 4,400 additional financial advisors who are affiliated and licensed

with insurance companies. These arrangements allow us to provide outsourced customized clearing, advisory
platforms, and technology solutions that enable the financial advisors at these insurance companies to offer a
breadth of services to their client base in an efficient manner.

Our Value Proposition

The core of our business is dedicated to meeting the evolving needs of our advisors and providing the
platform and tools to grow and enhance the profitability of their businesses. Our Service Value Commitment
initiative expresses our dedication to continuous improvement in the processes, systems, and resources we
leverage to meet these needs. This initiative is also designed to create a better service experience for our advisors,
evolve our operating model to simplify processes and enhance our ability to invest in areas that are differentiators
for our business by lowering our costs in areas where work can be performed more effectively by outsourcing
partners specializing in this work.

We support our advisors by providing front-, middle-, and back-office solutions through our distinct value
proposition: integrated technology solutions, comprehensive clearing and compliance services, consultive practice
management programs and training, and independent research. The comprehensive and automated nature of our
offering enables our advisors to focus on their clients while successfully and efficiently managing the complexities of
running their own practice.

Integrated Technology Solutions

We provide our technology and service to advisors through an integrated technology platform that is server-
based and web-accessible. This allows our advisors to effectively manage all critical aspects of their businesses
while remaining highly efficient and responsive to their clients’ needs. Time-consuming processes, such as account
opening and management, document imaging, transaction execution, and account rebalancing, are automated to
improve efficiency and accuracy.

Comprehensive Clearing and Compliance Services

We custody and clear the majority of our advisors’ transactions, providing a simplified and streamlined

advisor experience and expedited processing capabilities. Our self-clearing platform enables us to better control
client data, more efficiently process and report trades, facilitate platform development, reduce costs, and ultimately
enhance the service experience for our advisors and their clients. Our self-clearing platform also enables us to
serve a wider range of advisors, including Independent RIAs.

Our services are backed by our service center and operations organizations focused on providing timely,

accurate, and consistent support. To enhance the service effort, our service center utilizes Service360, a service
paradigm available to the majority our advisors and Independent RIAs that offers a small team-based approach.
This service model emphasizes personal accountability and empowerment within each Service360 team.
Service360 currently serves over 10,300 advisors.

We continue to make substantial investments in our compliance function to provide our advisors with a strong

framework through which to understand and operate within regulatory guidelines, as well as guidelines we
establish. Protecting the best interests of investors and our affiliated advisors is of utmost importance to us. As the
financial industry and regulatory environment evolve and become more complex, we remain devoted to serving our
clients ethically and exceedingly well. We have made a long-term commitment to enhancing our risk management
and compliance structure. Since 2012, we have made increasing investments in our core infrastructure—including
people, process, and technology—to sustain a leading control environment focused on risk that matters. These
investments include hiring and retaining experienced compliance and risk professionals and technology-related
expenditures. Our compliance and risk management tools are integrated into our technology platform to further
enhance the overall effectiveness and scalability of our control environment.

Our team of risk and compliance employees assist our advisors through:

training and advising advisors on new products, new regulatory guidelines, compliance and risk
management tools, security policies and procedures, anti-money laundering, and best practices;

supervising sales practice activities and facilitating the oversight of activities for branch managers;

conducting technology-enabled surveillance of trading activities and sales practices;

overseeing and monitoring of registered investment advisory activities;

inspecting branch offices and advising on how to strengthen compliance procedures; and

continuing to invest in technology assisted supervisory and surveillance tools.

•

Practice Management Programs and Training

Our practice management programs are designed to help financial advisors in independent practices and

financial institutions, as well as all levels of financial institution leadership, enhance and grow their businesses. Our
experience gives us the ability to benchmark the best practices of successful advisors and develop customized
recommendations to meet the specific needs of an advisor’s business and market. Because of our scale, we are
able to dedicate an experienced group of practice management professionals who counsel our advisors to build and
better manage their business and client relationships through one-on-one support as well as group training. In
addition, we hold over 100 conferences and group training events around the country annually for the benefit of our
advisors. Our practice management and training services include:

•

personalized business consulting that helps advisors and program leadership enhance the value and
operational efficiency of their businesses;

•

advisory and brokerage consulting and financial planning to support advisors in growing their businesses
with our broad range of products and fee-based offerings, as well as wealth management services to assist
advisors serving high-net-worth clients with comprehensive estate, tax, philanthropic, and financial planning
processes;

• marketing strategies, including campaign templates, to enable advisors to build awareness of their services

and capitalize on opportunities in their local markets;

•

succession planning and an advisor loan program for advisors looking to either sell their own or buy
another practice;

transition services to help advisors establish independent practices and migrate client accounts to us; and

training and educational programs on topics including technology, use of advisory platforms, and business
development.

Independent Research

We provide our advisors with integrated access to comprehensive research on a broad range of investments

and market analysis, including on mutual funds, separate accounts, alternative investments and annuities, asset
allocation strategies, financial markets, and the economy. Based on our research we create discretionary portfolios,
for which we serve as a portfolio manager, that are available through the LPL Financial turnkey advisory asset
management platforms. Our research team provides lower-conflict advice that is designed to empower our advisors
to provide their clients with thoughtful advice in a timely manner. Our research team actively works with our product
due diligence group to effectively scrutinize the financial products offered through our platform. Our lack of
proprietary products or investment banking services helps ensure that our research remains unbiased and
objective. A substantial portion of our research materials are approved by our Marketing Regulatory Review
department for use with advisors' clients, allowing our advisors to leverage these materials to help their clients
understand complex investment topics and make informed decisions.

We also offer independent investment research on macro-economic analysis, capital markets assumptions,

and strategic and tactical asset allocation. We also provide robust third-party asset manager search, selection, and
monitoring services for both traditional and alternative strategies across all investment access points (ETFs, mutual
funds, separately managed accounts, unified managed accounts, and other products and services).

Our Product and Solution Access

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 extensive diligence on substantially all of our product offerings, including annuities,
mutual funds, exchange-traded funds, and alternative investments, including real estate investment trusts. Our
platform provides access to over 13,000 financial products, manufactured by 900 product sponsors. Typically, we
enter into arrangements with these product sponsors pursuant to the sponsor’s standard distribution agreement.

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. 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. Our insurance offering is
provided through LPLIA, a brokerage general agency that provides personalized advance case design, point-of-sale
service, and product support for a broad range of life, disability, and long-term care products. As of December 31,
2014, the total assets in our commission-based products were $299.3 billion.

Fee-Based Advisory Platforms and Support

LPL Financial has five 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 (those investors with
$100,000 or greater in investable assets) and high-net-worth clients. The fee structure aligns the interests of our
advisors with their clients, 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. As of December 31, 2014, the total assets under custody in these platforms were $175.8 billion.

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. Our insured bank deposit sweep vehicle allocates client cash balances across multiple
non-affiliated banks to provide advisors with up to $1.5 million ($3.0 million joint) of insurance through the Federal
Deposit Insurance Corporation (“FDIC”). As of December 31, 2014, the total assets in our cash sweep programs,
which are held within brokerage and advisory accounts, were approximately $26.0 billion, with $7.4 billion held in a
money market sweep vehicle and $18.6 billion in an insured bank deposit sweep vehicle.

Retirement Services

We offer a retirement solution that is fee-based and allows qualified advisors to provide consultation and

advice to plan sponsors using our corporate RIA. We also offer a retirement solution that provides for commission-
based services. Our advisors, whether through our corporate RIA or through an Independent RIA, serve over
31,600 retirement plans representing at least $80.3 billion in retirement plan assets. These retirement plan assets
are custodied with LPL Financial or various third-party providers of retirement plan administrative services who
provide us with direct reporting feeds. There are additional retirement plan assets supported by our advisors that
are custodied with third-party providers who 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 to be between $115.0 billion and
$125.0 billion. The retirement plan assets that are not custodied at LPL Financial are not 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 fees from product manufacturers, omnibus, networking services, cash sweep balances, and other
ancillary services. Revenues are not concentrated by advisor, product, or geography. For the year ended
December 31, 2014, no single relationship with our independent advisor practices, banks, credit unions, or
insurance companies accounted for more than 3% of our net revenues, and no single advisor accounted for
more than 1% of our net revenues.

• 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 can deliver expanding profit margins over time.

• We are able to operate with low capital expenditures and limited capital requirements, and as a result
generate substantial free cash flow, which we have committed to investing in our business as well as
returning value to shareholders.

• The majority of our revenue base is recurring in nature, with approximately 68% recurring revenue in 2014.

Our Competitive Strengths

Market Leadership Position and Significant Scale

We are the established leader in the independent advisor market, which is our core business focus. Our scale

enables us to benefit from the following dynamics:

• Continual Reinvestment — We actively reinvest in our comprehensive technology platform and practice

management support, which further improves the productivity of our advisors.

• Pricing Power — As one of the largest distributors of financial products in the United States, we are able to

obtain attractive economics from product manufacturers.

• Payout Ratios to Advisors — Among the five largest U.S. broker-dealers by number of advisors, we offer the

highest average payout ratios to our advisors.

The combination of our ability to reinvest in our business and maintain highly competitive payout ratios has

enabled us to attract and retain advisors. This, in turn, has driven our growth and led to a continuous cycle of
reinvestment that reinforces our established scale advantage.

Unique Value Proposition

We deliver a comprehensive and integrated suite of products and services to support the practices of our
independent advisors. We believe we are the only institution that offers a lower-conflict, open architecture, and
scalable platform. The benefits of our purchasing power lead to high average payouts and greater economics to our
advisors. Our platform also creates an entrepreneurial opportunity that empowers independent advisors to build
equity in their businesses. This generates a significant opportunity to attract and retain highly qualified advisors who
are seeking independence.

We provide comprehensive solutions to financial institutions, such as regional banks, credit unions, and

insurers who seek to provide a broad array of services for their clients. We believe many institutions find the
technology, infrastructure, and regulatory requirements associated with delivering financial advice to be cost-
prohibitive. The solutions we provide enable financial advisors at these institutions to deliver their services on a
cost-effective basis.

Flexibility of Our Business Model

Our business model allows our advisors the freedom to choose how they conduct their business, which helps

us attract and retain advisors from multiple channels, including wirehouses, regional broker-dealers, and other
independent broker-dealers. Our accommodating platform serves a variety of independent advisor models,
including independent financial advisors, RIAs, and Independent RIAs. The flexibility of our business model makes
it easy for our advisors to transition among independent advisor models and product mix as their business evolves
and preferences change within the market. Our business model provides advisors with a multitude of customizable
service and technology offerings, which allows them to increase their efficiency, focus on their clients and grow their
practice.

Ability to Serve Approximately 90% of Retail Assets

Our historic focus has been on advisors who serve the mass-affluent market (investors with $100,000 or
greater in investable assets) and believe there continues to be an attractive opportunity in this market. Although we
have grown through our focus in this area, the flexibility of our platform allow us to expand our breadth of services
to better support the high-net-worth market. As of December 31, 2014, our advisors supported accounts with more
than $1 million in assets that in the aggregate represented $92.1 billion in advisory and brokerage assets, 19.4% of
our total assets custodied. Our array of integrated technology and services can support advisors with significant
production and can compete directly with wirehouses and custodians. We are able to support our advisors to meet
the needs of their mass market clients up through the high-net-worth market, which, according to Cerulli Associates,
accounts for approximately 90% of retail assets.

Our Sources of Growth

We expect to increase our revenue and profitability by benefiting from favorable industry trends and by

executing strategies to accelerate our growth beyond that of the broader markets in which we operate.

Favorable Industry Trends

Growth in Investable Assets

According to Cerulli Associates, over the past five years, assets under management for the market segments

in the United States that we address grew 8.5% per year, while retirement assets are expected to grow 6.4% per
year over the next five years (in part due to the retirement of the baby boomer generation and the resulting assets
that are projected to flow out of retirement plans and into individual retirement accounts). In addition, IRA assets are
projected to grow from $7.5 trillion as of 2014 to $10.6 trillion by 2018. In addition to the retirement of the baby
boomer generation, there is a general need in the United States for greater and smarter retirement savings as well
as increased regulatory pressures on 401(k) plan sponsors.

(1) The Cerulli Report: The State of U.S. Retail and Institutional Asset Management 2014.
(2) The Cerulli Report: U.S. Retirement Markets 2014: Sizing Opportunities in Private and Public Retirement Plans.

Increasing Demand for Independent Financial Advice

Retail investors, particularly in the mass-affluent market, are increasingly seeking financial advice from
independent sources. We are highly focused on helping independent advisors meet the needs of the mass-affluent
market, which constitutes a significant and underserved portion of investable assets, in part because wirehouses
have not typically focused on this space.

Advisor Migration to Independence

Independent channels continue to gain market share from captive channels. We believe that we are not just a
beneficiary of this secular shift, but an active catalyst in the movement to independence. There is an increased shift
towards advisors seeking complete independence by forming an RIA and registering directly with the SEC.
However, these advisors are generally interested in retaining assets in brokerage accounts. This shift is leading to
significant growth in the number of our Independent RIA advisors.

Macroeconomic Trends

While the current macroeconomic environment exhibits short-term volatility, we anticipate an appreciation in
asset prices and a rise in interest rates over the long term. We expect that our business will benefit from growth in
advisory and brokerage assets as well as increasing interest rates.

Executing Our Growth Strategies

Attracting New Advisors to Our Platform

We intend to grow the number of advisors who are served by our platform — either those who are
independent or who are aligned with financial institutions. We have a 4.8% market share of the approximately
290,000 financial advisors in the United States, according to Cerulli Associates, and we believe that we have the
ability to attract seasoned advisors of any practice size and from any channel, including wirehouses, regional
broker-dealers and other independent broker-dealers.

Channel

Independent Broker-Dealer(1)

Insurance Broker-Dealer

Wirehouse

Regional Broker-Dealer

RIA(1)

Bank Broker-Dealer

Dually registered RIAs(1)

Total

___________________

Advisors

Market Share

67,290

74,804

46,594

29,955

28,528

14,332

24,825

23.5%

26.1%

16.3%

10.5%

9.9%

5.0%

8.7%

286,328

100.0%

(1) The 24,825 advisors classified as "dually registered RIAs" are advisors who are both licensed through independent broker-

dealers and registered as investment advisors.

Increasing Productivity of Existing Advisor Base

The productivity of advisors increases over time as we enable them to add new clients, gain shares of their

clients’ investable assets, and expand their existing practices with additional advisors. We facilitate these
productivity improvements by helping our advisors better manage their practices in an increasingly complex
external environment, which results in assets per advisor improving over time.

Ramp-up of Newly-Attracted Advisors

We primarily attract experienced advisors who have established practices. In our experience, it takes an
average of four years for newly recruited advisors to fully re-establish their practices and associated revenues. This
seasoning process creates accelerated growth of revenue from new advisors.

Expansions of our Product & Service Offerings

Through internal development, as well as synergies obtained from opportunistic acquisitions, we have
expanded our capabilities and product and service offerings in order to ensure we continue to provide a premium
platform for our advisors to grow and enhance the profitability of their businesses. Presented below are a few
examples of our expanded capabilities and product and service offerings.

Account View

Accessed from a computer, tablet, or smartphone, Account View is clients’ secure, convenient, 24-hour
online access to their investment account information. The site gives clients the ability to access current
market information and financial headlines, as well as export portfolio data for further analysis. Clients can
also exchange secure messages, and manage their profile including password resets and paperless options.

Advisor
Essentials

A strategic educational curriculum designed to help advisors create and run a profitable and productive
practice, this program is tailored for advisors new to the business, staff who are on a career path to become
a financial advisor, or producers who have not yet reached a club level at LPL Financial. The curriculum will
enhance effectiveness across client service, value proposition, and office management.

Enhanced
Trading &
Rebalancing

The Enhanced Trading and Rebalancing provides an integrated single-platform solution to keep up with
advisors’ fast pace of business demands. The trading platform provides advisors with the most efficient way
to place trades on their advisory accounts. The rebalancing feature allows advisors to be more efficient and
strategic by rebalancing accounts using custom models.

LPL Digital IQ

LPL Digital IQ is an interactive training program designed to make it simple for advisors to learn how to get
started on social media and enhance their digital presence. The four levels of Digital IQ-Basics, Explorer,
Master, and Elite-consist of video lessons that help advisors stay on the leading edge of client
communications and one step ahead of the competition. The LPL Digital IQ program is ideal for advisors that
need to learn the basics or the experienced social media user who wants to take digital marketing to an elite
level.

Resource
Center

The Resource Center is an informational hub that provides advisors and staff with information and resources
to efficiently operate and grow their business including news and alerts, operation procedures and forms,
research, client acquisition and retention, practice management, and training.

LPL Financial
Mobile

LPL Financial Mobile provides advisors with the ability to look up clients and associated Account View and
Resource Center information. Advisors have access to client account, position, transaction and statement
information. Advisors are able to stay current with easy-to-access market data, including stock quotes,
indices, and headlines.

RetirementU

A strategic educational curriculum that provides advisors and staff members with the training they need to
access and effectively utilize retirement resources of LPL Financial. RetirementU helps to prepare
administrative assistants to effectively support advisors providing investment policy development,
compliance monitoring services for plan sponsors and research on retirement plans and asset managers.

Suite of solutions, incorporating eSignature, Remote Deposit, and iDoc, that can save advisors time and
money, and enhance their clients’ experience. eSignature allows advisors and their clients to provide
electronic signatures on the most commonly used operational forms. Remote Deposit is a mobile solution
that provides an easy, fast, convenient, and secure way to deposit client checks into LPL Financial
accounts. iDoc acts as an online vault, in which advisors can store documents electronically and securely.

Streamlined
Office

Competition

We believe we offer a unique and dedicated value proposition to independent financial advisors and financial

institutions. This value proposition is built upon the delivery of our services through our scale, independence, and
integrated technology, the sum of which we believe is not replicated in the industry. As a result we believe that we
do not have any direct competitors that offer our unique business model at the scale at which we offer it. For
example, because we do not have any proprietary manufacturing products, we do not view firms that manufacture
asset management products and other financial products as direct competitors.

We compete to attract and retain experienced and productive advisors with a variety of financial firms. Within
the independent channel, the industry is highly fragmented, comprised primarily of small regional firms that rely on
third-party custodians and technology providers to support their operations. The captive wirehouse channel tends to
consist of large nationwide firms with multiple lines of business that have a focus on the highly competitive high-net-
worth investor market. Competitors in this channel include Morgan Stanley; Bank of America Merrill Lynch; UBS

Financial Services Inc.; and Wells Fargo Advisors, LLC. Competition for advisors also includes regional firms, such
as Edward D. Jones & Co., L.P. and Raymond James Financial Services, Inc. Independent RIAs, which are
licensed directly with the SEC and not through a broker-dealer, may choose from a number of third-party firms to
provide custodial services. Our significant competitors in this space include Charles Schwab & Co., Fidelity
Brokerage Services LLC, and TD Ameritrade.

Those competitors that do not offer a complete clearing solution for advisors are frequently supported by

third-party clearing and custody oriented firms. Pershing LLC, a subsidiary of Bank of New York Mellon, National
Financial Services LLC, a subsidiary of Fidelity Investments, and J.P. Morgan Clearing Corp., a subsidiary of J.P.
Morgan Chase & Co., offer custodial services and technology solutions to independent firms and RIAs that are not
self-clearing. These clearing firms and their affiliates and other providers also offer an array of service, technology
and reporting tools. Albridge Solutions, a subsidiary of Bank of New York Mellon, Advent Software, Inc., Envestnet,
Inc., and Morningstar, Inc., provide an array of research, analytics and reporting solutions.

Our advisors compete for clients with financial advisors of brokerage firms, banks, insurance companies,

asset management, and investment advisory firms. In addition, they also compete with a number of firms offering
direct to investor on-line financial services and discount brokerage services, such as Charles Schwab & Co. and
Fidelity Brokerage Services LLC.

Employees

As of December 31, 2014, we had 3,384 full-time employees. None of our employees is subject to collective

bargaining agreements governing their employment with us. Our continued growth is dependent, in part, on our
ability to be an employer of choice and an organization that recruits and retains talented employees who best fit our
culture and business needs. We offer ongoing learning opportunities and programs that empower employees to
grow in their professional development and careers. We provide comprehensive compensation and benefits
packages, as well as financial education tools to assist our employees as they plan for their future. We give back to
our local communities, encourage sustainability in our workplace, and embrace diversity and inclusion to appreciate
the unique perspective and value that each of our employees brings based on their personal experiences. Through
these initiatives, we work to help all employees be engaged and empowered.

Regulation

The financial services industry is subject to extensive regulation by U.S. federal, state, and international
government agencies as well as various self-regulatory organizations. We take an active leadership role in the
development of the rules and regulations that govern our industry. We have been investing in our compliance
functions to monitor our adherence to the numerous legal and regulatory requirements applicable to our business.

Broker-Dealer Regulation

LPL Financial is a broker-dealer registered with the SEC, a member of FINRA and various other self-

regulatory organizations, and a participant in various clearing organizations including the Depository
Trust Company, the National Securities Clearing Corporation, and the Options Clearing Corporation. LPL Financial
is registered as a broker-dealer in each of the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin
Islands.

Broker-dealers are subject to rules and regulations covering all aspects of the securities business, including
sales and trading practices, public offerings, publication of research reports, use and safekeeping of clients’ funds
and securities, capital adequacy, recordkeeping and reporting, and the conduct of directors, officers, and
employees. Broker-dealers are also regulated by state securities administrators in those jurisdictions where they do
business. Compliance with many of the rules and regulations applicable to us involves a number of risks because
rules and regulations are subject to varying interpretations, among other reasons. Regulators make periodic
examinations and review annual, monthly, and other reports on our operations, track record, and financial condition.
Violations of rules and regulations governing a broker-dealer’s actions could result in censure, penalties and fines,
the issuance of cease-and-desist orders, the suspension or expulsion from the securities industry of such broker-
dealer, its financial advisor(s) or its officers or employees, or other similar adverse consequences. The rules of the
Municipal Securities Rulemaking Board, which are enforced by the SEC and FINRA, apply to the municipal
securities activities of LPL Financial.

Our margin lending is regulated by the Federal Reserve Board’s restrictions on lending in connection with
client purchases and short sales of securities, and FINRA rules also require our subsidiaries to impose maintenance

requirements based on the value of securities contained in margin accounts. In many cases, our margin policies are
more stringent than these rules.

Significant new rules and regulations continue to arise as a result of the Dodd-Frank Wall Street Reform and

Consumer Protection Act (the “Dodd-Frank Act”), which was enacted in July 2010. Provisions of the Dodd-Frank Act
that may impact our business include, but are not limited to, the potential implementation of a more stringent
fiduciary standard for broker-dealers and the potential establishment of a new self-regulatory organization for
investment advisors. Compliance with these provisions is likely to result in increased costs. Moreover, to the extent
the Dodd-Frank Act impacts the operations, financial condition, liquidity and capital requirements of financial
institutions with whom we do business, those institutions may seek to pass on increased costs, reduce their
capacity to transact, or otherwise present inefficiencies in their interactions with us. The ultimate impact that the
Dodd-Frank Act will have on us, the financial industry, and the economy cannot be known until all such applicable
regulations called for under the Dodd-Frank Act have been finalized and implemented.

Investment Adviser Regulation

As investment advisers registered with the SEC, our subsidiaries LPL Financial, IAG, and Fortigent, LLC are

subject to the requirements of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the
regulations promulgated thereunder, including examination by the SEC’s staff. Such requirements relate to, among
other things, fiduciary duties to clients, performance fees, maintaining an effective compliance program, solicitation
arrangements, conflicts of interest, advertising, limitations on agency cross and principal transactions between the
advisor and advisory clients, recordkeeping and reporting requirements, disclosure requirements, and general anti-
fraud provisions.

The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act,
ranging from fines and censure to termination of an investment adviser’s registration. Investment advisers also are
subject to certain state securities laws and regulations. Failure to comply with the Advisers Act or other federal and
state securities laws and regulations could result in investigations, sanctions, profit disgorgement, fines or other
similar consequences.

Retirement Plan Services Regulation

Certain of our subsidiaries, including LPL Financial, Fortigent, PTC, IAG, and LPLIA, are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and Section 4975 of the Internal
Revenue Code (the "Code"), and to regulations promulgated under ERISA or the Code, insofar as they provide
services with respect to plan clients, or otherwise deal with plan clients that are subject to ERISA or the Code.
ERISA imposes certain duties on persons who are "fiduciaries" (as defined in Section 3(21) of ERISA) and prohibits
certain transactions involving plans subject to ERISA and fiduciaries or other service providers to such plans. Non-
compliance with these provisions may expose an ERISA fiduciary or other service provider to liability under ERISA,
which may include monetary penalties as well as equitable remedies for the affected plan. Section 4975 of the
Code prohibits certain transactions involving plans (as defined in Section 4975(e)(1), which includes individual
retirement accounts and Keogh plans) and service providers, including fiduciaries, to such plans. Section 4975
imposes excise taxes for violations of these prohibitions.

Commodities and Futures Regulation

LPL Financial is registered as an introducing broker with the Commodity Futures Trading Commission
(“CFTC”) and is a member of the National Futures Association (“NFA”). LPL Financial introduces commodities and
futures products to ADM Investor Services, Inc. (“ADM”), and all commodities accounts and related client positions
are held by ADM. LPL Financial is regulated by the CFTC and NFA. Violations of the rules of the CFTC and the NFA
could result in remedial actions including fines, registration terminations, or revocations of exchange memberships.

Trust Regulation

Through our subsidiary, PTC, we offer trust, investment management oversight and custodial services for

estates and families. PTC is chartered as a non-depository national banking association. As a limited purpose
national bank, PTC is regulated and regularly examined by the Office of the Comptroller of the Currency (“OCC”).
PTC files reports with the OCC within 30 days after the conclusion of each calendar quarter. Because the powers of
PTC are limited to providing fiduciary services and investment advice, it does not have the power or authority to
accept deposits or make loans. For this reason, trust assets under PTC’s management are not insured by the FDIC.

Because of its limited purpose, PTC is not a “bank” as defined under the Bank Holding Company Act of 1956.

Consequently, neither its immediate parent, PTC Holdings, Inc., nor its ultimate parent, LPLFH, is regulated by the

Board of Governors of the Federal Reserve System as a bank holding company. However, PTC is subject to
regulation by the OCC and to various laws and regulations enforced by the OCC, such as capital adequacy, change
of control restrictions and regulations governing fiduciary duties, conflicts of interest, self-dealing, and anti-money
laundering. For example, the Change in Bank Control Act, as implemented by OCC supervisory policy, imposes
restrictions on parties who wish to acquire a controlling interest in a limited purpose national bank such as PTC or
the holding company of a limited purpose national bank such as LPL Financial Holdings Inc. In general, an
acquisition of 10% or more of our common stock, or another acquisition of “control” as defined in OCC regulations,
may require OCC approval. These laws and regulations are designed to serve specific bank regulatory and
supervisory purposes and are not meant for the protection of PTC, LPL Financial, or their stockholders.

Regulatory Capital

The SEC, FINRA, CFTC, and NFA have stringent rules and regulations with respect to the maintenance of

specific levels of net capital by regulated entities. Generally, a broker-dealer’s net capital is calculated as net worth
plus qualified subordinated debt less deductions for certain types of assets. The net capital rule under the
Exchange Act requires that at least a minimum part of a broker-dealer’s assets be maintained in a relatively liquid
form. LPL Financial is also subject to the NFA's financial requirements and is required to maintain net capital that is
in excess of or equal to the greatest of the NFA's minimum financial requirements. Under these requirements, LPL
Financial is currently required to maintain minimum net capital that is in excess of or equal to the minimum net
capital calculated and required pursuant to the SEC's Uniform Net Capital Rule.

The SEC, FINRA, CFTC, and NFA impose rules that require notification when net capital falls below certain

predefined criteria. These broker-dealer capital rules also dictate the ratio of debt to equity in regulatory capital
composition, and constrain the ability of a broker-dealer to expand its business under certain circumstances. If a
broker-dealer fails to maintain the required net capital, it may be subject to suspension or revocation of registration
by the applicable regulatory agency, and suspension or expulsion by these regulators ultimately could lead to the
broker-dealer’s liquidation. Additionally, the net capital rule and certain FINRA rules impose requirements that may
have the effect of prohibiting a broker-dealer from distributing or withdrawing capital, and that require prior notice to
the SEC and FINRA for certain capital withdrawals. LPL Financial, which is subject to net capital rules has been,
and currently is, in compliance with those rules and has net capital in excess of the minimum requirements.

Anti-Money Laundering and Sanctions Compliance

The USA PATRIOT Act of 2001 (the “PATRIOT Act”) contains anti-money laundering and financial

transparency laws and mandates the implementation of various regulations applicable to broker-dealers, futures
commission merchants and other financial services companies. Financial institutions subject to the PATRIOT Act
generally must have anti-money laundering procedures in place, monitor for and report suspicious activity,
implement specialized employee training programs, designate an anti-money laundering compliance officer, and are
audited periodically by an independent party to test the effectiveness of compliance. In addition, sanctions
administered by the U.S. Office of Foreign Asset Control prohibit U.S. persons from doing business with blocked
persons and entities. We have established policies, procedures, and systems designed to comply with these
regulations.

Security and Privacy

Regulatory activity in the areas of privacy and data protection continues to grow worldwide and is generally
being driven by the growth of technology and related concerns about the rapid and widespread dissemination and
use of information. To the extent they are applicable to us, we must comply with these federal and state information-
related laws and regulations, including, for example, those in the United States, such as the 1999 Gramm-Leach-
Bliley Act, SEC Regulation S-P, and the Fair Credit Reporting Act of 1970, as amended.

Financial Information about Geographic Areas

Our revenues for the periods presented were derived from our operations in the United States.

Trademarks

Access Alts®, Access Overlay®, BranchNet®, DO IT SMARTER®, Fortigent®, LPL®, LPL Career Match®, LPL
Financial®, the LPL Financial logo, LPL Partners Program®, Manager Access Network®, Manager Access Select®,
OMP®, National Retirement Partners®, the National Retirement Partners logo, Veritat Advisors®, and the Veritat
Advisor logo are our registered trademarks. ClientWorks and SponsorWorks are among our service marks.

Item 1A. Risk Factors

Risks Related to Our Business and Industry

We depend on our ability to attract and retain experienced and productive advisors.

We derive a large portion of our revenues from commissions and fees generated by our advisors. Our ability
to attract and retain experienced and productive advisors has contributed significantly to our growth and success,
and our strategic plan is premised upon continued growth in the number of our advisors. If we fail to attract new
advisors or to retain and motivate our current advisors, replace our advisors who retire, or assist our retiring
advisors with transitioning their practices to existing advisors, or if advisor migration away from wirehouses and to
independent channels decreases or slows, our business may suffer.

The market for experienced and productive advisors is highly competitive, and we devote significant
resources to attracting and retaining the most qualified advisors. In attracting and retaining advisors, we compete
directly with a variety of financial institutions such as wirehouses, regional broker-dealers, banks, insurance
companies and other independent broker-dealers. If we are not successful in retaining highly qualified advisors, we
may not be able to recover the expense involved in attracting and training these individuals. There can be no
assurance that we will be successful in our efforts to attract and retain the advisors needed to achieve our growth
objectives.

Our financial condition and results of operations may be adversely affected by market fluctuations and
other economic factors.

Significant downturns and volatility in equity and other financial markets have had and could continue to have

an adverse effect on our financial condition and results of operations.

General economic and market factors can affect our commission and fee revenue. For example, a decrease

in market levels can:

•

reduce new investments by both new and existing clients in financial products that are linked to the equity
markets, such as variable life insurance, variable annuities, mutual funds, and managed accounts;

reduce trading activity, thereby affecting our brokerage commissions and our transaction revenue;

reduce the value of advisory and brokerage assets, thereby reducing advisory fee revenue and asset-
based fee income and

• motivate clients to withdraw funds from their accounts, reducing advisory and brokerage assets, advisory

fee revenue, and asset-based fee income.

Other more specific trends may also affect our financial condition and results of operations, including, for
example, changes in the mix of products preferred by investors may result in increases or decreases in our fee
revenues associated with such products, depending on whether investors gravitate towards or away from such
products. The timing of such trends, if any, and their potential impact on our financial condition and results of
operations are beyond our control.

In addition, because certain of our expenses are fixed, our ability to reduce them over short periods of time is

limited, which could negatively impact our profitability.

Significant interest rate changes could affect our profitability and financial condition.

Our revenues are exposed to interest rate risk primarily from changes in fees payable to us from banks
participating in our cash sweep programs, which are based on prevailing interest rates. In the current low interest
rate environment, our revenue from our cash sweep programs has declined, and our revenue may decline further
due to the expiration of contracts with favorable pricing terms, less favorable terms in future contracts with
participants in our cash sweep programs, decreases in interest rates or clients moving assets out of our cash
sweep programs. We may also be limited in the amount we can reduce interest rates payable to clients in our cash
sweep programs and still offer a competitive return. A sustained low interest rate environment may have a negative
impact upon our ability to negotiate contracts with new banks or renegotiate existing contracts on comparable terms
with banks participating in our cash sweep programs.

Lack of liquidity or access to capital could impair our business and financial condition.

Liquidity, or ready access to funds, is essential to our business. We expend significant resources investing in

our business, particularly with respect to our technology and service platforms. In addition, we must maintain certain
levels of required capital. As a result, reduced levels of liquidity could have a significant negative effect on us. Some
potential conditions that could negatively affect our liquidity include:

•

illiquid or volatile markets;

diminished access to debt or capital markets;

unforeseen cash or capital requirements; or

regulatory penalties or fines, or adverse legal settlements or judgments (including, among others, risks
associated with auction rate securities).

The capital and credit markets continue to experience varying degrees of volatility and disruption. In some
cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for businesses
similar to ours. Without sufficient liquidity, we could be required to curtail our operations, and our business would
suffer.

Notwithstanding the self-funding nature of our operations, we may sometimes be required to fund timing

differences arising from the delayed receipt of client funds associated with the settlement of client transactions in
securities markets. These timing differences are funded either with internally generated cash flow or, if needed, with
funds drawn under our revolving credit facility, or uncommitted lines of credit at our broker-dealer subsidiary LPL
Financial.

In the event current resources are insufficient to satisfy our needs, we may need to rely on financing sources

such as bank debt. The availability of additional financing will depend on a variety of factors such as:

• market conditions;
•

the general availability of credit;

•

the volume of trading activities;

the overall availability of credit to the financial services industry;

our credit ratings and credit capacity; and

the possibility that our lenders could develop a negative perception of our long-or short-term financial
prospects if the level of our business activity decreases due to a market downturn. Similarly, our access to
funds may be impaired if regulatory authorities or rating organizations take negative actions against us.

Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital

required to operate our business. Such market conditions may limit our ability to satisfy statutory capital
requirements, generate commission, fee and other market-related revenue to meet liquidity needs and access the
capital necessary to grow our business. As such, we may be forced to delay raising capital, issue different types of
capital than we would otherwise, less effectively deploy such capital or bear an unattractive cost of capital, which
could decrease our profitability and significantly reduce our financial flexibility.

If there is a default under the derivative instruments we use to hedge our foreign currency risk default, we
may be exposed to risks we had sought to mitigate.

We, from time to time, use derivative instruments to hedge our foreign currency risk. In particular, our

agreement with a third-party service provider provides for an annual adjustment of the currency exchange rate
between the U.S. dollar and the Indian rupee. We bear the risk of currency movement at each annual reset date,
and the reset rate then applies for the subsequent 12-month period. To mitigate foreign currency risk arising from
such annual adjustments, we use derivative financial instruments consisting solely of non-deliverable foreign
currency contracts. However, if either we or our counterparties fail to honor our respective obligations under such
derivative instruments, we could be subject to the risk of loss and our hedges of the foreign currency risk will be
ineffective. That failure could have an adverse effect on our financial condition, results of operations, and cash flows
that could be material.

A loss of our marketing relationships with manufacturers of financial products could harm our relationship
with our advisors and, in turn, their clients.

We operate on an open-architecture product platform offering no proprietary financial products. To help our

advisors meet their clients’ needs with suitable investment options, we have relationships with most of the industry-
leading providers of financial and insurance products. We have sponsorship agreements with some manufacturers
of fixed and variable annuities and mutual funds that, subject to the survival of certain terms and conditions, may be
terminated by the manufacturer upon notice. If we lose our relationships with one or more of these manufacturers,
our ability to serve our advisors and, in turn, their clients, and our business may be materially adversely affected. As
an example, recently certain variable annuity product sponsors have ceased offering and issuing new variable
annuity contracts. If this trend continues, we could experience a loss in the revenue currently generated from the
sale of such products. In addition, certain features of such contracts have been eliminated by variable annuity

product sponsors. If this trend continues, the attractiveness of these products would be reduced, potentially
reducing the revenue we currently generate from the sale of such products.

Our business could be materially adversely affected as a result of the risks associated with acquisitions
and investments.

We have made acquisitions and investments in the past and may pursue further acquisitions and investments

in the future. These transactions are accompanied by risks. For instance, an acquisition could have a negative
effect on our financial and strategic position and reputation or the acquired business could fail to further our
strategic goals. Moreover, we may not be able to successfully integrate acquired businesses into ours, and
therefore we may not be able to realize the intended benefits from an acquisition. We may have a lack of
experience in new markets, products or technologies brought on by the acquisition and we may have an initial
dependence on unfamiliar supply or distribution partners. An acquisition may create an impairment of relationships
with customers or suppliers of the acquired business or our advisors or suppliers. All of these and other potential
risks may serve as a diversion of our management's attention from other business concerns, and any of these
factors could have a material adverse effect on our business.

Risks Related to Our Regulatory Environment

Regulatory developments and our failure to comply with regulations could adversely affect our business by
increasing our costs and exposure to litigation, affecting our reputation and making our business less
profitable.

Our business is subject to extensive U.S. regulation and supervision, including securities and investment

advisory services. The securities industry in the United States is subject to extensive regulation under both federal
and state laws. Our broker-dealer subsidiary, LPL Financial, is:

•

registered as a broker-dealer with the SEC, each of the 50 states, and the District of Columbia, Puerto Rico
and the U.S. Virgin Islands;

registered as an investment adviser with the SEC;

a member of FINRA and various other self-regulatory organizations, and a participant in various clearing
organizations including the Depository Trust Company, the National Securities Clearing Corporation, and
the Options Clearing Corporation; and

regulated by the CFTC with respect to the futures and commodities trading activities it conducts as an
introducing broker.

Much of the regulation of broker-dealers has been delegated to self-regulatory organizations (“SROs”). The
primary regulators of LPL Financial are FINRA, and for municipal securities, the Municipal Securities Rulemaking
Board (“MSRB”). The CFTC has designated the National Futures Association ("NFA") as LPL Financial’s primary
regulator for futures and commodities trading activities.

The SEC, FINRA, CFTC, OCC, various securities and futures exchanges and other U.S. governmental or

regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws,
regulations, or interpretations. There can also be no assurance that other federal or state agencies will not attempt
to further regulate our business. These legislative and regulatory initiatives may affect the way in which we conduct
our business and may make our business model less profitable.

Our ability to conduct business in the jurisdictions in which we currently operate depends on our compliance
with the laws, rules and regulations promulgated by federal regulatory bodies and the regulatory authorities in each
of the states and other jurisdictions in which we do business. Our ability to comply with all applicable laws, rules and
regulations, and interpretations is largely dependent on our establishment and maintenance of compliance, audit
and reporting systems and procedures, as well as our ability to attract and retain qualified compliance, audit and
risk management personnel. While we have adopted policies and procedures reasonably designed to comply with
all applicable laws, rules and regulations, and interpretations these systems and procedures may not be fully
effective, and there can be no assurance that regulators or third-parties will not raise material issues with respect to
our past or future compliance with applicable regulations.

Our profitability could also be affected by rules and regulations that impact the business and financial
communities generally and, in particular, our advisors’ and their clients, including changes to the interpretation or
enforcement of laws governing taxation (including the classification of independent contractor status of our
advisors), trading, electronic commerce, privacy, and data protection. For instance, failure to comply with new rules
and regulations, including in particular, rules and regulations that may arise pursuant to the Dodd-Frank Act, could
subject us to regulatory actions or litigation and it could have a material adverse effect on our business, results of

operations, cash flows, or financial condition. Provisions of the Dodd-Frank Act that may affect our business
include, but are not limited to, the potential implementation of a more stringent fiduciary standard for broker-dealers
and the potential establishment of a new SRO for investment advisors. Compliance with these provisions would
likely result in increased costs. Moreover, to the extent the Dodd-Frank Act affects the operations, financial
condition, liquidity and capital requirements of financial institutions with which we do business, those institutions
may seek to pass on increased costs, reduce their capacity to transact, or otherwise present inefficiencies in their
interactions with us. The ultimate impact that the Dodd-Frank Act will have on us, the financial industry and the
economy cannot be known until all such applicable regulations called for under the Dodd-Frank Act have been
finalized and implemented.

In addition to Dodd-Frank Act rule promulgation, other proposals are currently under consideration by federal
banking regulators that may have an impact upon our profitability. Global regulators are engaged in ongoing efforts
to build upon the Basel capital accords, which set new capital and liquidity standards for global banking institutions
(“Basel III”). Basel III is designed to strengthen bank capital requirements and introduce new regulatory
requirements on bank liquidity. In October 2013, U.S. banking regulators issued a final rule implementing Basel III in
the U.S. In September 2014, U.S. banking regulators issued a final rule to implement the liquidity coverage ratio
standards to address Basel III liquidity standards in the U.S. These new rules and proposals could negatively
impact the attractiveness of cash deposits to banks who participate in our cash sweep programs, making it more
difficult for us to renew existing contracts and negotiate new arrangements.

In addition, new rules and regulations could result in limitations on the lines of business we conduct,

modifications to our business practices, increased capital requirements or additional costs. For example, the
U.S. Department of Labor has stated that it plans to re-propose a rule that, if adopted as previously proposed,
would broaden the circumstances under which we may be considered a “fiduciary” under Section 3(21) of ERISA
and could affect the compensation we receive for retirement accounts.

We are subject to various regulatory requirements, which, if not complied with, could result in the
restriction of the ongoing conduct or growth, or even liquidation of, parts of our business.

The business activities that we may conduct are limited by various regulatory agencies. Our membership
agreement with FINRA may be amended by application to include additional business activities. This application
process is time-consuming and may not be successful. As a result, we may be prevented from entering new
potentially profitable businesses in a timely manner, or at all. In addition, as a member of FINRA, we are subject to
certain regulations regarding changes in control of our ownership. Rule 1017 of the National Association of
Securities Dealers generally provides, among other things, that FINRA approval must be obtained in connection
with any transaction resulting in a change in our equity ownership that results in one person or entity directly or
indirectly owning or controlling 25% or more of our equity capital. Similarly, the OCC imposes advance approval
requirements for a change of control, and control is presumed to exist if a person acquires 10% or more of our
common stock. These regulatory approval processes can result in delay, increased costs or impose additional
transaction terms in connection with a proposed change of control, such as capital contributions to the regulated
entity. As a result of these regulations, our future efforts to sell shares or raise additional capital may be delayed or
prohibited.

In addition, the SEC, FINRA, CFTC, OCC, and NFA have extensive rules and regulations with respect to

capital requirements. As a registered broker-dealer, LPL Financial is subject to Rule 15c3-1 (“Uniform Net Capital
Rule”) under the Exchange Act, and related SRO requirements. The CFTC and NFA also impose net capital
requirements. The Uniform Net Capital Rule specifies minimum capital requirements that are intended to ensure the
general soundness and liquidity of broker-dealers. Because our holding companies are not registered broker-
dealers, they are not subject to the Uniform Net Capital Rule. However, the ability of our holding companies to
withdraw capital from our broker-dealer subsidiary could be restricted, which in turn could limit our ability to repay
debt, redeem or purchase shares of our outstanding stock or pay dividends. A large operating loss or charge
against net capital could adversely affect our ability to expand or even maintain our present levels of business.

Failure to comply with ERISA regulations could result in penalties against us.

We are subject to ERISA and Sections 4975(c)(1)(A), (B), (C) and (D) of the Internal Revenue Code of 1986,

as amended (the “Internal Revenue Code”), and to regulations promulgated thereunder, insofar as we act as a
“fiduciary” under ERISA with respect to benefit plan clients or otherwise deal with benefit plan clients. ERISA and
applicable provisions of the Internal Revenue Code impose duties on persons who are fiduciaries under ERISA,
prohibit specified transactions involving ERISA plan clients [including, without limitation, employee benefit plans (as
defined in Section 3(3) of ERISA), individual retirement accounts and Keogh plans] and impose monetary penalties
for violations of these prohibitions. Our failure to comply with these requirements could result in significant penalties

against us that could have a material adverse effect on our business (or, in a worst case, severely limit the extent to
which we could act as fiduciaries for any plans under ERISA).

Risks Related to Our Competition

We operate in an intensely competitive industry, which could cause us to lose advisors and their assets,
thereby reducing our revenues and net income.

We are subject to competition in all aspects of our business, including competition for our advisors and their

clients, from:

•

asset management firms;

commercial banks and thrift institutions;

insurance companies;

other clearing/custodial technology companies; and

brokerage and investment banking firms.

Many of our competitors have substantially greater resources than we do and may offer a broader range of

services, including financial products, across more markets. Some operate in a different regulatory environment
than we do, which may give them certain competitive advantages in the services they offer. For example, certain of
our competitors only provide clearing services and consequently would not have any supervision or oversight
liability relating to actions of their financial advisors. We believe that competition within our industry will intensify as
a result of consolidation and acquisition activity and because new competitors face few barriers to entry, which
could adversely affect our ability to recruit new advisors and retain existing advisors.

If we fail to continue to attract highly qualified advisors or advisors licensed with us leave us to pursue other
opportunities, or if current or potential clients of our advisors decide to use one of our competitors, we could face a
significant decline in market share, commission and fee revenues and net income. If we are required to increase
our payout of commissions and fees to our advisors in order to remain competitive, our net income could be
significantly reduced.

Poor service or performance of the financial products that we offer or competitive pressures on pricing of
such services or products may cause clients of our advisors to withdraw their assets on short notice.

Clients of our advisors control their assets under management with us. Poor service or performance of the
financial products that we offer or competitive pressures on pricing of such services or products may result in the
loss of accounts. In addition, we must monitor the pricing of our services and financial products in relation to
competitors and periodically may need to adjust commission and fee rates, interest rates on deposits and margin
loans and other fee structures to remain competitive. Competition from other financial services firms, such as
reduced commissions to attract clients or trading volume or higher deposit rates to attract client cash balances,
could adversely impact our business. The decrease in revenue that could result from such an event could have a
material adverse effect on our business.

We face competition in attracting and retaining key talent.

Our success and future growth depends upon our ability to attract and retain qualified employees. There is

significant competition for qualified employees in the broker-dealer industry. Each of our executive officers is an
employee at will and none has an employment agreement. We may not be able to retain our existing employees or
fill new positions or vacancies created by expansion or turnover. The loss or unavailability of these individuals could
have a material adverse effect on our business.

Moreover, our success depends upon the continued services of our key senior management personnel,
including our executive officers and senior managers. The loss of one or more of our key senior management
personnel, and the failure to recruit a suitable replacement or replacements, could have a material adverse effect
on our business.

Risks Related to Our Debt

Our indebtedness could adversely affect our financial health and may limit our ability to use debt to fund
future capital needs.

At December 31, 2014, we had total indebtedness of $1.6 billion. Our level of indebtedness could increase

our vulnerability to general adverse economic and industry conditions. It could also require us to dedicate a
substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes. In

addition, our level of indebtedness may limit our flexibility in planning for changes in our business and the industry
in which we operate, and limit our ability to borrow additional funds.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face
substantial liquidity problems and could be forced to sell assets, seek additional capital or seek to restructure or
refinance our indebtedness. These alternative measures may not be successful or feasible. Our senior secured
credit agreement restricts our ability to sell assets. Even if we could consummate those sales, the proceeds that we
realize from them may not be adequate to meet any debt service obligations then due. Furthermore, if an event of
default were to occur with respect to our senior secured credit agreement or other future indebtedness, our
creditors could, among other things, accelerate the maturity of our indebtedness.

Our senior secured credit agreement permits us to incur additional indebtedness. Although our senior
secured credit agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are
subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with
these restrictions could be substantial. Also, these restrictions do not prevent us from incurring obligations that do
not constitute “indebtedness” as defined in our senior secured credit agreement. To the extent new debt or other
obligations are added to our currently anticipated debt levels, the substantial indebtedness risks described above
would increase.

A credit rating downgrade would not impact the terms of our repayment obligations under our senior secured

credit agreement. However, any such downgrade would negatively impact our ability to obtain comparable rates
and terms on any future refinancing of our debt and could restrict our ability to incur additional indebtedness.

Restrictions under our senior secured credit agreement may prevent us from taking actions that we believe
would be in the best interest of our business.

Our senior secured credit agreement contains customary restrictions on our activities, including covenants

that may restrict us from:

•

incurring additional indebtedness or issuing disqualified stock or preferred stock;

paying dividends on, redeeming or repurchasing our capital stock;

• making investments or acquisitions;

•

creating liens;

selling assets;

receiving dividends or other payments to us;

guaranteeing indebtedness;

engaging in transactions with affiliates; and

consolidating, merging, or transferring all or substantially all of our assets.

We are also required to meet specified leverage ratio and interest coverage ratio tests. These restrictions

may prevent us from taking actions that we believe would be in the best interest of our business. Our ability to
comply with these restrictive covenants will depend on our future performance, which may be affected by events
beyond our control. If we violate any of these covenants and are unable to obtain waivers, we would be in default
under our senior secured credit agreement and payment of the indebtedness could be accelerated. The
acceleration of our indebtedness under our senior secured credit agreement may permit acceleration of
indebtedness under other agreements that contain cross-default or cross-acceleration provisions. If our
indebtedness is accelerated, we may not be able to repay that indebtedness or borrow sufficient funds to refinance
it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are
acceptable to us. If our indebtedness is in default for any reason, our business could be materially and adversely
affected. In addition, complying with these covenants may also cause us to take actions that are not favorable to
holders of our common stock and may make it more difficult for us to successfully execute our business strategy
and compete against companies that are not subject to such restrictions.

Provisions of our senior secured credit agreement could discourage an acquisition of us by a third party.

Certain provisions of our senior secured credit agreement could make it more difficult or more expensive for a

third party to acquire us, and any of our future debt agreements may contain similar provisions. Upon the
occurrence of certain transactions constituting a change of control, all indebtedness under our senior secured credit
agreement may be accelerated and become due and payable. A potential acquirer may not have sufficient financial
resources to purchase our outstanding indebtedness in connection with a change of control.

Risks Related to Our Technology

We rely on technology in our business, and technology and execution failures could subject us to losses,
litigation, and regulatory actions.

Our business relies extensively on electronic data processing and communications systems. In addition to

better serving our advisors and their clients, the effective use of technology increases efficiency and enables firms
like ours to reduce costs and support our regulatory compliance and reporting functions. Our continued success will
depend, in part, upon:

•

our ability to successfully maintain and upgrade the capability of our systems;

our ability to address the needs of our advisors and their clients by using technology to provide products
and services that satisfy their demands;

our ability to use technology effectively to support our regulatory compliance and reporting functions; and

our ability to retain skilled information technology employees.

Extraordinary trading volumes, beyond reasonably foreseeable spikes in volumes, could cause our computer

systems to operate at an unacceptably slow speed or even fail. Failure of our systems, which could result from
these or other events beyond our control, or an inability to effectively upgrade those systems or implement new
technology-driven products or services, could result in financial losses, unanticipated disruptions in service to
clients, liability to our advisors' clients, regulatory sanctions and damage to our reputation.

Our operations rely on the secure processing, storage and transmission of confidential and other information

in our computer systems and networks. Although we take protective measures and endeavor to modify them as
circumstances warrant, the computer systems, software and networks may be vulnerable to unauthorized access,
human error, computer viruses, denial-of-service attacks, or other malicious code and other events that could
impact the security, reliability, and availability of our systems. If one or more of these events occur, this could
jeopardize our own, our advisors’ or their clients’ or counterparties’ confidential and other information processed,
stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or
malfunctions in our own, our advisors’ or their clients’, our counterparties’ or third parties’ operations. We may be
required to expend significant additional resources to modify our protective measures, to investigate and remediate
vulnerabilities or other exposures or to make required notifications, and we may be subject to litigation, regulatory
sanctions and financial losses that are either not insured or are not fully covered through any insurance we
maintain. Cybersecurity requires ongoing investment and diligence against evolving threats. See also "Our
networks may be vulnerable to security risks" below.

The securities settlement process exposes us to risks that may expose our advisors and us to adverse
movements in price.

LPL Financial, one of our subsidiaries, provides clearing services and trade processing for our advisors and
their clients and certain financial institutions. Broker-dealers that clear their own trades are subject to substantially
more regulatory requirements than brokers that outsource these functions to third-party providers. Errors in
performing clearing functions, including clerical, technological and other errors related to the handling of funds and
securities held by us on behalf of our advisors' clients, could lead to censures, fines or other sanctions imposed by
applicable regulatory authorities as well as losses and liability in related lawsuits and proceedings brought by our
advisors’ clients and others. Any unsettled securities transactions or wrongly executed transactions may expose our
advisors and us to adverse movements in the prices of such securities.

Our networks may be vulnerable to security risks.

The secure transmission of confidential information over public networks is a critical element of our

operations. As part of our normal operations, we maintain and transmit confidential information about clients of our
advisors as well as proprietary information relating to our business operations. The risks related to transmitting data
and using service providers outside of and storing or processing data within our network are increasing based on
escalating and malicious cyber activity, including activity that originates outside of the United States. Cyber attacks
can be designed to collect information, manipulate or corrupt data, applications or accounts, and to disable the
functioning or use of applications or technology assets.

Our application service provider systems maintain and process confidential data on behalf of advisors and

their clients, some of which is critical to our advisors’ business operations. If our application service provider
systems are disrupted or fail for any reason, or if our systems or facilities are infiltrated or damaged by unauthorized
persons, our advisors could experience data loss, financial loss, harm to reputation and significant business
interruption. In addition, vulnerabilities of our external service providers could pose security risks to client

information. If any such disruption or failure occurs, we may be exposed to unexpected liability, advisors' clients
may withdraw their assets, our reputation may be tarnished and there could be a material adverse effect on our
business.

Our networks may be vulnerable to unauthorized access, computer viruses, and other security problems in

the future. We rely on our advisors and employees to comply with our policies and procedures to safeguard
confidential data. The failure of our advisors and employees to comply with such policies and procedures could
result in the loss or wrongful use of their clients’ confidential information or other sensitive information. In addition,
even if we and our advisors comply with our policies and procedures, persons who circumvent security measures
could wrongfully use our confidential information or clients’ confidential information or cause interruptions or
malfunctions in our operations. Cyber attacks can be designed to collect information, manipulate or corrupt data,
applications or accounts, and to disable the functioning or use of applications or technology assets. Such activity
could, among other things:

•

seriously damage our reputation;

allow competitors access to our proprietary business information;

subject us to liability for a failure to safeguard client data;

result in the termination of relationships with our advisors;

subject us to regulatory sanctions or burdens, based on state law or the authority of the SEC and FINRA to
enforce regulations regarding business continuity planning;

result in inaccurate financial data reporting; and

require significant capital and operating expenditures to investigate and remediate the breach.

As malicious cyber activity escalates, including activity that originates outside of the United States, the risks

we face relating to transmission of data and our use of service providers outside of our network, as well as the
storing or processing of data within our network, intensify.

Failure to maintain technological capabilities, flaws in existing technology, difficulties in upgrading our
technology platform, or the introduction of a competitive platform could have a material adverse effect on
our business.

We depend on highly specialized and, in many cases, proprietary technology to support our business

functions, including among others:

•

securities trading and custody;

portfolio management;

customer service;

accounting and internal financial processes and controls; and

regulatory compliance and reporting.

In addition, our continued success depends on our ability to effectively adopt new or adapt existing
technologies to meet client, industry and regulatory demands. We might be required to make significant capital
expenditures to maintain competitive technology. For example, we believe that our technology platform is one of our
competitive strengths, and our future success will depend in part on our ability to anticipate and adapt to
technological advancements required to meet the changing demands of our advisors. The emergence of new
industry standards and practices could render our existing systems obsolete or uncompetitive. Any upgrades or
expansions may require significant expenditures of funds and may also cause us to suffer system degradations,
outages and failures. There cannot be any assurance that we will have sufficient funds to adequately update and
expand our networks, nor can there be any assurance that any upgrade or expansion attempts will be successful
and accepted by our current and prospective advisors. If our technology systems were to fail and we were unable to
recover in a timely way, we would be unable to fulfill critical business functions, which could lead to a loss of
advisors and could harm our reputation. A technological breakdown could also interfere with our ability to comply
with financial reporting and other regulatory requirements, exposing us to disciplinary action and to liability to our
advisors and their clients. There cannot be any assurance that another company will not design a similar platform
that affects our competitive advantage.

Inadequacy or disruption of our disaster recovery plans and procedures in the event of a catastrophe could
adversely affect our business.

We have made a significant investment in our infrastructure, and our operations are dependent on our ability

to protect the continuity of our infrastructure against damage from catastrophe or natural disaster, breach of

security, loss of power, telecommunications failure, or other natural or man-made events. A catastrophic event could
have a direct negative impact on us by adversely affecting our advisors, employees or facilities, or an indirect
impact on us by adversely affecting the financial markets or the overall economy. While we have implemented
business continuity and disaster recovery plans and maintain business interruption insurance, it is impossible to
fully anticipate and protect against all potential catastrophes. If our business continuity and disaster recovery plans
and procedures were disrupted or unsuccessful in the event of a catastrophe, we could experience a material
adverse interruption of our operations.

We rely on outsourced service providers to perform technology, processing, and support functions.

We rely on outsourced service providers to perform certain technology, processing and support functions. For

example, we have an agreement with Thomson Reuters BETA Systems, a division of Thomson Reuters ("BETA
Systems"), under which they provide us key operational support, including data processing services for securities
transactions and back office processing support. Our use of third-party service providers may decrease our ability to
control operating risks and information technology systems risks. Any significant failures by BETA Systems or our
other service providers could cause us to sustain serious operational disruptions and incur losses and could harm
our reputation. If we had to change these service providers unexpectedly, we would also experience a disruption to
our business, and we cannot predict the costs or time that would be required to find alternative service providers.
We cannot provide any assurance that the disruption caused by a significant failure by, or change in, our service
providers would not have a material adverse effect on our business. We have transitioned additional business
processes to third-party service providers in connection with the Service Value Commitment initiative, which
increases our reliance on outsourced providers, including off-shore providers, and the related risks described
above. For example, we rely on an off-shore service provider for functions related to cash management, account
transfers, and document imaging, among others. To the extent third-party service providers are located in foreign
jurisdictions, we are exposed to risks inherent in conducting business outside of the United States, including
international economic and political conditions, and the additional costs associated with complying with foreign laws
and fluctuations in currency values.

Risks Related to Our Business Generally

Any damage to our reputation could harm our business and lead to a loss of revenues and net income.

We have spent many years developing our reputation for integrity and superior client service, which is built

upon our four pillars of support for our advisors: enabling technology, comprehensive clearing and compliance
services, practice management programs and training, and independent research. Our ability to attract and retain
advisors and employees is highly dependent upon external perceptions of our level of service, business practices
and financial condition. Damage to our reputation could cause significant harm to our business and prospects and
may arise from numerous sources, including:

•

litigation or regulatory actions;

failing to deliver minimum standards of service and quality;

compliance failures; and

unethical behavior and the misconduct of employees, advisors or counterparties.

Negative perceptions or publicity regarding these matters could damage our reputation among existing and

potential advisors and employees. Adverse developments with respect to our industry may also, by association,
negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us. These
occurrences could lead to loss of revenue and net income.

Our business is subject to risks related to litigation, arbitration actions, and governmental and SRO
investigations.

We are subject to legal proceedings arising out of our business operations, including lawsuits, arbitration
claims, regulatory, governmental or SRO subpoenas, investigations, and actions and other claims. Many of our
legal claims are initiated by clients of our advisors and involve the purchase or sale of investment securities, but
other claims may be asserted by regulatory authorities.

In our investment advisory programs, we have fiduciary obligations that require us and our advisors to act in

the best interests of our advisors' clients. We may face liabilities for actual or alleged breaches of legal duties to our
advisors' clients, in respect of issues related to the suitability of the financial products we make available in our
open architecture product platform or the investment advice of our advisors based on their clients' investment
objectives (including, for example, alternative investments or exchange traded funds). We may also become subject
to claims, allegations and legal proceedings that we infringe or misappropriate intellectual property or other

proprietary rights of others. In addition, we may be subject to legal proceedings related to employment matters,
including wage and hour, discrimination or harassment claims. The outcome of any such actions, including
regulatory proceedings, cannot be predicted, and a negative outcome in such a matter could result in substantial
legal liability, regulatory fines or monetary penalties, censure, loss of intellectual property rights and injunctive or
other equitable relief against us. Further, such outcome may cause us significant reputational harm and could have
a material adverse effect on our business, results of operations, cash flows or financial condition.

Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in
all market environments or against all types of risks.

We have adopted policies and procedures to identify, monitor and manage our operational risk. These

policies and procedures, however, may not be fully effective. Some of our risk evaluation methods depend upon
information provided by others and public information regarding markets, clients or other matters that are otherwise
accessible by us. In some cases, however, that information may not be accurate, complete or up-to-date. Also,
because our advisors work in decentralized offices, additional risk management challenges may exist. In addition,
our existing policies and procedures and staffing levels may be insufficient to support a significant increase in our
advisor population; such an increase may require us to increase our costs in order to maintain our compliance and
risk management obligations or put a strain on our existing policies and procedures as we evolve to support a larger
advisor population. If our policies and procedures are not fully effective or we are not always successful in capturing
all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or
regulatory actions that could have a material adverse effect on our business and financial condition.

Misconduct and errors by our employees and our advisors, who operate in a decentralized environment,
could harm our business.

Misconduct and errors by our employees and our advisors could result in violations of law by us, regulatory

sanctions or serious reputational or financial harm. We cannot always prevent misconduct and errors by our
employees and our advisors, and the precautions we take to prevent and detect these activities may not be
effective in all cases. Prevention and detection among our advisors, who are not our direct employees and some of
whom tend to be located in small, decentralized offices, present additional challenges. There cannot be any
assurance that misconduct and errors by our employees and advisors will not lead to a material adverse effect on
our business.

Our insurance coverage may be inadequate or expensive.

We are subject to claims in the ordinary course of business. These claims may involve substantial amounts of

money and involve significant defense costs. It is not always possible to prevent or detect activities giving rise to
claims, and the precautions we take may not be effective in all cases.

We maintain voluntary and required insurance coverage, including, among others, general liability, property,
director and officer, excess-SIPC, business interruption, errors and omissions, excess entity errors and omissions
and fidelity bond insurance. Recently, premium and deductible costs associated with certain insurance coverages
have increased, coverage terms have become more restrictive and the number of insurers has decreased. While
we endeavor to purchase coverage that is appropriate to our assessment of our risk, we are unable to predict with
certainty the frequency, nature or magnitude of claims for direct or consequential damages. Our business may be
negatively affected if in the future our insurance proves to be inadequate or unavailable. In addition, insurance
claims may harm our reputation or divert management resources away from operating our business.

Changes in U.S. federal income tax law could make some of the products distributed by our advisors less
attractive to clients.

Some of the financial products distributed by our advisors, such as variable annuities, enjoy favorable

treatment under current U.S. federal income tax law. Changes in U.S. federal income tax law, in particular with
respect to variable annuity products or with respect to tax rates on capital gains or dividends, could make some of
these products less attractive to clients and, as a result, could have a material adverse effect on our business,
results of operations, cash flows or financial condition.

We may not realize the benefits we expect from our Service Value Commitment or other restructuring
initiatives.

Our Service Value Commitment initiative is an effort to position us for sustainable long-term growth by improving
the service experience of our financial advisors and delivering efficiencies in our operating model. In connection with
our Service Value Commitment initiative, we expected to reposition our labor force, allowing us to focus on our core
strengths, and transition select non-advisor-facing functions to a leading global services provider. We have also

announced plans to integrate the business of our subsidiary, Fortigent, into our broader institution services strategy.
Our ability to realize the service improvements and efficiencies expected to result from the Service Value Commitment
or other restructuring initiatives is subject to many risks, and no assurances can be given that we will achieve the
expected results.

We may be unable to execute our plans related to the Service Value Commitment or other restructuring

initiatives, including plans to transform information technology systems and transition business processes to new
service providers, or achieve our projected savings. Our ability to effectively implement our plans within expected
costs and realize the expected benefits will depend upon a number of factors, including the finalization of our
transition plans; our success in negotiating and developing commercial arrangements with third-party service
providers that will enable us to realize the service improvements and efficiencies expected to result from the
Service Value Commitment initiative; the performance of new service providers to which we transition business
processes; our ability to control operating risks, information technology systems risks and sourcing risks; our
success in reinvesting the savings arising from labor repositioning in our service and technology enhancements;
time required to complete planned actions; absence of material issues associated with workforce reductions;
avoidance of unexpected disruptions in service; and the retention of key employees involved in implementing the
initiative. In addition, we may have to incur higher costs than currently anticipated to implement our Service Value
Commitment or other restructuring initiatives, and the near-term goals of these strategic initiatives might not be
completed on the contemplated timetable. Finally, our business is dynamic, and we may elect to incur incremental
expenses from time to time to grow and better support our business that could partially offset the benefits of these
strategic initiatives. A failure to implement our plans could have an adverse effect on our financial condition that
could be material.

Our planned real estate development project in Fort Mill, South Carolina subjects us to financial risks,
including risks related to construction and development costs

We intend to develop office space on two undeveloped parcels of land in Fort Mill, South Carolina. We plan
for this new office space, once completed, to serve as a consolidated regional campus to which employees will be
relocated from several facilities that we currently lease in Charlotte, North Carolina. The initial phase of the project
includes the construction of two buildings that will be owned by a third party and leased to LPL for a 20-year term.
In contrast to a conventional build-to-suit lease, under which a developer constructs a building on a turnkey basis
for a tenant, with the developer being the primary bearer of construction and development risk, the initial phase of
our project has been structured as a credit tenant lease. Under this structure, the third party landlord will not
actually develop the buildings or have any related maintenance obligations. Rather, the construction of the buildings
will be delegated by the landlord to LPL, and the landlord will provide a capped allowance, expected to be
approximately $112 million, to fund a portion of the construction costs. Following completion of construction, LPL
will have sole responsibility for the maintenance and operation of the buildings, including taxes and insurance.

Although we believe that this structure will result in reduced financing costs for the project, LPL will be

responsible development of the campus and will bear the risk of cost overruns, zoning issues, opposition to the
project and construction delays, any of which could have a material adverse effect on our financial results and
liquidity. LPL does not have prior experience with real estate developments under a credit tenant structure and will
be highly dependent on a third party development consultant to manage the project successfully, including timely
achievement of certain construction milestones. Failure to achieve those milestones will constitute a default under
our agreements, which would provide the landlord with rights to require LPL to pay for all of the costs of the project,
including acquisition and all development costs incurred to date, or the purchase of the property from the landlord.
In addition to these risks, the accounting treatment of a credit tenant lease is complicated and may change in the
future. Although we believe our lease qualifies as an operating lease under GAAP, we could be required to record a
leased asset and a leased liability if GAAP changes as proposed in the 2013 Proposed Accounting Standards
Update, “Leases” (Topic 842). Such a change could have a material adverse effect on our financial results for the
period in which it were to occur.

Risks Related to Ownership of Our Common Stock

TPG Capital may have the ability to influence the outcome of matters submitted for stockholder approval
and may have interests that differ from those of our other stockholders.

As of December 31, 2014, TPG Capital owned approximately 13% of the outstanding shares of our common

stock. So long as investment funds associated with or designated by TPG Capital continue to own a significant
amount of the outstanding shares of our common stock, TPG Capital will continue to be able to influence our
decisions, regardless of whether or not other stockholders believe that the transaction is in their own best interests.

In addition, TPG Capital and its affiliates are in the business of making investments in companies and may,

from time to time in the future, acquire interests in businesses that directly or indirectly compete with certain
portions of our business. To the extent TPG Capital invests in such other businesses, TPG Capital may have
differing interests than our other stockholders. TPG Capital may also pursue acquisition opportunities that may be
complementary to our business and, as a result, those acquisition opportunities may not be available to us.

The price of our common stock may be volatile and fluctuate substantially, which could result in
substantial losses for our investors.

The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to the

following factors (in addition to the other risk factors described in this section):

•

actual or anticipated fluctuations in our results of operations, including with regard to interest rates or
revenues associated with our ICA program;

variance in our financial performance from the expectations of equity research analysts;

conditions and trends in the markets we serve;

announcements of significant new services or products by us or our competitors;

additions or changes to key personnel;

the commencement or outcome of litigation or regulatory procedures;

changes in market valuation or earnings of our competitors;

the trading volume of our common stock;

future sale of our equity securities;

changes in the estimation of the future size and growth rate of our markets;

legislation or regulatory policies, practices or actions; and

general economic conditions.

In addition, the equity markets in general have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of the particular companies affected. These
broad market and industry factors may materially harm the market price of our common stock irrespective of our
operating performance. In addition, in the past, following periods of volatility in the overall market and the market
price of a company’s securities, securities class action litigation has often been instituted against the affected
company. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our
management’s attention and resources.

We are a holding company and rely on dividends, distributions, and other payments, advances, and
transfers of funds from our subsidiaries to meet our debt service and other obligations.

We have no direct operations and derive all of our cash flow from our subsidiaries. Because we conduct our
operations through our subsidiaries, we depend on those entities for dividends and other payments or distributions
to meet any existing or future debt service and other obligations. The deterioration of the earnings from, or other
available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other
distributions to us. In addition, FINRA regulations restrict dividends in excess of 10% of a member firm’s excess net
capital without FINRA’s prior approval. Compliance with this regulation may impede our ability to receive dividends
from our broker-dealer subsidiary.

Our future abilities to pay regular dividends to holders of our common stock or repurchase shares are
subject to the discretion of our board of directors and will be limited by our ability to generate sufficient
earnings and cash flows.

On February 18, 2015, our board of directors declared a regular quarterly cash dividend of $0.25 per share

on our outstanding common stock, payable on March 16, 2015. In addition, our board of directors from time to time
authorizes us to repurchase shares of the Company’s issued and outstanding shares of common stock. The
declaration and payment of any future quarterly cash dividend or any additional repurchase authorizations will be
subject to the board of directors' continuing determination that the declaration of future dividends or repurchase of
our shares are in the best interests of our stockholders and are in compliance with applicable law. Such
determinations will depend upon a number of factors that the board of directors deems relevant, including future
earnings, the success of our business activities, capital requirements, the general financial condition and future
prospects of our business and general business conditions.

The future payment of dividends or repurchases of shares will also depend on our ability to generate earnings

and cash flows. If we are unable to generate sufficient earnings and cash flows from our business, we may not be
24

able to pay dividends on our common stock or repurchase additional shares. In addition, our ability to pay cash
dividends on our common stock is dependent on the ability of our subsidiaries to pay dividends, including
compliance with limitations under our senior secured credit agreement. Our broker-dealer subsidiary is subject to
requirements of the SEC, FINRA, the CFTC, and other regulators relating to liquidity, capital standards, and the use
of client funds and securities, which may limit funds available for the payment of dividends to us.

Anti-takeover provisions in our certificate of incorporation and bylaws could prevent or delay a change in
control of our company.

Our certificate of incorporation and our bylaws contain certain provisions that may discourage, delay, or

prevent a change in our management or control over us that stockholders may consider favorable, including the
following:

• the sole ability of the board of directors to fill a vacancy created by the expansion of the board of directors;

• advance notice requirements for stockholder proposals and director nominations;

• limitations on the ability of stockholders to call special meetings and to take action by written consent;

• the approval of holders of at least two-thirds of the shares entitled to vote generally on the making, alteration,
amendment or repeal of our certificate of incorporation or bylaws will be required to adopt, amend, or repeal
our bylaws, or amend or repeal certain provisions of our certificate of incorporation;

• the required approval of holders of at least two-thirds of the shares entitled to vote at an election of the

directors to remove directors; and

• the ability of our board of directors to designate the terms of and issue new series of preferred stock, without
stockholder approval, which could be used to institute a rights plan, or a poison pill, that would work to dilute
the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved
by our board of directors.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors
might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our
company, thereby reducing the likelihood that you could receive a premium for your common stock in the
acquisition.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate offices are located in Boston, Massachusetts where we lease approximately 69,000 square
feet of space under a lease agreement that expires on June 30, 2023, with two five-year extensions at our option; in
San Diego, California where we lease approximately 420,000 square feet of office space, a facility we moved into
during 2014, and which lease expires on April 30, 2029; in Charlotte, North Carolina where we lease a total of
approximately 325,000 square feet of space in four facilities under lease agreements, of which one expires on
October 31, 2016 and the three remaining lease agreements expire on February 28, 2017. In conjunction with
moving into our new space in San Diego, California we sold approximately 4.4 acres of land in the third quarter of
2014 and, in a like-kind-exchange, we purchased approximately 11.6 acres of land in Fort Mill, South Carolina.

We entered into a new lease agreement on December 9, 2014, for approximately 450,000 square feet of
office space in Fort Mill, South Carolina and plan to move our Charlotte offices into this location starting in late
2016.

We also lease smaller administrative and operational offices in various locations throughout the U.S. We

believe that our existing properties are adequate for the current operating requirements of our business and that
additional space will be available as needed.

Item 3. Legal Proceedings

We are involved from time to time in routine legal proceedings occurring in the ordinary course of business. In

the opinion of management, there are no matters outstanding that would have a material adverse impact on our

operations or financial condition. For a discussion of legal proceedings, see Note 13. Commitments and
Contingencies, within the notes to consolidated financial statements in this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of

PART II

Equity Securities

Market Information

Our common stock is traded on the NASDAQ under the symbol “LPLA.” The closing sale price as of

December 31, 2014 was $44.55 per share. As of that date there were 435 common stockholders of record based on
information provided by our transfer agent. The number of stockholders of record does not reflect the number of
individual or institutional stockholders that beneficially own the Company's stock because most stock is held in the
name of nominees.

The following table shows the high and low sales prices for our common stock for the periods indicated, as
reported by the NASDAQ. The prices reflect inter-dealer prices and do not include retail markups, markdowns, or
commissions.

2014

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

2013

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

High

Low

46.06

53.97

54.07

56.45

47.53

39.80

39.21

34.06

38.34

45.95

45.34

46.23

36.82

36.58

31.59

28.25

Performance Graph

The following graph compares the cumulative total stockholder return since November 18, 2010, the date our

common stock began trading on the NASDAQ, with the Standard & Poor’s 500 Financial Sector Index (the "S&P
500 Financial") and the Dow Jones U.S. Financial Services Index (the "Dow Jones Financial"). The graph assumes
that the value of the investment in our common stock, the S&P 500 Financial, and the Dow Jones Financial was
$100 on November 18, 2010 and assumes the reinvestment of all dividends.

Dividends

Cash dividends declared per share of common stock and total cash dividends paid during each quarter for

the years ended December 31, 2014 and 2013 were as follows (in millions, except per share data):

2014

Fourth quarter

Third quarter

Second quarter

First quarter

2013

Fourth quarter

Third quarter

Second quarter

First quarter

Dividend
per Share
Declared

Total Cash
Dividend
Paid

0.240

0.190

0.135

23.5

24.0

24.1

19.3

19.9

14.4

On February 18, 2015, the Board of Directors declared a cash dividend of $0.25 per share on our outstanding

common stock to be paid on March 16, 2015 to all stockholders of record on March 2, 2015.

Any future determination relating to the declaration and payment of dividends will be made at the discretion of

our Board of Directors and will depend on a number of factors, including future earnings, capital requirements,
financial conditions, future prospects, contractual restrictions and covenants, and other factors that our board of
directors may deem relevant. Our senior secured credit agreement contains restrictions on our activities, including
paying dividends on our capital stock. For an explanation of these restrictions, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Debt”. In addition, FINRA regulations restrict dividends
in excess of 10% of a member firm’s excess net capital without FINRA’s prior approval, potentially impeding our
ability to receive dividends from LPL Financial.

Securities Authorized for Issuance Under Equity Compensation Plans

The table below sets forth information on compensation plans under which our equity securities are

authorized for issuance as of December 31, 2014:

Plan category

Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available
for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))(1)

(a)

(b)

(c)

Equity compensation plans approved by security

holders

Equity compensation plans not approved by

security holders

6,255,997

31,413

31.64

22.45

Total
___________________
(1) Includes shares available for future issuance under our 2010 Omnibus Equity Incentive Plan.

6,287,410

31.59

6,318,795

—

6,318,795

As of December 31, 2014, we had outstanding 31,413 warrants to purchase common stock under our 2008

LPL Investment Holdings Inc. Financial Institution Incentive Plan (the “Financial Institution Incentive Plan”). Eligible
participants under this plan include certain financial institutions. The plan is administered by the Board of Directors
or such other committee as may be appointed by the Board of Directors to administer the plan. The exercise price
of warrants is equal to the fair market value on the grant date. Warrant awards vest in equal increments of 20.0%
over a five-year period and expire on the 10th anniversary following the date of grant. The Financial Institution

Incentive Plan has not been approved by security holders. Following our IPO, grants were no longer to be made
under our Financial Institution Incentive Plan.

Purchases of Equity Securities by the Issuer

The table below sets forth information regarding repurchases on a monthly basis during the fourth quarter of

2014:

Period

October 1, 2014 through October 31, 2014

November 1, 2014 through November 30, 2014

December 1, 2014 through December 31, 2014

Total
_____________________
(1)

Total Number
of Shares
Purchased

Weighted-
Average Price
Paid per Share

1,476,149

1,433,348

— $

2,909,497

43.47

42.49

—

42.98

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Programs(1)

Approximate
Dollar Value of
Shares That May
Yet Be
Purchased Under
the Programs

1,476,149

1,433,348

153,794,864

92,927,140

— $

—

2,909,497

92,927,140

The repurchase of shares was executed under share repurchase programs approved by the Board of
Directors on February 10, 2014 and October 1, 2014, through which the Company may repurchase $150.0
million under each repurchase program of its outstanding shares of common stock. See Note 14.
Stockholders' Equity, within the notes to consolidated financial statements.

Item 6. Selected Financial Data

The following table sets forth selected historical financial information for the past five fiscal years. The selected
historical financial information presented below should be read in conjunction with the information included under the
heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We
have derived the consolidated statements of income data for the years ended December 31, 2014, 2013, and 2012
and the consolidated statements of financial condition data as of December 31, 2014 and 2013 from our audited
financial statements included in this Annual Report on Form 10-K. We have derived the consolidated statements of
income data for the years ended December 31, 2011 and 2010 and consolidated statements of financial condition
data as of December 31, 2012, 2011, and 2010 from our audited financial statements not included in this Annual
Report on Form 10-K. Our historical results for any prior period are not necessarily indicative of results to be
expected in any future period.

Years Ended December 31,

2014

2013

2012

2011

2010

(In thousands, except per share data)

Consolidated statements of income data:

Net revenues

Total expenses

$ 4,373,662

$ 4,140,858

$ 3,661,088

$ 3,479,375

$ 3,113,486

$ 4,078,965

$ 3,849,555

$ 3,410,497

$ 3,196,690

$ 3,202,335

Income (loss) from operations before provision

for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Per share data:

Earnings (loss) per basic share

Earnings (loss) per diluted share

Cash dividends paid per share

294,697

116,654

178,043

1.78

1.75

0.96

291,303

109,446

181,857

1.74

1.72

0.65

250,591

98,673

151,918

1.39

1.37

2.24

282,685

112,303

170,382

1.55

1.50

— $

(88,849)

(31,987)

(56,862)

(0.64)

—

December 31,

2014

2013

2012

2011

2010

(In thousands)

Consolidated statements of financial condition data:

Cash and cash equivalents

412,332

516,584

466,261

720,772

419,208

Total assets

Total debt

$ 4,050,993

$ 4,042,831

$ 3,988,524

$ 3,816,326

$ 3,646,167

$ 1,634,258

$ 1,535,096

$ 1,317,825

$ 1,332,668

$ 1,386,639

Table continued on following page

As of and for the Years Ended December 31,

2014

2013

2012

2011

2010

Other financial and operating data:

Adjusted EBITDA (in thousands)(1)

Adjusted Earnings (in thousands)(1)

Adjusted Earnings per share(1)

Gross Profit (in thousands)(2)

516,507

247,621

2.44

511,438

258,805

2.44

454,482

225,029

2.03

459,720

218,585

1.95

$ 1,325,945

$ 1,248,014

$ 1,112,251

$ 1,030,951

Gross Profit as a % of net revenue(2)

30.3%

30.1%

30.4%

29.6%

Number of advisors(3)

14,036

13,673

13,352

12,847

Advisory and brokerage assets (in billions)(4)

Advisory assets under custody (in billions)(4)

Insured cash account balances (in billions)(4)

Money market account balances (in billions)(4)

475.1

175.8

18.6

7.4

438.4

151.6

17.4

7.5

373.3

122.1

16.3

8.4

330.3

101.6

14.4

8.0

413,113

172,720

1.71

937,933

30.1%

12,444

315.6

93.0

12.2

6.9

_______________________

(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — How We

Evaluate Growth” for an explanation of non-GAAP measures Adjusted EBITDA, Adjusted Earnings, and Adjusted
Earnings per share.

(2) Gross Profit is calculated as net revenues less production expenses. Production expenses consist of the

following expense categories from our consolidated statements of income: (i) commission and advisory and
(ii) brokerage, clearing, and exchange. All other expense categories, including depreciation and amortization,
are considered general and administrative in nature. Because our gross profit amounts do not include any
depreciation and amortization expense, we consider our gross profit amounts to be non-GAAP measures that
may not be comparable to those of others in our industry.

(3) Advisors are defined as those independent financial advisors and financial advisors at financial institutions who

are licensed to do business with the Company's broker-dealer subsidiary.

(4) Advisory and brokerage assets are comprised of assets that are custodied, networked, and non-networked, and

reflect market movement in addition to new assets, inclusive of new business development and net of attrition.
Insured cash account and money market account balances are also included in advisory and brokerage assets.

Not included in the advisory and brokerage assets above are other client assets, including retirement plan

assets in plans supported by advisors licensed with LPL Financial, and certain trust and high-net-worth assets, that
are custodied with third-party providers. At December 31, 2014, 2013, and 2012 these other assets were (in billions):

Retirement plan assets(1)

Trust assets(2)

High-net-worth assets(3)

_______________________

December 31,

2014

2013

2012

80.3

3.0

87.3

60.6

10.6

73.9

46.4

12.0

59.1

Data regarding these assets was not available at or prior to December 31, 2011.

(1) Represents retirement plan assets that are custodied with third-party providers of retirement plan administrative
services who provide reporting feeds. We estimate the total assets in retirement plans supported by advisors
licensed with LPL Financial to be between $115.0 billion and $125.0 billion at December 31, 2014. If we receive
reporting feeds in the future from providers for whom we do not currently receive feeds, we intend to include and
identify such additional assets in this metric. During 2014 and 2013, we began receiving reporting feeds from
additional providers, which accounted for $6.6 billion and $1.7 billion of the year-over-year increases in
retirement plan assets.

(2) Represents trust assets that are on the comprehensive wealth management platform of the Concord Trust and

Wealth Solutions division of LPL Financial.

(3) Represents high-net-worth assets that are on the comprehensive platform of performance reporting, investment

research, and practice management of Fortigent Holdings Company, Inc. and its subsidiaries.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with
our consolidated financial statements and the notes to those consolidated financial statements included in Item 8 of
this Form 10-K. This discussion contains forward-looking statements that involve significant risks and uncertainties.
As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Form 10-K, our
actual results may differ materially from those anticipated in these forward-looking statements. Please also refer to
the section under heading "Special Note Regarding Forward-Looking Statements."

Overview

We are the nation's largest independent broker-dealer, a top custodian for registered investment advisors

("RIAs"), and a leading independent consultant to retirement plans. We provide an integrated platform of brokerage
and investment advisory services to more than 14,000 independent financial advisors, including financial advisors
at more than 700 financial institutions (our "advisors") across the country, enabling them to provide their retail
investors (their "clients") with objective financial advice through a lower conflict model. We also support
approximately 4,400 financial advisors who are affiliated and licensed with insurance companies with customized
clearing, advisory platforms and technology solutions.

Fortigent Holdings Company, Inc. and its subsidiaries ("Fortigent") are a leading provider of solutions and
consulting services to RIAs, banks and trust companies servicing high-net-worth clients, while The Private Trust
Company, N.A. ("PTC") manages trusts and family assets for high-net-worth clients.

Our singular focus is to provide our advisors with the front-, middle-, and back-office support they need to

serve the large and growing market for independent investment advice. We believe we are the only company that
offers advisors the unique combination of an integrated technology platform, comprehensive self-clearing services,
and open architecture access to leading financial products, all delivered in an environment unencumbered by
conflicts from product manufacturing, underwriting, or market-making.

For over 20 years, we have served the independent advisor market. We currently support the largest

independent advisor base and we believe we have the fourth largest overall advisor base in the United States
based on the information available as of the date this Annual Report on Form 10-K has been issued. Through our
advisors, we are also one of the largest distributors of financial products in the United States. Our scale is a
substantial competitive advantage and enables us to more effectively attract and retain advisors. Our unique
business model allows us to invest in more resources for our advisors, increasing their revenues, and creating a
virtuous cycle of growth. We have 3,384 employees with primary offices in Boston, Charlotte, and San Diego.

Our Sources of Revenue

Our revenues are derived primarily from fees and commissions from products and advisory services offered

by our advisors to their clients, a substantial portion of which we pay out to our advisors, as well as fees we receive
from our advisors for the use of our technology, custody, clearing, trust, and reporting platforms. We also generate
asset-based revenues through our platform of over 13,000 financial products from a broad range of product
manufacturers. Under our self-clearing platform, we custody the majority of client assets invested in these financial
products, for which we provide statements, transaction processing, and ongoing account management. In return for
these services, mutual funds, insurance companies, banks, and other financial product manufacturers pay us fees
based on asset levels or number of accounts managed. We also earn interest from margin loans made to our
advisors’ clients.

We track recurring revenue, a characterization of net revenue and a statistical measure, which we define to

include our revenues from asset-based fees, advisory fees, trailing commissions, cash sweep programs, and
certain other fees that are based upon accounts and advisors. Because certain recurring revenues are associated
with asset balances, they will fluctuate depending on the market values and current interest rates. These asset
balances, specifically related to advisory and asset-based revenues, have a correlation of approximately 60% to the
fluctuations of the overall market, as measured by the S&P 500 index. Accordingly, our recurring revenue can be
negatively impacted by adverse external market conditions. However, recurring revenue is meaningful to us despite
these fluctuations because it is not dependent upon transaction volumes or other activity-based revenues, which
are more difficult to predict, particularly in declining or volatile markets.

The table below summarizes the sources of our revenue, the primary drivers of each revenue source, and the

percentage of each revenue source that represents recurring revenue, a characterization of revenue and a
statistical measure:

Sources of Revenue

Primary Drivers

Commission

- Transactions
- Brokerage asset levels

For the Year Ended
December 31, 2014

Total
(millions)

% of Total
Net
Revenue

%
Recurring

$2,118

48%

44%

Advisory

- Advisory asset levels

$1,338

31%

99%

Asset-Based
- Cash Sweep Fees
- Sponsorship Fees
- Record Keeping

- Cash balances
- Interest rates
- Number of accounts
- Client asset levels

$477

11%

97%

Advisor-driven
revenue with
~85%-90%
payout ratio

Attachment revenue
retained by us

Transaction and Fee
- Transactions
- Client (Investor) Accounts
- Advisor Seat and Technology

- Client activity
- Number of clients
- Number of advisors
- Number of accounts
- Premium technology

$370

subscribers

63%

Other

- Margin accounts
- Alternative investment

transactions

$71

32%

Total Net Revenue

Total Recurring Revenue

$4,374

100%

$2,988

68%

Commission and Advisory Revenues

Commission and advisory revenues both represent advisor-generated revenue, generally 85-90% of which is

paid to advisors.

Commission Revenues

We generate two types of commission revenues: transaction-based sales commissions and trailing
commissions. Transaction-based sales commission revenues, which occur whenever clients trade securities or
purchase various types of investment products, represent gross commissions generated by our advisors, primarily
from commissions earned on purchases by clients of various financial products such as mutual funds, variable and
fixed annuities, alternative investments, insurance, and group annuities, and from purchases and sales of equities,
fixed income, and options. The levels of transaction-based sales commissions can vary from period to period based
on the overall economic environment, number of trading days in the reporting period, and investment activity of our
advisors' clients. We earn trailing commission revenues (a commission that is paid over time, such as 12(b)-1 fees)
on mutual funds and variable annuities held by clients of our advisors. Trailing commissions are recurring in nature
and are earned based on the current market value of investment holdings in trail-eligible assets.

Advisory Revenues

Advisory revenues primarily represent fees charged on our corporate RIA platform provided through LPL

Financial LLC ("LPL Financial") to clients of our advisors based on the value of advisory assets. Advisory fees are
typically billed to clients quarterly, in advance, and are recognized as revenue ratably during the quarter. The value
of the assets in the advisory account on the billing date determines the amount billed, and accordingly, the revenues
earned in the following three month period. The majority of our accounts are billed using values as of the last
business day of each calendar quarter. Generally, the advisory revenues collected on our corporate RIA platform
range from 0.5% to 3.0% of the underlying assets.

In addition, we support independent RIAs who conduct their advisory business through separate entities by

establishing their own RIA ("Independent RIAs") pursuant to the Investment Advisers Act of 1940, rather than
through LPL Financial. The assets held under these investment advisory accounts custodied with LPL Financial are
included in our advisory and brokerage assets, net new advisory assets, and advisory assets under custody
metrics. The advisory revenue generated by an Independent RIA is earned by the Independent RIA, and
accordingly is not included in our advisory revenue. However, we charge administrative fees to Independent RIAs
for clearing and custody of these assets, based on the value of assets within these advisory accounts. The
administrative fees collected on our Independent RIA platform vary, and can reach a maximum of 0.6% of the
underlying assets.

Furthermore, we support certain financial advisors at broker-dealers affiliated with insurance companies

through our customized advisory platforms and charge fees to these advisors based on the value of assets within
these advisory accounts.

Asset-Based Revenues

Asset-based revenues are comprised of fees from cash sweep programs, our sponsorship programs with

financial product manufacturers, and omnibus processing and networking services. Pursuant to contractual
arrangements, uninvested cash balances in our advisors’ client accounts are swept into either insured deposit
accounts at various banks or third-party money market funds, for which we receive fees, including administrative
and record-keeping fees based on account type and the invested balances. In addition, we receive fees from
certain financial product manufacturers in connection with sponsorship programs that support our marketing and
sales-force education and training efforts. Our omnibus processing and networking revenues represent fees paid to
us in exchange for administrative and record-keeping services that we provide to clients of our advisors. Omnibus
processing revenues are paid to us by mutual fund product sponsors and based upon the value of custodied assets
in advisory accounts and the number of brokerage accounts in which the related mutual fund positions are held.
Networking revenues on brokerage assets are correlated to the number of positions we administer and are paid to
us by mutual fund and annuity product manufacturers.

Transaction and Fee Revenues

Revenues earned from transactions and fees primarily consist of transaction fees and ticket charges,
subscription fees, Individual Retirement Account ("IRA") custodian fees, contract and license fees, conference fees,
and other client account fees. We charge fees to our advisors and their clients for executing certain transactions in
brokerage and fee-based advisory accounts. We earn subscription fees for various services provided to our
advisors and on IRA custodial services that we provide for their client accounts. We charge administrative fees to
our advisors and fees to advisors who subscribe to our reporting services. We charge fees to financial product
manufacturers for participating in our training and marketing conferences. In addition, we host certain advisor
conferences that serve as training, sales, and marketing events, for which we charge a fee to the advisors for
attendance.

Other Revenues

Other revenues include marketing re-allowance fees from certain financial product manufacturers, primarily

those who offer alternative investments, such as non-traded real estate investment trusts and business
development companies, mark-to-market gains or losses on assets held by us for the advisors' non-qualified
deferred compensation plan and our model portfolios, and revenues from our retirement partner program, as well as
interest income from client margin accounts and cash equivalents, net of operating interest expense, and other
items.

Our Operating Expenses

Production Expenses

Production expenses are comprised of the following: base payout amounts that are earned by and paid out to

advisors based on commission and advisory revenues earned on each client's account (collectively, commission
and advisory revenues earned are referred to as gross dealer concessions, or "GDC"); production bonuses earned
by advisors based on the levels of commission and advisory revenues they produce; the recognition of share-based
compensation expense from equity awards granted to advisors and financial institutions based on the fair value of
the awards at each reporting period; a mark-to-market gain or loss on amounts designated by advisors as deferred
commissions in a non-qualified deferred compensation plan at each reporting period; and brokerage, clearing, and
exchange fees. Our production payout ratio is calculated as production expenses excluding brokerage, clearing,
and exchange fees, divided by GDC.

We characterize components of production payout, which consists of all production expenses except
brokerage, clearing, and exchange fees, as either GDC sensitive or non-GDC sensitive. Base payout amounts and
production bonuses earned by and paid to advisors are characterized as GDC sensitive because they are variable
and highly correlated to the level of our commission and advisory revenues in a particular reporting period. Payout
characterized as non-GDC sensitive includes share-based compensation expense from equity awards granted to
advisors and financial institutions based on the fair value of the awards at each reporting period, and mark-to-
market gains or losses on amounts designated by advisors as deferred commissions in a non-qualified deferred
compensation plan. Non-GDC sensitive payout is correlated either to the sequential movement in the market or the
value of our stock. We believe that discussion of production payout, viewed in addition to, and not in lieu of, our
production expenses, provides useful information to investors regarding our payouts to advisors.

Compensation and Benefits Expense

Compensation and benefits expense includes salaries and wages and related employee benefits and taxes
for our employees (including share-based compensation), as well as compensation for temporary employees and
consultants.

General and Administrative Expenses

General and administrative expenses include promotional fees, occupancy and equipment, communications

and data processing, professional services, and other expenses. General and administrative expenses also include
the estimated costs of the investigation, settlement, and resolution of regulatory matters and expenses for our
hosting of certain advisor conferences that serve as training, sales, and marketing events.

Depreciation and Amortization Expense

Depreciation and amortization expense represents the benefits received for using long-lived assets. Those

assets consist of intangible assets established through our acquisitions, as well as fixed assets.

Restructuring Charges

Restructuring charges primarily represent expenses incurred as a result of our expansion of our Service

Value Commitment initiative. See Note 3. Restructuring, within the notes to consolidated financial statements for
additional information.

Other Expenses

Other expenses represent charges incurred arising from the shutdown of our former subsidiary NestWise,

which ceased operations in the third quarter of 2013 (the "NestWise Closure").

How We Evaluate Our Business

We focus on several business and key financial metrics in evaluating the success of our business

relationships and our resulting financial position and operating performance. Our business and key financial metrics
are as follows:

Business Metrics

Advisors(1)

Advisory and brokerage assets (in billions)(2)

Advisory assets under custody (in billions)(2)(3)

Net new advisory assets (in billions)(4)

Insured cash account balances (in billions)(2)

Money market account balances (in billions)(2)

Financial Metrics

Revenue growth from prior year

Recurring revenue as a % of net revenue

Net income (in thousands)

Earnings per share (diluted)

Non-GAAP Measures:

Gross profit (in thousands)(5)

Gross profit as a % of net revenue

Adjusted EBITDA (in thousands)

Adjusted EBITDA as a % of net revenue

Adjusted EBITDA as a % of gross profit

Adjusted Earnings (in thousands)

Adjusted Earnings per share (diluted)

December 31,

2014

2013

2012

14,036

475.1

175.8

17.5

18.6

7.4

13,673

438.4

151.6

14.6

17.4

7.5

13,352

373.3

122.1

10.9

16.3

8.4

Years Ended December 31,

2014

2013

2012

5.6%

68.3%

13.1%

64.7%

5.2%

65.4%

178,043

1.75

181,857

1.72

151,918

1.37

$ 1,325,945

$ 1,248,014

$ 1,112,251

30.3%

30.1%

30.4%

516,507

511,438

454,482

11.8%

39.0%

12.4%

41.0%

12.4%

40.9%

247,621

2.44

258,805

2.44

225,029

2.03

____________________
(1) Advisors are defined as those independent financial advisors and financial advisors at financial institutions who

are licensed to do business with the Company's broker-dealer subsidiary.

(2) Advisory and brokerage assets are comprised of assets that are custodied, networked, and non-networked and
reflect market movement in addition to new assets, inclusive of new business development and net of attrition.
Insured cash account and money market account balances are also included in advisory and brokerage assets.

(3) Advisory assets under custody are comprised of advisory assets under management in our corporate RIA

platform, and Independent RIA assets in advisory accounts custodied by us. See “Results of Operations” for a
tabular presentation of advisory assets under custody.

(4) Represents net new advisory assets consisting of funds from new accounts and additional funds deposited into

existing advisory accounts that are custodied in our fee-based advisory platforms.

(5) Gross profit is calculated as net revenues less production expenses. Because our gross profit amounts do not
include any depreciation and amortization expense, we consider our gross profit amounts to be non-GAAP
measures that may not be comparable to those of others in our industry.

Adjusted EBITDA

Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation,

and amortization), further adjusted to exclude certain non-cash charges and other adjustments set forth below. We
present Adjusted EBITDA because we consider it an important measure of our performance. Adjusted EBITDA is a
useful financial metric in assessing our operating performance from period to period by excluding certain items that
we believe are not representative of our core business, such as certain material non-cash items and other
adjustments.

We believe that Adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results,
provides useful information to investors regarding our performance and overall results of operations for the following
reasons:

•

because non-cash equity grants made to employees, officers, and non-employee directors at a certain price
and point in time do not necessarily reflect how our business is performing at any particular time, share-
based compensation expense is not a key measure of our operating performance; and

because costs associated with acquisitions and the resulting integrations, debt refinancing, restructuring
and conversions, and equity issuance and related offering costs can vary from period to period and
transaction to transaction, expenses associated with these activities are not considered a key measure of
our operating performance.

We use Adjusted EBITDA:

as a measure of operating performance;

for planning purposes, including the preparation of budgets and forecasts;

to allocate resources to enhance the financial performance of our business;

to evaluate the effectiveness of our business strategies;

in communications with our board of directors concerning our financial performance; and

as a factor in determining employee and executive bonuses.

Adjusted EBITDA is a non-GAAP measure and does not purport to be an alternative to net income as a

measure of operating performance or to cash flows from operating activities as a measure of liquidity. Adjusted
EBITDA is not a measure of net income, operating income, or any other performance measure derived in
accordance with GAAP.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation, or as a

substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures, or

contractual commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

• Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to

service interest or principal payments, on our debt; and

• Adjusted EBITDA can differ significantly from company to company depending on long-term strategic
decisions regarding capital structure, the tax jurisdictions in which companies operate and capital
investments, limiting its usefulness as a comparative measure.

Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in our
business. We compensate for these limitations by relying primarily on the GAAP results and using Adjusted EBITDA
as supplemental information.

Set forth below is a reconciliation from our net income to Adjusted EBITDA, a non-GAAP measure, for the

years ended December 31, 2014, 2013, and 2012 (in thousands):

Net income

Non-operating interest expense

Provision for income taxes

Amortization of intangible assets

Depreciation and amortization of fixed assets

EBITDA

EBITDA Adjustments:

Employee share-based compensation expense(1)

Acquisition and integration related expenses(2)

Restructuring and conversion costs(3)

Debt amendment and extinguishment costs(4)

Equity issuance and related offering costs(5)

Other(6)

Total EBITDA Adjustments

Adjusted EBITDA

___________________

Years Ended December 31,

2014

2013

2012

178,043

181,857

151,918

51,538

116,654

38,868

57,977

443,080

21,246

1,414

34,783

4,361

—

11,623

73,427

51,446

109,446

39,006

44,497

426,252

15,434

19,890

30,812

7,968

—

11,082

85,186

54,826

98,673

39,542

32,254

377,213

17,544

20,474

6,146

16,652

4,486

11,967

77,269

516,507

511,438

454,482

(1) Represents share-based compensation for equity awards granted to employees, officers and directors. Such

awards are measured based on the grant-date fair value and recognized over the requisite service period of the
individual awards, which generally equals the vesting period.

(2) Represents acquisition and integration costs resulting from various acquisitions, including changes in the

estimated fair value of future payments, or contingent consideration, that may be required to be made to former
shareholders of certain acquired entities.

(3) Represents organizational restructuring charges, conversion, and other related costs resulting from the

expansion of our Service Value Commitment initiative.

(4) Represents expenses incurred resulting from the early extinguishment and repayment of amounts outstanding
on our prior senior secured credit facilities, including the accelerated recognition of unamortized debt issuance
costs that had no future economic benefit, as well as various other charges incurred in connection with the
repayment under prior senior secured credit facilities and the establishment of new or amended senior secured
credit facilities.

(5) Represents equity issuance and offering costs incurred related to the closing of a secondary offering in the

second quarter of 2012. Results for the year ended December 31, 2012, include a $3.9 million charge relating
to the late deposit of withholding taxes related to the exercise of certain non-qualified stock options in
connection with the Company's 2010 initial public offering ("IPO").

(6) Results for the year ended December 31, 2014 include approximately $9.6 million in parallel rent, property tax,

common area maintenance expenses, and fixed asset disposals incurred in connection with our relocation to
our San Diego office building. Results for the year ended December 31, 2013 include costs related to the
NestWise Closure, consisting of: i) the derecognition of $10.2 million of goodwill; ii) $8.4 million of fixed asset
charges that were determined to have no future economic benefit; iii) severance and termination benefits; and
iv) a $9.3 million decrease in the estimated fair value of contingent consideration as related milestones were not
achieved. Results for the year ended December 31, 2013 also include $2.7 million of severance and termination
benefits related to a change in management structure and a $2.3 million gain related to the sale of an equity
investment. Results for the year ended December 31, 2012 include approximately $7.0 million for consulting
services and technology development aimed at enhancing the Company's performance in support of its
advisors while operating at a lower cost. In addition, results for the year ended December 31, 2012 include an
asset impairment charge of $4.0 million for certain fixed assets related to internally developed software that
were determined to have no future economic benefit. Results also include certain excise and other taxes in all
years.

Adjusted Earnings and Adjusted Earnings per share

We prepare Adjusted Earnings and Adjusted Earnings per share to eliminate the effects of items that we do

not consider indicative of our core operating performance.

Adjusted Earnings represents net income before: (a) employee share-based compensation expense,
(b) amortization of intangible assets, (c) acquisition and integration related expenses, (d) restructuring and
conversion costs, (e) debt extinguishment costs and (f) other. Reconciling items are tax effected using the income
tax rates in effect for the applicable period, adjusted for any potentially non-deductible amounts.

Adjusted Earnings per share represents Adjusted Earnings divided by weighted-average outstanding shares
on a fully diluted basis.We believe that Adjusted Earnings and Adjusted Earnings per share, viewed in addition to,
and not in lieu of, our reported GAAP results provide useful information to investors regarding our performance and
overall results of operations for the following reasons:

•

because non-cash equity grants made to employees, officers, and non-employee directors at a certain price
and point in time do not necessarily reflect how our business is performing, the related share-based
compensation expense is not a key measure of our current operating performance;

because costs associated with acquisitions and related integrations, debt refinancing, and restructuring and
conversions can vary from period to period and transaction to transaction, expenses associated with these
activities are not considered a key measure of our operating performance; and
because amortization expenses can vary substantially from company to company and from period to period
depending upon each company’s financing and accounting methods, the fair value and average expected
life of acquired intangible assets and the method by which assets were acquired, the amortization of
intangible assets obtained in acquisitions is not considered a key measure in comparing our operating
performance.

We use Adjusted Earnings for internal management reporting and evaluation purposes. We also believe
Adjusted Earnings and Adjusted Earnings per share are useful to investors in evaluating our operating performance
because securities analysts use them as supplemental measures to evaluate the overall performance of
companies, and our investor and analyst presentations, which are generally available to investors through our
website, include references to Adjusted Earnings and Adjusted Earnings per share.

Adjusted Earnings and Adjusted Earnings per share are not measures of our financial performance under

GAAP and should not be considered as an alternative to net income or earnings per share or any other
performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities
as a measure of our profitability or liquidity.

Although Adjusted Earnings and Adjusted Earnings per share are frequently used by securities analysts and

others in their evaluation of companies, they have limitations as analytical tools, and you should not consider
Adjusted Earnings and Adjusted Earnings per share in isolation, or as substitutes for an analysis of our results as
reported under GAAP. In particular you should consider:

• Adjusted Earnings and Adjusted Earnings per share do not reflect our cash expenditures, or future

requirements for capital expenditures or contractual commitments;

• Adjusted Earnings and Adjusted Earnings per share do not reflect changes in, or cash requirements for, our

working capital needs; and

• Other companies in our industry may calculate Adjusted Earnings and Adjusted Earnings per share

differently than we do, limiting their usefulness as comparative measures.

Management compensates for the inherent limitations associated with using Adjusted Earnings and Adjusted

Earnings per share through disclosure of such limitations, presentation of our financial statements in accordance
with GAAP and reconciliation of Adjusted Earnings to the most directly comparable GAAP measure, net income.

The following table sets forth a reconciliation of net income to non-GAAP measures Adjusted Earnings and
Adjusted Earnings per share for the years ended December 31, 2014, 2013, and 2012 (in thousands, except per
share data):

Net income

After-Tax:

EBITDA Adjustments

Employee share-based compensation expense(1)

Acquisition and integration related expenses(2)

Restructuring and conversion costs

Debt amendment and extinguishment costs

Equity issuance and related offering costs(3)

Other(4)

Total EBITDA Adjustments

Amortization of intangible assets

Acquisition related benefit for a net operating loss carry-forward(5)

Adjusted Earnings

Adjusted Earnings per share(6)

Weighted-average shares outstanding — diluted

Years Ended December 31,

2014

2013

2012

178,043

181,857

151,918

14,175

366

21,357

2,678

—

7,137

45,713

23,865

—

11,109

10,919

19,011

4,916

—

6,926

52,881

24,067

—

13,161

11,106

3,792

10,274

4,262

7,384

49,979

24,397

(1,265)

247,621

2.44

101,651

258,805

2.44

106,003

225,029

2.03

111,060

_____________________
Generally, EBITDA Adjustments and amortization of intangible assets have been tax effected for those items for
which we receive a tax deduction using a federal rate of 35.0% and the applicable effective state rate, which was
3.6%, 3.3% and 3.3%, net of the federal tax benefit, for the periods ended December 31, 2014, 2013, and 2012,
respectively. Items for which we did not receive a tax deduction are noted below.

(1) Includes the impact of incentive stock options granted to employees that qualify for preferential tax treatment

and conversely for which we do not receive a tax deduction.

(2) The results for the twelve months ended December 31, 2013 and 2012 include reductions of expense of $3.8

million and $5.7 million, respectively, relating to the estimated fair value of contingent consideration for the stock
acquisition of Concord Capital Partners, Inc. ("CCP"), that are not deductible for tax purposes.

(3) The results for the year ended December 31, 2012 include a $3.9 million charge in other expenses in the

consolidated statements of income for the late deposit of withholding taxes related to the exercise of certain
non-qualified stock options in connection with our 2010 IPO, which is not deductible for tax purposes.

(4) Includes the impact of: i) the derecognition of $10.2 million of goodwill and ii) a $9.3 million decrease in the

estimated fair value of contingent consideration related to the NestWise Closure that occurred during the year
ended December 31, 2013 for which we did not receive a tax deduction.

(5) Represents the tax benefit available to us from the accumulated net operating losses of Concord Trust and

Wealth Solutions division of LPL Financial that arose prior to our acquisition of CCP.

(6) Represents Adjusted Earnings, a non-GAAP measure, divided by weighted-average number of shares

outstanding on a fully diluted basis. Set forth below is a reconciliation of earnings per share on a fully diluted
basis, as calculated in accordance with GAAP to Adjusted Earnings per share:

Earnings per share — diluted

After-Tax:

EBITDA Adjustments per share

Amortization of intangible assets per share

Acquisition related benefit for a net operating loss carry-forward per share

Adjusted Earnings per share

2.44

Years Ended December 31,

2014

2013

2012

1.75

1.72

1.37

0.45

0.24

—

0.49

0.23

—

0.45

0.22

(0.01)

2.03

Our Service Value Commitment Initiative

The Program

Our Service Value Commitment initiative (the “Program”) is a multi-year effort to position us for sustainable
long-term growth by improving the service experience of our advisors and delivering efficiencies in our operating
model. We have assessed our information technology delivery, governance, organization and strategy, and
committed to undertake a course of action to reposition our labor force and invest in technology, human capital,
marketing, and other key areas to enable future growth.

As of December 31, 2014, we have incurred $61.1 million of costs related to outsourcing and other related
costs, technology transformation costs, employee severance obligations, and other related costs, as well as non-
cash charges for impairment of certain fixed assets related to internally developed software. The Program is
expected to be completed in 2015, and we estimate total charges to be approximately $68.0 million, with expected
annual pre-tax savings of approximately $32.0 million. See Note 3. Restructuring, within the notes to the
consolidated financial statements for further detail.

Derivative Financial Instruments

During the second quarter of 2013 and in conjunction with the Program, we entered into a long-term

contractual obligation (the "Agreement") with a third-party provider to enhance the quality and speed and reduce the
cost of our processes by outsourcing certain functions. The Agreement enables the third-party provider to use the
services of its affiliates in India to provide services to us. The Agreement provides that we settle the cost of our
contractual obligation to the third-party provider each month in US dollars. However, the Agreement provides that
on each annual anniversary date, the price for services (as denominated in US dollars) is to be adjusted for the
then-current exchange rate between the US dollar and the Indian rupee. The Agreement provides that, once an
annual adjustment is calculated, there are no further modifications to the amounts paid by us to the third-party
provider for fluctuations in the exchange rate until the reset on the next anniversary date. The third-party provider
bears the risk of currency movement from the date of signing the Agreement until the reset on the first anniversary
of its signing, and during each period until the next annual reset. We bear the risk of currency movement at each
annual reset date following the first anniversary.

Upon completion of the Program, we estimate annual costs for our long-term contractual obligation with the
third-party provider to be approximately $10.0 million annually. We use derivative financial instruments consisting
solely of non-deliverable foreign currency contracts, all of which have been designated as cash flow hedges.
Through these instruments, we believe we have mitigated foreign currency risk arising from a substantial portion of
our contract obligation with the third-party provider arising from annual anniversary adjustments. We will continue to
assess the effectiveness of our use of cash flow hedges to mitigate risk from foreign currency contracts.

See Note 2. Summary of Significant Accounting Policies and Note 9. Derivative Financial Instruments, within

the notes to consolidated financial statements for additional information regarding our derivative financial
instruments.

Acquisitions, Integrations, and Divestitures

From time to time we undertake acquisitions or divestitures based on opportunities in the competitive
landscape. These activities are part of our overall growth strategy, but can distort comparability when reviewing
revenue and expense trends for periods presented. The following describes significant acquisition and divestiture
activities that have impacted our 2014, 2013, and 2012 results.

NestWise Closure

In August 2013, we ceased the operations of our former subsidiary, NestWise. In connection with the

NestWise Closure, we determined that a majority of the assets held at NestWise, comprised primarily of $10.2
million of goodwill and $8.4 million of fixed assets stemming from the 2012 acquisition of Veritat, had no future
economic benefit and were derecognized beginning in the third quarter of 2013. Additionally, we decreased the
amount of contingent consideration due to former shareholders of Veritat by $9.3 million to zero during 2013 as
related milestones were not achieved. For the year ended December 31, 2013, the net revenues of NestWise were
immaterial and expenses totaled $13.1 million.

Acquisition of Fortigent Holdings Company, Inc.

On April 23, 2012, we acquired all of the outstanding common stock of Fortigent Holdings Company, Inc. and
its wholly owned subsidiaries Fortigent, LLC, a registered investment advisory firm, Fortigent Reporting Company,

LLC and Fortigent Strategies Company, LLC (together, "Fortigent"). Fortigent is a leading provider of solutions and
consulting services to RIAs, banks and trust companies servicing high-net-worth clients. Total purchase price
consideration at the closing of the transaction was $38.8 million.

Acquisition of National Retirement Partners, Inc.

On February 9, 2011, we acquired certain assets of National Retirement Partners, Inc. (“NRP”). As part of the

acquisition, 206 advisors previously registered with NRP transferred their securities and advisory licenses and
registrations to LPL Financial. We were also required to pay consideration to former shareholders of NRP that was
contingent upon the achievement of certain revenue-based milestones in the third year following the acquisition. We
recorded a contingent consideration obligation within accounts payable and accrued liabilities, and re-measured the
contingent consideration at fair value at each interim reporting period, with changes recognized in earnings.

Economic Overview and Impact of Financial Market Events

Our business is directly and indirectly sensitive to several macroeconomic factors, primarily in the United

States. One of these factors is the current and expected future level of short-term interest rates, particularly
overnight rates. The Federal Reserve maintained an accommodative 0.0% to 0.25% target range for the federal
funds rate throughout the fourth quarter of 2014. At its December policy meeting, the Federal Reserve reaffirmed its
rate policy, emphasizing it could be patient in deciding when to start raising rates, a view it deemed consistent with
earlier guidance that it would likely be appropriate to keep the target federal funds rate near zero for a "considerable
time" following the end of its asset purchase program, which concluded in October 2014. The Federal Reserve has
underscored that it would take a balanced approach once it begins to raise rates and that it could keep rates below
what members would consider normal in the longer term if conditions warranted, even if inflation and labor markets
were near levels consistent with its mandate.

As a result of the accommodative monetary policy, interest rates, including the rate on overnight funds, have
remained low on a historical basis, with an average federal funds effective rate in 2014 of 9 basis points. The lower
interest rate environment and fee compression, resulting from contract repricing in order to keep yields on our cash
sweep programs competitive, has had a negative impact on the profitability of our cash sweep programs, and fee
compression is expected to increase further in 2015 and 2016. Additionally, we have seen decreasing levels of
demand for fixed income and fixed annuity products as investors move to equity and alternative products as gains
in the market have risen.

Another macro economic factor affecting our business is returns on equity securities across the various
markets in the United States. We use the S&P 500 index to evaluate and measure this factor. The S&P 500 index
closed the year at 2,059, up 11.4% from its close on December 31, 2013, and has now climbed for three straight
years and provided investor gains of nearly 64% during that span. The growth in 2014 was largely attributable to
improved corporate earnings, steady gains by the U.S. economy, and an accommodative Federal Reserve, which
together created a positive environment in which market declines were repeatedly met with buying demand and
capital inflows. Although investors endured volatility during the year, the market demonstrated impressive resilience
despite lingering economic worries about geopolitical concerns, Federal Reserve monetary policy, U.S. and global
growth rates, and policy uncertainty in Washington, D.C.

Results of Operations

The following discussion presents an analysis of our results of operations for the years ended December 31,
2014, 2013, and 2012. Where appropriate, we have identified specific events and changes that affect comparability
or trends, and where possible and practical, have quantified the impact of such items.

Years Ended December 31,

Percentage Change

2014

2013

2012

2014 vs. 2013

2013 vs. 2012

(In thousands)

Revenues

Commission

Advisory

Asset-based

Transaction and fee

Other

Net revenues

Expenses

Production

Compensation and benefits

General and administrative

Depreciation and amortization

Restructuring charges

Other

Total operating expenses

Non-operating interest expense

Loss on extinguishment of debt

Total expenses

Income before provision for income taxes

Provision for income taxes

Net income
_________________

* Not Meaningful

14.1 %

11.8 %

6.9 %

12.3 %

56.6 %

13.1 %

13.5 %

10.5 %

6.6 %

16.3 %

100.0 %

13.5 %

(6.2)%

(51.8)%

12.9 %

16.2 %

10.9 %

19.7 %

$ 2,118,494

$ 2,077,566

$ 1,820,517

1,337,959

1,187,352

1,062,490

476,595

369,821

70,793

430,990

361,252

83,698

403,067

321,558

53,456

4,373,662

4,140,858

3,661,088

3,047,717

2,892,844

2,548,837

421,829

422,441

96,845

34,652

—

400,967

373,368

83,503

30,186

9,279

362,705

350,212

71,796

5,597

2.0 %

12.7 %

10.6 %

2.4 %

(15.4)%

5.6 %

5.4 %

5.2 %

13.1 %

16.0 %

14.8 %

—

(100.0)%

4,023,484

3,790,147

3,339,147

51,538

3,943

51,446

7,962

54,826

16,524

4,078,965

3,849,555

3,410,497

294,697

116,654

291,303

109,446

250,591

98,673

178,043

181,857

151,918

6.2 %

0.2 %

(50.5)%

6.0 %

1.2 %

6.6 %

(2.1)%

Revenues

Commission Revenues

The following table sets forth our commission revenue, by product category, included in our consolidated

statements of income for the periods indicated (dollars in thousands):

Years Ended December 31,

2014 vs. 2013

2013 vs. 2012

2014

2013

2012

$ Change % Change

Variable annuities

Mutual funds

Alternative investments

Fixed annuities

Equities

Fixed income

Insurance

Group annuities

Other

$ 807,634

$ 794,898

$ 764,502

12,736

1.6 % $

30,396

610,310

211,638

160,287

112,091

85,882

78,659

51,250

743

565,951

251,113

123,882

119,569

87,243

81,687

52,275

948

498,239

142,996

98,976

99,380

83,235

81,124

50,891

1,174

44,359

7.8 %

67,712

(39,475)

(15.7)%

108,117

36,405

(7,478)

(1,361)

(3,028)

(1,025)

29.4 %

(6.3)%

(1.6)%

(3.7)%

(2.0)%

(205)

(21.6)%

24,906

20,189

4,008

563

1,384

(226)

Total commission revenue

$2,118,494

$2,077,566

$1,820,517

40,928

2.0 % $ 257,049

4.0 %

13.6 %

75.6 %

25.2 %

20.3 %

4.8 %

0.7 %

2.7 %

(19.3)%

14.1 %

The following table sets forth our commission revenue, by sales-based and trailing commission revenue

(dollars in thousands):

Sales-based

Trailing

Years Ended December 31,

2014 vs. 2013

2013 vs. 2012

2014

2013

2012

$ Change % Change

$1,181,189

$1,254,683

$1,110,041

(73,494)

(5.9)% $ 144,642

13.0%

937,305

822,883

710,476

114,422

13.9 % 112,407

15.8%
14.1%

Total commission revenue

$2,118,494

$2,077,566

$1,820,517

40,928

2.0 % $ 257,049

The increase in commission revenue in 2014 compared to 2013 is due primarily to an increase in trailing
revenues for mutual funds and variable annuities and in activity for fixed annuities. Such growth reflects strong
market conditions, resulting in an increase in value of the underlying assets.

Fixed annuity sales-based commissions have risen, despite historically low interest rates, as investors have
sought income streams with minimal risk to principal. Such benefits have attracted the increasing amount of retired
investors, and those nearing retirement age, as their investment goals shift from portfolio growth to guaranteed
income.

The decrease in alternative investments commission revenue in 2014 as compared to 2013 was due primarily

to a higher level of activity during the year ended December 31, 2013, in which commission revenues benefited
from liquidity events in several large REITs that allowed for reinvestment into a similar type of investments. Such
events resulted in alternative investment commissions during this period being elevated over prior year and
subsequent periods.

The increase in commission revenues in 2013 compared to 2012 was due primarily to an increase in sales-

based activity for alternative investments, equities, and mutual funds and increases in trail revenues for mutual
funds and variable annuities. This growth reflected improved investor engagement, strong market conditions, and
growth of the underlying assets. Additionally, commission revenues from fixed income, primarily driven by unit
investment trusts and 529 college savings plans, and insurance products also contributed to the overall growth in
commission revenue. Such overall growth reflected market-wide growth and increased investor engagement that
has driven advisor productivity.

Advisory Revenues

The following table summarizes the activity within our advisory assets under custody (in billions):

Beginning balance at January 1

Net new advisory assets

Market impact and other

Ending balance at December 31

Years Ended December 31,

2014

2013

2012

151.6

122.1

101.6

17.5

6.7

14.6

14.9

10.9

9.6

175.8

151.6

122.1

Net new advisory assets for the years ended December 31, 2014, 2013, and 2012 had a limited impact on
advisory fee revenue for those respective periods. Rather, net new advisory assets are a primary driver of future
advisory fee revenue and have resulted from the continued shift by our existing advisors from brokerage towards
more advisory business. Advisory revenue for a particular quarter is predominately driven by the prior quarter-end
advisory assets under management. The growth in advisory revenue is due to net new advisory assets resulting
from increased investor engagement, and strong advisor productivity, as well as market gains as represented by
higher levels of the S&P 500 index in 2014 compared to 2013. The average of the S&P 500 index in 2014 was
1,931, which is a 17.5% increase over the 2013 average of 1,644.

The Independent RIA model has continued to grow rapidly as advisors seek the freedom to run their
businesses in a manner that they believe best enables them to meet their clients' needs. This continued shift of
advisors to the Independent RIA platform (for which we custody assets but do not earn advisory revenues for
managing those assets) has caused the rate of revenue growth of advisory assets under management to lag behind
the rate of growth of advisory assets under custody. Our advisory revenues do not include fees for advisory
services charged by Independent RIA advisors to their clients. Accordingly, there is no corresponding payout.
However, we charge administrative fees to Independent RIA advisors including custody and clearing fees, based on
the value of assets.

The growth in advisory revenue in 2013 compared to 2012 was due to both net new advisory assets in prior
periods and higher levels of the S&P 500 on the applicable billing dates in 2013 compared to 2012. The average of
the S&P 500 in 2013 was 1,644, which was a 19.2% increase over the average of 1,379 for the prior year. The
continued shift of advisors to the Independent RIA platform and a repricing in one of our significant clearing
agreements caused the rate of revenue growth to lag behind the rate of advisory asset growth.

The following table summarizes the makeup within our advisory assets under custody (in billions):

December 31,

2014 vs. 2013

2013 vs. 2012

2014

2013

2012

$ Change % Change

125.1

117.6

100.7

7.5

6.4% $

16.9

16.8%

Advisory assets under management $
Independent RIA assets in advisory
accounts custodied by LPL
Financial

Total advisory assets under custody $

175.8

151.6

122.1

50.7

34.0

21.4

16.7

24.2

49.1%

16.0% $

12.6

29.5

58.9%

24.2%

Growth of the Independent RIA assets in advisory accounts custodied by LPL Financial has outpaced the

growth in advisory assets under management. This growth is consistent with the industry trend as more advisors
shift their business toward the Independent RIA model.

Asset-Based Revenues

Revenues from product sponsors and for record-keeping services, which are largely based on the underlying

asset values, increased due to the impact of the higher average market indices on the value of those underlying
assets and net new sales of eligible assets. Asset-based revenues also include revenues from our cash sweep
programs, which decreased by $19.9 million, or 16.6%, to $99.7 million for the year ended December 31, 2014 from
$119.6 million for the year ended December 31, 2013. The decrease is due to fee compression that resulted from a
repricing of certain contracts that underlie our cash sweep programs, a year-over-year 2 basis point decline in the
average federal funds effective rate to 0.09% for the year ended December 31, 2014, and a decrease of 1.2% in
average assets in our cash sweep programs, which were $23.9 billion and $24.2 billion for the year ended
December 31, 2014 and 2013, respectively.

Revenues from product sponsors and for record-keeping services increased due to the impact of higher

average market indices on the value of those underlying assets and net new sales of eligible assets. Asset-based
revenues also include revenues from our cash sweep programs, which decreased by $18.5 million, or 13.4%, to
$119.6 million for year ended December 31, 2013 from $138.1 million for the year ended December 31, 2012. The
decrease resulted from a re-pricing of certain contracts that underlie our cash sweep programs, partially offset by
an increase of 8.5% in average assets in our cash sweep programs, which were $24.2 billion and $22.3 billion for
2013 and 2012, respectively, as investors increased their percentage of cash assets in response to the volatility in
the financial markets.

Transaction and Fee Revenues

Transaction and fee revenues increased in 2014 due to a 2.7% increase in the average number of advisors.

Transaction and fee revenues increased in 2013 due to higher trade volumes in certain brokerage and
advisory accounts and a 2.6% increase in the average number of advisors. Additionally, our April 2012 acquisition of
Fortigent contributed an incremental $4.1 million in revenues for 2013 compared to 2012.

Other Revenues

The primary contributor to the decrease in other revenues during 2014 compared to 2013 was alternative

investment marketing allowances received from product sponsor programs, which decreased by $5.8 million
compared to the same period in 2013, driven primarily by decreased sales of alternative investments. Other
revenue includes gains or losses on assets held for the advisor non-qualified deferred compensation plan. Gains
were $2.1 million for 2014, compared to gains of $7.3 million for 2013. The gains or losses on assets held for the
advisor non-qualified deferred compensation plan are offset by increases or decreases in non-GDC sensitive
production expenses as noted below.

The primary contributor to the increase in 2013 compared to 2012 was direct investment marketing

allowances received from product sponsor programs, which increased by $23.5 million, driven primarily by
increased sales of alternative investments. Other revenue includes gains or losses on assets held for the advisor
non-qualified deferred compensation plan. Gains were $7.3 million for 2013, compared to gains of $2.2 million for
2012. The gains or losses on assets held for the advisor non-qualified deferred compensation plan are offset by
increases or decreases in non-GDC sensitive production expenses as noted below.

Expenses

Production Expenses

The following table shows our production payout and total payout ratios, non-GAAP measures:

Base payout rate

Production based bonuses

GDC sensitive payout

Non-GDC sensitive payout

Total Payout Ratio

Years Ended December 31,

Change

2014

2013

2012

2014 vs. 2013

2013 vs. 2012

83.71%

84.04%

84.16%

2.79%

2.69%

2.68%

86.50%

86.73%

86.84%

0.26%

0.51%

0.22%

86.76%

87.24%

87.06%

(33) bps

10 bps

(23) bps

(25) bps

(48) bps

(12) bps

1 bps

(11) bps

29 bps

18 bps

The increase of 5.4% in production expenses in 2014 compared to 2013 correlates with our commission and

advisory revenues, which increased by 5.9% during the same period. The decrease in non-GDC sensitive payout
ratio is attributable to decreased advisor share-based compensation correlated to market movement in our stock
and production expenses related to the advisor non-qualified deferred compensation plan as noted above.

The increase in production expense in 2013 compared to 2012 is correlated with our commission and
advisory revenues, which increased by 13.2% during the same period. The GDC sensitive production payout rate
decreased in part due to the growth of our advisory platform, which on average has a lower base rate than our
brokerage platform. The increase in non-GDC sensitive payout is attributable to increased advisor share-based
compensation for the year ended December 31, 2013 compared to the year ended December 31, 2012 correlated
to market movement in our stock and production expenses related to the advisor non-qualified deferred
compensation plan as noted above.

Compensation and Benefits Expense

The increase in compensation and benefits for 2014 compared with 2013 was a result of the growth in our

average number of full-time employees and the salary and group health insurance costs associated with such
growth. Our average number of full-time employees increased 9.5% from 3,047 in 2013 to 3,337 in 2014.
Additionally, offsetting the increase in compensation and benefits were reduced levels in temporary labor services
and a lower base in the discretionary bonus in 2014 compared with 2013.

The increase in compensation and benefits for 2013 compared with 2012 was primarily based on the fact that

our average number of full-time employees increased 6.4% from 2,865 in 2012 to 3,047 in 2013, due to higher
staffing levels in compliance, control and service to support increased levels of advisor and client activities, as well
as to costs associated with our 2012 acquisition of Fortigent.

General and Administrative Expenses

The increase in general and administrative expenses for 2014 compared with 2013 was primarily driven by

increases of $15.6 million for professional services, $13.1 million for business development and promotional
expenses, $11.6 million for estimated costs of the investigation, settlement, and resolution of regulatory matters,
and $9.6 million for parallel rent, property tax, common area maintenance expenses, and fixed asset disposals
incurred in connection with the relocation to our San Diego office building.

The increase in general and administrative expenses for 2013 compared with 2012 was primarily driven by

increases of $9.4 million for professional services, $4.5 million for business development and promotional
expenses, and $9.0 million increase for non-depreciable equipment and licensing fees.

Depreciation and Amortization Expense

The increase in depreciation and amortization in 2014 compared to 2013 was primarily due to capital assets

placed into service during the latter half of 2013 and increased levels of capital expenditures in 2014, which were
primarily related to the relocation of our San Diego office building and capitalized software.

The increase in depreciation and amortization in 2013 compared to 2012 was due to higher balances of

internally developed software to be amortized and a full year impact of depreciation of equipment and leasehold
improvements in our office facility in Boston.

Other Expenses

There was no activity related to Other Expenses for the year ended December 31, 2014. Other expenses for
the year ended December 31, 2013 include the derecognition of certain fixed assets of $8.4 million and goodwill of
$10.2 million, incurred as a result of the NestWise Closure. The assets were from the 2012 acquisition of Veritat by
NestWise, and were determined to have no future economic benefit. Additionally, because Veritat was not an
operating subsidiary at December 31, 2013, which was a condition of the potential payment of contingent
consideration, we decreased the estimated fair value of contingent consideration by $9.3 million to zero during the
year ended December 31, 2013.

Restructuring Charges

Restructuring charges represent expenses incurred as a result of our expansion of our Service Value
Commitment initiative. Restructuring charges were $34.7 million in 2014. These charges relate primarily to
consulting fees paid to support our technology transformation as well as employee severance obligations and other
related costs and non-cash charges for impairment incurred through our expansion of our Service Value
Commitment initiative. Refer to Note 3. Restructuring, within the notes to consolidated financial statements for
additional details regarding this matter.

Restructuring charges were $30.2 million in 2013. These charges relate primarily to consulting fees paid to

support our technology transformation and to develop our detailed outsourcing plans, as well as employee
severance obligations and other related costs and non-cash charges for impairment incurred through our expansion
of our Service Value Commitment initiative. Refer to Note 3. Restructuring, within the notes to consolidated financial
statements for additional details regarding this matter.

Interest Expense

Interest expense represents non-operating interest expense for our senior secured credit facilities. The
increase in interest expense for 2014 as compared to 2013 is primarily due to changes in the level of outstanding
indebtedness following the amendment to the credit agreement in October 2014.

The reduction in interest expense for 2013 as compared to 2012 is primarily due to the full year effect of the

refinancing in March 2012 and the maturity of an interest rate swap agreement with a notional value of $65.0 million
on June 30, 2012. The decrease in interest expense due to these two events was partially offset by an increase of
approximately $236.1 million in debt resulting from the amendment to the credit agreement in May 2013 of $608.9
million.

Loss on Extinguishment of Debt

In October 2014, we amended the maturity date of certain credit facilities in our previous credit agreement

and effectively increased our revolving credit facility by $150.0 million. Accordingly, we accelerated the recognition
of $3.9 million of related unamortized debt issuance costs that had no future economic benefit. Refer to Note 11.
Debt, within the notes to consolidated financial statements for additional details regarding this matter. In May 2013,
we refinanced and amended our previous credit agreement and effectively increased our borrowing by
approximately $236.1 million, with net proceeds used primarily for working capital requirements and other general
corporate purposes. Accordingly, we accelerated the recognition of $8.0 million of related unamortized debt
issuance costs that had no future economic benefit.

Provision for Income Taxes

Our effective income tax rate was 39.6%, 37.6%, and 39.4% for 2014, 2013, and 2012, respectively. The
increase in our effective tax rate and income tax expense for 2014 compared to 2013 was primary due to a release
of the valuation allowance, larger than usual incentive stock option disqualifying dispositions, and utilization of a
business energy tax credit in 2013.

The decrease in our effective tax rate for 2013 and income tax expense for 2012 was primarily due to a
release of the valuation allowance, larger than usual incentive stock option disqualifying dispositions and utilization
of a business energy tax credit.

Liquidity and Capital Resources

Senior management establishes our liquidity and capital policies. These policies include senior

management’s review of short- and long-term cash flow forecasts, review of monthly capital expenditures, and daily
monitoring of liquidity for our subsidiaries. Decisions on the allocation of capital are based upon, among other
things, projected profitability and cash flow, risks of the business, regulatory capital requirements, and future
liquidity needs for strategic activities. Our Treasury Department assists in evaluating, monitoring, and controlling the
business activities that impact our financial condition, liquidity and capital structure and maintains relationships with
various lenders. The objectives of these policies are to support the executive business strategies while ensuring
ongoing and sufficient liquidity.

A summary of changes in cash flow data is provided below (in thousands):

Net cash flows provided by (used in):

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents — beginning of year

Cash and cash equivalents — end of year

Years Ended December 31,

2014

2013

2012

232,242

160,117

254,268

(93,132)

(243,362)

(104,252)

516,584

(74,809)

(34,985)

50,323

466,261

(91,669)

(417,110)

(254,511)

720,772

412,332

516,584

466,261

Cash requirements and liquidity needs are primarily funded through our cash flow from operations and our

capacity for additional borrowing.

Net cash provided by or used in operating activities includes net income adjusted for non-cash expenses

such as depreciation and amortization, restructuring related charges, share-based compensation, amortization of
debt issuance costs, deferred income tax provision, and changes in operating assets and liabilities. Operating
assets and liabilities include balances related to settlement and funding of client transactions, receivables from
product sponsors, and accrued commission and advisory expenses due to our advisors. Operating assets and
liabilities that arise from the settlement and funding of transactions by our advisors’ clients are the principal cause of
changes to our net cash from operating activities and can fluctuate significantly from day to day and period to period
depending on overall trends and clients' behaviors.

Cash flows from operating activities increased in 2014 when compared to 2013 primarily due to the impact of
client trading and settlement activity, which represented a net source of funds of $20.1 million in 2014 compared to
a net use of funds of $161.2 million in 2013. Additionally, increases in depreciation and amortization expense due to
capital assets placed into service during the latter half of 2013 and increased levels of capital expenditures in 2014,
primarily related to the San Diego office building and capitalized software, contributed to the increase in operating
activities, which were offset by increases in other assets, including prepaid expenses and deferred compensation
related to advisors.

Cash flows from operating activities decreased in 2013 when compared to 2012 primarily due to the impact of

client trading and settlement activity, which represented a net use of funds of $161.2 million in 2013 compared to a
net source of funds of $51.6 million in 2012. The increased use of cash for client trading and settlement activities
was offset in part by higher net income in 2013 compared to 2012, increase in depreciation and amortization
expense in 2013 compared to 2012, and a decrease in cash generated from excess tax benefits arising from share-
based compensation in 2013 compared to 2012.

Net cash used in investing activities during 2014 increased in comparison to 2013 due to an increase of
capital expenditures related to business technology, real estate and facilities, and the purchase of goodwill and
other intangible assets of a third party.

Net cash used in investing activities during 2013 decreased in comparison to 2012 due to $43.7 million of

acquisition costs, offset by an increase of capital expenditures in 2013 compared to 2012.

Cash flows used in financing activities in 2014 increased in comparison to 2013 as a result of an increase in

cash used to repay senior credit facilities and a revolving line of credit and repurchases of outstanding common
stock, offset by a decrease in proceeds from senior credit facilities in 2014 compared to 2013.

Cash flows used in financing activities in 2013 decreased in comparison to 2012 as a result of a decrease in
repayments of senior secured credit facilities which was $866.6 million in 2013, substantially all related to the May
2013 refinancing, compared to $1,364.8 million in 2012, due primarily to the March 2012 refinancing, and a
decrease in cash dividends paid which was $68.0 million in 2013 compared to $248.8 million in 2012, offset by a
decrease in proceeds from senior credit facilities which was $1,079.0 million in 2013 compared to $1,330.7 million
in 2012 and a decrease in cash generated from excess tax benefits arising from share-based compensation in 2013
compared to 2012.

We believe that based on current levels of operations and anticipated growth, cash flow from operations,
together with other available sources of funds, which include three uncommitted lines of credit available and the
revolving credit facility established through our amended credit agreement, will be adequate to satisfy our working
capital needs, the payment of all of our obligations, and the funding of anticipated capital expenditures for the
foreseeable future. In addition, we have certain capital adequacy requirements due to our registered broker-dealer
entity and bank trust subsidiaries and have met all such requirements and expect to continue to do so for the
foreseeable future. We regularly evaluate our existing indebtedness, including refinancing thereof, based on a
number of factors, including our capital requirements, future prospects, contractual restrictions, the availability of
refinancing on attractive terms, and general market conditions.

Share Repurchases

The Board of Directors has approved several share repurchase programs pursuant to which we may
repurchase issued and outstanding shares of our common stock. Purchases may be effected in open market or
privately negotiated transactions, including transactions with our affiliates, with the timing of purchases and the
amount of stock purchased generally determined at our discretion within the constraints of our credit agreement and
general operating needs. See Note 14. Stockholders' Equity, within the notes to consolidated financial statements
for additional information regarding our share repurchases.

Dividends

The payment, timing, and amount of any dividends are subject to approval by our Board as well as certain

limits under our credit facilities. See Note 14. Stockholders' Equity, within the notes to consolidated financial
statements for additional information regarding our dividends.

Operating Capital Requirements

Our primary requirement for working capital relates to funds we loan to our advisors’ clients for trading

conducted on margin and funds we are required to maintain at clearing organizations to support these clients’
trading activities. We have several sources of funds that enable us to meet increases in working capital

requirements that relate to increases in client margin activities and balances. These sources include cash and cash
equivalents on hand, cash and securities segregated under federal and other regulations, and proceeds from re-
pledging or selling client securities in margin accounts. When a client purchases securities on margin or uses
securities as collateral to borrow from us on margin, we are permitted, pursuant to the applicable securities industry
regulations, to repledge, loan, or sell securities that collateralize those margin accounts. As of December 31, 2014,
we had received collateral primarily in connection with client margin loans with a fair value of approximately $353.2
million, which we can repledge, loan, or sell. Of these securities, approximately $32.3 million were client-owned
securities pledged to the Options Clearing Corporation as collateral to secure client obligations related to options
positions. As of December 31, 2014 there were no restrictions that materially limited our ability to repledge, loan, or
sell the remaining $320.9 million of client collateral.

Our other working capital needs are primarily related to regulatory capital requirements at our broker-dealer

and bank trust subsidiaries and software development, which we have satisfied in the past from internally generated
cash flows.

Notwithstanding the self-funding nature of our operations, we may sometimes be required to fund timing

differences arising from the delayed receipt of client funds associated with the settlement of client transactions in
securities markets. These timing differences are funded either with internally generated cash flow or, if needed, with
funds drawn on our uncommitted lines of credit at our broker-dealer subsidiary LPL Financial, or under our revolving
credit facility.

Our registered broker-dealer, LPL Financial, is subject to the SEC’s Uniform Net Capital Rule, which requires

the maintenance of minimum net capital. LPL Financial computes net capital requirements under the alternative
method, which requires firms to maintain minimum net capital, as defined, equal to the greater of $250,000 or 2.0%
of aggregate debit balances arising from client transactions. At December 31, 2014, LPL Financial's excess net
capital was $95.2 million.

LPL Financial's ability to pay dividends greater than 10% of its excess net capital during any 35 day rolling
period requires approval from FINRA. In addition, payment of dividends is restricted if LPL Financial's net capital
would be less than 5.0% of aggregate customer debit balances.

LPL Financial also acts as an introducing broker for commodities and futures. Accordingly, its trading activities

are subject to the National Futures Association's (“NFA”) financial requirements and it is required to maintain net
capital that is in excess of or equal to the greatest of NFA's minimum financial requirements. The NFA was
designated by the Commodity Futures Trading Commission as LPL Financial's primary regulator for such activities.
Currently, the highest NFA requirement is the minimum net capital calculated and required pursuant to the SEC's
Uniform Net Capital Rule.

Our subsidiary, PTC, is also subject to various regulatory capital requirements. Failure to meet the respective

minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by
regulators that, if undertaken, could have substantial monetary and non-monetary impacts on PTC's operations.

Debt and Related Covenants

On October 1, 2014, we entered into the Second Amendment, Extension and Incremental Assumption
Agreement (“Credit Agreement”) with its wholly owned subsidiary, LPL Holdings, Inc., the other parties thereto. The
Credit Agreement amends the our previous credit agreement, which was dated May 13, 2013. See Note 11. Debt,
within the notes to consolidated financial statements for further detail.

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain

exceptions, our ability to:

•

incur additional indebtedness;

create liens;

enter into sale and leaseback transactions;

engage in mergers or consolidations;

sell or transfer assets;

pay dividends and distributions or repurchase our capital stock;

• make investments, loans or advances;

•

prepay certain subordinated indebtedness;

engage in certain transactions with affiliates;

•

amend material agreements governing certain subordinated indebtedness; and

change our lines of business.

Our Credit Agreement prohibits us from paying dividends and distributions or repurchasing our capital stock
except for limited purposes. In addition, our financial covenant requirements include a total leverage ratio test and
an interest coverage ratio test. Under our total leverage ratio test, we covenant not to allow the ratio of our
consolidated total debt (as defined in the Amended Credit Agreement) to an adjusted EBITDA reflecting financial
covenants in our Credit Agreement to exceed certain prescribed levels set forth in the Credit Agreement. Under our
interest coverage ratio test, we covenant not to allow the ratio of our Credit Agreement Adjusted EBITDA to our
consolidated interest expense (as defined in the Credit Agreement) to be less than certain prescribed levels set
forth in the Credit Agreement. Each of our financial ratios is measured at the end of each fiscal quarter.

As of December 31, 2014 we were in compliance with all of our covenant requirements. Our covenant

requirements and actual ratios were as follows:

Financial Ratio

Leverage Test (Maximum)

Interest Coverage (Minimum)

Off-Balance Sheet Arrangements

December 31, 2014

Covenant
Requirement

Actual Ratio

4.00

3.00

2.70

10.61

We enter into various off-balance-sheet arrangements in the ordinary course of business, primarily to meet

the needs of our advisors’ clients. These arrangements include Company commitments to extend credit. For
information on these arrangements, see Note 13. Commitments and Contingencies and Note 20. Financial
Instruments with Off-Balance-Sheet Credit Risk and Concentrations of Credit Risk, within the notes to consolidated
financial statements.

Contractual Obligations

The following table provides information with respect to our commitments and obligations as of December 31,

2014:

Total

< 1 Year

1-3 Years

4-5 Years

> 5 Years

Payments Due by Period

(In thousands)

Leases and other obligations(1)(2)

707,765

80,775

164,647

93,058

369,285

Senior secured credit facilities(3)

Variable interest payments(4)

Commitment fee on revolving line of credit(5)

1,634,258

247,206

9,115

120,839

47,689

1,919

30,291

111,826

5,756

1,483,128

87,691

1,440

—

Total contractual cash obligations

$ 2,598,344

251,222

312,520

$ 1,665,317

369,285

____________________
(1) Includes a long-term contractual obligation with a third-party service provider for the outsourcing of certain
functions. The table above includes the minimum payments due over the duration of the contract. The
contractual obligation may be canceled, subject to a termination penalty that is approximately equal to the initial
annual minimum payment. The amount of the termination penalty steps down ratably through the passage of
time. Future minimum payments have not been reduced by this termination penalty. Additionally, included in the
table above are obligations related to the development of land in South Carolina for office space. Under
development and agency contracts we expect to pay a pro rata share equal to 27.5% of the design and
construction costs, which are expected to be incurred through 2017. The remaining amounts will be paid by the
landlord. Additionally, the Company has entered into lease agreements for the office space once developed.
These leases, also included above, have an initial lease term of 20 years that commence once the develop is
complete and we take occupancy of the buildings.

(2) Future minimum payments for applicable leases have not been reduced by minimum sublease rental income of
$3.0 million due in the future under noncancelable subleases. See Note 13. Commitment and Contingencies,
within the notes to consolidated financial statements for further detail on operating lease obligations and
obligations under noncancelable service contracts.

(3) Represents principal payments under our Credit Agreement. See Note 11. Debt, within the notes to

consolidated financial statements for further detail.

(4) Represents variable interest payments under our Credit Agreement. Variable interest payments assume the
applicable interest rates at December 31, 2014 remain unchanged. See Note 11. Debt, within the notes to
consolidated financial statements for further detail.

(5) Represents commitment fees for unused borrowings on the revolving credit facility under our Credit Agreement.

See Note 11. Debt, within the notes to consolidated financial statements for further detail.

As of December 31, 2014, we have a liability for unrecognized tax benefits of $21.0 million, which we have

included in income taxes payable in the consolidated statements of financial condition. This amount has been
excluded from the contractual obligations table because we are unable to reasonably predict the ultimate amount or
timing of future tax payments.

Fair Value of Financial Instruments

We use fair value measurements to record certain financial assets and liabilities at fair value and to determine

fair value disclosures.

We use prices obtained from an independent third-party pricing service to measure the fair value of our
trading securities. We validate prices received from the pricing service using various methods including, comparison
to prices received from additional pricing services, comparison to available market prices and review of other
relevant market data including implied yields of major categories of securities.

At December 31, 2014, we did not adjust prices received from the independent third-party pricing service. For

certificates of deposit and treasury securities, we utilize market-based inputs including observable market interest
rates that correspond to the remaining maturities or next interest reset dates.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP, which require management to

make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. We believe that of our critical accounting policies, the following are
noteworthy because they require management to make estimates regarding matters that are uncertain and
susceptible to change where such change may result in a material adverse impact on our financial position and
reported financial results.

Revenue Recognition

Substantially all of our revenues are based on contractual arrangements. In determining the appropriate
recognition of commissions, we review the terms and conditions of the brokerage account agreements between us
and our advisors' clients, representative agreements with our advisors, which include payout rates and terms, and
selling agreements with product sponsors for packaged investment products such as mutual funds, annuities,
insurance and alternative investments. In determining the appropriate recognition of advisory revenues, we review
the terms and conditions of the advisory agreements between the advisors' clients and the applicable RIA,
representative agreements with advisors, and agreements with third parties who provide specific investment
management or investment strategies.

Revenues are recognized in the periods in which the related services are performed provided that persuasive

evidence of an arrangement exists, the fee is fixed or determinable and collectability is reasonably assured.
Payments received by us in advance of the performance of service are deferred and recognized as revenue when
earned.

Management considers the nature of our contractual arrangements in determining whether to recognize
certain types of revenue on the basis of the gross amount billed or net amount retained after payments are made to
providers of certain services related to the product or service offering.

The main factors we use to determine whether to record revenue on a gross or net basis are whether:

• we are primarily responsible for the service to the advisor and its client;

• we have discretion in establishing fees paid by the client and fees due to the third-party service provider;

and

• we are involved in the determination of product or service specifications.

When client fees include a portion of charges that are paid to another party and we are primarily responsible
for providing the service to the client, we recognize revenue on a gross basis in an amount equal to the fee paid by
the client. The cost of revenues recognized by us is the amount due to the other party and is recorded as
production expense.

In instances in which another party is primarily responsible for providing the service to the client, we only

recognize the net amount retained by us. The portion of the fees that are collected from the client by us and
remitted to the other party are considered pass through amounts and accordingly are not a component of revenues
or cost of revenues.

Commission revenue represents gross commissions generated by our advisors for their clients' purchases

and sales of securities, and various other financial products such as mutual funds, variable and fixed annuities,
alternative investments, fixed income, insurance, group annuities, and option and commodity transactions. We
generate two types of commission revenues: front-end sales commissions that occur at the point of sale, as well as
trailing commissions for which we provide ongoing support, awareness, and education to clients of our advisors.

We recognize front-end sales commissions as revenue on a trade-date basis, which is when our performance

obligations in generating the commissions have been substantially completed. We earn commissions on a
significant volume of transactions that are placed by our advisors directly with product sponsors, particularly with
regard to mutual fund, 529 education savings plan, and fixed and variable annuity and insurance products. As a
result, management must estimate a portion of its commission revenues earned from clients for purchases and
sales of these products for each accounting period for which the proceeds have not yet been received. These
estimates are based on the amount of commissions earned from transactions relating to these products in prior
periods.

Commission revenue includes mutual fund, 529 education savings plan and fixed and variable product trailing

fees which are recurring in nature. These trailing fees are earned by us, based on a percentage of the current
market value of clients' investment holdings in trail-eligible assets, and recognized over the period during which

services are performed. Because trail commission revenues are generally paid in arrears, management estimates
the majority of trail commission revenues earned during each period. These estimates are based on a number of
factors including market levels and the amount of trail commission revenues received in prior periods. The amount
of such accruals are classified within receivables from product sponsors, broker-dealers, and clearing organizations
in the consolidated statements of financial condition.

A substantial portion of our commission revenue is ultimately paid to our advisors. We record an estimate for
commissions payable based upon payout ratios for each product for which we have accrued commission revenue.
Such amounts are recorded by us as production expense.

We record fees charged to clients as advisory fee revenue in advisory accounts where LPL Financial or
Independent Advisers Group Corporation (“IAG”) is the RIA. A substantial portion of these advisory fees are paid to
the related advisor and are recorded as production expense.

Certain advisors conduct their advisory business through separate entities by establishing their own RIA
pursuant to the Investment Advisers Act of 1940, rather than using our corporate RIA. These stand-alone RIAs
("Independent RIA") engage us for clearing, regulatory, and custody services, as well as access to our investment
advisory platforms. The advisory revenue generated by these Independent RIAs is earned by the advisors, and
accordingly not included in our advisory fee revenue. We charge administrative fees based on the value of assets
within these advisory accounts, and classify such fees as advisory revenues.

Legal Contingencies

Assessing the probability of a loss occurring and the amount of any loss related to a legal proceeding or

regulatory matter is inherently difficult. While the Company exercises significant and complex judgments to make
certain estimates presented in its consolidated financial statements, there are particular uncertainties and
complexities involved when assessing the potential outcomes of legal proceedings and regulatory matters. The
Company's assessment process considers a variety of factors and assumptions, which may include the procedural
status of the matter and any recent developments; prior experience and the experience of others in similar matters;
the size and nature of potential exposures; available defenses; the progress of fact discovery; the opinions of
counsel and experts; potential opportunities for settlement and the status of any settlement discussions; as well as
the potential for insurance coverage and indemnification, if available. The Company monitors these factors and
assumptions for new developments and re-assesses the likelihood that a loss will occur and the estimated range or
amount of loss, if those amounts can be reasonably determined. The Company has established an accrual for
those legal proceedings and regulatory matters for which a loss is both probable and the amount can be reasonably
estimated. When it is not probable, but at least reasonably possible that a loss has been incurred, a disclosure of
fact is made when the underlying loss or range of losses can also be reasonably estimated. The Company
estimates that, as of December 31, 2014, exposure to those losses could range from $0 to $15 million in excess of
the accrued liability, if any, related to those matters. Due to the inherent unpredictability of such matters, the
Company may have exposure to losses that are not yet predictable or cannot yet be reasonably estimated in
addition to those amounts that have been accrued or disclosed.

The Company maintains insurance coverage for certain legal proceedings, including those involving client

claims. With respect to client claims, the estimated losses on many of the pending matters are less than the
applicable deductibles of the insurance policies. The Company is also subject to extensive regulation and
supervision by U.S. federal and state agencies and various self-regulatory organizations. The Company and its
advisors periodically engage with such agencies and organizations, in the context of examinations or otherwise, to
respond to inquiries, informational requests, and investigations. From time to time, such engagements result in
regulatory complaints or other matters, the resolution of which can include fines and other remediation.

Valuation of Goodwill and Other Intangibles

Goodwill and other indefinite-lived intangible assets are tested annually for impairment in the fourth fiscal
quarter and in interim periods if certain events occur indicating that the carrying amounts may be impaired. If a
qualitative assessment is used and we determine that the fair value of a reporting unit or indefinite-lived intangible
asset is more-likely-than-not (i.e., a likelihood of more than 50%) less than its carrying amount, a quantitative
impairment test will be performed. If goodwill is quantitatively assessed for impairment, a two-step approach is
applied. First, we compare the estimated fair value of the reporting unit in which the goodwill resides to its carrying
value. The second step, if necessary, measures the amount of such impairment by comparing the implied fair value
of goodwill to its carrying value. Other indefinite-lived intangible assets are quantitatively assessed for impairment, if
necessary, by comparing their estimated fair values to their carrying values. If the carrying value exceeds the fair

value, the difference is recorded as impairment. No impairment of goodwill or other indefinite-live intangible assets
has been recognized during the years ended December 31, 2014, 2013, and 2012.

Long-lived assets, such as property, plant and equipment and intangible assets subject to amortization, are

reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is
measured by comparing the carrying amount of an asset or asset group to estimated undiscounted future cash
flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group
exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying
amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Long-lived assets
to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs
to sell and are not depreciated.

Income Taxes

In preparing the consolidated financial statements, we estimate income tax expense based on various
jurisdictions in which we conduct business. We then must assess the likelihood that the deferred tax assets will be
realized. A valuation allowance is established to the extent that it is more-likely-than-not that such deferred tax
assets will not be realized. When we establish a valuation allowance or modify the existing allowance in a certain
reporting period, we generally record a corresponding increase or decrease to tax expense in the consolidated
statements of income. Management makes significant judgments in determining the provision for income taxes, the
deferred tax assets and liabilities, and any valuation allowances recorded against the deferred tax asset. Changes
in the estimate of these taxes occur periodically due to changes in the tax rates, changes in business operations,
implementation of tax planning strategies, resolution with taxing authorities of issues where we had previously taken
certain tax positions, and newly enacted statutory, judicial, and regulatory guidance. These changes could have a
material effect on our consolidated statements of income, financial condition, or cash flows in the period or periods
in which they occur.

We recognize the tax effects of a position in the consolidated financial statements only if it is more-likely-than-
not to be sustained based solely on its technical merits, otherwise no benefits of the position are to be recognized.
The more-likely-than-not threshold must continue to be met in each reporting period to support continued
recognition of a benefit. Moreover, each tax position meeting the recognition threshold is required to be measured
as the largest amount that is greater than 50 percent likely to be realized upon ultimate settlement with a taxing
authority that has full knowledge of all relevant information.

Employee Health Care Self-Insurance

We are partially self-insured for benefits paid under employee healthcare programs. Self-insurance estimates

are determined with the assistance of insurance actuaries, based on historical experience and trends related to
claims and payments, information provided by the insurance broker, and industry experience. We have coverage for
excess losses on either an individual or an aggregate case basis. Estimates of future claim costs are recorded on
an undiscounted basis, and are recognized as a liability within accounts payable and accrued liabilities in the
consolidated statements of financial condition.

Share-Based Compensation

Certain of our employees, officers, directors, advisors, and financial institutions participate in various long-

term incentive plans that provide for granting stock options, warrants, restricted stock awards, and restricted stock
units. Stock options and warrants generally vest in equal increments over a three- to five-year period and expire on
the tenth anniversary following the date of grant. Restricted stock awards and restricted stock units generally vest
over a two- to four-year period.

We recognize share-based compensation for equity awards granted to employees, officers, and directors as
compensation and benefits expense on the consolidated statements of income. The fair value for stock options is
estimated using a Black-Scholes valuation model on the grant date. The fair value of restricted stock awards and
restricted stock units is equal to the closing price of the Company’s stock on the date of grant. Share-based
compensation is recognized over the requisite service period of the individual awards, which generally equals the
vesting period.

We recognize share-based compensation for equity awards granted to advisors and financial institutions as

commissions and advisory expense on the consolidated statements of income. The fair value for stock options and
warrants is estimated using a Black-Scholes valuation model on the date of grant and is revalued at each reporting
period. The fair value of restricted stock units is equal to the market price of the Company’s stock on the last day of

each reporting period. Share-based compensation is recognized over the requisite service period of the individual
awards, which generally equals the vesting period.

We must also make assumptions regarding the number of stock options, warrants, restricted stock awards,

and restricted stock units that will be forfeited. The forfeiture assumption is ultimately adjusted to the actual
forfeiture rate. Therefore, changes in the forfeiture assumptions do not impact the total amount of expense
ultimately recognized over the vesting period. Rather, different forfeiture assumptions would only impact the timing
of expense recognition over the vesting period. See Note 15. Share-Based Compensation, for additional information
regarding share-based compensation for equity awards granted.

Acquisitions

When we acquire companies, we recognize separately from goodwill the assets acquired and the liabilities

assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of
consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities
assumed. While we use our best estimates and assumptions as a part of the purchase price allocation process to
accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently
uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from
the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding
offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets
acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our
consolidated statements of income.

Accounting for business combinations requires our management to make significant estimates and

assumptions, especially at the acquisition date with respect to intangible assets, liabilities assumed, and pre-
acquisition contingencies. These assumptions are based in part on historical experience, market data, and
information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not

limited to: (i) future expected cash flows from client relationships, advisor relationships and product sponsor
relationships; (ii) estimates to develop or use software; and (iii) discount rates.

If we determine that a pre-acquisition contingency is probable in nature and estimable as of the acquisition

date, we record our best estimate for such a contingency as a part of the preliminary purchase price allocation. We
continue to gather information for and evaluate our pre-acquisition contingencies throughout the measurement
period and if we make changes to the amounts recorded or if we identify additional pre-acquisition contingencies
during the measurement period, such amounts will be included in the purchase price allocation during the
measurement period and, subsequently, in our results of operations.

We may be required to pay future consideration to the former shareholders of acquired companies,

depending upon the terms of the applicable purchase agreement, that is contingent upon the achievement of
certain financial or operating targets. The fair value of the contingent consideration is determined using financial
forecasts and other estimates that assess the probability and timing of the financial targets being reached, and
measuring the associated cash payments at their present value using a risk-adjusted rate of return. The estimated
fair value of the contingent consideration on the acquisition date is included in the purchase price of the acquired
company. At each reporting date, or whenever there are significant changes in underlying key assumptions, a
review of these assumptions is performed and the contingent consideration liability is updated to its estimated fair
value. If there are no significant changes in the assumptions, the quarterly determination of the fair value of
contingent consideration reflects the implied interest for the passage of time. Changes in the estimated fair value of
the contingent consideration obligations may result from changes in the terms of the contingent payments, changes
in discount periods and rates, changes in assumptions with respect to the timing and likelihood of achieving the
applicable targets, and other related developments. Actual progress toward achieving the financial targets for the
remaining measurement periods may be different than our expectations of future performance. The change in the
estimated fair value of contingent consideration has been classified as other expenses in the consolidated
statements of income.

Recent Accounting Pronouncements

Refer to Note 2. Summary of Significant Accounting Policies, within the notes to consolidated financial
statements for a discussion of recent accounting pronouncements or changes in accounting pronouncements that
are of significance, or potential significance, to us.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We maintain trading securities owned and securities sold, but not yet purchased in order to facilitate client

transactions, to meet a portion of our clearing deposit requirements at various clearing organizations, and to track
the performance of our research models. These securities could include mutual funds, debt securities issued by the
U.S. government, money market funds, corporate debt securities, certificates of deposit, and equity securities.

Changes in the value of our trading inventory may result from fluctuations in interest rates, credit ratings of

the issuer, equity prices and the correlation among these factors. We manage our trading inventory by product type.
Our activities to facilitate client transactions generally involve mutual fund activities, including dividend
reinvestments. The balances are based upon pending client activities which are monitored by our broker-dealer
support services department. Because these positions arise from pending client transactions, there are no specific
trading or position limits. Positions held to meet clearing deposit requirements consist of U.S. government
securities. The amount of securities deposited depends upon the requirements of the clearing organization. The
level of securities deposited is monitored by the settlement area within our broker-dealer support services
department. Our research department develops model portfolios that are used by advisors in developing client
portfolios. We currently maintain approximately 190 accounts based on model portfolios. At the time a portfolio is
developed, we purchase the securities in that model portfolio in an amount equal to the account minimum for a
client. Account minimums vary by product and can range from $10,000 to $250,000 per model. We utilize these
positions to track the performance of the research department. The limits on this activity are based at the inception
of each new model.

At December 31, 2014, the fair value of our trading securities owned were $13.5 million. Securities sold, but
not yet purchased were $0.3 million at December 31, 2014. The fair value of securities included within other assets
were $80.6 million at December 31, 2014. See Note 4. Fair Value Measurements, within the notes to consolidated
financial statements for information regarding the fair value of trading securities owned, securities sold, but not yet
purchased and other assets associated with our client facilitation activities. See Note 5. Held to Maturity Securities,
within the notes to consolidated financial statements for information regarding the fair value of securities held to
maturity.

We do not enter into contracts involving derivatives or other similar financial instruments for trading or

proprietary purposes.

We also have market risk on the fees we earn that are based on the market value of advisory and brokerage

assets, assets on which trail commissions are paid, and assets eligible for sponsor payments.

Interest Rate Risk

We are exposed to risk associated with changes in interest rates. As of December 31, 2014, all of the
outstanding debt under our Amended Credit Agreement, $1.6 billion, was subject to floating interest rate risk. While
our senior secured term loans are subject to increases in interest rates, we do not believe that a short-term change
in interest rates would have a material impact on our income before taxes.

The following table summarizes the impact of increasing interest rates on our interest expense from the

variable portion of our debt outstanding at December 31, 2014 (in thousands):

Senior Secured Term Loans

Term Loan A

Term Loan B

Outstanding at

Annual Impact of an Interest Rate Increase of

Variable Interest
Rates

10 Basis
Points

25 Basis
Points

50 Basis
Points

100 Basis
Points

459,375

1,064,883

459

—

1,148

—

2,297

598

4,594

5,484

Variable Rate Debt Outstanding

1,524,258

459

1,148

2,895

$ 10,078

See Note 11. Debt, within the notes to consolidated financial statements for additional information.

We offer our advisors and their clients two primary cash sweep programs that are interest rate sensitive: our

insured cash programs and money market sweep vehicles involving multiple money market fund providers. Our
insured cash programs use multiple non-affiliated banks to provide up to $1.5 million ($3.0 million in joint accounts)
of FDIC insurance for client deposits custodied at the banks. While clients earn interest for balances on deposit in
the insured cash programs, we earn a fee. Our fees from the insured cash programs are based on prevailing
interest rates in the current interest rate environment. Changes in interest rates and fees for the insured cash

programs are monitored by our fee and rate setting committee (the “FRS committee”), which governs and approves
any changes to our fees. By meeting promptly after interest rates change, or for other market or non-market
reasons, the FRS committee balances financial risk of the insured cash programs with products that offer
competitive client yields. However, as short-term interest rates hit lower levels, the FRS committee may be
compelled to lower fees.

The average Federal Reserve effective federal funds rate ("FFER") for December 2014 was 0.12%. The
following table reflects the approximate annual impact to asset-based revenues on our insured cash programs
(assuming that client balances at December 31, 2014 remain unchanged) of an upward or downward change in
short-term interest rates of one basis point (dollars in thousands):

Federal Reserve Effective
Federal Funds Rate

Annualized Increase or Decrease in Asset-Based
Revenues per One Basis Point Change

0.00% - 0.25%

0.26% - 1.25%

1.26% - 2.70%

1,900

900

800

The actual impact to asset-based revenues, including a change in the FFER of greater than 2.70%, may vary

depending on the FRS committee's strategy in response to a change in interest rate levels, the significance of a
change and actual balances at the time of such change.

Credit Risk

Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet

its financial obligations under contractual or agreed upon terms. Credit risk includes the risk that collateral posted
with LPL by clients to support margin lending or derivative trading is insufficient to meet client’s contractual
obligations to LPL. We bear credit risk on the activities of our advisors’ clients, including the execution, settlement
and financing of various transactions on behalf of these clients.

These activities are transacted on either a cash or margin basis. Our credit exposure in these transactions

consists primarily of margin accounts, through which we extend credit to advisors' clients collateralized by cash (for
purposes of margin lending, cash is not used as collateral) and securities in the client’s account. Under many of
these agreements, we are permitted to sell, re-pledge or loan these securities held as collateral and use these
securities to enter into securities lending arrangements or to deliver to counterparties to cover short positions.

As our advisors execute margin transactions on behalf of their clients, we may incur losses if clients do not

fulfill their obligations, the collateral in the client’s account is insufficient to fully cover losses from such investments,
and our advisors fail to reimburse us for such losses. Our loss on margin accounts is immaterial and did not exceed
$0.3 million during any of the years ended December 31, 2014, 2013, and 2012. We monitor exposure to industry
sectors and individual securities and perform analyses on a regular basis in connection with our margin lending
activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market
conditions.

We are subject to concentration risk if we extend large loans to or have large commitments with a single
counterparty, borrower, or group of similar counterparties or borrowers (e.g. in the same industry), or if we accept a
concentrated position as collateral for a margin loan. Receivables from and payables to clients and stock borrowing
and lending activities are conducted with a large number of clients and counterparties and potential concentration is
carefully monitored. We seek to limit this risk through careful review of the underlying business and the use of limits
established by senior management, taking into consideration factors including the financial strength of the
counterparty, the size of the position or commitment, the expected duration of the position or commitment and other
positions or commitments outstanding.

Operational Risk

Operational risk is defined as the risk of loss resulting from failed or inadequate processes or systems,
actions by people, or external events. We operate in diverse markets and are reliant on the ability of our employees
and systems, as well as third-party service providers and their systems, to process a large number of transactions
effectively. These risks are less direct and quantifiable than credit and market risk, but managing them is critical,
particularly in a rapidly changing environment with increasing transaction volumes and in light of increasing reliance
on third-party service providers. In the event of a breakdown or improper operation of systems or improper action by
employees, advisors or third-party service providers, we could suffer financial loss, data loss, regulatory sanctions

and damage to our reputation. Business continuity plans exist for critical systems, and redundancies are built into
the systems as deemed appropriate. In order to assist in the mitigation and control of operational risk, we have an
Operational Risk Management department and framework that enables assessment and reporting on operational
risk across the firm. This framework helps ensure policies and procedures are in place and appropriately designed
to identify and manage operational risk at appropriate levels throughout our organization and within various
departments. These control mechanisms attempt to ensure that operational policies and procedures are being
followed and that our employees and advisors operate within established corporate policies and limits.
Notwithstanding the foregoing, please consult the Risks Related to our Technology section within Part I, “Item 1A.
Risk Factors” for more information about the risks associated with our technology, including risks related to security,
and the potential related effects on our operations.

Regulatory and Legal Risk

The regulatory environment in which we operate is discussed in detail within Part I, “Item 1, Business
Section” of this Annual Report on Form 10-K. During the period presented in this Annual Report on Form 10-K, we
have observed regulators broaden the scope, frequency, and depth of their examinations to include greater
emphasis on the quality and consistency of the industry’s execution of policies and procedures. Please consult the
Risks Related to Our Regulatory Environment section within Part I, “Item 1A. Risk Factors” for more information
about the risks associated with operating within our regulatory environment, and the potential related effects on our
operations.

Risk Management

We employ an enterprise risk management framework ("ERM") that is intended to address key risks and

responsibilities, enable us to execute our business strategy, and protect our Company and its franchise. Our
framework is designed to promote clear lines of risk management accountability and a structured escalation
process for key risk information and events.

Our risk management governance approach includes our Board of Directors (the “Board”) and certain of its
committees; the Risk Oversight Committee of LPL Financial (the “ROC”) and its subcommittees; the Internal Audit
Department and the Governance, Risk and Compliance (“GRC”) Department of LPL Financial; and business line
management. We regularly reevaluate and, when necessary, modify our processes to improve the identification and
escalation of risks and events.

Audit Committee of the Board

In addition to its other responsibilities, the Audit Committee of the Board (the “Audit Committee”) reviews our

policies with respect to risk assessment and risk management, as well as our major financial risk exposures and the
steps management has undertaken to control them. The Audit Committee provides reports to the Board at each of
the Board’s regularly scheduled quarterly meetings.

Compensation and Human Resources Committee of the Board

In addition to its other responsibilities, the Compensation and Human Resources Committee of the Board

assesses whether our compensation arrangements encourage inappropriate risk-taking, and whether risks arising
from our compensation arrangements are reasonably likely to have a material adverse effect on the Company.

Risk Oversight Committee of LPL Financial

The Audit Committee has mandated that the ROC oversee our risk management activities, including those of
our subsidiaries. The Chief Risk Officer of LPL Financial serves as chair, and our Executive Vice President, Deputy
General Counsel, Regulatory, serves as vice chair, of the ROC, which generally meets on a monthly basis with ad
hoc meetings as necessary. Each member of the Management Committee of LPL Financial and the three other
Managing Directors (Managing Director, Chief Investment Officer; Managing Director, Independent Advisor
Services; and Managing Director, Institution Services) serve on the ROC. Additional members of the Company’s
senior management team are also included as ex-officio members, representing the key control areas of the
Company. These individuals include, but are not limited to, the Chief Compliance Officer, Brokerage; the Chief
Compliance Officer, Advisory; the Chief Information Security Officer; and the Chief Privacy Officer of LPL Financial.
Participation in the ROC by senior officers is intended to ensure that the ROC covers the key risk areas of the
Company, including its subsidiaries, and that the ROC thoroughly reviews significant matters relating to risk
priorities, policies, control procedures and related exceptions, certain new and complex products and business
arrangements, transactions with significant risk elements, and identified emerging risks.

The chair of the ROC provides reports to the Audit Committee at each of the Audit Committee’s regularly
scheduled quarterly meetings and, as necessary or requested, to the Board. The reports generally cover topics
addressed by the ROC at its meetings since the immediately preceding report. If warranted, matters of material risk
are escalated to the Audit Committee or Board more frequently.

Subcommittees of the Risk Oversight Committee

The ROC has established multiple subcommittees that cover key areas of risk. The subcommittees meet

regularly and are responsible for keeping the ROC informed and escalating issues in accordance with the
Company’s escalation policies. The responsibilities of such subcommittees include, for example, oversight of the
approval of new and complex investment products offered to advisors’ clients; oversight of the Company’s
investment advisory business; issues and trends related to advisor compliance and examination findings; whistle-
blower hotline allegations; and oversight of disclosures related to our financial reporting.

Internal Audit Department

The Internal Audit Department provides independent verification of the effectiveness of the Company’s

internal controls by conducting risk assessments and audits designed to identify and cover important risk
categories. The Internal Audit Department provides regular reports to the ROC and reports to the Audit Committee
at least as often as quarterly.

Control Groups

The GRC Department provides compliance oversight and guidance, and conducts various risk and other
assessments to address regulatory and Company-specific risks and requirements. The GRC Department reports to
the Chief Risk Officer, who reviews the results of the Company’s risk management process with the ROC, the Audit
Committee, and the Board as necessary. We also consider the Internal Audit Department to be a control group.

Business Line Management

Each business line is responsible for managing its risk, and business line management is responsible for

keeping senior management, including the members of the ROC, informed of operational risk and escalating risk
matters (as defined by the Company’s escalation policies). We have conducted Company-wide escalation training
for our employees. Certain business lines, including Client Support Services and Business Technology Services,
have dedicated personnel with responsibilities for monitoring and managing risk-related matters. Business lines are
subject to oversight by the control groups, and the Finance, Legal, Business Technology Services, and Human
Capital Departments also execute certain control functions and report matters to the ROC, Audit Committee, and
Board as appropriate.

In addition to the ERM framework, we have written policies and procedures that govern the conduct of
business by our advisors, employees, and the terms and conditions of our relationships with product manufacturers.
Our client and advisor policies address the extension of credit for client accounts, data and physical security,
compliance with industry regulation, and codes of ethics to govern employee and advisor conduct, among other
matters.

Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements and Supplementary Data are included as an annex to this Annual

Report on Form 10-K. See the Index to Consolidated Financial Statements and Supplementary Data on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Disclosure Committee, with the participation of our Chief Executive Officer and Chief Financial Officer,

evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures as of the end of the period covered by this report were effective.

Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fourth quarter

ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial

reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act as the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer,
and effected by our board of directors, management, and other personnel, to provide reasonable assurance
regarding the reliability of our financial reporting process and the preparation of our consolidated financial
statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance

of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as necessary to permit preparation of the consolidated
financial statements in accordance with accounting principles generally accepted in the United States, and that
receipts and expenditures are being made only in accordance with authorizations of management and the directors
of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a material effect on our consolidated
financial statements.

As of December 31, 2014, management conducted an assessment of the effectiveness of our internal control

over financial reporting based on the framework established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management has determined that our internal control over financial reporting as of December 31, 2014 was
effective.

Deloitte & Touche LLP, our independent registered public accounting firm, has issued an audit report

appearing on the following page on the effectiveness of our internal control over financial reporting as of
December 31, 2014.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
LPL Financial Holdings Inc.
Boston, Massachusetts

We have audited the internal control over financial reporting of LPL Financial Holdings Inc. and subsidiaries (the
"Company") as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying management’s annual
report on internal control over financial reporting. Our responsibility is to express an opinion on the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the
Company and our report dated February 20, 2015 expressed an unqualified opinion on those consolidated financial
statements.

/s/ DELOITTE & TOUCHE LLP

San Diego, California
February 20, 2015

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers, and Corporate Governance

Other than the information relating to our executive officers provided below, the information required to be
furnished pursuant to this item is incorporated by reference to the Company’s definitive proxy statement for the
2014 Annual Meeting of Stockholders.

The following table provides certain information about each of the Company’s current executive officers as of

the date this Annual Report on Form 10-K has been filed with the SEC:

Name

Mark S. Casady

Dan H. Arnold

David P. Bergers

Mimi Bock*

Victor P. Fetter

Mark R. Helliker

Age Position

54 Chief Executive Officer and Chairman of the Board

50 Chief Financial Officer

47 Managing Director, Legal and Government Relations, General Counsel

51 Managing Director, Client Experience and Training

46 Managing Director, Chief Information Officer

51 Managing Director, Clearing and Compliance Services

J. Andrew Kalbaugh

51 Managing Director, Institution Services

Sallie R. Larsen

Robert J. Moore

61 Managing Director, Chief Human Capital Officer

53 President

William Morrissey

50 Managing Director, Independent Advisor Services

Michelle Oroschakoff

53 Managing Director, Chief Risk Officer

Ryan Parker

George B. White

40 Managing Director, Investment and Planning Solutions

45 Managing Director, Research and Chief Investment Officer

* Identified in filings made pursuant to Section 16 of the Exchange Act under her legal name, Mary Frances Schott.

Executive Officers

Mark S. Casady — Chief Executive Officer and Chairman of the Board

Mr. Casady is chairman of the board of directors and our chief executive officer. He joined us in May 2002 as
chief operating officer, became our president in April 2003, and became our chief executive officer of LPL Financial
in August 2004. He was named the Company's chairman in December 2005 and its chief executive officer in March
2006. Before joining our Company, Mr. Casady was managing director, mutual fund group for Deutsche Asset
Management, Americas — formerly Scudder Investments. He joined Scudder in 1994 and held roles as managing
director — Americas; head of global mutual fund group and head of defined contribution services. He was also a
member of the Scudder, Stevens and Clark Board of Directors and Management Committee. He is former chairman
and a current board member of the Insured Retirement Institute and Eze Software Group, and serves on FINRA’s
board of governors. Mr. Casady received his B.S. from Indiana University and his M.B.A. from DePaul University.

Dan H. Arnold — Chief Financial Officer

Mr. Arnold serves as chief financial officer for the Company. He is responsible for formulating financial policy,

leading the Company's capital management efforts, and ensuring the effectiveness of the organization's financial
functions. Before assuming this role in 2012, Mr. Arnold was managing director, head of strategy, with responsibility
for developing our long-term strategic plans and assessing the trends prevalent in our industry. He has also served
as divisional president of our Institution Services business. Mr. Arnold joined our Company in January 2007
following our acquisition of UVEST. Prior to joining us, Mr. Arnold worked at UVEST for 13 years, serving most
recently as president and chief operating officer. Mr. Arnold is a graduate of Auburn University and holds an M.B.A.
in finance from Georgia State University.

David P. Bergers — Managing Director, Legal and Government Relations, General Counsel

Mr. Bergers is general counsel of LPL Financial Holdings Inc. and managing director of Legal and

Government Relations at LPL Financial. Mr. Bergers has more than 20 years of industry experience as a practicing

attorney, corporate counsel and government regulator. He joined us in 2013 from the Securities and Exchange
Commission, where he served 13 years, most recently as acting deputy director of the enforcement division in
Washington, DC. From 2006 to 2013, he served as director of the SEC’s Boston regional office. Previously, Mr.
Bergers was vice president and assistant general counsel at Tucker Anthony, an independent investment banking
and brokerage firm that was later acquired by Royal Bank of Canada, and counsel to Freedom Capital
Management, an affiliated investment adviser. He also was a litigator for several years with law firms in the Boston
and Philadelphia areas. Mr. Bergers earned a B.A. in history from Eastern Nazarene College in Massachusetts and
a J.D. from Yale Law School.

Mimi Bock — Managing Director, Client Experience and Training

Ms. Bock serves as managing director of Client Experience and Training for the LPL Financial Advisor and
Institution Solutions business unit. In this role, she oversees client communications, marketing support services,
client insights, conference planning, and client learning and development for independent financial advisors and
institutions. Previously, she served as LPL Financial’s executive vice president of Independent Advisor Services
business consulting and was responsible for the growth, satisfaction, and retention of advisors. Prior to joining LPL
Financial in 2012, Ms. Bock was a managing director in the global wealth management division of Morgan Stanley
Smith Barney, where she also served as director for the southeast U.S. region. During her time at Morgan Stanley,
Ms. Bock also held a variety of leadership positions in equity sales, financial advisor development, client marketing,
and field management. Ms. Bock earned a double B.A. in economics and sociology from Denison University in
Ohio.

Victor P. Fetter — Managing Director, Chief Information Officer

Managing director and chief information officer since 2012, Mr. Fetter has oversight of the LPL Financial

Business Technology Services business unit. He is responsible for executing the company's commitment to
investing in the people and processes necessary to deliver the best technologies in the industry for LPL Financial
advisors and employees. Prior to joining us in December 2012, Mr. Fetter was vice president and chief information
officer for Dell Online, where he led the digital transformation of Dell's approach to providing global, multi-channel
solutions for consumers and commercial customers. Earlier, Mr. Fetter worked at Mercer Human Resource
Consulting, where he served as director of global applications development, chief information officer, and ultimately
global chief information officer during his tenure. He held previous positions at Hewitt Associates LLC and
Electronic Data Systems. Mr. Fetter has a B.S. in computer information systems from Spring Hill College in Mobile,
AL.

Mark R. Helliker — Managing Director, Client Support Services

Mr. Helliker has served as managing director of Client Support Services for LPL Financial since September

2013. Mr. Helliker oversees the Company’s service and client-facing operations organizations on behalf the
company’s Independent Advisor Services and Institution Services business units. In this role, he is responsible for
driving innovation and ensuring the delivery of extraordinary service and support to financial advisors, banks, and
credit unions. Mr. Helliker joined us in July 2008 as managing director of Broker/Dealer Support Services,
responsible for enhancing the customer experience by overseeing the day-to-day management of customer-side
operations and new-advisor transitions. From June 2012 to September 2013, he served as managing director of
Clearing and Compliance Services, responsible for both Broker/Dealer Support Services and the Governance, Risk,
& Compliance business unit, for which he oversaw enterprise-wide risk management processes. Prior to joining us,
Mr. Helliker worked at Charles Schwab for 10 years, most recently as senior vice president of Charles Schwab
Institutional. Mr. Helliker has a B.A. in political science from the University of Portsmouth in England and an M.B.A.
in management from San Diego State University.

J. Andrew Kalbaugh — Managing Director, Institution Services

Mr. Kalbaugh has served as our managing director of Institution Services since 2012. He is responsible for
the growth, satisfaction, and retention of financial institutions; attracting new financial institutions to the Company;
and helping banks and credit unions add new advisors to their programs. Previously, Mr. Kalbaugh served as
executive vice president, business consulting, for Independent Advisor Services. Prior to joining us in 2007, he was
president, CEO, and chairman of American General Securities Incorporated and served as director of the AIG
Advisor Group. Earlier, he was vice president and chief marketing officer for American General Securities
Incorporated. Previous positions include eastern regional director of sales for The Advisors Group and senior trader
for Calvert Securities Corporation. Mr. Kalbaugh is a Certified Financial Planner and has a B.A. in business and
economics from the University of Maryland.

Sallie R. Larsen — Managing Director, Chief Human Capital Officer

Ms. Larsen has served as our managing director, chief human capital officer since 2012. She is responsible

for overseeing Compensation & Benefits, Corporate Communication, Corporate Real Estate, Human Resources
Operations, Human Resources Client Consulting, and Talent Development. Ms. Larsen joined us in 2012 from the
Federal Home Loan Bank/Office of Finance, where she was the chief human resources officer. In earlier roles, Ms.
Larsen was a managing vice president of human resources for Capital One Financial Corporation, senior vice
president of human resources for Marriott International, and vice president of human resources and
communications for TRW Inc. Ms. Larsen earned a M.A. in communications from Purdue University, a B.A. in
sociology from California Lutheran University, and a certificate in executive leadership coaching from Georgetown
University.

Robert J. Moore — President

Mr. Moore has served as president of LPL Financial since May 2012. He joined us in 2008 as our chief

financial officer until his appointment as president and chief operating officer in May 2012. The title of chief
operating officer was subsequently determined to be unnecessary to reflect Mr. Moore's role and responsibilities
associated with his May 2012 appointment, and his title was subsequently changed to president. In this role, Mr.
Moore oversees the Company’s primary client-facing functions, including Advisor and Institution Solutions, which
delivers services that support client growth, and Client Support Services, which consists of the company’s client
service and operations teams. Prior to joining LPL Financial, from 2006 to 2008, Mr. Moore served as chief
executive officer and chief financial officer at ABN AMRO North America and LaSalle Bank Corporation. Before
those roles, Mr. Moore worked for Diageo PLC, Europe and Great Britain, in a number of finance management
positions, ultimately serving as chief financial officer. Mr. Moore is the chairman of the Insured Retirement Institute
(IRI) board of directors, a member of the board of the Securities Industry and Financial Markets Association
(SIFMA), a member of the board of the Financial Services Institute, and a member of the Financial Services
Roundtable. He is also on the University of Texas at Austin Development Board and is an independent director of
Legal & General Investment Management America Co. Mr. Moore has a B.B.A. in finance from the University of
Texas, Austin and a M.M. in finance, marketing and international business from Northwestern University and is a
Chartered Financial Analyst (CFA).

William P. Morrissey, Jr. — Managing Director, Independent Advisor Services

Mr. Morrissey is managing director of Independent Advisor Services for the LPL Financial Advisor and
Institution Solutions business unit. In this role, he has responsibility for business development and business
consulting for all independent advisors and registered investment advisors and is focused on driving client
satisfaction, supporting practice development, providing acquisition and succession planning expertise, and
delivering best-in class retirement support services. Previously, Mr. Morrissey served as LPL Financial’s executive
vice president of business development, responsible for recruiting new advisors and their practices. He joined the
Company in 2004 as senior vice president of Advisory Consulting Services, responsible for overseeing and
successfully building the sales, marketing and development of LPL's advisory platforms. Prior to joining LPL
Financial, Mr. Morrissey worked at Fidelity Investments for 17 years, most recently as senior vice president of
institutional services. Earlier, Mr. Morrissey served as senior vice president at Merrill Lynch. He received a B.A. in
political science from Boston College.

Michelle Oroschakoff — Managing Director, Chief Risk Officer

Ms. Oroschakoff is managing director, chief risk officer for LPL Financial and vice chairman of the Risk

Oversight Committee. Ms. Oroschakoff has more than 20 years of financial services industry experience deeply
rooted in legal, compliance and risk management. She joined us in 2013 from Morgan Stanley, where she most
recently served as managing director and global chief risk officer of the firm’s Wealth Management Group, as well
as chief compliance officer for Morgan Stanley Smith Barney. Earlier in her career at Morgan Stanley, Ms.
Oroschakoff spent 11 years in a variety of legal and compliance roles, including associate general counsel and
head of the firm’s San Francisco litigation department. She also served as the general counsel for a large and
successful RIA firm, where she became familiar with the independent model. Ms. Oroschakoff earned a J.D. from
the University of Michigan and a B.A. in English literature from the University of Oregon.

Ryan Parker — Managing Director, Investment and Planning Solutions

Mr. Parker is managing director, Investment and Planning Solutions for the LPL Financial Advisor and
Institution Solutions business unit. He leads distribution strategy for the Advisory, Brokerage, Insurance and
Financial Planning businesses, helping advisors and institutions navigate an increasingly complex landscape of

platforms, products, services, and tools. Prior to his promotion to managing director in June 2014, Mr. Parker
served as LPL Financial’s executive vice president, Investment and Planning Solutions. Prior to joining LPL
Financial in 2013, he was managing director, National Accounts and Business Development at Russell Investments,
the global asset manager. At Russell Investments, he served in a range of senior leadership roles in the U.S.
advisor market, spanning the sales, marketing, and product functions. Earlier in his career, he worked for Franklin
Templeton and Putnam Investments. He earned a B.A. in political science from the University of Michigan at Ann
Arbor and studied finance and accounting at Stanford Graduate School of Business.

George B. White — Managing Director, Research and Chief Investment Officer

Mr. White has served as our managing director, research and chief investment officer since 2007. He is

responsible for the strategic direction and continued growth of the LPL Financial research platform. His role
includes setting the vision for superior research capabilities and enabling the delivery of conflict-free, objective
investment advice by LPL Financial advisors. Prior to joining us in 2007, Mr. White served as a managing director
and director of research for Wachovia Securities for 10 years. Mr. White also was an investment analyst for Mercer
Investment Consulting, where he provided investment advice to institutional clients. He started his financial services
career on the buy side of the business as a research analyst for Thompson, Siegel, and Walmsley, a value-oriented
asset manager. Mr. White received a B.B.A. from the College of William and Mary.

Items 11, 12, 13, and 14.

The information required by Items 11, 12, 13, and 14 is incorporated by reference from the Company’s
definitive proxy statement for the 2015 Annual Meeting of Stockholders, which the Company intends to file with the
SEC within 120 days of the end of the fiscal year end to which this report relates.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Consolidated Financial Statements

Our consolidated financial statements appearing on pages F-1 through F-35 are incorporated herein by

reference.

(b) Exhibits

Exhibit No.
3.1

3.2

3.3

3.4

4.1

4.2

4.3

4.4

4.5

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

Description of Exhibit

Amended and Restated Certificate of Incorporation of LPL Investment Holdings Inc., dated
November 23, 2010. (1)

Certificate of Ownership and Merger Merging LPL Financial Holdings Inc. with and into LPL
Investment Holdings Inc., dated June 14, 2012. (2)

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of LPL Financial
Holdings Inc., dated May 8, 2014. (3)
Fifth Amended and Restated Bylaws of LPL Financial Holdings Inc. (4)

Stockholders’ Agreement, dated as of December 28, 2005, among LPL Investment Holdings Inc.,
LPL Holdings, Inc. and other stockholders party thereto. (5)

First Amendment to Stockholders’ Agreement dated December 28, 2005, among LPL Investment
Holdings Inc., LPL Holdings, Inc. and other stockholders party thereto, dated November 23, 2010.
(6)

Stockholders’ Agreement among the Company and Hellman & Friedman Capital Partners V, L.P.,
Hellman & Friedman Capital Partners V (Parallel), L.P., Hellman & Friedman Capital Associates V,
L.P., TPG Partners IV, L.P. and other parties thereto, dated November 23, 2010. (7)

First Amendment to Stockholders’ Agreement, entered into as of September 24, 2014, by and
between LPL Financial Holdings Inc., a Delaware corporation (f/k/a LPL Investment Holdings Inc.,
“LPL”), and TPG Partners IV, L.P., a Delaware limited partnership (“TPG”). (8)
Fifth Amended and Restated LPL Investment Holdings Inc. 2000 Stock Bonus Plan. (9)

Amended and Restated Executive Employment Agreement among William E. Dwyer III, LPL
Investment Holdings Inc., LPL Holdings, Inc. and LPL Financial Corporation, dated July 23, 2010.
(10)

Revised Separation Agreement and General Release with William E. Dwyer, dated March 14, 2014.
(11)
Separation Agreement and General Release with Derek Bruton, dated April 3, 2014. (12)

Form of Indemnification Agreement. (1)

2005 LPL Investment Holdings Inc. Stock Option Plan for Incentive Stock Options. (13)

2005 LPL Investment Holdings Inc. Stock Option Plan for Non-Qualified Stock Options. (13)

LPL Investment Holdings Inc. 2008 Stock Option Plan. (14)

Form of LPL Investment Holdings Inc. Stock Option Agreement granted under the LPL Investment
Holdings Inc. 2008 Stock Option Plan. (15)

LPL Investment Holdings Inc. 2008 Nonqualified Deferred Compensation Plan. (16)

Amendment to the LPL Investment Holdings Inc. 2008 Nonqualified Deferred Compensation Plan,
dated December 1, 2011. (7)

LPL Investment Holdings Inc. Advisor Incentive Plan. (17)

LPL Investment Holdings Inc. Financial Institution Incentive Plan. (14)

LPL Investment Holdings Inc. 2010 Omnibus Equity Incentive Plan. (18)

Form of Senior Executive Stock Option Award granted under the LPL Investment Holdings Inc. 2010
Omnibus Equity Incentive Plan. (19)

Form of Senior Management Stock Option Award granted under the LPL Investment Holdings Inc.
2010 Omnibus Equity Incentive Plan. (19)

Form of Senior Executive Restricted Stock Unit Award granted under the LPL Investment Holdings
Inc. 2010 Omnibus Equity Incentive Plan. (19)

Exhibit No.
10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

21.1

23.1

31.1

31.2

32.1

32.2

Description of Exhibit

Form of Senior Management Restricted Stock Unit Award granted under the LPL Investment
Holdings Inc. 2010 Omnibus Equity Incentive Plan. (19)

LPL Investment Holdings Inc. and Affiliates Corporate Executive Bonus Plan. (20)

Form of Employee Non-Qualified Stock Option Award granted under the LPL Financial Holdings
Inc., 2010 Omnibus Equity Incentive Plan. (21)

Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc., 2010
Omnibus Equity Incentive Plan. (21)

Form of Advisor Restricted Stock Unit Award granted under the LPL Financial Holdings Inc., 2010
Omnibus Equity Incentive Plan. (21)

Form of Financial Institution Restricted Stock Unit Award granted under the LPL Financial Holdings
Inc., 2010 Omnibus Equity Incentive Plan. (21)

LPL Financial LLC Executive Severance Plan, amended and restated as of February 24, 2014. (21)

Form of Supplemental Restricted Stock Unit Award granted under the 2010 LPL Financial Holdings
Inc. 2010 Omnibus Equity Incentive Plan. (21)

LPL Financial Holdings Inc. Non-Employee Director Compensation Policy. (22)

Credit Agreement, dated as of March 29, 2012, by and among LPL Investment Holdings, Inc., LPL
Holdings, Inc., the several lenders from time to time party thereto, and Bank of America, N.A. as
Administrative Agent Collateral Agent, Letter of Credit Issuer and Swingline Lender. (23)

First Amendment and Incremental Assumption Agreement, dated as of May 13, 2013, by and
among LPL Financial Holdings, Inc., LPL Holdings, Inc., certain subsidiaries, the several lenders
from time to time party thereto, and Bank of America, N.A. as Administrative Agent. (24)

Second Amendment and Incremental Assumption Agreement, dated as of October 1, 2014, by and
among LPL Financial Holdings, Inc., LPL Holdings, Inc., certain subsidiaries, the several lenders
from time to time party thereto, and Bank of America, N.A. as Administrative Agent. (8)

Thomson Transaction Services Master Subscription Agreement dated as of January 5, 2009
between LPL Financial Corporation and Thomson Financial LLC. (25)†

First Amendment dated July 28, 2014 to Master Subscription Agreement dated as of January 5,
2009 between LPL Financial Corporation and Thomson Financial LLC(22)†

Stock Repurchase Agreement by and among LPL Financial Holdings Inc. and TPG Partners IV, L.P.,
made as of February 12, 2014. (21)

List of Subsidiaries of LPL Financial Holdings Inc.*

Consent of Deloitte & Touche LLP, independent registered public accounting firm.*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).*

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS

XBRL Instance Document*

101.SCH XBRL Taxonomy Extension Schema*

101.CAL

101.DEF

101.LAB

101.PRE

XBRL Taxonomy Extension Calculation*

XBRL Taxonomy Extension Definition*

XBRL Taxonomy Extension Label*

XBRL Taxonomy Extension Presentation*

___________________

* Filed herewith.

† Confidential treatment granted by the Securities and Exchange Commission.

(1) Incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-1 filed on

July 9, 2010.

(2) Incorporated by reference to the Form 8-K filed on June 19, 2012.

(3) Incorporated by reference to the Form 8-K filed on May 9, 2014.

(4) Incorporated by reference to the Form 8-K filed on March 12, 2014.

(5) Incorporated by reference to Amendment No. 1 to the Registration Statement on Form 10 filed on

July 10, 2007.

(6) Incorporated by reference to the Form 10-K filed on March 9, 2011.

(7) Incorporated by reference to the Form 10-K filed on February 27, 2012.

(8) Incorporated by reference to the Form 10-Q filed on October 30, 2014.

(9) Incorporated by reference to the Form 8-K filed on December 18, 2008.

(10) Incorporated by reference to the Form 8-K filed on December 26, 2012.

(11) Incorporated by reference to the Form 10-Q filed on April 25, 2013.

(12) Incorporated by reference to the Form 10-Q filed on April 25, 2014.

(13) Incorporated by reference to the Registration Statement on Form 10 filed on April 30, 2007.

(14) Incorporated by reference to the Form 8-K filed on February 21, 2008.

(15) Incorporated by reference to the Registration Statement on Form S-1 filed on June 4, 2010.

(16) Incorporated by reference to Form 8-K filed on November 25, 2008.

(17) Incorporated by reference to the Form S-8 filed on June 5, 2008.

(18) Incorporated by reference to Amendment No. 4 to the Registration Statement on Form S-1 filed on

November 3, 2010.

(19) Incorporated by reference to the Form 10-K filed on February 26, 2013.

(20) Incorporated by reference to the Schedule 14A filed on April 27, 2010.

(21) Incorporated by reference to the Form 10-K filed on February 25, 2014.

(22) Incorporated by reference to the Form 10-Q filed on July 30, 2014.

(23) Incorporated by reference to the Form 8-K filed on April 2, 2012.

(24) Incorporated by reference to the Form 8-K filed on May 13, 2013.

(25) Incorporated by reference to Amendment No. 1 to the Registration Statement on Form S-1 filed on

June 22, 2010.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the

registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.

SIGNATURES

LPL Financial Holdings Inc.

By:

/s/ Mark S. Casady

Mark S. Casady

Chief Executive Officer and Chairman

Dated: February 20, 2015

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Mark S. Casady
Mark S. Casady

/s/ Dan H. Arnold
Dan H. Arnold

/s/ Jeffrey R. Buchheister
Jeffrey R. Buchheister

/s/ Richard W. Boyce
Richard W. Boyce

/s/ John J. Brennan
John J. Brennan

/s/ Paulett Eberhart
Paulett Eberhart

/s/ Anne M. Mulcahy
Anne M. Mulcahy

/s/ James S. Putnam
James S. Putnam

/s/ James S. Riepe
James S. Riepe

/s/ Richard P. Schifter
Richard P. Schifter

Chief Executive Officer and Chairman

February 20, 2015

Chief Financial Officer

February 20, 2015

Chief Accounting Officer

February 20, 2015

Director

LPL FINANCIAL HOLDINGS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of LPL Financial Holdings Inc. are included in response to

Item 8:

Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended December 31, 2014, 2013, and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013, and
2012
Consolidated Statements of Financial Condition as of December 31, 2014 and 2013
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013, and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012

Notes to Consolidated Financial Statements

Page

F-2
F-3

F-4
F-5
F-6
F-7

F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
LPL Financial Holdings Inc.
Boston, Massachusetts

We have audited the accompanying consolidated statements of financial condition of LPL Financial Holdings Inc.
and subsidiaries (the "Company") as of December 31, 2014 and 2013 and the related consolidated statements of
income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2014. These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company's internal control over financial reporting as of December 31, 2014, based on the
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 20, 2015 expressed an unqualified
opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

San Diego, California
February 20, 2015

F-2

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share data)

REVENUES:

Commission

Advisory

Asset-based

Transaction and fee

Interest income, net of interest expense

Other

Total net revenues

EXPENSES:

Commission and advisory

Compensation and benefits

Promotional

Depreciation and amortization

Professional services

Occupancy and equipment

Brokerage, clearing, and exchange

Communications and data processing

Restructuring charges

Other

Total operating expenses

Non-operating interest expense

Loss on extinguishment of debt

Total expenses

INCOME BEFORE PROVISION FOR INCOME TAXES

PROVISION FOR INCOME TAXES

NET INCOME

EARNINGS PER SHARE (NOTE 16)

Earnings per share, basic

Earnings per share, diluted

Weighted-average shares outstanding, basic

Weighted-average shares outstanding, diluted

Years Ended December 31,

2014

2013

2012

2,118,494

2,077,566

1,820,517

1,337,959

1,187,352

1,062,490

476,595

369,821

18,982

51,811

430,990

361,252

17,887

65,811

403,067

321,558

18,742

34,714

4,373,662

4,140,858

3,661,088

2,998,702

2,847,785

2,509,913

421,829

124,677

96,845

62,184

82,430

49,015

43,823

34,652

109,327

4,023,484

51,538

3,943

400,967

111,539

83,503

46,559

67,551

45,059

43,075

30,186

113,923

3,790,147

51,446

7,962

362,705

107,074

71,796

41,773

58,568

38,924

39,522

5,597

103,275

3,339,147

54,826

16,524

4,078,965

3,849,555

3,410,497

294,697

116,654

291,303

109,446

178,043

181,857

1.78

1.75

99,847

101,651

1.74

1.72

104,698

106,003

250,591

98,673

151,918

1.39

1.37

109,443

111,060

See notes to consolidated financial statements.

F-3

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

NET INCOME

Other comprehensive income, net of tax:

Years Ended December 31,

2014

2013

2012

178,043

181,857

151,918

Unrealized gain on cash flow hedges, net of tax expense of $722, $72, and $0

for the years ended December 31, 2014, 2013, and 2012, respectively

Reclassification adjustment for realized (gain) loss on cash flow hedges

included in net income, net of tax expense (benefit) of $198, $0, and ($527)
for the years ended December 31, 2014, 2013, and 2012, respectively

Total other comprehensive income, net of tax

1,137

(315)

822

115

—

115

—

850

TOTAL COMPREHENSIVE INCOME

178,865

181,972

152,768

See notes to consolidated financial statements.

F-4

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)

Cash and cash equivalents

Cash and securities segregated under federal and other regulations

ASSETS

Receivables from:

Clients, net

Product sponsors, broker-dealers, and clearing organizations

Others, net

Securities owned:

Trading — at fair value

Held-to-maturity

Securities borrowed

Income taxes receivable

Fixed assets, net

Debt issuance costs, net of accumulated amortization of $11,724 and $7,751 at December 31,

2014 and 2013, respectively

Goodwill

Intangible assets, net

Other assets

Total assets

LIABILITIES:

Drafts payable

Payables to clients

LIABILITIES AND STOCKHOLDERS’ EQUITY

Payables to broker-dealers and clearing organizations

Accrued commission and advisory expenses payable

Accounts payable and accrued liabilities

Income taxes payable

Unearned revenue

Securities sold, but not yet purchased — at fair value

Senior secured credit facilities

Deferred income taxes, net

Total liabilities

Commitments and contingencies

STOCKHOLDERS’ EQUITY:

Common stock, $.001 par value; 600,000,000 shares authorized; 118,234,552 shares and

117,112,465 shares issued at December 31, 2014 and 2013, respectively

Additional paid-in capital

Treasury stock, at cost — 21,089,882 shares and 15,216,301 shares at December 31, 2014 and

2013, respectively

Accumulated other comprehensive income

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

See notes to consolidated financial statements.

F-5

December 31,

2014

2013

$ 412,332

$ 516,584

568,930

512,351

365,390

177,470

291,449

13,466

8,594

5,035

373,675

174,070

272,018

8,964

6,853

7,102

—

214,154

189,059

13,241

16,281

1,365,838

1,361,361

430,704

184,306

464,522

139,991

$ 4,050,993

$ 4,042,831

$ 180,099

$ 194,971

652,714

45,427

146,504

289,426

—

64,482

302

565,204

43,157

135,149

301,644

4,320

73,739

211

1,634,258

1,535,096

66,181

89,369

3,079,393

2,942,860

118

117

1,355,085

1,292,374

(780,661)

(506,205)

937

115

396,121

313,570

971,600

1,099,971

$ 4,050,993

$ 4,042,831

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(In thousands)

Common Stock

Amount

Additional
Paid-In
Capital

Treasury Stock

Amount

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Total
Stockholders'
Equity

BALANCE — December 31, 2011

110,532

110

$ 1,137,723

2,618

(89,037) $

(850) $ 296,802

1,344,748

Net income and other

comprehensive income, net of tax
expense

Issuance of common stock to settle

restricted stock units

2,823

Treasury stock purchases

Cash dividends on common stock

Stock option exercises and other

2,337

Excess tax benefits from share-

based compensation

Share-based compensation

(3)

6,812

(199,222)

15,937

(8)

261

53,296

21,122

850

151,918

152,768

(248,809)

(84)

—

(199,222)

(248,809)

16,117

53,296

21,122

BALANCE — December 31, 2012

115,714

116

$ 1,228,075

9,422

$(287,998) $

— $ 199,827

1,140,020

Net income and other

comprehensive income, net of tax
expense

Treasury stock purchases

Cash dividends on common stock

5,820

(219,091)

Stock option exercises and other

1,398

34,246

(26)

884

Excess tax benefits from share-

based compensation

Share-based compensation

5,381

24,672

115

181,857

(68,008)

(106)

181,972

(219,091)

(68,008)

35,025

5,381

24,672

BALANCE — December 31, 2013

117,112

117

$ 1,292,374

15,216

$(506,205) $

115

$ 313,570

1,099,971

Net income and other

comprehensive income, net of tax
expense

Issuance of common stock to settle

restricted stock units

Treasury stock purchases

Cash dividends on common stock

(869)

5,899

(275,079)

Stock option exercises and other

1,073

26,914

(42)

1,492

Excess tax benefits from share-

based compensation

Share-based compensation

8,218

27,579

822

178,043

178,865

(95,616)

124

(868)

(275,079)

(95,616)

28,530

8,218

27,579

BALANCE — December 31, 2014

118,235

118

$ 1,355,085

21,090

$(780,661) $

937

$ 396,121

971,600

See notes to consolidated financial statements.

F-6

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

178,043

181,857

151,918

Adjustments to reconcile net income to net cash provided by operating

Years Ended December 31,

2014

2013

2012

activities:

Noncash items:

Depreciation and amortization

Amortization of debt issuance costs

Impairment of fixed assets

Loss on disposal of fixed assets

Share-based compensation
Excess tax benefits related to share-based compensation
Provision for bad debts

Deferred income taxes

Loss on extinguishment of debt
Net changes in estimated fair value of contingent consideration

obligations

Closure of NestWise

Loan forgiveness

Other

Changes in operating assets and liabilities:

Cash and securities segregated under federal and other regulations

Receivables from clients

Receivables from product sponsors, broker-dealers and clearing

organizations

Receivables from others

Securities owned

Securities borrowed

Other assets

Drafts payable

Payables to clients

Payables to broker-dealers and clearing organizations

Accrued commission and advisory expenses payable

Accounts payable and accrued liabilities

Income taxes receivable/payable

Unearned revenue

Securities sold, but not yet purchased

Net cash provided by operating activities

96,845

3,973

—

1,761

27,579
(8,685)
2,432

(24,100)

3,943

—

28,409

1,246

(56,579)

7,628

(3,400)

(49,615)

(4,638)

2,067

(45,523)

(14,872)

87,510

2,270

11,355

(10,522)

4,281

(9,257)

83,503

4,365

842

173

24,672
(7,172)
2,021

(28,943)

7,962

12,676

9,279

21,006

583

71,796

4,591

4,033

204

21,122
(53,296)
1,159

(12,219)

16,524

11,353

—

1,468

455

65,082

(3,862)

(194,528)

(68,393)

(21,120)

(53,720)

(1,148)

2,346

(19,458)

(8,161)

(184,301)

(9,874)

6,690

48,127

14,916

11,931

(155)

(9,457)

(53,124)

(1,321)

(1,558)

(52,216)

15,557

292,786

18,276

18,744

20,743

47,175

2,271

205

232,242

160,117

254,268

F-7

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Continued

(Dollars in thousands)

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

Purchase of goodwill and other intangible assets

Proceeds from disposal of fixed assets

Purchase of securities classified as held-to-maturity

Proceeds from maturity of securities classified as held-to-maturity

Deposits of restricted cash

Release of restricted cash

Acquisitions, net of cash acquired

Proceeds from sale of equity investment

Purchases of minority interest investments

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facility

Repayment of senior secured term loans

Proceeds from senior secured term loans

Payment of debt issuance costs

Payment of contingent consideration

Tax payments related to settlement of restricted stock units

Repurchase of common stock

Dividends on common stock

Excess tax benefits related to share-based compensation

Proceeds from stock option exercises and other

Net cash used in financing activities

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS — Beginning of year

CASH AND CASH EQUIVALENTS — End of year

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid

Income taxes paid

NONCASH DISCLOSURES:

Capital expenditures included in accounts payable and accrued liabilities

Fixed assets acquired under build-to-suit lease

Discount on proceeds from senior secured credit facilities recorded as

debt issuance costs

Pending settlement of treasury stock purchases

Years Ended December 31,

2014

2013

2012

(89,648)

(78,239)

(54,786)

(9,000)

7,123

(7,498)

5,750

(4,679)

4,820

—

(2,595)

5,900

(1,500)

815

—

3,310

(2,500)

(93,132)

(74,809)

—

(7,210)

8,100

(64)

7,550

(43,684)

—

(1,575)

(91,669)

110,000

—

(10,838)

(866,579)

(1,364,843)

—

1,078,957

1,330,681

(4,876)

(3,300)

(868)

(2,461)

(4,431)

—

(275,079)

(219,091)

(199,121)

(95,616)

(68,008)

(248,809)

8,685

28,530

(243,362)

(104,252)

516,584

7,172

35,025

53,296

16,117

(34,985)

(417,110)

50,323

466,261

(254,511)

720,772

412,332

516,584

466,261

51,588

139,315

8,184

8,114

— $

51,712

123,583

16,075

22,979

4,893

— $

54,883

62,260

5,181

5,599

19,319

101

See notes to consolidated financial statements.

F-8

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Organization and Description of the Company

LPL Financial Holdings Inc. (“LPLFH”), a Delaware holding corporation, together with its consolidated
subsidiaries (collectively, the “Company”) provides an integrated platform of brokerage and investment advisory
services to independent financial advisors and financial advisors at financial institutions (collectively “advisors”) in
the United States of America. Through its custody and clearing platform, using both proprietary and third-party
technology, the Company provides access to diversified financial products and services, enabling its advisors to
offer independent financial advice and brokerage services to retail investors (their “clients”).

Description of Subsidiaries

LPL Holdings, Inc. (“LPLH”), a Massachusetts holding corporation, owns 100% of the issued and outstanding

common stock or other ownership interest in each of LPL Financial LLC (“LPL Financial”), Fortigent Holdings
Company, Inc., Independent Advisers Group Corporation (“IAG”), LPL Insurance Associates, Inc. (“LPLIA”), LPL
Independent Advisor Services Group LLC (“IASG”), and UVEST Financial Services Group, Inc. (“UVEST”). LPLH
is also the majority stockholder in PTC Holdings, Inc. (“PTCH”), and owns 100% of the issued and outstanding
voting common stock. Each member of PTCH's board of directors meets the direct equity ownership interest
requirements that are required by the Office of the Comptroller of the Currency. In late 2014, the Company entered
into a subscription agreement to establish a series captive insurance entity that will underwrite insurance for various
legal and regulatory risks that have previously been self-insured.

LPL Financial, with primary offices in Boston, San Diego, and Charlotte, is a clearing broker-dealer and an

investment adviser that principally transacts business as an agent for its advisors and financial institutions on behalf
of their clients in a broad array of financial products and services. LPL Financial is licensed to operate in all
50 states, Washington D.C., Puerto Rico, and the U.S. Virgin Islands.

Fortigent Holdings Company, Inc. and its subsidiaries (“Fortigent”), acquired in April 2012, provides solutions

and consulting services to registered investment advisors, banks, and trust companies serving high-net-worth
clients.

PTCH is a holding company for The Private Trust Company, N.A. (“PTC”). PTC is chartered as a non-
depository limited purpose national bank, providing a wide range of trust, investment management oversight, and
custodial services for estates and families. PTC also provides Individual Retirement Account custodial services for
LPL Financial.

IAG is a registered investment adviser that offers an investment advisory platform for clients of advisors

working for other financial institutions.

LPLIA operates as an insurance brokerage general agency that offers life, long-term care, and disability

insurance products and services for LPL Financial advisors.

Summary of Significant Accounting Policies

Basis of Presentation

These consolidated financial statements are prepared in accordance with accounting principles generally

accepted in the United States of America (“GAAP”), which require the Company to make estimates and
assumptions regarding the valuation of certain financial instruments, intangible assets, allowance for doubtful
accounts, share-based compensation, accruals for liabilities, income taxes, revenue and expense accruals, and
other matters that affect the consolidated financial statements and related disclosures. Actual results could differ
from those estimates under different assumptions or conditions and the differences may be material to the
consolidated financial statements.

In the consolidated statements of income, the Company reclassified certain legal and regulatory costs from

Professional Services to Other expenses to improve the transparency of its professional services costs provided by
third-party vendors and to be consistent with industry peers in the presentation of costs related to these types of
regulatory and legal matters. Additionally, the Company combined Regulatory Fees and Other expenses, which
included certain licensing, insurance, and regulatory fee expenses, with Other expenses to be consistent with
industry peers. The total amounts reclassified to Other expenses were $59.4 million and $52.8 million for the years
ended December 31, 2013 and 2012, respectively.

F-9

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Consolidation

These consolidated financial statements include the accounts of LPLFH and its subsidiaries. Intercompany
transactions and balances have been eliminated. Equity investments in which the Company exercises significant
influence, but does not exercise control and is not the primary beneficiary, are accounted for using the equity
method.

Reportable Segment

The Company's internal reporting is organized into two service channels: Independent Advisor Services and
Institution Services. These service channels are aggregated and viewed as one operating segment, and therefore,
one reportable segment due to their similar economic characteristics, products and services, production and
distribution processes, and regulatory environment.

Revenue Recognition

Substantially all of the Company's revenues are based on contractual arrangements. In determining the
appropriate recognition of commissions, the Company reviews the terms and conditions of the brokerage account
agreements between the Company and its advisors' clients, representative agreements with its advisors, which
include payout rates and terms, and selling agreements with product sponsors for packaged investment products
such as mutual funds, annuities, insurance, and alternative investments. In determining the appropriate recognition
of advisory revenues, the Company reviews the terms and conditions of the advisory agreements between the
advisors' clients and the applicable registered investment advisor (“RIA”), representative agreements with its
advisors, and agreements with third parties who provide specific investment management or investment strategies.

Revenues are recognized in the periods in which the related services are performed provided that persuasive

evidence of an arrangement exists, the fee is fixed or determinable, and collectability is reasonably assured.
Payments received by the Company in advance of the performance of service are deferred and recognized as
revenue when earned.

Management considers the nature of the Company's contractual arrangements in determining whether to

recognize certain types of revenue on the basis of the gross amount billed or net amount retained after payments
are made to providers of certain services related to the product or service offering.

The main factors the Company uses to determine whether to record revenue on a gross or net basis are

whether:

•

the Company is primarily responsible for the service to the advisor and their client;

the Company has discretion in establishing fees paid by the client and fees due to the third-party service
provider; and

the Company is involved in the determination of product or service specifications.

When client fees include a portion of charges that are paid to another party and the Company is primarily
responsible for providing the service to the client, revenue is recognized on a gross basis in an amount equal to the
fee paid by the client. The cost of revenues recognized is the amount due to the other party and is recorded as
commission and advisory expense in the consolidated statements of income.

In instances in which another party is primarily responsible for providing the service to the client, revenue is

recognized in the net amount retained by the Company. The portion of the fees that are collected from the client by
the Company and remitted to the other party are considered pass through amounts and accordingly are not a
component of revenues or cost of revenues.

The Company recognizes revenue related to commission, advisory fees, asset-based fees, transaction and

fees, and interest income, net of interest expense.

Commission Revenues

Commission revenues represent commissions generated by the Company's advisors for their clients'
purchases and sales of securities on exchanges and over-the-counter, as well as purchases of various investment
products such as mutual funds, variable and fixed annuities, alternative investments including non-traded real
estate investment trusts and business development companies, fixed income, insurance, group annuities, and
option and commodity transactions. The Company generates two types of commission revenues: transaction-based

F-10

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

sales commissions that occur at the point of sale, as well as trailing commissions for which the Company provides
ongoing support, awareness, and education to clients of its advisors.

Transaction-based sales commissions are recognized as revenue on a trade-date basis, which is when the

Company's performance obligations in generating the commissions have been substantially completed. The
Company settles a significant volume of transactions that are initiated directly between its advisors and product
sponsors, particularly with regard to mutual fund, 529 education savings plan, fixed and variable annuity, and
insurance products. As a result, management must estimate a portion of its commission revenues earned from
clients for purchases and sales of these products for each accounting period for which the proceeds have not yet
been received. These estimates are based on the amount of commissions earned from transactions in these
products in prior periods.

Trailing commission revenues include mutual fund, 529 education savings plan, and fixed and variable

product trailing fees, which are recurring in nature. These trailing fees are earned by the Company based on a
percentage of the current market value of clients' investment holdings in trail-eligible assets, and recognized over
the period during which services are performed. Because trailing commission revenues are generally paid in
arrears, management estimates the majority of trailing commission revenues earned during each period. These
estimates are based on a number of factors, including market levels and the amount of trailing commission
revenues received in prior periods. Commission revenue accruals are classified within receivables from product
sponsors, broker-dealers, and clearing organizations in the consolidated statements of financial condition.

A substantial portion of the commission revenue is ultimately paid to the advisors. The Company records an
estimate for commissions payable based upon average payout ratios for each product for which the Company has
accrued commission revenue. Such amounts are classified as payables to broker-dealers and clearing
organizations in the consolidated statements of financial condition and commission and advisory expense in the
consolidated statements of income.

Advisory Revenues

The Company records fees charged to clients as advisory revenues in advisory accounts where LPL
Financial or IAG is the RIA. A substantial portion of these advisory fees are paid to the related advisor and these
payments are classified as commission and advisory expense in the consolidated statements of income.

Certain advisors conduct their advisory business through separate entities by establishing their own RIA
pursuant to the Investment Advisers Act of 1940, rather than using the Company's corporate RIA. These stand-
alone RIAs (“Independent RIA”) engage the Company for clearing, regulatory and custody services, as well as
access to the Company's investment advisory platforms. The advisory revenue generated by these Independent
RIAs is earned by the advisors, and accordingly not included in the Company's advisory revenues.

The Company charges administrative fees based on the value of assets within these advisory accounts,

which are classified as advisory revenues in the consolidated statements of income.

Asset-Based Revenues

Asset-based revenues are comprised of fees from cash sweep programs, financial product manufacturer

sponsorship programs, and omnibus processing and networking services and are recognized ratably over the
period in which services are provided.

Transaction and Fee Revenues

The Company charges fees for executing certain transactions in client accounts. Transaction related charges

are recognized on a trade-date basis. Other fees relate to services provided and other account charges generally
outlined in agreements with clients, advisors, and financial institutions. Such fees are recognized as services are
performed or as earned, as applicable. In addition, the Company offers various services for which fees are charged
on a subscription basis and recognized over the subscription period.

F-11

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Interest Income, Net of Interest Expense

The Company earns interest income from its cash equivalents and client margin balances, less interest
expense on related transactions. Because interest expense incurred in connection with cash equivalents and client
margin balances is completely offset by revenue on related transactions, the Company considers such interest to
be an operating expense. Interest expense from operations for the years ended December 31, 2014, 2013, and
2012 did not exceed $1.0 million.

Compensation and Benefits

The Company records compensation and benefits expense for all cash and deferred compensation, benefits,

and related taxes as earned by its employees. Compensation and benefits expense also includes fees earned by
temporary employees and contractors who perform similar services to those performed by the Company’s
employees, primarily software development and project management activities.

Share-Based Compensation

Certain employees, officers, directors, advisors, and financial institutions of the Company participate in

various long-term incentive plans that provide for granting stock options, warrants, restricted stock awards, and
restricted stock units. Stock options and warrants generally vest in equal increments over a three- to five-year
period and expire on the tenth anniversary following the date of grant. Restricted stock awards and restricted stock
units generally vest over a two- to four-year period.

The Company recognizes share-based compensation for equity awards granted to employees, officers, and
directors as compensation and benefits expense on the consolidated statements of income. The fair value of stock
options is estimated using a Black-Scholes valuation model on the date of grant. The fair value of restricted stock
awards and restricted stock units is equal to the closing price of the Company’s stock on the date of grant. Share-
based compensation is recognized over the requisite service period of the individual awards, which generally
equals the vesting period.

The Company recognizes share-based compensation for equity awards granted to advisors and financial
institutions as commissions and advisory expense on the consolidated statements of income. The fair value of stock
options and warrants is estimated using a Black-Scholes valuation model on the date of grant and is revalued at
each reporting period. The fair value of restricted stock units is equal to the closing price of the Company’s stock on
the date of grant and on the last day of each reporting period. Share-based compensation is recognized over the
requisite service period of the individual awards, which generally equals the vesting period.

The Company must also make assumptions regarding the number of stock options, warrants, restricted stock
awards, and restricted stock units that will be forfeited. The forfeiture assumption is ultimately adjusted to the actual
forfeiture rate. Therefore, changes in the forfeiture assumptions do not impact the total amount of expense
ultimately recognized over the vesting period. Rather, different forfeiture assumptions would only impact the timing
of expense recognition over the vesting period. See Note 15. Share-Based Compensation, for additional information
regarding share-based compensation for equity awards granted.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the basic

weighted-average number of shares of common stock outstanding during the period. The computation of diluted
earnings per share is similar to the computation of basic earnings per share, except that the denominator is
increased to include the number of additional shares of common stock that would have been outstanding if dilutive
potential shares of common stock had been issued.

Income Taxes

In preparing the consolidated financial statements, the Company estimates income tax expense based on
various jurisdictions where it conducts business. The Company then must assess the likelihood that the deferred
tax assets will be realized. A valuation allowance is established to the extent that it is more-likely-than-not that such
deferred tax assets will not be realized. When the Company establishes a valuation allowance or modifies the
existing allowance in a certain reporting period, it generally records a corresponding increase or decrease to tax
expense in the consolidated statements of income. Management makes significant judgments in determining the
provision for income taxes, the deferred tax assets and liabilities, and any valuation allowances recorded against

F-12

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

the deferred tax asset. Changes in the estimate of these taxes occur periodically due to changes in the tax rates,
changes in the business operations, implementation of tax planning strategies, resolution with taxing authorities of
issues where the Company had previously taken certain tax positions, and newly enacted statutory, judicial, and
regulatory guidance. These changes could have a material effect on the Company’s consolidated statements of
income, financial condition, or cash flows in the period or periods in which they occur. Income tax credits are
accounted for using the flow-through method as a reduction of income tax in the years utilized.

The Company recognizes the tax effects of a position in the consolidated financial statements only if it is
more-likely-than-not to be sustained based solely on its technical merits, otherwise no benefits of the position are to
be recognized. The more-likely-than-not threshold must continue to be met in each reporting period to support
continued recognition of a benefit. Moreover, each tax position meeting the recognition threshold is required to be
measured as the largest amount that is greater than 50 percent likely to be realized upon ultimate settlement with a
taxing authority that has full knowledge of all relevant information.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with an original maturity of 90 days or less that are not
required to be segregated under federal or other regulations. The Company's cash and cash equivalents are
composed of interest and noninterest-bearing deposits, money market funds, and U.S. government obligations.

Cash and Securities Segregated Under Federal and Other Regulations

The Company's subsidiary, LPL Financial, is subject to requirements related to maintaining cash or qualified

securities in a segregated reserve account for the exclusive benefit of its customers in accordance with Rule 15c3-3
of the Security Exchange Act of 1934, as amended, and other regulations.

Receivables From and Payables to Clients

Receivables from clients include amounts due on cash and margin transactions. The Company extends credit

to clients of its advisors to finance their purchases of securities on margin and receives income from interest
charged on such extensions of credit. Payables to clients represent credit balances in client accounts arising from
deposits of funds, proceeds from sales of securities, and dividend and interest payments received on securities held
in client accounts at LPL Financial. At December 31, 2014 and 2013, $646.4 million and $549.5 million, respectively,
of the balance represent free credit balances that are held pending re-investment by the clients. The Company pays
interest on certain client payable balances.

To the extent that margin loans and other receivables from clients are not fully collateralized by client
securities, management establishes an allowance that it believes is sufficient to cover any probable losses. When
establishing this allowance, management considers a number of factors, including its ability to collect from the client
or the client’s advisor and the Company’s historical experience in collecting on such transactions.

The following schedule reflects the Company’s activity in providing for an allowance for uncollectible amounts

due from clients (in thousands):

Beginning balance — January 1

Provision for doubtful accounts

Ending balance — December 31

Receivables From Others

December 31,

2014

2013

588

657

1,245

587

588

Receivables from others primarily consist of accrued fees from product sponsors and amounts due from

advisors. The Company periodically extends credit to its advisors in the form of recruiting loans, commission
advances, and other loans. The decisions to extend credit to advisors are generally based on either the advisors’
credit history and their ability to generate future commissions. Certain loans made in connection with recruiting are
forgivable over terms ranging from three to five years provided that the advisor remains licensed through LPL
Financial. At December 31, 2014, advisor loans totaled $121.0 million, of which $68.6 million was forgivable.
Management maintains an allowance for uncollectible amounts, which excludes advisor loans that are forgivable,
using an aging analysis that takes into account the advisors’ registration status and the specific type of receivable.

F-13

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The aging thresholds and specific percentages used represent management’s best estimates of probable losses.
Management monitors the adequacy of these estimates through periodic evaluations against actual trends
experienced.

The following schedule reflects the Company’s activity in providing for an allowance for uncollectible amounts

due from others (in thousands):

Beginning balance — January 1

Provision for doubtful accounts

Charge-offs, net of recoveries

Ending balance — December 31

December 31,

2014

2013

7,091

1,775

(487)

6,675

2,020

(1,604)

8,379

7,091

Securities Owned and Securities Sold, But Not Yet Purchased

Securities owned and securities sold, but not yet purchased include trading and held-to-maturity securities.

The Company generally classifies its investments in debt and equity instruments (including mutual funds, annuities,
corporate bonds, government bonds, and municipal bonds) as trading securities, except for U.S. government notes
held by PTC, which are classified as held-to-maturity securities. The Company has not classified any investments
as available-for-sale. Investment classifications are subject to ongoing review and can change.

Securities classified as trading are carried at fair value, while securities classified as held-to-maturity are
carried at amortized cost. The Company uses prices obtained from independent third-party pricing services to
measure the fair value of its trading securities. Prices received from the pricing services are validated using various
methods including comparison to prices received from additional pricing services, comparison to available quoted
market prices, and review of other relevant market data including implied yields of major categories of securities. In
general, these quoted prices are derived from active markets for identical assets or liabilities. When quoted prices in
active markets for identical assets and liabilities are not available, the quoted prices are based on similar assets
and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. For certificates
of deposit and treasury securities, the Company utilizes market-based inputs, including observable market interest
rates that correspond to the remaining maturities or the next interest reset dates. At December 31, 2014, the
Company did not adjust prices received from the independent third-party pricing services.

Interest income is accrued as earned. Premiums and discounts are amortized using a method that
approximates the effective yield method over the term of the security and are recorded as an adjustment to the
investment yield. The Company makes estimates about the fair value of investments and the timing for recognizing
losses based on market conditions and other factors. If these estimates change, the Company may recognize
additional losses. Both unrealized and realized gains and losses on trading securities are recognized in other
revenue on a net basis in the consolidated statements of income.

Securities Borrowed

Securities borrowed are accounted for as collateralized financings and are recorded at contract value,
representing the amount of cash provided for securities borrowed transactions (generally in excess of market
values). The adequacy of the collateral deposited, which is determined by comparing the market value of the
securities borrowed to the cash loaned, is continuously monitored and is adjusted when considered necessary to
minimize the risk associated with this activity.

The Company borrows securities from other broker-dealers to make deliveries or to facilitate customer short
sales. As of December 31, 2014, the contract and collateral market values of borrowed securities were $5.0 million
and $4.9 million, respectively. As of December 31, 2013, the contract and collateral market values of borrowed
securities were $7.1 million and $7.0 million, respectively.

Fixed Assets

Internally developed software, leasehold improvements, computers and software, and furniture and

equipment are recorded at historical cost, net of accumulated depreciation and amortization. Depreciation is
recognized using the straight-line method over the estimated useful lives of the assets. The Company charges

F-14

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

software development costs to operations as incurred during the preliminary project stage, while capitalizing costs
at the point at which the conceptual formulation, design, and testing of possible software project alternatives are
complete and management authorizes and commits to funding the project. The costs of internally developed
software that qualify for capitalization are capitalized as fixed assets and subsequently amortized over the
estimated useful life of the software, which is generally three years. The Company does not capitalize pilot projects
and projects for which it believes that the future economic benefits are less than probable. Leasehold improvements
are amortized over the lesser of their useful lives or the terms of the underlying leases. Computers and software, as
well as furniture and equipment, are depreciated over a period of three to seven years. Land is not depreciated.

Management reviews fixed assets for impairment whenever events or changes in circumstances indicate the
carrying amount of the assets may not be recoverable. During the years ended December 31, 2013 and 2012, the
Company recorded an asset impairment charge of $0.8 million and $4.0 million, respectively, for certain fixed assets
related to internally developed software that were determined to no longer have future economic benefit. The $0.8
million asset impairment charge for the year ended December 31, 2013 is included in restructuring charges within
the consolidated statements of income. No impairment occurred for the year ended December 31, 2014.

Acquisitions

When acquiring companies, the Company recognizes separately from goodwill the assets acquired and the

liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the
excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the
liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price
allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, these
estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which
may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and
liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or
final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to the consolidated statements of income.

Accounting for business combinations requires the Company's management to make significant estimates
and assumptions, especially at the acquisition date with respect to intangible assets, support liabilities assumed,
and pre-acquisition contingencies. These assumptions are based in part on historical experience, market data, and
information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets the Company has acquired include,

but are not limited to: (i) future expected cash flows from client relationships, advisor relationships, and product
sponsor relationships; (ii) estimates to develop or use software; and (iii) discount rates.

If the Company determines that a pre-acquisition contingency is probable in nature and estimable as of the

acquisition date, the Company records its best estimate for such a contingency as a part of the preliminary
purchase price allocation. The Company continues to gather information for and evaluate pre-acquisition
contingencies throughout the measurement period, with changes to the amounts recorded or identified additional
pre-acquisition contingencies included in the purchase price allocation and, subsequently, in the Company's results
of operations.

The Company may be required to pay future consideration to the former shareholders of acquired companies,

depending upon the terms of the applicable purchase agreement, that is contingent upon the achievement of
certain financial or operating targets. The fair value of the contingent consideration is determined using financial
forecasts and other estimates that assess the probability and timing of the financial targets being reached, and
measuring the associated cash payments at their present value using a risk-adjusted rate of return. The estimated
fair value of the contingent consideration on the acquisition date is included in the purchase price of the acquired
company. At each reporting date, or whenever there are significant changes in underlying key assumptions, a
review of these assumptions is performed and the contingent consideration liability is updated to its estimated fair
value. If there are no significant changes in the assumptions, the quarterly determination of the fair value of
contingent consideration reflects the implied interest for the passage of time. Changes in the estimated fair value of
the contingent consideration obligations may result from changes in the terms of the contingent payments, changes
in discount periods and rates, changes in assumptions with respect to the timing and likelihood of achieving the
applicable targets, and other related developments. Actual progress toward achieving the financial targets for the
remaining measurement periods may be different than the Company's expectations of future performance. The

F-15

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

change in the estimated fair value of contingent consideration has been classified as other expenses in the
consolidated statements of income.

Goodwill and Other Intangible Assets

Goodwill and other indefinite-lived assets are not amortized; however, intangible assets that are deemed to
have definite lives are amortized over their useful lives, generally ranging from 5 - 20 years. See Note 8. Goodwill
and Other Intangible Assets, for additional information regarding the Company's goodwill and other intangible
assets.

Goodwill and other indefinite-lived intangible assets are tested annually for impairment in the fourth fiscal

quarter and between annual tests if certain events occur indicating that the carrying amounts may be impaired. If a
qualitative assessment is used and the Company determines that the fair value of a reporting unit or indefinite-lived
intangible asset is more likely than not (i.e., a likelihood of more than 50%) less than its carrying amount, a
quantitative impairment test will be performed. If goodwill or other indefinite-lived intangible assets are quantitatively
assessed for impairment, a two-step approach is applied. First, the Company compares the estimated fair value of
the reporting unit in which the asset resides to its carrying value. The second step, if necessary, measures the
amount of such impairment by comparing the implied fair value of the asset to its carrying value. No impairment of
goodwill or other indefinite-lived intangible assets was recognized during the years ended December 31, 2014,
2013, or 2012.

Long-lived assets, such as intangible assets subject to amortization, are reviewed for impairment when there

is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group
may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying
amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the
asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an
impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds
the estimated fair value of the asset or asset group. Long-lived assets to be disposed of by sale are reported at the
lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated. No
impairment of definite-lived intangible assets was recognized during the years ended December 31, 2014, 2013, or
2012.

Debt Issuance Costs

Debt issuance and amendment costs have been capitalized and are being amortized as additional interest

expense over the expected terms of the related debt agreements.

Derivative Financial Instruments

The Company uses derivative financial instruments, consisting of non-deliverable foreign currency forward

contracts, to mitigate foreign currency exchange rate risk related to operating expenses that are subject to repricing.
The Company has designated these derivative financial instruments as cash flow hedges, all of which qualify for
hedge accounting. The Company assesses the ongoing effectiveness of its cash flow hedges. Changes in the fair
value for the effective portion of the Company's cash flow hedges are presented in other comprehensive income
and reclassified into earnings to match the timing of the underlying hedged item. Hedge ineffectiveness is
measured at the end of each fiscal quarter, with any gains or losses realized into earnings in the current period. See
Note 9. Derivative Financial Instruments, for additional information regarding the Company's derivative financial
instruments.

Fair Value of Debt Instruments

The Company carries its indebtedness at amortized cost. The Company measures the implied fair value of its
debt instruments using trading levels obtained from a third-party service provider. Accordingly, the debt instruments
qualify as Level 2 fair value measurements. See Note 4. Fair Value Measurements, for additional information
regarding the Company's fair value measurements. As of December 31, 2014, the carrying amount and fair value of
the Company’s indebtedness was approximately $1,634.3 million and $1,620.8 million, respectively. As of
December 31, 2013, the carrying amount and fair value was approximately $1,535.1 million and $1,533.3 million,
respectively.

F-16

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Commitments and Contingencies

The Company recognizes a liability with regard to loss contingencies when it believes it is probable a liability

has occurred and the amount can be reasonably estimated. If some amount within a range of loss appears at the
time to be a better estimate than any other amount within the range, the Company accrues that amount. When no
amount within the range is a better estimate than any other amount, however, the Company accrues the minimum
amount in the range.

The Company records legal accruals and related insurance recoveries on a gross basis. Defense costs are

expensed as incurred and classified as other expenses within the consolidated statements of income.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which completes the joint effort by the
FASB and the International Accounting Standards Board to improve financial reporting by creating common revenue
recognition guidance for GAAP and the International Financial Reporting Standards. ASU 2014-09 will become
effective for the Company beginning January 1, 2017 and early adoption is not permitted. The Company is currently
evaluating the potential impact of ASU 2014-09 on its financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern, which

will require an entity's management to assess, for each annual and interim period, whether there is substantial
doubt about the entity's ability to continue as a going concern within one year of the financial statement issuance
date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of "probable"
similar to the use of that term under current GAAP for loss contingencies. Certain disclosures will be required if
conditions give rise to substantial doubt. ASU 2014-15 will be effective for the Company beginning January 1, 2017
and early adoption is permitted. The Company does not anticipate the adoption of ASU 2014-15 to have a material
impact on its financial statements.

Restructuring

Service Value Commitment Initiative

In February 2013, the Company committed to an expansion of its Service Value Commitment initiative (the
“Program”), an ongoing effort to position the Company's people, processes, and technology for sustainable long-
term growth while improving the service experience of its advisors and delivering efficiencies in its operating model.
The Program is expected to be completed in 2015.

The Company estimates total charges in connection with the Program will approach $68.0 million. These
expenditures are comprised of outsourcing and other related costs, technology transformation costs, employee
severance obligations, and other related costs, as well as non-cash charges for impairment of certain fixed assets
related to internally developed software.

The following table summarizes the balance of accrued expenses and the changes in the accrued amounts

for the Program as of and for the year ended December 31, 2014 (in thousands):

Accrued
Balance at
December 31,
2013

Costs
Incurred

Payments

Accrued
Balance at
December 31,
2014

Cumulative
Costs
Incurred to
Date

Total
Expected
Restructuring
Costs

Outsourcing and other related costs

1,424

6,207

(7,631) $

— $

21,488

Technology transformation costs

1,753

20,649

(17,944)

4,458

1,999

—

29,918

8,885

842

23,500

30,300

13,400

842

Employee severance obligations and

other related costs

Asset impairments

Total

820

—

6,427

(5,248)

—

3,997

$ 33,283

$ (30,823) $

6,457

61,133

68,042

F-17

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability

(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants at the measurement date. Inputs used to measure fair value are prioritized within a
three-level fair value hierarchy. This hierarchy requires entities to maximize the use of observable inputs and
minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow
methodologies, and similar techniques that use significant unobservable inputs.

There were no transfers of assets or liabilities between these fair value measurement classifications during

the years ended December 31, 2014 and 2013.

The Company’s fair value measurements are evaluated within the fair value hierarchy, based on the nature of

inputs used to determine the fair value at the measurement date. At December 31, 2014, the Company had the
following financial assets and liabilities that are measured at fair value on a recurring basis:

Cash Equivalents — The Company’s cash equivalents include money market funds, which are short term in nature
with readily determinable values derived from active markets.

Securities Owned and Securities Sold, But Not Yet Purchased — The Company’s trading securities consist of
house account model portfolios established and managed for the purpose of benchmarking the performance of its
fee-based advisory platforms and temporary positions resulting from the processing of client transactions.
Examples of these securities include money market funds, U.S. treasury obligations, mutual funds, certificates of
deposit, and traded equity and debt securities.

Other Assets — The Company’s other assets include: (1) deferred compensation plan assets that are invested in
money market and other mutual funds, which are actively traded and valued based on quoted market prices; (2)
certain non-traded real estate investment trusts and auction rate notes, which are valued using quoted prices for
identical or similar securities and other inputs that are observable or can be corroborated by observable market
data; and (3) cash flow hedges, which are measured using quoted prices for similar cash flow hedges, taking into
account counterparty credit risk and the Company's own non-performance risk.

Accounts Payable and Accrued Liabilities — The Company's accounts payable and accrued liabilities include
contingent consideration liabilities that are measured using Level 3 inputs.

F-18

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value

on a recurring basis at December 31, 2014 (in thousands):

Assets

Cash equivalents

Securities owned — trading:

Money market funds

Mutual funds

Equity securities

Debt securities

U.S. treasury obligations

Total securities owned — trading

Other assets

Total assets at fair value

Liabilities

Securities sold, but not yet purchased:

Mutual funds

Equity securities

Debt securities

Total securities sold, but not yet purchased

Accounts payable and accrued liabilities

Total liabilities at fair value

Level 1

Level 2

Level 3

Total

22,592

— $

22,592

293

7,570

224

—

4,000

12,087

75,540

—

1,379

—

1,379

5,058

—

293

7,570

224

1,379

4,000

13,466

80,598

110,219

6,437

— $

116,656

— $

279

—

292

—

292

—

527

279

302

527

829

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a

recurring basis at December 31, 2013 (in thousands):

Assets

Cash equivalents

Securities owned — trading:

Money market funds

Mutual funds

Equity securities

U.S. treasury obligations

Total securities owned — trading

Other assets

Total assets at fair value

Liabilities

Securities sold, but not yet purchased:

Mutual funds

Equity securities

Debt securities

Certificates of deposit

Total securities sold, but not yet purchased

Accounts payable and accrued liabilities

Level 1

Level 2

Level 3

Total

254,032

— $

254,032

170

7,291

103

1,400

8,964

—

47,539

3,072

—

170

7,291

103

1,400

8,964

50,611

310,535

3,072

— $

313,607

— $

127

—

190

—

127

211

39,293

39,504

—

Total liabilities at fair value

190

Changes in Level 3 Recurring Fair Value Measurements

At December 31, 2013, the Company had a contingent consideration obligation related to the acquisition of

F-19

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

National Retirement Partners, Inc. ("NRP"). This obligation was based on the achievement of certain revenue-
based targets for the twelve-month period ended November 30, 2013. As of December 31, 2013, the Company had
finalized the determination of the amount of contingent consideration to be paid to the former shareholders of NRP,
resulting in a total payment of $39.3 million, which was made on February 19, 2014.

Held-to-Maturity Securities

At December 31, 2014 and 2013, the Company's held-to-maturity securities consisted of U.S. government

notes. The Company discloses the fair value of its securities held-to-maturity using quoted prices in active markets,
which is a Level 1 fair value measurement. The amortized cost, gross unrealized loss, and fair value of securities
held-to-maturity were as follows (in thousands):

Amortized cost

Gross unrealized loss

Fair value

December 31,

2014

2013

8,594

(14)

8,580

6,853

(58)

6,795

At December 31, 2014, the securities held-to-maturity were scheduled to mature as follows (in thousands):

Within one
year

After one but
within five
years

After five but
within ten
years

Total

U.S. government notes — at amortized cost

U.S. government notes — at fair value

3,099

4,995

4,983

500

498

8,594

8,580

Receivables from Product Sponsors, Broker-Dealers, and Clearing Organizations and Payables to
Broker-Dealers and Clearing Organizations

Receivables from product sponsors, broker-dealers, and clearing organizations and payables to broker-

dealers and clearing organizations were as follows (in thousands):

Receivables:

Commissions receivable from product sponsors and others

Receivable from clearing organizations

Receivable from broker-dealers

Securities failed-to-deliver

Total receivables

Payables:

Payable to clearing organizations

Payable to broker-dealers

Securities failed-to-receive

Total payables

December 31,

2014

2013

122,207

112,575

38,873

10,814

5,576

49,295

7,060

5,140

177,470

174,070

19,580

28,433

20,208

5,639

9,884

4,840

45,427

43,157

F-20

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Fixed Assets

The components of fixed assets were as follows (in thousands):

Internally developed software

Leasehold improvements

Computers and software

Furniture and equipment

Land

Total fixed assets

Accumulated depreciation and amortization

Fixed assets, net

December 31,

2014

2013

259,335

232,448

95,846

95,406

47,658

4,743

89,259

86,163

37,868

6,642

502,988

452,380

(288,834)

(263,321)

214,154

189,059

Depreciation and amortization expense was $58.0 million, $44.5 million, and $32.3 million for the years ended

December 31, 2014, 2013, and 2012, respectively.

Goodwill and Other Intangible Assets

A summary of the activity in goodwill is presented below (in thousands):

Balance at December 31, 2012

Closure of NestWise

Balance at December 31, 2013

Goodwill acquired

Balance at December 31, 2014

1,371,523

(10,162)

1,361,361

4,477

1,365,838

In 2014, the Company purchased certain intangible assets of a third party, which included $4.5 million in
goodwill and $5.1 million in other intangible assets. During 2013, in conjunction with the closure of our former
subsidiary, NestWise, certain assets of NestWise, including goodwill, were determined to have no future economic
benefit. Accordingly, the Company derecognized $10.2 million of goodwill held at NestWise, which is included within
other expenses in the consolidated statements of income.

The components of intangible assets were as follows at December 31, 2014 (dollars in thousands):

Definite-lived intangible assets:

Advisor and financial institution relationships

Product sponsor relationships

Client relationships

Trade names

Weighted-
Average Life
Remaining
(in years)

Gross
Carrying
Value

Accumulated
Amortization

Net
Carrying
Value

10.9

11.1

9.4

7.3

440,533

(195,835) $

234,086

20,220

1,200

(101,377)

(7,622)

(320)

244,698

132,709

12,598

880

Total definite-lived intangible assets

696,039

(305,154) $

390,885

Indefinite-lived intangible assets:

Trademark and trade name

Total intangible assets

39,819

430,704

F-21

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The components of intangible assets were as follows at December 31, 2013 (dollars in thousands):

Definite-lived intangible assets:

Advisor and financial institution relationships

Product sponsor relationships

Client relationships

Trade names

Weighted-
Average Life
Remaining
(in years)

Gross
Carrying
Value

Accumulated
Amortization

Net
Carrying
Value

11.8

12.1

10.2

8.3

439,762

(171,453) $

230,916

19,110

1,200

(88,751)

(5,881)

(200)

268,309

142,165

13,229

1,000

Total definite-lived intangible assets

690,988

(266,285) $

424,703

Indefinite-lived intangible assets:

Trademark and trade name

Total intangible assets

39,819

464,522

Total amortization expense of intangible assets was $38.9 million, $39.0 million, and $39.5 million for the

years ended December 31, 2014, 2013, and 2012, respectively. Future amortization expense is estimated as
follows (in thousands):

2015

2016

2017

2018

2019

Thereafter

Total

38,288

38,161

37,276

34,833

34,768

207,559

390,885

Derivative Financial Instruments

In May 2013, in conjunction with its Service Value Commitment initiative, the Company entered into a long-

term contractual obligation (the “Agreement”) with a third-party provider to enhance the quality, speed, and cost of
processes by outsourcing certain functions. The Agreement enables the third-party provider to use the services of
its affiliates in India to provide services to the Company and provides for the Company to settle the cost of its
contractual obligation to the third-party provider in U.S. dollars each month. However, the Agreement provides that
on each annual anniversary date of the signing of the Agreement, the price for services (denominated in U.S.
dollars) is to be adjusted for the then-current exchange rate between the U.S. dollar (“USD”) and the Indian rupee
(“INR”). The Agreement provides that, once an annual adjustment is calculated, there are no further modifications
to the amounts paid by the Company to the third-party provider for fluctuations in the exchange rate between the
USD and the INR until the reset on the next anniversary date of the signing of the Agreement.

The third-party provider bore the risk of currency movement from the date of signing the Agreement until the
reset on the first anniversary of its signing, and bears such risk during each period until the next annual reset date.
The Company bears the risk of currency movement at each of the annual reset dates following the first anniversary.

To mitigate foreign currency risk arising from these annual anniversary events, the Company entered into four

non-deliverable foreign currency contracts, all of which have been designated as cash flow hedges. The first cash
flow hedge, with a notional amount of 560.4 million INR, or $8.5 million, settled in June 2014. The Company
received a settlement of $1.0 million that will be reclassified out of accumulated other comprehensive income and
recognized in net income ratably over a 12-month period ending May 31, 2015 to match the timing of the underlying
hedged item.

F-22

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The details related to the non-deliverable foreign currency contracts at December 31, 2014 are as follows:

Cash flow hedge #2

Cash flow hedge #3

Cash flow hedge #4

Total hedged amount

Settlement
Date

6/2/2015

6/2/2016

6/2/2017

Hedged Notional
Amount (INR)
(in millions)

Contractual INR/USD
Foreign Exchange
Rate

Hedged Notional
Amount (USD)
(in millions)

560.4

69.35

72.21

74.20

8.1

7.8

7.5

23.4

The fair value of the derivative instruments, included in other assets in the consolidated statements of

financial condition, were as follows (in thousands):

Cash flow hedges

10. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities were as follows (in thousands):

Accounts payable

Accrued payroll

Contingent consideration obligations

Advisor deferred compensation plan liability

Deferred rent

Other accrued liabilities

December 31,

2014

2013

1,179

187

December 31,

2014

2013

56,776

66,816

527

72,763

48,629

43,915

59,299

73,135

39,436

45,461

35,156

49,157

Total accounts payable and accrued liabilities

289,426

301,644

11. Debt

Senior Secured Credit Facilities — On October 1, 2014, the Company entered into the Second
Amendment, Extension and Incremental Assumption Agreement (“Credit Agreement”) with its wholly owned
subsidiary, LPL Holdings, Inc., the other parties thereto. The Credit Agreement amends the Company's previous
credit agreement, which was dated May 13, 2013.

The Credit Agreement includes a term loan A (“Term Loan A”), a term loan B (“Term Loan B”), and a
revolving credit facility (“Revolving Credit Facility”). This agreement amends the Term Loan A and Revolving Credit
Facility maturity date to September 30, 2019 from March 29, 2017, and the Revolving Credit Facility borrowing
capacity to $400.0 million from $250.0 million.

In connection with the execution of the Credit Agreement, the Company incurred $4.9 million in costs, which

are capitalized as debt issuance costs in the consolidated statements of financial condition, and accelerated the
recognition of $3.9 million of unamortized costs attributable to Term Loan A related to the previous credit
agreement, which has been recorded as a loss on extinguishment of debt within the consolidated statements of
income for the year ended December 31, 2014.

At the time the Company entered into the Credit Agreement, all mandatory payments required under Term

Loan A had been prepaid, with the remaining principal and accrued interest due upon maturity. Term Loan B
includes quarterly payments at an annual rate of 1.0% of principal per year, with the remaining principal and
accrued interest due upon maturity.

F-23

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company’s outstanding borrowings were as follows (dollars in thousands):

December 31,

2014

2013

Senior Secured Credit Facilities

Maturity

Balance

Interest
Rate

Balance

Interest
Rate

Revolving Credit Facility

Senior secured term loans:

Term Loan A

Term Loan B

Total borrowings

Less current portion

9/30/2019

110,000

4.75% $

—

—%

9/30/2019

3/29/2019

459,375

1,064,883

1,634,258

120,839

2.67%

3.25%

459,375

1,075,721

1,535,096

10,839

2.67%

3.25%

Long-term borrowings — net of current portion

$ 1,513,419

$ 1,524,257

As of December 31, 2014, the Company had $21.5 million of irrevocable letters of credit, with an applicable

interest rate margin of 2.50%, which were supported by the Revolving Credit Facility.

The Credit Agreement subjects the Company to certain financial and non-financial covenants. As of

December 31, 2014, the Company was in compliance with such covenants.

Bank Loans Payable — The Company maintains three uncommitted lines of credit. Two of the lines have

unspecified limits, which are primarily dependent on the Company’s ability to provide sufficient collateral. The third
line has a $200.0 million limit and allows for both collateralized and uncollateralized borrowings. The lines were not
utilized in 2014, but were utilized in 2013; however, there were no balances outstanding at December 31, 2014 or
2013.

The minimum calendar year payments and maturities of the senior secured borrowings as of December 31,

2014 are as follows (in thousands):

2015

2016

2017

2018

2019

Thereafter

Total

12.

Income Taxes

The Company’s provision for income taxes was as follows (in thousands):

120,839

10,839

19,452

45,292

1,437,836

—

1,634,258

Current provision:

Federal

State

Total current provision

Deferred benefit:

Federal

State

Total deferred benefit

Provision for income taxes

December 31,

2014

2013

2012

120,995

119,327

19,759

140,754

19,062

138,389

(20,800)

(3,300)

(24,100)

(25,586)

(3,357)

(28,943)

96,983

13,909

110,892

(11,137)

(1,082)

(12,219)

116,654

109,446

98,673

F-24

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

A reconciliation of the U.S. federal statutory income tax rates to the Company’s effective income tax rates is

set forth below:

Federal statutory income tax rates

State income taxes, net of federal benefit

Non-deductible expenses

Share-based compensation

Business energy tax credit

Transaction costs

Goodwill derecognition

Contingent consideration obligations

Other

Effective income tax rates

Years Ended December 31,

2014

2013

2012

35.0%

3.6

0.7

(0.1)

—

(0.1)

0.5

39.6%

3.5

0.4

(0.1)

(0.5)

—

1.2

(1.5)

(0.4)

37.6%

3.3

1.1

0.1

—

0.1

—

(0.7)

0.5

39.4%

The Company's 2013 effective tax rate and income tax expense was lower primarily due to a release of the

valuation allowance and utilization of a business energy tax credit.

The components of the net deferred income taxes included in the consolidated statements of financial

condition were as follows (in thousands):

Deferred tax assets:

Accrued liabilities

Share-based compensation

State taxes

Deferred rent

Provision for bad debts

Net operating losses

Other

Total deferred tax assets

Deferred tax liabilities:

Amortization of intangible assets

Depreciation of fixed assets

Other

Total deferred tax liabilities

Deferred income taxes, net

December 31,

2014

2013

55,731

24,537

8,500

4,768

4,192

999

4,339

39,265

19,442

8,447

2,337

3,110

1,594

1,788

103,066

75,983

(136,140)

(144,392)

(32,509)

(20,888)

(598)

(72)

(169,247)

(165,352)

(66,181) $

(89,369)

The table of deferred tax assets and liabilities shown above does not include certain carryforwards related to

federal and state net operating losses and other federal credits that arose directly from tax deductions related to
equity compensation in excess of share-based compensation recognized for financial reporting. To the extent that
the Company utilizes all of these tax attributes in the future to reduce income taxes payable, the Company will
record an increase to additional paid-in capital of $2.6 million. The Company uses “with and without ordering” for
purposes of determining when excess tax benefits have been realized.

F-25

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table reflects a reconciliation of the beginning and ending balances of the total amounts of

gross unrecognized tax benefits, including interest and penalties (in thousands):

Balance — Beginning of year

Increases for tax positions related to the current year

Reductions as a result of a lapse of the applicable statute of limitations

Balance — End of year

December 31,

2014

2013

2012

19,522

19,867

20,120

4,656

(3,191)

3,972

(4,317)

3,296

(3,549)

20,987

19,522

19,867

At December 31, 2014 and 2013, the gross unrecognized tax benefits included $15.0 million and $13.9

million (net of the federal benefit on state issues), respectively, that represents the amount of unrecognized tax
benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income

taxes within the consolidated statements of financial condition. At December 31, 2014 and 2013, the liability for
unrecognized tax benefits included accrued interest of $2.3 million and $2.1 million, respectively, and penalties of
$3.7 million and $3.3 million, respectively.

The Company and its subsidiaries file income tax returns in the federal jurisdiction, as well as most state

jurisdictions, and are subject to routine examinations by the respective taxing authorities. The Company has
concluded all federal income tax matters for years through 2010 and all state income tax matters for years through
2006.

The tax years of 2011 to 2014 remain open to examination in the federal jurisdiction. The tax years of 2007 to
2014 remain open to examination in the state jurisdictions. In the next 12 months, it is reasonably possible that the
Company expects a reduction in unrecognized tax benefits of $1.6 million primarily related to the statute of
limitations expiration in various state jurisdictions.

13. Commitments and Contingencies

Leases

The Company leases office space and equipment under various operating leases. These leases are generally
subject to scheduled base rent and maintenance cost increases, which are recognized on a straight-line basis over
the period of the leases. Total rental expense for all operating leases was approximately $30.1 million, $19.4 million,
and $18.8 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Service and Development Contracts

The Company is party to certain long-term contracts for systems and services that enable back office trade

processing and clearing for its product and service offerings.

The Company also has contractual obligations related to the development of land in South Carolina for office

space. Under development and agency contracts the Company expects to pay a pro rata share equal to 27.5% of
the design and construction costs. The remaining amounts will be paid by the landlord. The Company’s share of
these costs is expected to be approximately $72.8 million, incurred through 2017. Additionally, the Company has
entered into lease agreements for the office space once developed. These leases have an initial lease term of 20
years that commence once the development is complete and the Company takes occupancy of the buildings.

F-26

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Future minimum payments under leases, lease commitments, service, development and agency contracts,

and other contractual obligations with initial terms greater than one year were as follows at December 31, 2014 (in
thousands):

2015

2016

2017

2018

2019

Thereafter

80,775

107,132

57,515

54,409

38,649

369,285

Total(1)(2)
_____________________
(1) The table above includes the minimum payments due over the duration of a contractual obligation, which may

707,765

be canceled, subject to a termination penalty that is approximately equal to the initial annual minimum payment.
The amount constituting the termination penalty steps down ratably through the passage of time. Future
minimum payments have not been reduced by this termination penalty.

(2) Future minimum payments have not been reduced by minimum sublease rental income of $3.0 million due in

the future under noncancellable subleases.

Guarantees

The Company occasionally enters into certain types of contracts that contingently require it to indemnify
certain parties against third-party claims. The terms of these obligations vary and, because a maximum obligation is
not explicitly stated, the Company has determined that it is not possible to make an estimate of the amount that it
could be obligated to pay under such contracts.

The Company’s subsidiary, LPL Financial, provides guarantees to securities clearing houses and exchanges

under their standard membership agreements, which require a member to guarantee the performance of other
members. Under these agreements, if a member becomes unable to satisfy its obligations to the clearing houses
and exchanges, all other members would be required to meet any shortfall. The Company’s liability under these
arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the
potential requirement for the Company to make payments under these agreements is remote. Accordingly, no
liability has been recognized for these transactions.

Loan Commitments

From time to time, LPL Financial makes loans to its advisors, primarily to newly recruited advisors to assist in
the transition process, which may be forgivable. Due to timing differences, LPL Financial may make commitments to
issue such loans prior to actually funding them. These commitments are generally contingent upon certain events
occurring, including but not limited to the advisor joining LPL Financial. LPL Financial had no significant unfunded
commitments at December 31, 2014.

Legal & Regulatory Matters

Assessing the probability of a loss occurring and the amount of any loss related to a legal proceeding or

F-27

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

estimates that, as of December 31, 2014, exposure to those losses could range from $0 to $15 million in excess of
the accrued liability, if any, related to those matters. Due to the inherent unpredictability of such matters, the
Company may have exposure to losses that are not yet predictable or cannot yet be reasonably estimated in
addition to those amounts that have been accrued or disclosed.

The Company maintains insurance coverage for certain legal proceedings, including those involving client

Other Commitments

As of December 31, 2014, the Company had received collateral, primarily in connection with client margin

loans, with a market value of approximately $353.2 million, which it can repledge, loan, or sell. Of these securities,
approximately $32.3 million were client-owned securities pledged to the Options Clearing Corporation as collateral
to secure client obligations related to options positions. As of December 31, 2014 there were no restrictions that
materially limited the Company's ability to repledge, loan, or sell the remaining $320.9 million of client collateral.

Trading securities on the consolidated statements of financial condition includes $4.0 million and $1.4 million

pledged to clearing organizations at December 31, 2014 and 2013, respectively.

14. Stockholders' Equity

Dividends

The payment, timing and amount of any dividends permitted under the Company's credit facilities are subject

to approval by the Board of Directors. Cash dividends per share of common stock and total cash dividends paid
during each quarter were as follows (in millions, except per share data):

First quarter

Second quarter

Third quarter

Fourth quarter

Share Repurchases

2014

2013

Dividend per
Share

Total Cash
Dividend

Dividend per
Share

Total Cash
Dividend

0.24

24.1

24.0

23.5

0.135

0.190

14.4

19.9

19.3

The Board of Directors has approved several share repurchase programs pursuant to which the Company
may repurchase its issued and outstanding shares of common stock from time to time. Repurchased shares are
included in treasury stock on the consolidated statements of financial condition. Purchases may be effected in open
market or privately negotiated transactions, including transactions with affiliates, with the timing of purchases and
the amount of stock purchased generally determined at the discretion of the Company's management.

F-28

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company had the following activity under its approved share repurchase programs (in millions, except

share and per share data):

2013

Weighted-
Average
Price Paid
Per Share

Total
Cost(1)

37.10

87.0

38.01

$ 132.1

Authorized
Repurchase
Amount

Amount
Remaining at
December 31,
2014

Shares
Purchased

2014

Weighted-
Average
Price Paid
Per Share

Total
Cost(1)

Shares
Purchased

Approval Date

September 27, 2012

May 28, 2013

February 10, 2014

October 1, 2014

_________________________

150.0

200.0

150.0

—

— $

— 2,343,651

52.00

67.9

3,476,137

— 1,306,288

— 3,250,516

92.9

1,342,405

5,899,209

46.16

$ 150.1

42.54

57.1

— $

—

46.63

$ 275.1

5,819,788

37.65

$ 219.1

(1) Included in the total cost of shares purchased is a commission fee of $0.02 per share.

See Note 18. Related Party Transactions, for details regarding the repurchase of shares from related parties.

15. Share-Based Compensation

On November 17, 2010, the Company adopted a 2010 Omnibus Equity Incentive Plan (the “2010 Plan”),

which provides for the granting of stock options, warrants, restricted stock awards, restricted stock units, and other
equity-based compensation. The 2010 Plan serves as the successor to the 2005 Stock Option Plan for Incentive
Stock Options, the 2005 Stock Option Plan for Non-qualified Stock Options, the 2008 Advisor and Institution
Incentive Plan, the 2008 Stock Option Plan and the Director Restricted Stock Plan (collectively, the “Predecessor
Plans”). Upon adoption of the 2010 Plan, awards were no longer made under the Predecessor Plans; however,
awards previously granted under the Predecessor Plans remain outstanding until exercised or forfeited.

There are 12,055,945 shares authorized for grant under the 2010 Plan. As of December 31, 2014, there were
6,318,795 shares reserved for issuance upon exercise or conversion of outstanding awards granted under the 2010
Plan.

Stock Options and Warrants

The following table presents the weighted-average assumptions used in the Black-Scholes valuation model

by the Company in calculating the fair value of stock options granted to its employees, officers, and directors:

Expected life (in years)

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Fair value of options

Years Ended December 31,

2014

2013

2012

6.02

6.25

6.49

44.25%

45.03%

45.73%

1.77%

2.17%

1.72%

1.39%

0.29%

1.34%

20.51

12.05

14.43

The fair value of stock options and warrants awarded to advisors and financial institutions are estimated on
the date of grant and revalued at each reporting period using the Black-Scholes valuation model with the following
weighted-average assumptions:

Expected life (in years)

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Fair value of options

Years Ended December 31,

2014

2013

2012

6.82

6.24

7.61

25.87%

40.99%

43.97%

2.24%

1.96%

1.89%

2.04%

1.70%

1.28%

15.12

25.92

11.46

F-29

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Beginning in the fourth quarter of 2014, the Company updated certain assumptions it uses to estimate
expected life, stock price volatility, and dividend yield in the Black-Scholes valuation model. The Company currently
estimates the expected life for stock options awarded to employees, officers, and directors using historical
experience and estimates the expected life for stock options and warrants awarded to advisors and financial
institutions using the remaining contractual term. The Company estimates expected stock price volatility using
historical trading data for the period of time there has been a public market for the Company's stock. The dividend
yield is based on an expected dividend as a percentage of the trailing three-month average of the Company's stock
price as of the valuation date. The risk-free interest rates are based on the implied yield available on U.S. Treasury
constant maturities with remaining terms equivalent to the respective expected lives of the options on the date of
grant. No stock options were granted to employees, officers, and directors in the fourth quarter of 2014; therefore,
the related weighted-average assumptions used during the year ended December 31, 2014 were not impacted by
the change in assumptions. The estimated fair value of stock options and warrants awarded to advisors and
financial institutions are revalued at each reporting period; therefore, the weighted-average assumptions used
during the year ended December 31, 2014 are estimated using the updated assumptions.

Prior to the fourth quarter of 2014, the Company estimated the expected life for stock options awarded to
employees, officers, and directors using the simplified method in accordance with Staff Accounting Bulletin 110,
Certain Assumptions Used in Valuation Methods, because the Company did not have sufficient relevant historical
information to develop reasonable expectations about future exercise patterns. The Company estimated the
expected stock price volatility using the stock price volatility of comparable companies, as well as the historical
trading data for the period of time there was a public market for the Company's stock. The dividend yield was based
on an expected dividend as a percentage of the Company's stock price on the valuation date.

The following table summarizes the Company’s stock option and warrant activity:

Number of
Shares

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining
Contractual
Term
(Years)

Aggregate
Intrinsic
Value
(In thousands)

21.83

30.99

7.69

29.75

27.61

31.88

24.67

31.15

28.45

54.21

25.39

35.11

31.59

27.49

6.38

5.31

81,465

61,872

Outstanding — December 31, 2011

9,022,750

Granted

Exercised

Forfeited

Outstanding — December 31, 2012

Granted

Exercised

Forfeited

Outstanding — December 31, 2013

Granted

Exercised

Forfeited

Outstanding — December 31, 2014

Exercisable — December 31, 2014

1,978,862

(2,335,026)

(524,577)

8,142,009

1,278,508

(1,387,918)

(1,016,078)

7,016,521

748,353

(1,060,017)

(417,447)

6,287,410

3,626,762

F-30

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes information about outstanding stock options and warrants as of

December 31, 2014:

Range of Exercise Prices

$2.38

$15.84 - $23.02

$23.41 - $30.00

$31.60 - $32.33

$34.01 - $39.60

$45.89 - $54.81

Outstanding

Weighted-
Average
Remaining
Life
(Years)

Weighted-
Average
Exercise
Price

0.42

4.45

5.71

7.66

6.15

9.19

6.38

2.38

21.41

28.10

31.88

34.59

54.25

31.59

Exercisable

Number of
Shares

17,382

1,289,104

1,065,607

462,151

779,015

13,503

3,626,762

Weighted-
Average
Exercise
Price

2.38

21.41

27.83

31.96

34.52

54.81

27.49

Total
Number of
Shares

17,382

1,289,104

1,575,697

1,576,431

1,156,984

671,812

6,287,410

The Company recognized $14.7 million, $12.7 million, and $15.9 million of share-based compensation related
to the vesting of stock options awarded to employees, officers, and directors during the years ended December 31,
2014, 2013, and 2012, respectively. As of December 31, 2014, total unrecognized compensation cost for these
awards was $21.4 million, which is expected to be recognized over a weighted-average period of 2.05 years.

The Company recognized $5.3 million, $9.2 million, and $3.8 million of share-based compensation related to

the vesting of stock options and warrants awarded to its advisors and to financial institutions during the years ended
December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, total unrecognized compensation
cost for these awards was $7.7 million, which is expected to be recognized over a weighted-average period of 2.35
years.

Restricted Stock

The following summarizes the Company’s restricted stock awards and restricted stock units activity:

Restricted Stock Awards

Restricted Stock Units

Number of
Shares

Weighted-
Average
Grant-Date
Fair Value

Nonvested — December 31, 2011

36,132

Granted

Vested

Forfeited

Nonvested — December 31, 2012

Granted

Vested

Forfeited

Nonvested — December 31, 2013

Granted

Vested

Forfeited

26,680

(10,692)

(3,180)

48,940

22,307

(20,593)

(11,501)

39,153

17,256

(18,225)

(4,550)

Nonvested — December 31, 2014

33,634

30.51

29.99

28.30

31.44

30.65

35.85

31.56

30.43

33.20

48.62

30.18

32.96

42.78

Number of
Shares

— $

8,925

—

8,925

270,733

—

(22,974)

256,684

395,987

(49,364)

(56,582)

546,725

Weighted-
Average
Grant-Date
Fair Value

—

28.01

—

28.01

32.11

—

30.37

32.12

48.49

31.01

39.18

43.34

The Company recognized $6.1 million, $2.5 million, and $0.6 million of share-based compensation related to

the vesting of restricted stock awards and restricted stock units awarded to its employees, officers, and directors
during the years ended December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, total

F-31

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

unrecognized compensation cost for these awards was $11.5 million, which is expected to be recognized over a
weighted-average remaining period of 2.15 years.

The Company began granting restricted stock units to its advisors and to financial institutions in the second

quarter of 2014. The Company recognized share-based compensation of $1.0 million related to the vesting of these
awards during the year ended December 31, 2014. As of December 31, 2014, total unrecognized compensation
cost for these awards was $3.8 million, which is expected to be recognized over a weighted-average remaining
period of 2.37 years.

16. Earnings per Share

The calculation of basic and diluted earnings per share for the years noted was as follows (in thousands):

Net income

Basic weighted-average number of shares outstanding

Dilutive common share equivalents

Diluted weighted-average number of shares outstanding

Basic earnings per share

Diluted earnings per share

Years Ended December 31,

2014

2013

2012

178,043

181,857

151,918

99,847

1,804

104,698

109,443

1,305

1,617

101,651

106,003

111,060

1.78

1.75

1.74

1.72

1.39

1.37

The computation of diluted earnings per share excludes stock options, warrants, and restricted stock units

that are anti-dilutive. For the years ended December 31, 2014, 2013, and 2012, stock options, warrants, and
restricted stock units representing common share equivalents of 864,488 shares, 3,440,171 shares, and
4,615,244 shares, respectively, were anti-dilutive.

17. Employee and Advisor Benefit Plans

The Company participates in a 401(k) defined contribution plan sponsored by LPL Financial. All employees

meeting minimum age and length of service requirements are eligible to participate. The Company has an employer
matching program whereby employer contributions are made to the 401(k) plan, and employees are eligible for
matching contributions after completing one year of service. For 2014, employer contributions were made in an
amount equal to 65% of the first 8% of an employee's designated deferral of their eligible compensation. For 2013
and 2012, contributions were made in an amount equal to 50% and 40%, respectively, of the first 10% of an
employee's designated deferral of their eligible compensation. The Company’s total cost related to the 401(k) plan
was $8.7 million, $6.3 million, and $4.5 million for the years ended December 31, 2014, 2013, and 2012,
respectively, which is classified as compensation and benefits expense in the consolidated statements of income.

In August 2012, the Company established the 2012 Employee Stock Purchase Plan (the “ESPP”) as a
benefit to enable eligible employees to purchase common stock of LPLFH at a discount from the market price
through payroll deductions, subject to limitations. Eligible employees may elect to participate in the ESPP only
during an open enrollment period. The offering period immediately follows the open enrollment window, upon which
time ESPP contributions are withheld from the participant's regular paycheck. The ESPP provides for a 15%
discount on the market value of the stock at the lower of the grant date price (first day of the offering period) and the
purchase date price (last day of the offering period).

On January 1, 2008, the Company adopted a non-qualified deferred compensation plan for the purpose of

attracting and retaining advisors who operate, for tax purposes, as independent contractors, by providing an
opportunity for participating advisors to defer receipt of a portion of their gross commissions generated primarily
from commissions earned on the sale of various products. The deferred compensation plan has been fully funded to
date by participant contributions. Plan assets are invested in mutual funds, which are held by the Company in a
Rabbi Trust. The liability for benefits accrued under the non-qualified deferred compensation plan totaled $72.8
million at December 31, 2014, which is included in accounts payable and accrued liabilities in the consolidated
statements of financial condition. The cash values of the related trust assets was $73.6 million at December 31,

F-32

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2014, which is measured at fair value and included in other assets in the consolidated statements of financial
condition.

Certain employees and advisors of the Company’s subsidiaries participated in non-qualified deferred

compensation plans (the “Plans”) that permitted participants to defer portions of their compensation and earn
interest on the deferred amounts. The Plans have been closed to new participants and no contributions have been
made since the acquisition date. Plan assets are held by the Company in a Rabbi Trust and accounted for in the
manner described above. As of December 31, 2014, the Company has recorded assets of $1.9 million and liabilities
of $0.7 million, which are included in other assets and accounts payable and accrued liabilities, respectively, in the
consolidated statements of financial condition.

18. Related Party Transactions

The Company has related party transactions with TPG Capital, a 13% shareholder of the Company's
common stock, as well as certain portfolio companies of TPG Capital. During the years ended December 31, 2014,
2013, and 2012 the Company recognized revenue for services provided to these portfolio companies of $1.0
million, $0.5 million, and $0.4 million, respectively. During the years ended December 31, 2014, 2013, and 2012,
the Company incurred expenses for services provided by TPG Capital or these portfolio companies of $4.2 million,
$0.6 million, and $0.9 million, respectively. As of December 31, 2014 and 2013, payables to related parties were
$0.5 million and less than $0.1 million, respectively, and receivables from related parties were $0.2 million and less
than $0.1 million, respectively.

On February 12, 2014, the Company entered into a share repurchase agreement with an investment fund

associated with TPG Capital, pursuant to which the Company repurchased 1.9 million shares of its common stock
at a price of $52.00 per share, for total consideration of $100.0 million. The repurchase transaction closed on
February 19, 2014.

Through its subsidiary LPL Financial, the Company also provides charitable contributions to the LPL Financial

Foundation, an organization that provides volunteer and financial support within its local communities. During the
year ended December 31, 2014 the Company donated $2.0 million to the LPL Financial Foundation, which is
included in other expenses in the consolidated statements of income.

19. Net Capital and Regulatory Requirements

The Company operates in a highly regulated industry. Applicable laws and regulations restrict permissible
activities and investments and require compliance with various financial and customer-related regulations. The
consequences of noncompliance can include substantial monetary and non-monetary sanctions. In addition, the
Company is also subject to comprehensive examinations and supervision by various governmental and self-
regulatory agencies. These regulatory agencies generally have broad discretion to prescribe greater limitations on
the operations of a regulated entity for the protection of investors or public interest. Furthermore, where the
agencies determine that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise
inconsistent with the laws and regulations or with the supervisory policies, greater restrictions may be imposed.

The Company’s registered broker-dealer, LPL Financial, is subject to the SEC’s Uniform Net Capital Rule
(Rule 15c3-1 under the Exchange Act), which requires the maintenance of minimum net capital, as defined. Net
capital and the related net capital requirement may fluctuate on a daily basis. LPL Financial is a clearing broker-
dealer and had net capital of $101.7 million with a minimum net capital requirement of $6.5 million as of
December 31, 2014.

The Company's subsidiary, PTC, operates in a highly regulated industry and is subject to various regulatory

capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that if undertaken, could have substantial monetary and non-monetary
impacts to PTC's operations.

As of December 31, 2014 and 2013, LPL Financial and PTC met all capital adequacy requirements to which

they were subject.

F-33

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

20. Financial Instruments with Off-Balance-Sheet Credit Risk and Concentrations of Credit Risk

LPL Financial’s client securities activities are transacted on either a cash or margin basis. In margin
transactions, LPL Financial extends credit to the advisor's client, subject to various regulatory and internal margin
requirements, collateralized by cash and securities in the client’s account. As clients write options contracts or sell
securities short, LPL Financial may incur losses if the clients do not fulfill their obligations and the collateral in the
clients’ accounts is not sufficient to fully cover losses that clients may incur from these strategies. To control this
risk, LPL Financial monitors margin levels daily and clients are required to deposit additional collateral, or reduce
positions, when necessary.

LPL Financial is obligated to settle transactions with brokers and other financial institutions even if its
advisors' clients fail to meet their obligation to LPL Financial. Clients are required to complete their transactions on
the settlement date, generally three business days after the trade date. If clients do not fulfill their contractual
obligations, LPL Financial may incur losses. In addition, the Company occasionally enters into certain types of
contracts to fulfill its sale of when, as, and if issued securities. When, as, and if issued securities have been
authorized but are contingent upon the actual issuance of the security. LPL Financial has established procedures to
reduce this risk by generally requiring that clients deposit cash or securities into their account prior to placing an
order.

LPL Financial may at times hold equity securities on both a long and short basis that are recorded on the

consolidated statements of financial condition at market value. While long inventory positions represent LPL
Financial’s ownership of securities, short inventory positions represent obligations of LPL Financial to deliver
specified securities at a contracted price, which may differ from market prices prevailing at the time of completion of
the transaction. Accordingly, both long and short inventory positions may result in losses or gains to LPL Financial
as market values of securities fluctuate. To mitigate the risk of losses, long and short positions are marked-to-
market daily and are continuously monitored by LPL Financial.

21. Selected Quarterly Financial Data (Unaudited)

Net revenues

Net income

Basic earnings per share

Diluted earnings per share

Dividends declared per share

Net revenues

Net income

Basic earnings per share

Diluted earnings per share

Dividends declared per share

2014

(In thousands, except per share data)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 1,087,431

$ 1,092,729

$ 1,089,234

$ 1,104,268

53,135

0.52

0.51

0.24

43,091

0.43

0.42

0.24

33,272

0.33

0.24

48,545

0.50

0.49

0.24

2013

(In thousands, except per share data)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

974,796

$ 1,018,920

$ 1,053,212

$ 1,093,930

54,717

0.51

0.135

45,091

0.42

0.135

37,631

0.36

0.190

44,418

0.44

0.43

0.190

F-34

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

22. Subsequent Event

On February 18, 2015, the Board of Directors declared a cash dividend of $0.25 per share on the Company's

outstanding common stock to be paid on March 16, 2015 to all stockholders of record on March 2, 2015.

******

F-35

CORPORATE INFORMATION

BOARD OF DIRECTORS

MARK S. CASADY
Chairman of the Board and CEO
LPL Financial

RICHARD W. BOYCE
Retired Partner
TPG

JOHN J. BRENNAN
Chairman Emeritus and Senior Advisor
The Vanguard Group, Inc.

H. PAULETT EBERHART
Director
Anadarko Petroleum Corporation and
Cameron International Corporation

ANNE M. MULCAHY
Chairman of the Board of Trustees
Save the Children Federation, Inc.

JAMES S. PUTNAM
CEO, Global Portfolio Advisors

JAMES S. RIEPE
Senior Advisor and Retired Vice Chairman
of the Board
T. Rowe Price Group, Inc.

RICHARD P. SCHIFTER
Senior Advisor
TPG

ANNUAL MEETING
LPL Financial Holdings Inc.’s annual meeting
of stockholders will be held at 3 p.m. ET on
May 11, 2015, at:
LPL Financial Corporate Headquarters
75 State Street, 24th Floor
Boston, MA 02109

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INVESTOR RELATIONS
Requests for financial information should be sent to:

Chris Koegel
Senior Vice President, Investor Relations
LPL Financial
75 State Street
24th Floor
Boston, MA 02109
(617) 897-4574
investor.relations@lpl.com

TRANSFER AGENT
Computershare
P.O. Box 30170
College Station, TX 77845

ACCOUNTING FIRM
Deloitte & Touche LLP
San Diego, CA

LEGAL COUNSEL
Ropes & Gray LLP
Boston, MA

STOCK LISTING AND TRADING SYMBOL
LPL Financial Holdings Inc.’s common stock is listed
on the NASDAQ Global Select Market under the
trading symbol “LPLA.”

CORPORATE HEADQUARTERS
LPL Financial Holdings Inc.
75 State Street
24th Floor
Boston, MA 02109
USA

FORM 10-K
A copy of our annual report on Form 10-K, filed
with the Securities and Exchange Commission, is
available without charge by contacting our Investor
Relations Department.

Boston
LPL Financial
75 State Street
24th Floor
Boston, MA 02109

Charlotte
LPL Financial
4828 Parkway Plaza
Charlotte, NC 28217

San Diego
LPL Financial
4707 Executive Drive
San Diego, CA 92121

(800) 877-7210
www.lpl.com

LPL Financial. A registered investment advisor. Member FINRA/SIPC.

CM-00493-0315
Tracking #1-358010