LPL Financial Annual Report 2015

FY2015 Annual Report · LPL Financial

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2015 ANNUAL REPORT

LPL FINANCIAL HOLDINGS INC.

A MARKET LEADER

We firmly believe that now, more than ever, there is a fundamental need for
independent financial advice in America, and that investors achieve better outcomes
when working with a financial advisor.

LPL makes it easy for advisors to do what is best for their clients, supporting
advisors and investors while promoting independence and choice through access to
a wide range of diligently evaluated non-proprietary products. This is the sole focus
of our business, and we believe no one does it better.

In 2015, LPL was ranked the #1 independent broker-dealer for 20 consecutive
years (as reported by Financial Planning magazine, June 1996-2015, based on
total revenue). The breadth of our services and talent, flexibility of our model, and
commitment to independent advice make LPL a leader in our chosen markets.

A MESSAGE FROM THE
CHAIRMAN & CEO

@MSCasady

DEAR FELLOW SHAREHOLDER,

As I reﬂect on 2015, I believe it was a year
of signiﬁcant progress for LPL Financial.
Although the year was marked by a volatile
and challenging market that reduced our
financial results, we believe that the work
we did to strengthen our operations and
infrastructure positions us well for the
future.

2015 RESULTS

Looking back, 2015 was a challenging year
for firms throughout the financial services
industry due to macroeconomic conditions
such as market volatility and interest-rate
sensitivity. Compounding these factors was
the uncertainty resulting from the proposed
Department of Labor’s (DOL) fiduciary rule,
which triggered increasing speculation about
the brokerage business.

Against this backdrop, LPL generated
adjusted earnings per share of $2.22 in 2015,
a decline of $0.22 from the prior year. Our
gross profit increased 2% as advisory fees,
transaction fees, and attachment revenue all

achieved solid growth; however, that growth
was offset by slower brokerage sales. At the
same time, our planned investments in risk
management, legal, and compliance functions
contributed to G&A expense growth of 7%.
As a result, our adjusted earnings per share
declined. On a GAAP basis, earnings per
share were $1.74 in 2015, a decline of $0.01
from the prior year.

ADVISORY AND
BROKERAGE ASSETS

[$ billions]

$475.6

$475.1

$438.4

As of Dec. 31, 2015

$373.3

$330.3

2011

2012

2013

2014

2015

LPL FINANCIAL HOLDINGS INC. 2 015 A NNUA L RE P OR T 1

TOTAL ADVISORS

As of Dec. 31, 2015

14,054

13,352

13,673

14,036

12,847

IMPROVING OPERATIONS AND THE CLIENT
EXPERIENCE

our advisors and institutions have the best

Building on our progress over the last several
years to simplify our organization and ensure
that
experience possible with LPL, in 2015 we
delivered several technology solutions designed
to automate advisor operations and improve
our service levels.

2011

2012

2013

2014

2015

SHIFT TO ADVISORY

We finished 2015 with $476 billion of
brokerage and advisory assets, flat from the
prior year. Importantly, advisory assets—
which have doubled over the past five
years—now make up nearly 40% of our
total assets. We believe that this is a positive
trend for LPL as we have generated greater
and more recurring profitability on advisory
assets than on brokerage assets. We believe
it may also be a beneficial shift for many
investors, who can receive a higher level of
service through ongoing advice as opposed
to transactional advice.

As of Dec. 31, 2015

GROSS PROFIT
[$ millions]
$1,358

$1,326

$1,248

$1,112

$1,031

2011

2012

2013

2014

2015

Our Mission

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

LPL FINANCIAL HOLDINGS INC. 2 015 A NNUA L RE P OR T

MOVING FORWARD WITH CONFIDENCE

While 2016 got off to a volatile start, we believe
LPL is well-positioned to continue to innovate
and use our scale, enhanced capabilities, and
strong financial position to our advantage to
accelerate our growth.

In times like these, we are reminded of the
importance of the LPL mission: to enable our
advisors to focus on creating the personal,
long-term relationships that are the foundation
for turning life’s aspirations into ﬁnancial
realities.

Our passion for and focus on providing support
to financial advisors and institutions so that they
can effectively serve their retail clients—as well
as our commitment to independent advice—
have never been stronger. Thank you for your
investment in LPL Financial.

Sincerely,

MARK S. CASADY
Chairman and CEO

We also strengthened our risk management,
compliance, and legal infrastructure, which
we believe will lower our risk profile going
forward. In addition, we completed a
transformation of our management team by
adding Matt Audette, chief financial officer,
and Tom Gooley, managing director and head
of Service, Trading, and Operations.

PLANNING FOR THE DOL RULE

We continue to thoroughly prepare for
the DOL’s pending fiduciary rule, which
proposes to raise investment advice standards
for brokerage retirement accounts. In 2015, our
Government Relations team held over 200
meetings with the DOL, members of Congress,
and the White House to advocate for investor
choice and understand potential scenarios of
the final rule. While it is unclear what the final
DOL rule will look like, we continue to plan for
a variety of possible outcomes so we can help
advisors as well as retail clients make the
necessary transition in accordance with the
final rule.

ADJUSTED EARNINGS

As of Dec. 31, 2015

$2.44

[$ millions]
$2.22
per share

$2.03

$1.95

$259

$219

$225

$248

$215
million

2012

2013
2015
2011
ADJUSTED EARNINGS AND ADJUSTED EARNINGS
PER SHARE ARE NON-GAAP MEASURES

2014

LPL FINANCIAL HOLDINGS INC. 2 015 A NNUA L RE P OR T 3

FINANCIAL
HIGHLIGHTS

For the year ended December 31,

Consolidated statements of income data:

Net revenues (in thousands)

Total operating expenses (in thousands)

Total expenses (in thousands)

Income from operations (in thousands)

2015

2014

2013

2012

2011

$4,275,054

$4,373,662

$4,140,858

$3,661,088

$3,479,375

$3,933,363

$4,023,484

$3,790,147

$3,339,147

$3,127,926

$3,992,499

$4,078,965

$3,849,555

$3,410,497

$3,196,690

$ 341,691

$ 350,178

$ 350,711

$ 321,941

$ 351,449

Income before provision for income taxes

(in thousands)

$ 282,555

$ 294,697

$ 291,303

$ 250,591

$ 282,685

Net income (in thousands)

Per share data:

Earnings per diluted share

$ 168,784

$ 178,043

$ 181,857

$ 151,918

$ 170,382

$ 1.74

$ 1.75

$ 1.72

$ 1.37

$ 1.50

Weighted average diluted share outstanding (in thousands)

96,786

101,651

106,003

111,060

112,119

Consolidated statements of financial condition data:

Cash and cash equivalents (in thousands)

$ 724,529

$ 412,332

$ 516,584

$ 466,261

$ 720,772

Total assets (in thousands)

Total debt (in thousands) (1)

Other financial and operating data:

Adjusted EBITDA (in thousands)

(2)

Adjusted Earnings (in thousands)

(3)

Adjusted Earnings per share (4)

Gross Profit (in thousands) (5)

Number of advisors

Advisory and brokerage assets (in billions)

Advisory assets under custody (in billions)

Average number of full-time employees

$4,521,061

$4,041,930

$4,027,114

$3,968,007

$3,798,749

$2,188,240

$1,625,195

$1,519,379

$1,297,308

$1,315,091

$ 489,116

$ 516,507

$ 511,438

$ 454,482

$ 459,720

$ 214,854

$ 247,621

$ 258,805

$ 225,029

$ 218,585

$ 2.22

$ 2.44

$ 2.03

$ 1.95

$1,357,725

$1,325,945

$1,248,014

$1,112,251

$1,030,951

14,054

14,036

13,673

13,352

12,847

$ 475.6

$ 475.1

$ 438.4

$ 373.3

$ 330.3

$ 187.2

$ 175.8

$ 151.6

$ 122.1

$ 101.6

3,382

3,337

3,047

2,865

2,687

(1) Total debt consists of our senior secured credit facilities, senior unsecured subordinated notes, revolving line of credit facility, and bank loans payable, net of debt issuance costs.

(2) 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 believe that Adjusted EBITDA can be a useful financial metric in assessing our historical 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.

(3) Adjusted Earnings represent 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 nondeductible amounts. Adjusted Earnings per share represents adjusted earnings divided by weighted-average outstanding shares on a fully diluted basis. We have prepared adjusted
earnings and adjusted earnings per share to eliminate the effects of items that we do not consider indicative of our core operating performance. We have historically presented these measures in
the belief that they may provide investors with greater transparency by helping illustrate the underlying financial and business trends relating to results of operations and financial condition and
comparability between current and prior periods.

(4) Represents Adjusted Earnings, a non-GAAP measure, divided by weighted-average number of shares outstanding on a fully diluted basis.

(5) 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 Adjusted EBITDA, Adjusted Earnings and Adjusted Earnings per
December 31, 2015, 2014, and 2013 within this Annual Report on our Form 10-K for the year ended December 31, 2015. For a reconciliation of such non-GAAP measures for the years ended
December 31, 2012 and 2011, please consult our Annual Report on Form 10-K for the year ended December 31, 2012.

(each a non-GAAP measure) for the years ended

LPL FINANCIAL HOLDINGS INC. 2 015 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, 2015

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, 2015, the aggregate market value of the voting stock held by non-affiliates of the registrant was $3.8 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 22, 2016 was 88,939,376.

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, 22nd 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 indebtedness, future share repurchases, and
future dividends, including statements regarding future resolution of regulatory matters and related costs, income
projections based on changes in interest rates, and projected savings and anticipated improvements to the
Company's operating model, services, and technology as a result of its initiatives and programs, 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 25, 2016. 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 and
profitability of the Company’s fee-based business; the effect of current, pending, and future legislation, regulation,
and regulatory actions, including the fiduciary rule proposed by the U.S. Department of Labor and 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; execution of the Company's capital
management plans, including its compliance with the terms of its existing credit agreement; the price, the availability
of shares and trading volumes of the Company's common stock, which will affect the timing and size of future share
repurchases by the Company; execution of the Company's plans and its success in realizing the expense savings
and service improvements and efficiencies expected to result from its initiatives and programs, particularly its
expense plans and technological initiatives; the Company's success in negotiating and developing commercial
arrangements with third-party service providers; the performance of third-party service providers on which the
Company relies; 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 a leader in the retail financial advice market, the nation's largest independent broker-dealer (based on

total revenues, Financial Planning magazine June 1996-2015), 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 (our "advisors"), including
financial advisors at more than 700 financial institutions across the country, enabling them to provide their retail
investors ("clients") with objective financial advice through a lower conflict model. We also support over 4,200
financial advisors who are affiliated and licensed with insurance companies that use our customized clearing
services, advisory platforms, and technology solutions.

Through our advisors, we are one of the largest distributors of financial products and services in the United

States, and are one of the top five firms based on the number of advisors in the United States.

We believe there is a fundamental need for independent financial advice in America. We believe investors
achieve better outcomes when working with a financial advisor. We strive to make it easy for financial advisors to do
what is best for their clients, while protecting advisors and investors and promoting independence and choice
through access to a wide range of diligently evaluated non-proprietary products. This is the sole focus of our
business.

Our mission is to 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. Our differentiator is the
combination of our capabilities across research, technology, risk management, and practice management, which
together exceed any individual competitor’s offering. All of these are delivered in an environment unencumbered by
conflicts from product manufacturing, underwriting, or market-making.

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 by providing access to a broad array of financial products and
services. Through our subsidiary The Private Trust Company, N.A. ("PTC"), we offer trust administration, investment
management oversight and Individual Retirement Account ("IRA") 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 that we support to offer their
clients lower-conflict advice.

We work alongside advisors to navigate complex market and regulatory environments and strive to empower

them to create the best outcomes for investors. In addition, we make meaningful investments in technology and
services to support the growth, productivity, and efficiency of advisors across a broad spectrum of business models
as their practices evolve. LPL advisors are part of a community of diverse, entrepreneurial financial services
professionals from whom they can learn and grow.

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.

Furthermore, we believe that our technology and service platforms enable our advisors to operate their
practices with a greater focus on serving investors while generating revenue opportunities and at a lower cost than

other independent advisors. As a result, we believe that 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 4.6 million client accounts. Our services are designed to support the evolution
of our advisors’ businesses over time and to adapt as our advisors' needs change.

Our advisors average over 15 years of industry experience, which 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 RIA practices.

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

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

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 that 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 in competition with us.

LPL Financial also supports over 375 stand-alone RIA firms ("Hybrid RIAs") with over 3,900 advisors who
conduct their advisory business through these separate entities, rather than through LPL Financial. Hybrid RIAs
operate pursuant to the Investment Advisers Act of 1940, as amended (the "Advisers Act") or their respective states'
investment advisory licensing rules. These Hybrid RIAs engage us for technology, clearing, and custody services,
as well as access to certain of our investment platforms. Advisors associated with Hybrid RIAs retain 100% of their
advisory fees. In return, we charge separate fees for custody, trading, administrative, and support services. In
addition, most financial advisors associated with Hybrid RIAs carry their brokerage license with LPL Financial and
access our fully-integrated brokerage platform under standard terms, although some financial advisors associated
with Hybrid RIAs do not carry a brokerage license with us.

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, the core capabilities of which may not include
investment and financial planning services, or that find the technology, infrastructure, and regulatory requirements of
supporting such services to be cost-prohibitive, we provide their financial advisors with the infrastructure and
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 advisors serve over 32,300 retirement plans representing $83.0 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 4,200 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. We are dedicated to continuously
improving the processes, systems, and resources we leverage to meet these needs.

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 increasingly 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. Our technology offerings are designed to permit our advisors to effectively manage all
critical aspects of their businesses in an efficient manner while remaining responsive to their clients’ needs. We
continue to automate time-consuming processes, such as account opening and management, document imaging,
transaction execution, and account rebalancing, in an effort to improve our advisors' efficiency and accuracy.

Comprehensive Clearing and Compliance Services

We provide custody and clearing services for 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 Hybrid RIAs and their associated 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 that 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. Our technology-based compliance and risk management tools 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;

for advisors on our corporate RIA platform, overseeing and monitoring of registered investment advisory
activities; and
inspecting branch offices and advising on how to strengthen compliance procedures.

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, and our scale allows us to
dedicate a team of experienced professionals to this effort. Our practice management and training services include:

•

personalized business consulting that helps eligible 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
through 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

in-person and virtual 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 on macro-economic events, capital markets assumptions, and strategic and tactical asset
allocation. Our research team provides advice that is designed to empower our advisors to provide their clients with
thoughtful advice in a timely manner, including the creation of discretionary portfolios for which we serve as a
portfolio manager that are available through our turnkey advisory asset management platforms. Our research team
actively works with our product due diligence group to effectively scrutinize the financial products offered through
our platform. This includes 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 lack of proprietary products or investment
banking services enables us to provide research that remains unbiased and objective.

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 diligence on substantially all of our product offerings. Our platform provides access to
approximately 795 product providers that offer the following product lines:

• Insurance Based Products

• Alternative Investments

• Structured Products

• Mutual Funds

• Separately Managed Accounts

• Exchange Traded Products

• Unit Investment Trusts

• Retirement Plan Products

• Annuities

The sales and administration of these products are facilitated through our technology solutions that allow our
advisors to access client accounts, product information, asset allocation models, investment recommendations, and
economic insight as well as to perform trade execution.

Commission-Based Products

Commission-based products are those for which we and our advisors receive an upfront commission and, for

certain products, a trailing commission, or a mark-up or mark-down. Our brokerage offerings include variable and
fixed annuities, mutual funds, equities, alternative investments such as non-traded real estate investment trusts and
business development companies, retirement and 529 education savings plans, fixed income, and insurance. As of
December 31, 2015, the total assets in our commission-based products were $288.4 billion.

Fee-Based Advisory Platforms and Support

LPL Financial has various fee-based advisory platforms that provide centrally managed or customized
solutions from which advisors can choose to meet the investment needs of their mass affluent clients and high-net-
worth clients. The fee structure enables our advisors to provide their clients with higher levels of service, while
establishing a recurring revenue stream for the advisor and for us. Our fee-based platforms provide access to no-
load/load-waived mutual funds, exchange-traded funds, stocks, bonds, conservative option strategies, unit
investment trusts, and institutional money managers and no-load multi-manager variable annuities. As of
December 31, 2015, the total advisory assets under custody in these platforms were $187.2 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. As of December 31, 2015, the total assets in our cash sweep programs, which are held
within brokerage and advisory accounts, were approximately $29.0 billion, with $20.9 billion in a bank deposit
sweep vehicle and $8.1 billion held in a money market sweep vehicle.

Retirement Services

We offer retirement solutions for commission- and fee-based services that allow advisors to provide

brokerage services, consultation, and advice to plan sponsors using LPL Financial. Our advisors, whether through
LPL Financial or through a Hybrid RIA, serve over 32,300 retirement plans representing at least $83.0 billion in
retirement plan assets. These retirement plan assets are custodied with LPL Financial or various third-party
providers of retirement plan administrative services that provide us with direct reporting feeds. There are additional
retirement plan assets supported by our advisors that are custodied with third-party providers that do not provide
reporting feeds to us. We estimate there are over 40,000 retirement plans served by our advisors with total
retirement plan assets of approximately $118.0 billion. We earn revenue from retirement plan assets that are
custodied with LPL Financial and from those that are not custodied with LPL Financial, but which are serviced by
advisors through LPL Financial. Accordingly, only retirement plan assets that are custodied with LPL Financial are
included in our reported advisory and brokerage assets.

Other Services

We provide a number of tools and services that enable advisors to maintain and grow their practices. Through

our subsidiary PTC, we provide custodial services to trusts for estates and families. Under our unique model, an
advisor may provide a trust with investment management services, while administrative services for the trust are
provided by PTC.

Our Financial Model

Our overall financial performance is a function of the following dynamics of our business:

• Our revenues stem from diverse sources, including advisor-generated commission and advisory fees, as

well as other asset-based fees from product manufacturers, omnibus, networking services, cash sweep
balances, and transaction and other fees for other ancillary services that we provide. Revenues are not
concentrated by advisor, product, or geography. For the year ended December 31, 2015, no single
relationship with our independent advisor practices, banks, credit unions, or insurance companies
accounted for more than 4% 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 is capable of delivering expanding profit margins over time.

• We have been able to operate with low capital expenditures and limited capital requirements, and as a

result have generated substantial free cash flow, which we have committed to investing in our business as
well as returning value to shareholders.

• The majority of our revenue base is recurring in nature, with approximately 72% recurring revenue in 2015.

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. We use

our scale and position as an industry leader to champion the independent business model and the rights of our
advisors.

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.

• Economies of Scale — As one of the largest distributors of financial products in the United States, we

have been 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

believe that 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

Our differentiator is the combination of our capabilities across research, technology, risk management, and

practice management, which together exceed any individual competitor’s offering. LPL makes meaningful
investments to support the growth, productivity, and efficiency of advisors across a broad spectrum of models as
their practices evolve. Our focus is working alongside advisors to navigate complex environments in order to create
the best outcomes for investors.

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 manufactured financial products, we do not view firms that
manufacture asset management products and other financial products as direct competitors.

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

insurers that 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, subject to

certain regulatory parameters, which has helped 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 business models, including independent financial advisors and Hybrid RIAs. The
flexibility of our business model makes it easy for our advisors to transition among the independent advisor
business models and product mix as their business evolves and preferences change within the market. Our own
business model provides advisors with a multitude of customizable service and technology offerings that allow them
to increase their efficiency, focus on their clients and grow their practice.

Ability to Serve Approximately 88% of Retail Assets

Our historic focus has been on advisors who serve the mass-affluent market and we 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 allows us to expand our breadth of services to better support the high-net-worth market. As of
December 31, 2015, our advisors supported accounts with more than $1 million in assets that in the aggregate
represented $90.0 billion in advisory and brokerage assets,which is 18.9% of our total assets custodied. Our array
of integrated technology and services is capable of supporting 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 88% of retail assets.

Our Sources of Growth

We believe we can 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 serviced in the market segments in the

United States that we address grew 8.9% per year, while retirement assets are expected to grow 5.1% 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 $8.0 trillion as of 2015 to $10.7 trillion by 2019. Along with 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 2015.
(2) The Cerulli Report: U.S. Retirement Markets 2015.

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.

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 firm and registering directly with the SEC or
state securities regulators. However, the clients of these advisors are generally interested in retaining assets in
brokerage accounts. This shift has lead to significant growth in the number of advisors associated with Hybrid RIAs.

Macroeconomic Trends

While the current macroeconomic environment has exhibited 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 4.5% market share of the approximately
309,000 financial advisors in the United States, according to Cerulli Associates, and we believe that we are uniquely
positioned to attract seasoned advisors of any practice size and from any of the channels listed below.

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

73,355

77,107

46,826

31,953

30,789

22,742

26,165

23.7%

25.0%

15.2%

10.3%

10.0%

7.3%

8.5%

308,937

100.0%

(1) The 26,165 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

We believe that the productivity of our advisors will increase over time as we continue to develop solutions

designed to enable them to add new clients, manage more of their clients’ investable assets, and expand their
existing practices with additional advisors. We can facilitate these productivity improvements by helping our
advisors better manage their practices in an increasingly complex external environment, which we believe will result
in assets per advisor growing over time.

Competition

We compete with a variety of financial firms to attract and retain experienced and productive advisors:

• Within the independent channel, the industry is highly fragmented, comprised primarily of regional firms that
rely on third-party custodians and technology providers to support their operations. Competitors in this space
include:

Commonwealth Financial Network;

Cetera Financial Group; and

Cambridge

• 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 RIA firms, which are registered with the SEC or though their respective states' investment
advisory regulator 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, 2015, we had 3,410 full-time employees. None of our employees is subject to collective

bargaining agreements governing their employment with us. We build deep expertise by attracting talented
employees from a variety of fields and developing that talent into future leaders of our business and our industry.
Our value proposition is delivered by a caring team that is grounded by a decades-old creed, which expresses our
commitment to delivering super service to advisors. 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. Our entrepreneurial heritage, the
talent and commitment of our people, and the excellence of our advisors push us to innovate and meet the
challenges of the future head on.

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 restriction, 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 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 self-regulatory organization 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
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 applicable regulations called for under the
Dodd-Frank Act have been finalized and implemented.

Investment Advisor Regulation

As investment advisors registered with the SEC, our subsidiaries LPL Financial, Fortigent, LLC, and IAG are
subject to the requirements of 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 advisor’s registration. Investment advisors 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, 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. The U.S. Department of Labor has issued a proposed rule: "Definition of
the Term "Fiduciary"; Conflict of Interest Rule -- Retirement Investment Advice," related to prohibited transaction
exemptions, and amendments to certain existing exemptions, that, if adopted, could impose new requirements on
our various business offerings, particularly in respect of certain products and services provided in connection with
IRAs and retirement plans. As with provisions of the Dodd-Frank Act discussed above, the extent of its effect on us
and the broader financial industry cannot be known until a final rule, if any, is adopted. 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 future regulations and their potential impact on our operations.

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 Gramm-Leach-Bliley
Act of 1999, SEC Regulation S-P, the Fair Credit Reporting Act of 1970, as amended, and Regulation S-ID.

Financial Information about Geographic Areas

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

Trademarks

Access Overlay®, BranchNet®, DO IT SMARTER®, Fortigent®, LPL®, LPL Career Match®, LPL Financial (&

Design)®, LPL Partners Program®, Manager Access Network®, Manager Access Select®, and OMP® are our
registered trademarks. ClientWorks, SponsorWorks, and THE PRIVATE TRUST COMPANY, N.A. (& Design) 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 and the assets they serve.
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 prevailing relatively
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 keep interest rates payable to clients in
our cash sweep programs low and still offer a competitive return. A sustained relatively 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, primarily 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, 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. 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 believe that 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 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.

New rules and regulations could also result in limitations on the lines of business we conduct, modifications to

our business practices, increased capital requirements, and additional costs. For example, last year the
U.S. Department of Labor (“DOL”) issued a proposed a rule: "Definition of the Term "Fiduciary"; Conflict of Interest
Rule -- Retirement Investment Advice", related prohibited transaction exemptions, and amendments to certain
existing exemptions ("Fiduciary Rule"), that, if adopted, could impose new requirements on our various business
lines. If adopted as proposed, the Fiduciary Rule would broaden the circumstances under which we may be
considered a “fiduciary” with respect to certain accounts that are subject to the Employee Retirement Income
Security Act (“ERISA”), and the prohibited transaction rules under section 4975 of the Internal Revenue Code,
including many employer-sponsored retirement plans and individual retirement accounts (IRAs). These changes
could affect the products and services we provide to these types of accounts and the compensation that we and our
advisors receive in connection with such products and services, as well as our regulatory compliance and other
costs and those of our advisors. Depending on the final Fiduciary Rule and the nature of the clients that they serve,
certain of our advisors may choose not to maintain their brokerage licenses or may choose not to maintain a
relationship with us. The extent of the Fiduciary Rule’s effect on us, our advisors, and the broader financial services
industry cannot be known until after a final rule, if any, is adopted.

In addition, provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (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 the DOL and 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 capital standards 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.

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 and certain retirement plan regulations could result in penalties
against us.

We are subject to ERISA and Section 4975 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, prohibit specified transactions involving
benefit plan clients (including, without limitation, certain employee benefit plans, 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 or provide services to
these plans). As described above, if adopted, the Fiduciary Rule would broaden the circumstances under which we
are deemed to be a “fiduciary” with respect to these plans and could affect the products and services we provide to
them and the compensation that we may receive.

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, 2015, we had total indebtedness of $2.2 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;

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, 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. While we maintain cyber liability insurance, this insurance
may not be sufficient to protect us against all losses.

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 business continuity and 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, which increases our reliance on outsourced providers, including off-shore
providers, and the related risks described above. For example, we rely on several off-shore service providers for
functions related to cash management, account transfers, information technology infrastructure and support, 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 if 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
22

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, cyber and data breach, errors and omissions, and fidelity
bond insurance. We have self-insurance for certain potential liabilities through a wholly-owned captive insurance
subsidiary. While we endeavor to self-insure and 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. In addition, certain types of potential claims for damages cannot be insured. Our business may be
negatively affected if in the future some or all of 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.

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 are currently developing 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, with multiple renewal options following such 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 has been delegated by the landlord to LPL, and
the landlord has provided a capped allowance, expected to be approximately $112 million, to fund a portion of the
construction costs. Construction is currently expected to be completed in the fourth quarter of 2016. 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 for the 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.

Risks Related to Ownership of Our Common Stock

Certain significant stockholders 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, 2015, certain of our stockholders owned significant amounts of the outstanding shares of
our common stock. So long as such stockholders continue to own a significant amount of the outstanding shares of
our common stock, they may be able to influence our decisions, regardless of whether or not other stockholders
believe that such decisions are in their own best interests. Such concentration of voting power could also have the
effect of delaying, deterring, or preventing a change of control or other business combination that might otherwise
be beneficial to our stockholders.

In addition, certain such stockholders 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 such stockholders invest in such other businesses, they may have differing interests
than our other stockholders. They 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 cash sweep program or key business lines;

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, including developments related to the Fiduciary
Rule; 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 23, 2016, our board of directors declared a regular quarterly cash dividend of $0.25 per share

on our outstanding common stock, payable on March 14, 2016. 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
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 under a lease agreement
that 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.

We also have a lease agreement for office space in Fort Mill, South Carolina for which we are involved in the

construction of a building for office space 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, financial condition, or cash flows. 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, 2015 was $42.65 per share. As of that date there were 658 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.

2015

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

2014

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

High

Low

48.00

48.18

48.00

47.38

46.06

53.97

54.07

56.45

36.41

37.72

39.41

39.83

38.34

45.95

45.34

46.23

Performance Graph

The following graph compares the cumulative total stockholder return (rounded to the nearest whole dollar) of
the Company's common stock, 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") for the last five years. The graph assumes a
$100 investment at the closing price on December 31, 2010 and reinvestment of the dividends on the respective
dividend payment dates without commissions. This graph does not forecast future performance of the Company's
stock.

Dividends

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

the years ended December 31, 2015 and 2014 were as follows (in millions, except per share data):

2015

Fourth quarter

Third quarter

Second quarter

First quarter

2014

Fourth quarter

Third quarter

Second quarter

First quarter

Dividend
per Share
Declared

Total Cash
Dividend
Paid

0.250

0.240

23.8

24.1

24.2

23.5

24.0

24.1

On February 23, 2016, the Board of Directors declared a cash dividend of $0.25 per share on our outstanding

common stock to be paid on March 14, 2016 to all stockholders of record on March 4, 2016.

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, 2015:

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

5,687,885

28,603

34.36

22.50

12,993,267

—

Total
___________________
(1) Includes shares available for future issuance under our amended and restated 2010 Omnibus Equity Incentive

12,993,267

5,716,488

34.31

Plan.

As of December 31, 2015, we had 28,603 warrants outstanding 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

2015:

Period

Total Number
of Shares
Purchased

Weighted-
Average Price
Paid per Share

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

October 1, 2015 through October 31, 2015

November 1, 2015 through November 30, 2015

— $

—

— $

500,000,000

December 1, 2015 through December 31, 2015

5,622,628

44.46

5,622,628

250,000,000

Total
_____________________
(1) See Note 14. Stockholders' Equity, within the notes to consolidated financial statements for additional

5,622,628

44.46

250,000,000

information.

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, 2015, 2014, and 2013
and the consolidated statements of financial condition data as of December 31, 2015 and 2014 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, 2012 and 2011 and consolidated statements of financial condition
data as of December 31, 2013, 2012, and 2011 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.

Consolidated statements of income data:

Net revenues

Total expenses

Income before provision for income taxes

Provision for income taxes

Net income

Per share data:

Earnings per basic share

Earnings per diluted share

Cash dividends paid per share

Years Ended December 31,

2015

2014

2013

2012

2011

(In thousands, except per share data)

$ 4,275,054

$ 4,373,662

$ 4,140,858

$ 3,661,088

$ 3,479,375

$ 3,992,499

$ 4,078,965

$ 3,849,555

$ 3,410,497

$ 3,196,690

282,555

113,771

168,784

1.77

1.74

1.00

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

—

December 31,

2015

2014

2013

2012

2011

(In thousands)

Consolidated statements of financial condition data:

Cash and cash equivalents

724,529

412,332

516,584

466,261

720,772

Total assets (1)

Total debt (1)

$ 4,521,061

$ 4,041,930

$ 4,027,114

$ 3,968,007

$ 3,798,749

$ 2,188,240

$ 1,625,195

$ 1,519,379

$ 1,297,308

$ 1,315,091

(1) The Company early adopted Accounting Standards Update ("ASU") 2015-03, Interest—Imputation of Interest, which
simplifies the presentation of debt issuance costs on the balance sheet by presenting debt issuance costs as a direct
deduction from the carrying amount of the related debt liability. These debt issuance costs had previously been included
as an asset in the consolidated statements of financial condition. The effect of the reclassification from assets to debt is
shown for all years presented.

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 a leader in the retail financial advice market, the nation's largest independent broker-dealer (based on

total revenues, Financial Planning magazine June 1996-2015), 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 (our "advisors"), including
financial advisors at more than 700 financial institutions across the country, enabling them to provide their retail
investors (their "clients") with objective financial advice through a lower conflict model. We also support over 4,200
financial advisors who are affiliated and licensed with insurance companies with customized clearing, advisory
platforms and technology solutions.

Through our advisors, we are one of the largest distributors of financial products and services in the United

States, and we believe that we are one of the top five firms in terms of largest overall advisor base in the United
States.

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, and market-making.

We believe investors achieve better outcomes when working with a financial advisor. LPL makes it easy for
advisors to do what is best for their clients, protecting advisors and investors while promoting independence and
choice through access to a wide range of diligently evaluated non-proprietary products. This is the sole focus of our
business.

Executive Summary

Asset Growth Trends

Net new advisory assets were $16.7 billion for the year ended December 31, 2015, compared to $17.5 billion

in the same period in 2014. Headwinds in market-sensitive asset valuations offset most of these asset flows,
leaving brokerage and advisory assets at $475.6 billion as of December 31, 2015, which was roughly flat with the
prior year end balance of $475.1 billion.

As of December 31, 2015, our advisory assets had grown to $187.2 billion from the prior year end balance of

$175.8 billion and represented 39.4% of advisory and brokerage assets served. In addition to our corporate RIA
platform, we offer a platform that serves independent RIA firms that conduct their advisory business through
separate entities (“Hybrid RIAs”) operating pursuant to the Investment Advisers Act of 1940, as amended ("Advisers
Act") or through their respective states' investment advisory laws and regulations, rather than through LPL
Financial. As of December 31, 2015, assets custodied on our Hybrid RIA platform had grown to $118.7 billion as of
December 31, 2015, compared to $94.5 billion as of the prior year end, and represented 25.0% of our total advisory
and brokerage assets served.

Gross Profit Trends

Gross profit of $1,357.7 million for the year ended December 31, 2015 increased 2.4% in comparison to

$1,325.9 million for the year ended December 31, 2014. The increase in year-over-year gross profit was primarily
due to increases in advisory fees due to higher average balances, increases in asset-based revenues from
sponsorship fees and omnibus record keeping, increases in transaction fees due to elevated transaction volumes,
and an increase in fee revenue, primarily due to new fees; partially offset by decreases in our brokerage sales.

Debt Transaction

On November 20, 2015 we and our wholly-owned subsidiary, LPL Holdings, Inc. ("LPLH"), amended our

senior secured credit agreement to, among other things, extend the maturity of a portion of the then-outstanding
term B loan, borrow an additional $700 million in aggregate principal amount of term B loans, and increase the
maximum leverage ratio permitted under the financial covenants. A portion of the proceeds were used to pay down
$150 million in revolving credit borrowings outstanding under the senior secured credit agreement and to fund
repurchases of shares of our common stock pursuant to an Accelerated Share Repurchase program. See Note 11.
Debt, within the notes to consolidated financial statements for additional information regarding our debt.

Capital Management Activity

We returned $273.8 million of capital to shareholders in the fourth quarter, including $250.0 million through

share buy backs and $23.8 million in dividends. We purchased approximately 5.6 million shares of the Company's
common stock during the period at a weighted average price of $44.46 per share. During the period January 1,
2016 through February 25, 2016, we also purchased 634,651 shares of our common stock at a weighted-average
price of $39.41.

On February 23, 2016 the Company's Board of Directors ("Board") declared a cash dividend of $0.25 per

share on our outstanding common stock to be paid on March 14, 2016 to stockholders of record on March 4, 2016.

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 that provides access to approximately 795 product providers that offer
the following product lines:

• Insurance Based Products

• Alternative Investments

• Structured Products

• Mutual Funds

• Separately Managed Accounts

• Exchange Traded Products

• Unit Investment Trusts

• Retirement Plan Products

• Annuities

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. 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 and drivers of our recurring revenue:

For the Year Ended
December 31, 2015
% of Total
Net Revenue
46%

%
Recurring
48%

Total
(millions)
$1,977

$1,352

$494

32%

12%

99%

98%

$402

62%

$50

35%

$4,275

$3,058

100%

72%

Sources of Revenue

Primary Drivers

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

Commission

Advisory

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

Attachment revenue
retained by us

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

Other

Total Net Revenue

Total Recurring Revenue

- Sales
- Transactions
- Brokerage asset levels
- Advisory asset levels

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

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

subscribers
- Margin accounts
- Alternative investment

transactions

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

Advisory and brokerage assets (in billions)(1)

Advisory assets under custody (in billions)(1)(2)

Net new advisory assets (in billions)(3)

Insured cash account balances (in billions)(1)

Money market account balances (in billions)(1)

Advisors(4)

Financial Metrics

Revenue growth from prior year

Recurring revenue as a % of net revenue

Pre-Tax income (in thousands)

Pre-Tax earnings per share (diluted)

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,

2015

2014

2013

475.6

187.2

16.7

20.9

8.1

475.1

175.8

17.5

18.6

7.4

438.4

151.6

14.6

17.4

7.5

14,054

14,036

13,673

Years Ended December 31,

2015

2014

2013

(2.3)%

71.5 %

5.6%

68.3%

13.1%

64.7%

$ 282,555

2.92

$ 168,784

1.74

294,697

2.90

178,043

1.75

291,303

2.75

181,857

1.72

$1,357,725

$ 1,325,945

$ 1,248,014

31.8 %

30.3%

30.1%

$ 489,116

516,507

511,438

11.4 %

36.0 %

11.8%

39.0%

12.4%

41.0%

$ 214,854

2.22

247,621

2.44

258,805

2.44

____________________
(1) Advisory and brokerage assets are comprised of assets that are custodied, networked, and non-networked and
reflect market movement in addition to new assets. Insured cash account and money market account balances
are also included in advisory and brokerage assets. Set forth below are other client assets at December 31 of
2015, 2014, and 2013, from which we generate commissions but that are custodied with third-party providers
and therefore excluded from advisory and brokerage assets (in billions):

Retirement plan assets(a)

Trust assets

High-net-worth assets

_______________________

December 31,

2015

2014

2013

83.0

1.0

88.9

80.3

3.0

87.3

60.6

10.6

73.9

(a) Retirement plan assets are held in retirement plans that are supported by advisors licensed with LPL
Financial. At December 31, 2015, 2014 and 2013, our retirement plan assets represent those 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 to be approximately $118.0 billion at
December 31, 2015. 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. Such additional feeds
since December 31, 2014, accounted for $3.8 billion of the total retirement plan assets.

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

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

(3) 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.

(4) 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.

(5) 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.

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, which can be a useful financial metric in assessing our historical 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, can

provide useful information to investors regarding our historical 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, 2015, 2014, and 2013 (in thousands):

Net income

Non-operating interest expense

Provision for income taxes

Amortization of intangible assets

Depreciation and amortization

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)

Other(5)

Total EBITDA Adjustments

Adjusted EBITDA

___________________

Years Ended December 31,

2015

2014

2013

168,784

178,043

181,857

59,136

113,771

38,239

73,383

453,313

23,296

11,976

—

481

35,803

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

489,116

516,507

511,438

(1) Represents share-based compensation expenses 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 primarily resulting from

the expansion of our Service Value Commitment initiative. Results for 2015 also include charges related to the
restructuring of the business of our subsidiary, Fortigent Holdings Company, Inc. (together with its subsidiaries,
"Fortigent")

(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) 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
closure of our former subsidiary, NestWise, LLC (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.

Adjusted Earnings and Adjusted Earnings per share

We present Adjusted Earnings and Adjusted Earnings per share, which can be useful financial metrics for
assessing our historical operating performance by excluding the effects of certain items that we believe are not
representative of our core business.

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. Adjusted Earnings and Adjusted Earnings per share, viewed in addition to, and not in lieu of,
our reported GAAP results can 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 believe Adjusted Earnings and Adjusted Earnings per share can also be useful to investors in evaluating

our historical operating performance because securities analysts have used them and may continue to 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, 2015, 2014, and 2013 (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

Other(3)

Total EBITDA Adjustments

Amortization of intangible assets

Adjusted Earnings

Adjusted Earnings per share(4)

Weighted-average shares outstanding — diluted

Years Ended December 31,

2015

2014

2013

168,784

178,043

181,857

14,912

7,353

—

295

22,591

23,479

214,854

2.22

96,786

14,175

366

21,357

2,678

7,137

45,713

23,865

247,621

2.44

101,651

11,109

10,919

19,011

4,916

6,926

52,881

24,067

258,805

2.44

106,003

_____________________
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%, 3.6% and 3.3%, net of the federal tax benefit, for the years ended December 31, 2015, 2014, and 2013,
respectively. Items for which we did not receive a tax deduction are included 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 year ended December 31, 2013 include reductions of expense of $3.8 million relating to the
estimated fair value of contingent consideration for the stock acquisition of Concord Capital Partners, Inc., that
are not deductible for tax purposes.

(3) The results for the year ended December 31, 2013 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.

(4) 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

Adjusted Earnings per share

Legal & Regulatory Matters

Years Ended December 31,

2015

2014

2013

1.74

1.75

1.72

0.24

2.22

0.45

0.24

2.44

0.49

0.23

2.44

As a regulated entity, we are subject to regulatory oversight and inquiries related to, among other items, our

compliance and supervisory systems and procedures and other controls, as well as our disclosures, supervision
and reporting. The ongoing environment of additional regulation, increased regulatory compliance obligations, and
enhanced regulatory enforcement has resulted in additional operational and compliance costs, as well as increased
costs in the form of fines, restitution, and remediation related to regulatory matters. In the ordinary course of
business, we periodically identify or become aware of purported inadequacies, deficiencies, and other issues. It is
our policy to evaluate these matters for potential securities law or regulatory violations, and other potential
compliance issues. It is also our policy to self-report known violations and issues as required by applicable law and

regulation. When deemed probable that matters may result in financial losses, we accrue for those losses based on
an estimate of possible fines, customer restitution, and losses related to the repurchase of sold securities and other
losses, as applicable. Certain regulatory and other legal claims and losses may be covered through our wholly-
owned captive insurance subsidiary, which is chartered with the insurance commissioner in the state of Tennessee.
Our ability to estimate such costs may vary based on the current stage of evaluation and status of discussion with
regulators, as applicable.

Our accruals, including those established through the captive insurance company, at December 31, 2015

include estimated costs for significant regulatory matters, generally relating to the adequacy of our compliance and
supervisory systems and procedures and other controls, for which we believe losses are both probable and
reasonably estimable. One of the matters relates to sales of certain securities over several years, and our accrual at
December 31, 2015 includes an estimate for the loss we expect to incur in resolving this matter including if we were
to repurchase certain affected securities at their original sales prices.

The outcome of regulatory matters could result in legal liability, regulatory fines, or monetary penalties in

excess of our accruals and insurance, which could have a material adverse effect on our business, results of
operations, cash flows, or financial condition. For more information on management’s loss contingency policies, see
Note 13. Commitments and Contingencies, within the notes to the consolidated financial statements.

Our Service Value Commitment Initiative

Our Service Value Commitment initiative was 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
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, 2015, we have incurred $64.9 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 was
completed in 2015. See Note 3. Restructuring, within the notes to the consolidated financial statements for further
detail.

Derivative Financial Instruments

In May 2013, 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.

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.

In August 2013, we ceased the operations of our former subsidiary, NestWise, LLC ("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
Advisors, Inc. ("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.

Economic Overview and Impact of Financial Market Events

Our business is directly and indirectly sensitive to several macroeconomic factors and the state of financial

markets, particularly in the United States. While macroeconomic data in the U.S. continued to point to low odds of a
recession, concerns about the impact of low commodity prices and slowing global growth have increased. Financial
market indicators have signaled rising levels of financial stress in December 2015 and in the early part of 2016 as
uncertainty impacts investor behavior. In the U.S., economic growth has remained fairly steady despite headwinds
from slowing growth in manufacturing, largely attributable to decreasing capital expenditures on energy projects; a
strong dollar, which has weighed on exports; and concern about some international markets, especially heavy
commodity exporters and China. On the positive side, the job market has continued to heal, which has supported
consumer spending; services sector growth remained strong; and residential investment has been accelerating,
although the pace of new home construction still remains low by historical standards. According to the most recent
estimate by the Bureau of Economic Analysis, real gross domestic product ("GDP") growth slowed to a 0.7% annual
rate in the fourth quarter of 2015, putting the overall growth rate for 2015 at 1.8%.

Continued U.S. growth, improvements in international economic data, and market participants’ acclimating to

the possible start of a rate tightening cycle in the U.S. helped the S&P 500 rebound in the fourth quarter of 2015
from third quarter losses, but gains were largely confined to October as the impact of falling oil prices and a strong
dollar on earnings kept investor confidence tempered. Rising concerns in early 2016 have seen domestic equity
markets break down below 2015 lows. Further declines in oil prices have continued to put added pressure on credit
sensitive bonds and credit spreads have continued to widen. In Treasury markets, the Federal Reserve's December
2015 rate hike pushed short-term Treasury yields modestly higher, but long-term rates have fallen as concerns
about global growth increase. Widening credit spreads, a flattening yield curve, and elevated stock market volatility
all indicate that investors became considerably more risk averse as 2016 began.

Our business is also sensitive to current and expected short-term interest rates, which are largely driven by

Federal Reserve policy. In particular, low short-term rates can weigh on the profitability of our cash sweep program,
due to the fee compression needed to keep our rates competitive. Low interest rates and the prospect of rising
rates over the long term can also have an impact on demand for fixed and variable annuity products. On December
16, 2015, the Federal Reserve’s policy arm, the Federal Open Market Committee ("FOMC"), announced that it was
raising the federal funds rate for the first time in almost ten years, moving the target range from 0.0-0.25% to
0.25-0.50%. The decision was based on the Committee's belief that labor markets had exhibited "considerable
improvement" and that factors weighing on inflation were likely transitory, together with expectations that labor
markets would continue to improve and that inflation would progress toward the policy target of 2% over the
medium term. The statement emphasized that the FOMC expected the path of future rate increases to be gradual
and that decisions would continue to be data dependent. Comments by Federal Reserve Chair Janet Yellen since
that meeting have indicated rising concern about international conditions, while market-implied expectations of the
path of the federal funds rate have fallen and are pricing in a low probability of any additional increases in 2016.

Results of Operations

The following discussion presents an analysis of our results of operations for the years ended December 31,
2015, 2014, and 2013. 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

2015

2014

2013

2015 vs. 2014

2014 vs. 2013

(In thousands)

Revenues

Commission

Advisory

Asset-based

Transaction and fee

Other

Net revenues

Expenses

Production

Compensation and benefits

General and administrative

Depreciation and amortization

Amortization of intangible assets

Restructuring charges

$ 1,976,845

$ 2,118,494

$ 2,077,566

1,352,454

1,337,959

1,187,352

493,687

401,948

50,120

476,595

369,821

70,793

430,990

361,252

83,698

4,275,054

4,373,662

4,140,858

2,917,329

3,047,717

2,892,844

440,049

452,396

73,383

38,239

11,967

421,829

422,441

57,977

38,868

34,652

400,967

382,647

44,497

39,006

30,186

Total operating expenses

3,933,363

4,023,484

3,790,147

Non-operating interest expense

Loss on extinguishment of debt

59,136

—

51,538

3,943

51,446

7,962

Total expenses

3,992,499

4,078,965

3,849,555

Income before provision for income taxes

Provision for income taxes

Net income

282,555

113,771

294,697

116,654

291,303

109,446

168,784

178,043

181,857

(6.7)%

1.1 %

3.6 %

8.7 %

(29.2)%

(2.3)%

(4.3)%

4.3 %

7.1 %

26.6 %

(1.6)%

(65.5)%

(2.2)%

14.7 %

2.0 %

12.7 %

10.6 %

2.4 %

(15.4)%

5.6 %

5.4 %

5.2 %

10.4 %

30.3 %

(0.4)%

14.8 %

6.2 %

0.2 %

(100.0)%

(50.5)%

(2.1)%

(4.1)%

(2.5)%

(5.2)%

6.0 %

1.2 %

6.6 %

(2.1)%

Revenues

Commission Revenues

We generate two types of commission revenues: sales-based commissions and trailing commissions. Sales-

based commission revenues, which occur whenever clients trade securities or purchase various types of
investment products, primarily represent gross commissions generated by our advisors. The levels of sales-based
commission revenues 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. Trailing commission revenues
are recurring in nature and are earned based on the market value of investment holdings in trail-eligible assets. We
earn trailing commission revenues (a commission that is paid over time, such as 12(b)-1 fees) primarily on mutual
funds and variable annuities held by clients of our advisors.

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,

2015 vs. 2014

2014 vs. 2013

2015

2014

2013

$ Change % Change

Variable annuities

Mutual funds

Alternative investments

Fixed annuities

Equities

Fixed income

Insurance

Group annuities

Other

$ 774,610

$ 807,634

$ 794,898

$ (33,024)

(4.1)% $

12,736

591,049

133,092

157,975

97,505

90,940

81,108

49,890

676

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

(19,261)

(78,546)

(2,312)

(3.2)%

44,359

(37.1)%

(39,475)

(1.4)%

36,405

(14,586)

(13.0)%

5,058

2,449

(1,360)

(67)

5.9 %

3.1 %

(2.7)%

(9.0)%

(7,478)

(1,361)

(3,028)

(1,025)

1.6 %

7.8 %

(15.7)%

29.4 %

(6.3)%

(1.6)%

(3.7)%

(2.0)%

(205)

(21.6)%

Total commission revenue

$1,976,845

$2,118,494

$2,077,566

$ (141,649)

(6.7)% $

40,928

2.0 %

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,

2015 vs. 2014

2014 vs. 2013

2015

2014

2013

$ Change % Change

$1,019,602

$1,181,189

$1,254,683

$ (161,587)

(13.7)% $ (73,494)

(5.9)%

957,243

937,305

822,883

19,938

2.1 % 114,422

13.9 %
2.0 %

Total commission revenue

$1,976,845

$2,118,494

$2,077,566

$ (141,649)

(6.7)% $ 40,928

The decrease in commission revenue in 2015 compared to 2014 was primarily due to a decrease in sales-

based activity for alternative investments, fixed and variable annuities, mutual funds, and equities. Alternative
investment sales commissions were challenged throughout the year, in particular non-traded real estate investment
trusts (REITs), due to a maturing real estate cycle and uncertainties regarding upcoming regulatory changes.
Significant market volatility and investor uncertainty in the low interest rate environment continued the decline in
demand for fixed and variable annuities, mutual funds, and equities.

Trailing revenues are recurring in nature and the slight increase in revenue reflects an increase in the market

value of the underlying assets.

The increase in commission revenues in 2014 compared to 2013 was due primarily to an increase in trailing

revenue for mutual funds and variable annuities and activity in fixed annuities.

Fixed annuity sales-based commissions rose in 2014 compared to 2013, despite historically low interest
rates, as investors have sought income streams with minimal risk to principal. Such benefits 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 primarily due

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.

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 their advisory assets. Advisory fees
are billed to clients on either a calendar quarter or non-calendar quarter basis of their choice, at the beginning of
that period, and are recognized as revenue ratably over the quarter in which they are earned. The value of the
assets in an advisory account on the billing date determines the amount billed, and accordingly, the revenues
earned in the following three month period. Advisory revenues collected on our corporate RIA platform generally
average 1.1% of the underlying assets, and can range anywhere from 0.5% to 3.0%.

We also support Hybrid RIAs, through our Hybrid RIA platform, which allows advisors to engage us for
technology, clearing, and custody services, as well as access to the capabilities of our investment platforms. Most
financial advisors associated with Hybrid RIAs carry their brokerage license with LPL Financial and access our fully-
integrated brokerage platform under standard terms, although some financial advisors associated with Hybrid RIAs
do not carry a brokerage license with us. The assets held under a Hybrid RIA's 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. However, the advisory revenue generated by a Hybrid RIA is earned by the
Hybrid RIA, and accordingly is not included in our advisory revenue. We charge separate fees to Hybrid RIAs for
technology, clearing, administrative, and custody services. The administrative fees collected on our Hybrid 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.

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

Ending balance at December 31

Years Ended December 31,

2015

2014

2013

175.8

151.6

122.1

16.7

(5.3)

17.5

6.7

14.6

14.9

187.2

175.8

151.6

Net new advisory assets for the years ended December 31, 2015, 2014, and 2013 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 recruiting of new advisors and the continued shift by our existing
advisors from brokerage towards more advisory business. With advisory fees for the period calculated based on the
ending market value of the immediately preceding period, revenues for any particular quarter are primarily driven by
each of the prior quarter's month-end advisory assets under management. The growth in advisory revenue from
2013 to 2014 and in 2015 is due to net new advisory assets resulting from our recruiting efforts and strong advisor
productivity, as well as market gains as represented by higher levels of the S&P 500 index.

Assets on our Hybrid RIA platform have been growing rapidly through the recruiting of new advisors and the

transition of existing advisors onto that platform. This continued shift of advisors to our Hybrid RIA platform has
caused the growth in advisory revenue to appear lagging behind the rate of growth of advisory assets under
custody as we earn administrative and other fees discussed above as opposed to advisory fees.

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

December 31,

2015 vs. 2014

2014 vs. 2013

2015

2014

2013

$ Change % Change

121.4

125.1

117.6

(3.7)

(3.0)% $

7.5

6.4%

65.8

50.7

15.1

11.4

29.8 %

6.5 % $

16.7

24.2

49.1%

16.0%

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

Total advisory assets under custody $

187.2

175.8

151.6

Asset-Based Revenues

Asset-based revenues are comprised of our sponsorship programs with financial product manufacturers,

omnibus processing and networking services, and fees from cash sweep programs. We receive fees from certain
financial product manufacturers in connection with sponsorship programs that support our marketing and sales
education and training efforts. Omnibus processing revenues are paid to us by mutual fund product sponsors and
are based on 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. Pursuant to
contractual arrangements, uninvested cash balances in our advisors’ client accounts are swept into either insured
cash accounts at various banks or third-party money market funds, for which we receive fees, including
administrative and recordkeeping fees based on account type and the invested balances.

Asset-based revenues for the year ended December 31, 2015 increased to $493.7 million, or 3.6% from

$476.6 million for the year ended December 31, 2014. The increase is due to increased fees from omnibus
processing services resulting from higher average market indices on the value of those underlying assets and
increased revenues from product sponsors related to favorable terms on renegotiated contracts, partially offset by
decreased revenues from our cash sweep programs. Cash sweep revenue decreased to $95.3 million in 2015 from
$99.7 million in 2014 due to fee compression that resulted from a repricing of certain contracts that underlie our
cash sweep programs, partially offset by an increase in average assets in our cash sweep programs as investors
increased the balances of their assets held in cash in response to the volatility in the financial markets. As of
December 31, 2015, our cash sweep assets had grown to $29.0 billion from $26.0 billion as of December 31, 2014,
with average cash sweep assets of $25.8 billion and $23.9 billion during the years ended December 31, 2015 and
2014, respectively. The increases in average asset balances were offset by a slight decrease in our average cash
sweep yield from 42 basis points to 37 basis points for the years ended December 31, 2015 and 2014, respectively.

Asset-based revenues for the year ended December 31, 2014 increased to $476.6 million, or 10.6% from

$431.0 million for the year ended December 31, 2013. The increase is due to increased fees from omnibus
processing services and product sponsors resulting from higher average market indices on the value of those
underlying assets and net new sales of eligible assets, partially offset by decreased revenues from our cash sweep
programs. The decrease in cash sweep revenue is due to fee compression that resulted from a re-pricing of certain
contracts that underlie our cash sweep programs, a year-over-year 2 basis points decline in the average federal
funds effective rate to 0.09%, and a decrease in average assets in our cash sweep programs for the year ended
December 31, 2014.

Transaction and Fee Revenues

Transaction revenues primarily include fees we charge to our advisors and their clients for executing certain
transactions in brokerage and fee-based advisory accounts. Fee revenues primarily include Individual Retirement
Account (“IRA”) custodian fees, contract and licensing fees, and other client account fees. In addition, we host
certain advisor conferences that serve as training, education, sales, and marketing events, for which we charge a
fee for attendance.

Transaction and fee revenues increased in 2015 compared to 2014 primarily due to higher transaction
volumes on eligible trades and fees generated from the introduction of our home office supervisory program.

The primary contributing factor for the increase in transaction and fee revenues in 2014 compared to 2013

was a 2.7% increase in the average number of advisors during the year.

Other Revenues and Interest Income, net of Interest Expense

Other revenues primarily include marketing allowances received from certain financial product manufacturers,
primarily those who offer alternative investments, such as non-traded REITs and business development companies,
mark-to-market gains or losses on assets held by us for the advisor non-qualified deferred compensation plan and
our model research portfolios, interest income from client margin accounts and cash equivalents, net of operating
interest expense, and other miscellaneous revenues.

Other revenues decreased in 2015 compared to 2014 primarily due to decreases in alternative investment

marketing allowances of $14.8 million associated with a 37% decline in related sales. The remainder of the
decrease was primarily the result of a change to a $3.0 million loss in 2015 from a $2.1 million gain in 2014 in
realized and unrealized gains/losses on approximately $100.7 million of assets held in our advisor non-qualified
deferred compensation plan. The primary driver of the loss was due to market performance on the underlying
investment allocations chosen by advisors in the plan.

Other revenues decreased in 2014 compared to 2013 primarily due to decreases in alternative investment

marketing allowances associated with a 16% decline in related sales. The remainder of the decrease was primarily
the result of a change in realized and unrealized gains/losses on assets held in our advisor non-qualified deferred
compensation plan due to market performance on the underlying investment allocations chosen by advisors in the
plan.

Expenses

Production Expenses

Production expenses are comprised of the following: base payout amounts that are earned by and paid out to
advisors and institutions based on commission and advisory revenues earned on each client's account (collectively,
commission and advisory revenues earned by LPL Financial are referred to as gross dealer concessions, or
“GDC”); production bonuses earned by advisors and institutions 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; the deferred
commissions and advisory fee expenses associated with mark-to-market gains or losses on the non-qualified
deferred compensation plan offered to our advisors; and brokerage, clearing, and exchange fees.

The decrease in production expenses for 2015 compared with 2014 correlates with the changes in our

commission and advisory revenues during the same period.

The increase in production expenses for 2014 compared with 2013 correlates with the changes in our

commission and advisory revenues during the same period.

Our production payout ratio is calculated as production expenses, excluding brokerage, clearing, and

exchange fees, divided by GDC. The following table shows the components of our production payout and total
payout ratios, which are non-GAAP measures:

Base payout rate

Production based bonuses

GDC sensitive payout

Non-GDC sensitive payout

Total Payout Ratio

Compensation and Benefits Expense

Years Ended December 31,

Change

2015

2014

2013

2015 vs. 2014

2014 vs. 2013

83.22%

83.71%

84.04%

2.72%

2.79%

2.69%

85.94%

86.50%

86.73%

0.11%

0.26%

0.51%

86.05%

86.76%

87.24%

(49) bps

(7) bps

(56) bps

(15) bps

(71) bps

(33) bps

10 bps

(23) bps

(25) bps

(48) bps

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.

Years Ended December 31,

Change

2015

2014

2013

2015 vs. 2014

2014 vs. 2013

Average Number of Employees

3,382

3,337

3,047

1.3%

9.5%

The increase in compensation and benefits for 2015 compared with 2014 was primarily driven by increases in

salary that reflects our annual merit pay increase cycle and group health insurance costs combined with the
increase in the average number of employees.

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. 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.

General and Administrative Expenses

General and administrative expenses include promotional, occupancy and equipment, professional services,

communications and data processing, and other expenses. Promotional expenses include costs related to our
hosting of certain advisor conferences that serve as training, sales, and marketing events, as well as business
development costs related to recruiting, such as transition assistance and amortization related to forgivable loans

issued to advisors. Included in other expenses are the estimated costs of the investigation, settlement, and
resolution of regulatory matters, licensing fees, insurance, broker-dealer regulator fees, and other miscellaneous
expenses.

The following table details our General and Administrative expenses included in our consolidated statements

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

December 31,

2015 vs. 2014

2014 vs. 2013

Promotional

Occupancy and equipment

Professional services
Communications and data
processing

Other
Total General and
Administrative Expenses

2015
$ 139,198

2014
$ 124,677

2013
$ 111,539

$ Change % Change
$ 14,521

$ Change % Change
11.8 %

11.6% $ 13,138

84,112

64,522

46,871

82,430

62,184

43,823

67,551

46,559

43,075

1,682

2,338

3,048

2.0%

3.8%

7.0%

14,879

15,625

748

22.0 %

33.6 %

1.7 %

117,693

109,327

113,923

8,366

7.7%

(4,596)

(4.0)%

$ 452,396

$ 422,441

$ 382,647

$ 29,955

7.1% $ 39,794

10.4 %

The increase in general and administrative expenses for 2015 compared to 2014 was primarily driven by

increases in business development and promotional expenses associated with advisor transition assistance and
broker training and education. The increase in other expenses was primarily driven by increases in insurance
expense.

The increase in general and administrative expenses for 2014 compared with 2013 included $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. Additionally, 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.

Depreciation and Amortization Expense

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

assets consist of fixed assets, which include internally developed software, hardware, leasehold improvements, and
other equipment.

The increase in depreciation and amortization in 2015 compared to 2014 and in 2014 compared to 2013 was
due to the capital expenditures in 2014 related to the relocation to our San Diego office building and the increased
levels of continuing development of capitalized software.

Amortization of Intangible assets

Amortization of intangible assets is consistent over prior periods and represents the benefits received for

using long-lived assets, which consist of intangible assets established through our acquisitions.

Restructuring Charges

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

Value Commitment initiative. 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. Also, included in the restructuring charges are expenses incurred as part of our Fortigent restructuring.
Refer to Note 3. Restructuring, within the notes to the consolidated financial statements for additional details.

Non-Operating Interest Expense

Non-operating interest expense represents expense for our senior secured credit facilities. Period over period

variances correspond to changes in the level of outstanding indebtedness relating to these facilities.

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. The amendment was accounted for as a
partial modification and debt extinguishment, which required that we accelerate the recognition of $3.9 million of

related unamortized debt issuance costs that had no future economic benefit, and recognize that amount as a loss
on extinguishment of debt.

In May 2013, we refinanced and amended our previous credit agreement and effectively increased our

borrowing by $236.1 million, with net proceeds used primarily to pay down $150 million in revolving credit
borrowings and for share repurchases. The amendment was accounted for as a partial modification and debt
extinguishment, which required that we accelerate the recognition of $8.0 million of related unamortized debt
issuance costs that had no future economic benefit, and recognize that amount as a loss on extinguishment of debt.

Provision for Income Taxes

Our effective income tax rate was 40.3%, 39.6%, and 37.6% for 2015, 2014, and 2013, respectively. The

increase in our effective tax rate and income tax expense in 2015 compared to 2014 is primarily due to change in
estimates in unrecognized tax positions.

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.

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,

2015

2014

2013

279,451

232,242

160,117

(74,948)

(93,132)

107,694

312,197

412,332

(243,362)

(104,252)

516,584

(74,809)

(34,985)

50,323

466,261

724,529

412,332

516,584

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 changes in operating assets and liabilities,
including 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 provided by operating activities increased in 2015 when compared to 2014 primarily due to
increases in accounts payable and accrued liabilities relating to advisor deferred compensation, self-insurance, and
deferred commissions, partially offset by uses of cash associated with advisor loans.

Cash flows provided by 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 our 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 used in investing activities for 2015 as compared to 2014 were due primarily to the deposits of

restricted cash relating to our captive insurance subsidiary, which was established in the first quarter of 2015, offset
by a decrease in capital expenditures.

Cash flows 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.

Cash flows provided by financing activities for 2015 compared to the same period in 2014 were due to

proceeds from our senior secured term loan, partially offset by repurchases of common stock.

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.

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 senior secured 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 senior secured 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, 2015,
we had received collateral primarily in connection with client margin loans with a fair value of approximately $334.5
million, which we can repledge, loan, or sell. Of these securities, approximately $31.9 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, 2015 there were no restrictions that materially limited our ability to repledge, loan, or
sell the remaining $302.6 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, 2015, LPL Financial's excess net
capital was $97.4 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 November 20, 2015, we and LPLH entered into the Third Amendment, Extension and Incremental
Assumption Agreement (the “Third Amendment”), together with the other parties thereto, which amends our Credit
Agreement, originally dated as of March 29, 2012, as amended by the First Amendment and Incremental
Assumption Agreement, dated as of May 13, 2013, the Second Amendment, Extension and Incremental
Assumption Agreement, dated as of October 1, 2014 and Consent to Amendment Agreement, dated as of
November 21, 2014 (as amended by the Third Amendment, the "Credit Agreement"). 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 covenants consist of 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 Credit Agreement) to our consolidated EBITDA (as defined in the Credit Agreement) to
exceed certain maximum levels set forth in the Credit Agreement. Under our interest coverage ratio test, we
covenant not to allow the ratio of our consolidated 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, 2015 we were in compliance with both of our financial covenants. The maximum

permitted ratios under our financial covenants and actual ratios were as follows:

Financial Ratio

Leverage Test (Maximum)

Interest Coverage (Minimum)

Off-Balance Sheet Arrangements

December 31, 2015

Covenant
Requirement

Actual Ratio

5.0

3.0

3.8

9.0

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,

2015:

Total

< 1 Year

1-3 Years

4-5 Years

> 5 Years

Payments Due by Period

(In thousands)

Leases and other obligations(1)(2)

634,800

111,347

115,519

72,142

335,792

Senior secured credit facilities(3)

Variable interest payments(4)

Commitment fee on revolving line of credit(5)

2,215,037

575,011

7,164

17,677

87,225

1,910

78,420

186,453

3,821

854,503

214,396

1,433

1,264,437

86,937

—

Total contractual cash obligations

$ 3,432,012

218,159

384,213

$ 1,142,474

$ 1,687,166

____________________
(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 a real estate development project in Fort Mill, 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
development 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
$4.0 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, 2015 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, 2015, we have a liability for unrecognized tax benefits of $24.7 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. See Note 4. Fair Value Measurements, within the notes to consolidated financial statements
for a detail discussion regarding our fair value measurements.

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

• Commitments and Contingencies

• Valuation of Goodwill and Other Intangible Assets

•

Income Taxes

• Share-Based Compensation

See Note 2. Summary of Significant Accounting Policies, within the notes to consolidated financial statements for
discussion of each of these accounting policies.

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 Service, Trading,
and Operations 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 Service, Trading, and Operations
("STO") department. Our research department develops model portfolios that are used by advisors in developing
client portfolios. We currently maintain approximately 199 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 $5,000 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, 2015, the fair value of our trading securities owned were $12.0 million. Securities sold, but

not yet purchased were $268 thousand at December 31, 2015. The fair value of securities included within other
assets were $103.3 million at December 31, 2015. 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, 2015, all of the
outstanding debt under our Amended Credit Agreement, $2.2 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 given assets owned, which are subject to
the same, but off-setting interest rate risk

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, 2015 (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

1,755,662

459

314

773

1,148

2,297

6,661

4,594

15,389

3,445

8,958

$ 19,983

Variable Rate Debt Outstanding

2,215,037

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. 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 Rate Setting Committee (the "RSC"), which
governs and approves any changes to our fees. By meeting promptly around the time of Federal Open Market
Committee meetings, or for other market or non-market reasons, the RSC considers financial risk of the insured
cash programs relative to other products into which clients may move cash assets.

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 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 did not exceed $0.2 million
during any of the years ended December 31, 2015, 2014, and 2013. 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.

We operate a three lines of defense model whereby the primary ownership and responsibility for risk and

control processes is the responsibility of business and control owners who are the "first line" of defense in
effectively managing risks. The first line is responsible for risk process ownership and is comprised of the business
units, whose primary responsibility is for day-to-day compliance and risk management, including execution of
desktop and supervisory procedures. These business owners and certain control owners implement and execute
controls to manage risk, execute risk assessments, identify emerging risks, and comply with risk management
policies. The second line of defense is comprised of departments within Governance, Risk and Compliance ("GRC),
STO, BTS, Finance, and Human Capital and this second line of defense provides risk and control assessment and
oversight. The third line of defense is independent verification of the effectiveness of internal controls and is
conducted by Internal Audit or in third-party reviews.

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 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 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 all other Managing Directors 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 and tips 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. Another key control group is the Service Trading and Operations Risk
Management team. This team identifies, defines, and remediates risk-related items within STO and acts as the
liaison between STO and GRC. 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 Service, Trading, and Operations 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.

Policy Committee and Advisor Policies

In addition to the ERM framework, the Management Committee of LPL Financial has established a Policy

Committee to provide a centralized decision-making process for material policy issues that may arise on an ad hoc
basis. The membership of the Policy Committee consists of a subset of the Management Committee and currently
includes: the President, who serves as chair of the Policy Committee; the Managing Director, Chief Risk Officer;
and the Managing Director, Investment and Planning Solutions. The Managing Director, Legal & Government
Relations, serves as a non-voting member. Among other issues, the Policy Committee addresses policy conflicts

and potential conflicts that may arise from time to time from legal and regulatory requirements, business proposals,
and practices throughout the Company as they relate to advisor-facing or public-facing issues. The Policy
Committee is responsible for analyzing such issues, and either facilitating the policy decision or conflict resolution,
or making the policy decision. The Policy Committee reports the results of its decisions or other resolutions to the
Management Committee on an ad hoc basis

We also 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 conduct and 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, 2015, 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, 2015, 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, 2015 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, 2015.

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, 2015, 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, 2015, 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, 2015 of the
Company and our report dated February 25, 2016 expressed an unqualified opinion on those consolidated financial
statements.

/s/ DELOITTE & TOUCHE LLP

San Diego, California
February 25, 2016

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
2016 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

Age Position

Mark S. Casady

55 Chief Executive Officer and Chair, Board of Directors

Matthew J. Audette

41 Chief Financial Officer

Dan H. Arnold

51 President

David P. Bergers

48 Managing Director, Legal and Government Relations, General Counsel

Tracy Calder

Victor P. Fetter

56 Managing Director, Deputy Chief Risk Officer

47 Managing Director, Chief Information Officer

Thomas Gooley

51 Managing Director, Service, Trading, and Operations

J. Andrew Kalbaugh

52 Managing Director, Divisional President, Relationship Management and Business Consulting

Sallie R. Larsen

62 Managing Director, Chief Human Capital Officer

William P. Morrissey, Jr.

51 Managing Director, Divisional President, Business Development

Michelle Oroschakoff

54 Managing Director, Chief Risk Officer

Ryan Parker

41 Managing Director, Investment and Planning Solutions

George B. White

46 Managing Director, Research and Chief Investment Officer

Executive Officers

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

Mr. Casady is chair 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 our subsidiary 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. Mr.
Casady is a member of the board of the Financial Services Roundtable, EZE Software Group, and Citizens
Financial Group. He is a former member of FINRA's board of governors and former chair of the Insured Retirement
Institute. He has also previously served on the executive committee of the Investment Company Institute board of
governors. Mr. Casady received his B.S. from Indiana University and his M.B.A. from DePaul University.

Matthew J. Audette — Chief Financial Officer

Mr. Audette is our chief financial officer. He is responsible for the Company’s core financial functions including:
financial planning and analysis, controllership, tax, internal audit, treasury, corporate development, and investor
relations. Prior to joining LPL in September 2015, he served as executive vice president and chief financial officer of
E*TRADE Financial Corporation ("E*Trade") from January 2011 until June 2015. During his 16 years with E*TRADE,
he led the formation of the firm’s Finance department and was a key contributor to its growth, leading a variety of
corporate transactions and capital activities. Mr. Audette began his career in the financial services practice at KPMG.
Mr. Audette earned a B.S. in accounting from Virginia Polytechnic Institute and State University, popularly known as
Virginia Tech.

Dan H. Arnold — President

Mr. Arnold has served as our president since March 2015, with oversight of the our primary client-facing

functions. He leads the Advisor and Institution Solutions business unit, which focuses on business development,
existing advisor and institution growth, enhancing the client experience, research and corporate strategy, and
sponsor partnerships. Previously, Mr. Arnold served as our chief financial officer from November 2012 to March
2015 and was responsible for formulating financial policy, leading the company’s capital management efforts, and
ensuring the effectiveness of the organization’s financial functions. Prior to 2012, he was managing director, head of
strategy, with responsibility for long-term strategic planning for the firm, product and platform development, and
strategic investments, including acquisitions. 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
earned a B.S. in electrical engineering from 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 experience as a practicing attorney, corporate
counsel and government regulator. He joined us in August 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.

Tracy Calder - Managing Director, Deputy Chief Risk Officer

Ms. Calder is managing director, deputy chief risk officer, with oversight of the compliance and operational
market and credit risk management functions. She joined us in January 2016 and is responsible for furthering our
efforts to foster an environment that identifies and mitigates risk for LPL and our clients. Ms. Calder worked most
recently at J.P. Morgan Securities LLC, where she served as managing director, chief compliance officer from May
2015 until December 2015. At J.P. Morgan, she led a compliance program that spanned the firm’s institutional and
private client broker/dealer and registered investment advisor (RIA) businesses. She joined J.P. Morgan as
managing director and head of brokerage and fiduciary compliance in August 2013. Prior to J.P. Morgan, she
served as senior vice president at Wells Fargo Advisors from March 2012 to July 2013, where she led the retail
compliance program for the firm’s broker/dealer. Previously, Ms. Calder spent 18 years with UBS Wealth
Management Americas in a variety of legal and compliance roles, including as head of legal for the Wealth
Management Advisor Group and as chief compliance officer and senior deputy general counsel for UBS Financial
Services Inc. Ms. Calder earned a Bachelor of Arts from Fordham University and a J.D. from the University of North
Carolina School of Law.

Victor P. Fetter — Managing Director, Chief Information Officer

Managing director and chief information officer since 2012, Mr. Fetter has oversight of our Business

Technology Services business unit. He is responsible for bringing to life our commitment to invest in the people and
processes necessary to deliver the best technologies in the industry for our advisors and employees. Mr. Fetter has
responsibility for product development, digital transformation and technology support, security, and innovation. He
also serves on the Management Committee and the Risk Oversight Committee for LPL and chairs the Technology
Investment and Strategy Committee. Combined, these efforts ensure alignment of technology initiatives with
strategic business priorities. Prior to joining us in December 2012, Mr. Fetter was vice president and chief
information officer for Dell Online from March 2007 to December 2012, 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.

Thomas Gooley — Managing Director, Service, Trading, and Operations

Mr. Gooley is the managing director of Service, Trading, and Operations at LPL Financial. In this role, he is
responsible for leading our service, trading, and client-facing operations organizations, while mitigating risk,
increasing efficiency, and improving the client experience. He also is responsible for driving the strategy,
governance, and execution of the firm’s business process outsourcing activities in India. Prior to joining us in June
2015, he was senior managing director and chief risk officer for the Retirement and Individual Financial Services
division at TIAA-CREF from August 2014 to June 2015. Previously, he worked as managing director and head of
Operations for the Global Wealth and Asset Management divisions of Morgan Stanley. Earlier in his career, Mr.
Gooley led equities and futures operations for Bank of America Securities after spending 12 years with Goldman
Sachs in a variety of leadership roles in equities operations. Mr. Gooley holds a B.A. in political economies of
industrial societies from the University of California at Berkeley and a M.B.A. from The Wharton School at the
University of Pennsylvania. Mr. Gooley is also a graduate and instructor of the Securities Industry and Financial
Markets Association (SIFMA) Wharton Program.

J. Andrew Kalbaugh — Managing Director, Divisional President, Relationship Management and Business
Consulting

Mr. Kalbaugh has served as managing director and divisional president of Relationship Management and

Business Consulting for the Advisor and Institution Solutions business unit since January 2016. He is responsible
for the long-term growth, satisfaction, and retention of financial advisors and institutions and also oversees the
teams supporting high net worth and registered investment advisor solutions. Previously, Mr. Kalbaugh served as
managing director and divisional president of Institution Services and led business development and business
consulting for all financial institutions from November 2011 to January 2016. Prior to being named managing
director in 2011, Mr. Kalbaugh served as executive vice president, business consulting, for Independent Advisor
Services, responsible for providing support to advisors and their practices. He joined the Company in July 2007
following the acquisition of Mutual Service Corporation (MSC) and served as chief executive officer for MSC as well
as for Associated Securities Corporation. Prior to that, he held senior positions at serveral financial services firms.
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 is our managing director, chief human capital officer. She is responsible for overseeing

compensation and benefits, corporate communication, corporate real estate, human resources operations, human
resources client consulting, and advisor and employee learning and development. Ms. Larsen joined us in May
2012 from the Federal Home Loan Bank/Office of Finance, where she served as the chief human resources officer
from November 2009 to April 2012. 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.

William P. Morrissey, Jr. — Managing Director, Divisional President, Business Development

Mr. Morrissey has served as managing director and divisional president of Business Development for the

Advisor and Institution Solutions business unit since January 2016. In this role, he has responsibility for attracting
and recruiting new financial advisors and institutions to the firm and for driving the exploration of new markets and
capabilities for growth across client groups. He also oversees the process for integrating new advisors into the firm.
Prior to assuming this role, Mr. Morrissey served as managing director and divisional president of Independent
Advisor Services and led business development and business consulting for all independent advisors and
registered investment advisors from April 2014 to January 2016. Prior to being named managing director, Mr.
Morrissey served as executive vice president of business development, Independent Advisor Services, responsible
for recruiting new advisors and their practices from March 2004 to April 2014. He joined the Company in March
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. Before joining LPL Financial, Mr. Morrissey
worked at Fidelity Investments for 17 years, most recently as senior vice president of institutional services. 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 serves as chair of our Risk

Oversight Committee. She is responsible for company-wide risk management processes and controls, manages
compliance and governance, and has a leading role in the Company's ongoing focus on enhancing its corporate
risk profile. Ms. Oroschakoff has more than 20 years of financial services industry experience deeply rooted in legal,
compliance, and risk management. She joined LPL Financial in September 2013 from Morgan Stanley, where she
most recently served as managing director and Global Chief Risk Officer of the firm’s Global Wealth Management
Group from 2011 to 2013. Previously, while with Morgan Stanley, she served as chief administrative officer from
2010 to 2011, as well as Chief Compliance Officer from 2006 to 2010. Earlier in her career, Ms. Oroschakoff spent
11 years in a variety of legal and compliance roles at Morgan Stanley, 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. She also serves on a variety of
industry committees. Ms. Oroschakoff earned a J.D. cum laude, Order of the Coif, 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 Advisor and Institution Solutions

business unit. He leads distribution strategy for the advisory, brokerage, insurance, retirement, and financial
planning businesses, helping advisors and institutions navigate an increasingly complex landscape of platforms,
products, marketing programs, services, and tools. Prior to his promotion to managing director in June 2014, Mr.
Parker served as executive vice president, Investment and Planning Solutions, which consisted of the teams
providing advisory and brokerage product and platform expertise and financial planning. Prior to joining LPL
Financial in April 2013, he was managing director, National Accounts and Business Development at Russell
Investments, a 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. He joined Russell Investments in
December 2007. Earlier in his career, he worked for Franklin Templeton and Putnam Investments. Mr. Parker
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 and in 2015 he
also became responsible for corporate strategy. 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 November 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 2016 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

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)
Form of Indemnification Agreement. (1)

2005 LPL Investment Holdings Inc. Stock Option Plan for Incentive Stock Options. (12)

2005 LPL Investment Holdings Inc. Stock Option Plan for Non-Qualified Stock Options. (12)

LPL Investment Holdings Inc. 2008 Stock Option Plan. (13)

Form of LPL Investment Holdings Inc. Stock Option Agreement granted under the LPL Investment
Holdings Inc. 2008 Stock Option Plan. (14)

LPL Investment Holdings Inc. Advisor Incentive Plan. (15)

LPL Investment Holdings Inc. Financial Institution Incentive Plan. (13)

LPL Investment Holdings Inc. 2010 Omnibus Equity Incentive Plan. (16)

Form of Senior Executive Stock Option Award granted under the LPL Investment Holdings Inc. 2010
Omnibus Equity Incentive Plan. (17)

Form of Senior Management Stock Option Award granted under the LPL Investment Holdings Inc.
2010 Omnibus Equity Incentive Plan. (17)

Form of Senior Executive Restricted Stock Unit Award granted under the LPL Investment Holdings
Inc. 2010 Omnibus Equity Incentive Plan. (17)

Form of Senior Management Restricted Stock Unit Award granted under the LPL Investment
Holdings Inc. 2010 Omnibus Equity Incentive Plan. (17)

Form of Employee Non-Qualified Stock Option Award granted under the LPL Financial Holdings
Inc., 2010 Omnibus Equity Incentive Plan. (18)

Exhibit No.
10.16

Description of Exhibit
Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc., 2010
Omnibus Equity Incentive Plan. (18)

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

21.1

23.1

31.1

31.2

32.1

32.2

Form of Advisor Restricted Stock Unit Award granted under the LPL Financial Holdings Inc., 2010
Omnibus Equity Incentive Plan. (18)

Form of Financial Institution Restricted Stock Unit Award granted under the LPL Financial Holdings
Inc., 2010 Omnibus Equity Incentive Plan. (18)

Amended and Restated LPL Financial Holdings Inc. 2010 Omnibus Equity Incentive Plan. (19)

Amended and Restated LPL Financial Holdings Inc. Corporate Executive Bonus Plan. (19)

LPL Financial LLC Executive Severance Plan, amended and restated as of February 24, 2014. (18)

Form of Supplemental Restricted Stock Unit Award granted under the 2010 LPL Financial Holdings
Inc. 2010 Omnibus Equity Incentive Plan. (18)

LPL Financial Holdings Inc. Non-Employee Director Compensation Policy. (20)

LPL Financial Holdings Inc. Non-Employee Director Deferred Compensation Plan.*

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. (21)

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. (22)

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)

Third Amendment, Extension, and Incremental Assumption Agreement, dated as of November 20,
2015 by and among LPL Financial Holdings, Inc., LPL Holdings, Inc., certain subsidiaries, the
several lenders from time to time party thereto, and JPMorgan Chase Bank, N.A. as Administrative
Agent.*

Thomson Transaction Services Master Subscription Agreement dated as of January 5, 2009
between LPL Financial Corporation and Thomson Financial LLC. (23)†

First Amendment dated July 28, 2014 to Master Subscription Agreement dated as of January 5,
2009 between LPL Financial Corporation and Thomson Financial LLC(20)†

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 Registration Statement on Form 10 filed on April 30, 2007.

(13) Incorporated by reference to the Form 8-K filed on February 21, 2008.

(14) Incorporated by reference to the Registration Statement on Form S-1 filed on June 4, 2010.

(15) Incorporated by reference to the Form S-8 filed on June 5, 2008.

(16) Incorporated by reference to Amendment No. 4 to the Registration Statement on Form S-1 filed on

November 3, 2010.

(17) Incorporated by reference to the Form 10-K filed on February 26, 2013.

(18) Incorporated by reference to the Form 10-K filed on February 25, 2014.

(19) Incorporated by reference to the Form 8-K filed on May 15, 2015.

(20) Incorporated by reference to the Form 10-Q filed on July 30, 2014.

(21) Incorporated by reference to the Form 8-K filed on April 2, 2012.

(22) Incorporated by reference to the Form 8-K filed on May 13, 2013.

(23) 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 25, 2016

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/ Matthew J. Audette
Matthew J. Audette

/s/ Jeffrey R. Buchheister
Jeffrey R. Buchheister

/s/ Richard W. Boyce
Richard W. Boyce

/s/ John J. Brennan
John J. Brennan

/s/ Viet D. Dinh
Viet D. Dinh

/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 25, 2016

Chief Financial Officer

February 25, 2016

Chief Accounting Officer

February 25, 2016

Director

February 25, 2016

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, 2015, 2014, and 2013
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014, and
2013
Consolidated Statements of Financial Condition as of December 31, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014, and
2013

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013

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, 2015 and 2014 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, 2015. 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, 2015 and 2014, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, 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 25, 2016 expressed an unqualified
opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

San Diego, California
February 25, 2016

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

Amortization of intangible assets

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

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,

2015

2014

2013

1,976,845

2,118,494

2,077,566

1,352,454

1,337,959

1,187,352

493,687

401,948

19,192

30,928

476,595

369,821

18,982

51,811

430,990

361,252

17,887

65,811

4,275,054

4,373,662

4,140,858

2,864,813

2,998,702

2,847,785

440,049

139,198

73,383

38,239

64,522

84,112

52,516

46,871

11,967

117,693

3,933,363

59,136

—

282,555

113,771

421,829

124,677

57,977

38,868

62,184

82,430

49,015

43,823

34,652

109,327

4,023,484

51,538

3,943

294,697

116,654

168,784

178,043

400,967

111,539

44,497

39,006

46,559

67,551

45,059

43,075

30,186

113,923

3,790,147

51,446

7,962

291,303

109,446

181,857

1.77

1.74

95,273

96,786

1.78

1.75

99,847

101,651

1.74

1.72

104,698

106,003

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:

Unrealized gain on cash flow hedges, net of tax expense of $132, $722, and
$72 for the years ended December 31, 2015, 2014, and 2013, respectively

Reclassification adjustment for realized (gain) loss on cash flow hedges

included in professional services in the consolidated statements of income,
net of tax expense (benefit) of $353, $198, and $0 for the years ended
December 31, 2015, 2014, and 2013, respectively

Total other comprehensive income, net of tax

TOTAL COMPREHENSIVE INCOME

Years Ended December 31,

2015

2014

2013

168,784

178,043

181,857

179

1,137

115

(563)

(384)

(315)

822

—

115

168,400

178,865

181,972

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)

ASSETS

Cash and cash equivalents
Cash and securities segregated under federal and other regulations
Restricted cash
Receivables from:
Clients, net
Product sponsors, broker-dealers, and clearing organizations
Advisor loans, net
Others, net

Securities owned:

Trading — at fair value
Held-to-maturity
Securities borrowed
Income taxes receivable
Fixed assets, net
Goodwill

Intangible assets, net
Other assets
Total assets

LIABILITIES:

LIABILITIES AND STOCKHOLDERS’ EQUITY

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 payable
Unearned revenue
Securities sold, but not yet purchased — at fair value

Senior secured credit facilities, net
Leasehold financing obligation
Deferred income taxes, net

Total liabilities

Commitments and contingencies
STOCKHOLDERS’ EQUITY:

Common stock, $.001 par value; 600,000,000 shares authorized; 119,572,352 shares and

118,234,552 shares issued at December 31, 2015 and 2014, respectively

Additional paid-in capital

Treasury stock, at cost — 30,048,027 shares and 21,089,882 shares at December 31, 2015 and

2014, 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,

2015

2014

$ 724,529
671,339
27,839

$ 412,332
568,930
1,109

339,089
161,224
148,978
180,161

11,995
9,847
6,001
—
275,419
1,365,838

365,390
177,470
120,325
171,124

13,466
8,594
5,035
84
214,154
1,365,838

392,031
206,771
$ 4,521,061

430,704
187,375
$ 4,041,930

$ 189,083
747,421
48,032
129,512
332,492
8,680
65,480
268

2,188,240
59,940
36,303
3,805,451

$ 180,099
652,714
45,427
146,504
289,426
—
64,482
302

1,625,195
—
66,181
3,070,330

119
1,418,298

118
1,355,085

(1,172,490)
553
469,130
715,610
$ 4,521,061

(780,661)
937
396,121
971,600
$ 4,041,930

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, 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

5,899

(869)

(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

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

184

8,947

(3,019)

(390,835)

Stock option exercises and other

1,153

30,966

(57)

2,025

Excess tax benefits from share-

based compensation

Share-based compensation

3,034

29,213

(384)

168,784

168,400

(95,814)

(3,018)

(390,835)

(95,814)

33,030

3,034

29,213

BALANCE — December 31, 2015

119,572

119

$ 1,418,298

30,048

$ (1,172,490) $

553

$ 469,130

715,610

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

168,784

178,043

181,857

Adjustments to reconcile net income to net cash provided by operating

Years Ended December 31,

2015

2014

2013

activities:

Noncash items:

Depreciation and amortization

Amortization of intangible assets

Amortization of debt issuance costs

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:

73,383

38,239

3,405

29,213
(3,810)
2,542

(30,153)

—

37,658

11,695

57,977

38,868

3,973

27,579
(8,685)
2,432

(24,100)

3,943

—

28,409

3,007

44,497

39,006

4,365

24,672
(7,172)
2,021

(28,943)

7,962

12,676

9,279

21,006

1,598

Cash and securities segregated under federal and other regulations

(102,409)

(56,579)

65,082

Deposit of restricted cash related to captive

Receivables from clients

Receivables from product sponsors, broker-dealers and clearing

organizations

Advisor Loans

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

(25,589)

26,081

16,247

(28,653)

(48,173)

144

(966)

(30,714)

8,984

94,707

2,605

(16,992)

39,686

12,574

998

(35)

—

7,628

(3,400)

(21,434)

(28,181)

(4,638)

2,067

(45,523)

(14,872)

87,510

2,270

11,355

(10,522)

4,281

(9,257)

—

(3,862)

(21,120)

(9,677)

(44,043)

(1,148)

2,346

(19,458)

(8,161)

(184,301)

(9,874)

6,690

48,127

14,916

11,931

(155)

279,451

232,242

160,117

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

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

Repayments of 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 provided by (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

Finance Obligation related to real estate projects

Discount on proceeds from senior secured credit facilities recorded as

debt issuance costs

Years Ended December 31,

2015

2014

2013

(72,565)

(89,648)

(78,239)

—

(4,602)

3,350

(1,750)

609

—

(9,000)

7,123

(7,498)

5,750

(4,679)

4,820

—

(74,948)

(93,132)

75,000

110,000

(185,000)

—

(2,595)

5,900

(1,500)

815

3,310

(2,500)

(74,809)

—

(9,221)

(10,838)

(866,579)

693,000

(13,258)

—

(3,018)

—

1,078,957

(4,876)

(3,300)

(868)

(2,461)

—

(390,835)

(275,079)

(219,091)

(95,814)

(95,616)

(68,008)

3,810

33,030

107,694

312,197

412,332

8,685

28,530

(243,362)

(104,252)

516,584

7,172

35,025

(34,985)

50,323

466,261

724,529

412,332

516,584

51,114

131,833

51,588

139,315

8,184

8,114

— $

51,712

123,583

16,075

22,979

—

— $

4,893

11,462

— $

59,940

7,000

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. The Company has established a
wholly-owned series captive insurance entity that underwrites insurance for various legal and regulatory risks.

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.

Reclassifications

In the consolidated statements of income, the Company reclassified amortization of intangible assets out of

depreciation and amortization. The amounts reclassified are presented in the consolidated statements of income for
each of the three years ended December 31, 2015. The Company also reclassified receivables from advisor loans
out of receivables from other receivables in the consolidated statements of financial condition. The amounts
reclassified are presented in the consolidated statements of financial condition for the two years ended
December 31, 2015. Also in the consolidated statements of financial condition the Company reclassified debt
issuance costs as a direct deduction from the carrying amount of the related debt liability

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

Management has determined that our company operates in one segment, given the similarities in economic

characteristics between our operations and the common nature of our products and services, production and
distribution process, 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 accrued commission and advisory expenes payable
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 firm

pursuant to the Advisers Act or through their respective states' investment advisory licensing rules, rather than
using the Company's corporate RIA platform. These stand-alone entities, or Hybrid RIAs, 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 Hybrid RIAs is earned by the advisors, and accordingly not included in the
Company's advisory revenues.

The Company charges separate fees to Hybrid RIAs for technology, custody, administrative, and clearing
services, primarily 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, 2015, 2014, and
2013 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. Held within this account is approximately
$100,000 for the proprietary accounts of introducing brokers.

Restricted Cash

Restricted cash primarily represents cash held by and for use by the Company’s captive insurance subsidiary.

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, 2015 and 2014, $747.4 million and $646.4 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

Advisor Loans

December 31,

2015

2014

1,245

219

588

657

1,464

1,245

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 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 eight years provided that the advisor remains licensed through LPL Financial. At

F-13

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2015, $94.5 million of the advisor loan balance 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. 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

for advisor loans (in thousands):

Beginning balance — January 1

Provision for doubtful accounts

Ending balance — December 31

Receivables From Others

December 31,

2015

2014

697

—

697

—

697

Receivables from others primarily consist of accrued fees from product sponsors and amounts due from

advisors. Management maintains an allowance for uncollectible amounts using an aging analysis that takes into
account the specific type of receivable. 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,

2015

2014

8,379

2,322

(845)

7,091

1,775

(487)

9,856

8,379

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, 2015, 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

F-14

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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, 2015, the contract and collateral market values of borrowed securities were $6.0 million
and $5.8 million, respectively. As of December 31, 2014, the contract and collateral market values of borrowed
securities were $5.0 million and $4.9 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
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 year ended December 31, 2015, in conjunction
with the Fortigent restructuring (see Note 3. Restructuring), the Company recorded an asset impairment charge of
$0.4 million for certain fixed assets related to Fortigent leasehold improvements that were determined to no longer
have future economic benefit. The $0.4 million asset impairment charge for the year ended December 31, 2015 is
included in restructuring charges within the consolidated statements of income. During the year ended December
31, 2013, in conjunction with the SVC restructuring (see Note 3. Restructuring), the Company recorded an asset
impairment charge of $0.8 million 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.

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, 2015,
2014, or 2013.

F-15

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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. There was
$0.4 million, $0, and $0 of impairment of definite-lived intangible assets recognized during the years ended
December 31, 2015, 2014, and 2013, respectively.

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. In accordance with Accounting Standards Update
("ASU") 2015-03, Interest—Imputation of Interest, debt issuance costs are presented as a direct deduction from the
carrying amount of the related debt liability. In accordance with ASU 2015-15, Interest—Imputation of Interest costs
incurred while obtaining the revolving credit facility are included in other assets and subsequently amortized ratably
over the term of the revolving credit facility, regardless of whether there are any outstanding borrowings on the
revolving credit facility.

Derivative Financial Instruments

The Company uses derivative financial instruments, primarily 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 Financial Instruments

The Company’s financial assets and liabilities are carried at fair value or at amounts that, because of their

short-term nature, approximate current fair value, with the exception of its held-to-maturity securities and
indebtedness. 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, 2015, the carrying amount and
fair value of the Company’s indebtedness was approximately $2,215.0 million and $2,200.0 million, respectively. As
of December 31, 2014, the carrying amount and fair value was approximately $1,634.3 million and $1,620.8 million,
respectively.

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.

Leasehold Financing Obligation

The Company is involved with the construction of a building for use as office space in Fort Mill, South
Carolina and has determined that it has substantially all of the risks of ownership during construction of the leased

F-16

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

property. Accordingly, from an accounting perspective, the Company is deemed to be the owner of the construction
project. As such, the Company records an asset for the amount of the total project costs and an amount related to
the value attributed to the building under construction in fixed assets and the related financing obligation in
leasehold financing obligations on the consolidated statements of financial condition. Once construction is
complete, the Company will determine if the asset qualifies for sale-leaseback accounting treatment.

Recently Issued Accounting Pronouncements

In December 2015, the Company early adopted ASU 2015-03, Interest—Imputation of Interest, which

simplifies the presentation of debt issuance costs on the balance sheet by presenting debt issuance costs as a
direct deduction from the carrying amount of the related debt liability as discussed in our significant accounting
policy above. The presentation affects all years presented. The adoption of ASU 2015-03 did not have a material
impact on its consolidated financial statements.

In August 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-14, Revenue From

Contracts with Customers (Topic 606), Deferral of the Effective Date, which defers the effective date of ASU
2014-09, Revenue from Contracts with Customers (Topic 606) to January 1, 2018 for the Company, with early
adoption permitted as of January 1, 2017. The new guidance requires either a retrospective or a modified
retrospective approach to adoption. The Company is currently evaluating the available transition methods and the
potential impact on its consolidated financial statements and related disclosures.

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 was completed in 2015.

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, 2015 (in thousands):

Outsourcing and other related costs
Technology transformation costs
Employee severance obligations and

other related costs

Asset impairments
Total

Accrued
Balance at
December
31, 2014

Costs
Incurred

Payments

Accrued
Balance at
December
31, 2015

Cumulative
Costs
Incurred to
Date

— $

4,458

1,083 $
402

(1,204) $
(4,778)

1,999
—
6,457 $

2,241
—
3,726 $

(3,659)
—
(9,641) $

(121) $

581
—
542

22,571
30,320

11,127
842
64,860

In February 2015, the Company committed to a course of action to restructure the business of its subsidiary,

Fortigent Holdings Company, Inc. (together with its subsidiaries, “Fortigent”). The Company acquired Fortigent,
which provides outsourced wealth management solutions, in April 2012. The intention of the restructuring plan was
to migrate Fortigent’s operations from Rockville, Maryland to the Company’s office in Charlotte, North Carolina,
simplify and improve the efficiency of Fortigent’s existing service offerings, and position Fortigent to capitalize on
the Company's future technology investments and service offerings for financial institutions and advisors focused
on high-net-worth clients. This restructuring was completed in December 2015.

F-17

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes the balance of accrued expenses and the changes in the accrued amounts

for the Fortigent restructuring as of and for the year ended December 31, 2015 (in thousands):

Costs
Incurred

Payments

Non-cash

Accrued
Balance at
December
31, 2015

Cumulative
Costs
Incurred to
Date

Employee severance obligations and other related costs

$ 2,978 $ (2,658) $

Relocation and related costs

Lease restructuring charges

Asset impairments

Total

2,650
793
821
7,242

(2,354)
(170)
—
(5,182) $

— $
—
(16)
(821)
(837) $

320

296

607

—

1,223

2,978
2,650
793
821
7,242

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, 2015 and 2014.

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, 2015, 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.

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, 2015, the
Company did not adjust prices received from the independent third-party pricing services.

F-18

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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.

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value

on a recurring basis at December 31, 2015 (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

252,393

— $

252,393

261

7,267

—

4,308

11,892

99,962

—

103

—

103

3,350

—

364,247

3,453

— $

267

—

268

—

268

— $

—

527

261

7,267

103

4,308

11,995

103,312

367,700

267

—

268

527

795

F-19

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes the Company’s financial assets and 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

Certificates of deposit

Total securities sold, but not yet purchased

Accounts payable and accrued liabilities

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

—

527

279

—

302

527

829

Total liabilities at fair value

292

The Company determines the fair value for its contingent consideration obligation using an income approach
whereby the Company assesses the expected future performance of the acquired assets. The contingent payment
is estimated using a discounted cash flow of the expected payment amount to calculate the fair value as of the
valuation date. The Company's management evaluates the underlying projections and other related factors used in
determining fair value each period and makes updates when there have been significant changes in management's
expectations.

Held-to-Maturity Securities

The Company holds certain investments in securities, primarily U.S. government notes, which are recorded at

amortized cost because the Company has both the intent and the ability to hold these investments to maturity.
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 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,

2015

2014

9,847

(26)

9,821

8,594

(14)

8,580

F-20

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At December 31, 2015, 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

4,999

4,997

4,348

4,327

500

497

9,847

9,821

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

Fixed Assets

The components of fixed assets were as follows (in thousands):

Internally developed software

Leasehold improvements

Computers and software

Real estate development

Furniture and equipment

Land

Total fixed assets

Accumulated depreciation and amortization

Fixed assets, net

December 31,

2015

2014

115,413

122,207

35,991

4,719

5,101

38,873

10,814

5,576

161,224

177,470

17,046

27,455

3,531

19,580

20,208

5,639

48,032

45,427

December 31,

2015

2014

273,900

259,335

101,333

116,696

59,940

47,699

4,731

604,299

95,846

95,406

—

47,658

4,743

502,988

(328,880)

(288,834)

275,419

214,154

Depreciation and amortization expense was $73.4 million, $58.0 million, and $44.5 million for the years ended

December 31, 2015, 2014, and 2013, respectively.

The $59.9 million of real estate development assets in the table above relate to the development project in

Fort Mill, South Carolina, where the off-setting balance is presented in leasehold financing obligations on the
consolidated statements of financial condition.

F-21

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Goodwill and Other Intangible Assets

A summary of the activity in goodwill is presented below (in thousands):

Balance at December 31, 2013

Goodwill acquired

Balance at December 31, 2014

Goodwill acquired

Balance at December 31, 2015

1,361,361

4,477

1,365,838

—

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.

The components of intangible assets were as follows at December 31, 2015 (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

10.0

10.1

8.6

6.3

440,533

(220,214) $

234,086

19,133

1,200

(113,530)

(8,556)

(440)

220,319

120,556

10,577

760

Total definite-lived intangible assets

694,952

(342,740) $

352,212

Indefinite-lived intangible assets:

Trademark and trade name

Total intangible assets

39,819

392,031

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-22

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Total amortization expense of intangible assets was $38.2 million, $38.9 million, and $39.0 million for the

years ended December 31, 2015, 2014, and 2013, respectively. Future amortization expense is estimated as
follows (in thousands):

2016

2017

2018

2019

2020

Thereafter

Total

38,035

37,218

34,786

34,750

34,358

173,065

352,212

Derivative Financial Instruments

In May 2013, 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 was reclassified out of accumulated other comprehensive income and
recognized in net income ratably over a 12-month period ended May 31, 2015 to match the timing of the underlying
hedged item. The second cash flow hedge, with a notional amount of 560.4 million INR, or $8.1 million, settled in
June 2015. The Company received a settlement of $0.7 million, which will be reclassified out of accumulated other
comprehensive income and recognized in net income ratably over a 12-month period ending May 31, 2016 to
match the timing of the underlying hedged item.

The details related to the non-deliverable foreign currency contracts at December 31, 2015 are as follows:

Cash flow hedge #3

Cash flow hedge #4

Total hedged amount

Settlement
Date

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

72.21

74.20

7.8

7.5

15.3

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

December 31,

2015

2014

741

1,179

F-23

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

10. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities were as follows (in thousands):

December 31,

2015

2014

Advisor deferred compensation plan liability

98,828

Accrued compensation

Deferred rent

Accounts payable

Other accrued liabilities

61,468

45,003

19,883

107,310

73,447

66,816

48,629

4,699

95,835

Total accounts payable and accrued liabilities

332,492

289,426

11. Debt

Senior Secured Credit Facilities — On November 20, 2015, LPLFH and LPLH entered into a third
amendment, extension, and incremental assumption agreement (the "Third Amendment") for purposes of raising
capital, increasing the leverage allowable under the credit agreement and extending the maturity of a portion of the
existing Term Loan B.

The Third Amendment amends the Company's credit agreement, originally dated as of March 29, 2012, as
amended by the first amendment and incremental assumption agreement dated as of May 13, 2013, the second
amendment, extension, and incremental assumption agreement dated as of October 1, 2014, and the consent to
amendment dated as of November 21, 2014 (as amended by the Third Amendment, the "Credit Agreement").
Pursuant to the Third Amendment, certain lenders issued a new class of incremental term loans (the "New Term
Loan B") in aggregate principal amount of $700.0 million, with a maturity date of November 20, 2022 and certain
lenders extended the maturity date of a portion of the outstanding term loan B (the "Extended Term Loan B") from
March 29, 2019 to March 29, 2021. In connection with the execution of the Third Amendment, the Company
incurred $20.3 million in debt issuance costs, which will be amortized over the life of the New and Extended Term
Loan B and is presented in the consolidated statement of financial condition as net against the total debt.

The Borrower’s outstanding borrowings were as follows (dollars in thousands):

Senior Secured Credit Facilities

Revolving Credit Facility

Senior secured term loans:

Term Loan A

Existing Term Loan B

Extended Term Loan B

New Term Loan B

Total borrowings

Less: Unamortized Debt Issuance Cost
Long-term borrowings — net of unamortized debt
issuance cost
_____________________

December 31,

2015

2014

Maturity

Principal

9/30/2019

—

Interest
Rate
—

Principal

Interest
Rate

110,000

4.75%

9/30/2019

3/29/2019

3/29/2021

11/20/2022

459,375

424,676

630,986

700,000

2,215,037

26,797

2.74% (1)

459,375

3.25% (2)

1,064,883

4.25% (3)

4.75% (4)

—

1,634,258

9,063

2.67%

3.25%

—

$ 2,188,240

$ 1,625,195

(1) The variable interest rate per annum is either (a) 150 bps over the base rate or (b) 250 bps over the LIBOR rate

(subject to a leverage based grid)

(2) The variable interest rate per annum is either (a) 150 bps over the base rate or (b) 250 bps over the LIBOR rate

(subject to a LIBOR floor of 75 bps)

(3) The variable interest rate per annum is either (a) 250 bps over the base rate or (b) 350 bps over the LIBOR rate

(subject to a LIBOR floor of 75 bps)

(4) The variable interest rate per annum is either (a) 300 bps over the base rate or (b) 400 bps over the LIBOR rate

(subject to a LIBOR floor of 75 bps)

F-24

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As of December 31, 2015, the Borrower had $18.0 million of irrevocable letters of credit, with an applicable

interest rate margin of 2.50%, which were supported by the credit facility.

The Credit Agreement subjects the Company, the Borrower, and its restricted subsidiaries to certain financial
and non-financial covenants. As of December 31, 2015, the Company, the Borrower, and its restricted subsidiaries
were 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. During the year
ended December 31, 2015, the Company drew $55.0 million on one of the lines of credit, which was outstanding for
one day at an interest rate of 1.50%. The lines were not otherwise utilized in 2015 and were not utilized in 2014.
There were no balances outstanding at December 31, 2015 or 2014.

The minimum calendar year payments and maturities of the senior secured borrowings as of December 31,

2015 are as follows (in thousands):

2016

2017

2018

2019

2020

Thereafter

Total

12.

Income Taxes

The Company’s provision for income taxes was as follows (in thousands):

17,677

26,290

52,130

841,193

13,310

1,264,437

2,215,037

Current provision:

Federal

State

Total current provision

Deferred benefit:

Federal

State

Total deferred benefit

Provision for income taxes

December 31,

2015

2014

2013

123,633

120,995

119,327

20,291

143,924

19,759

140,754

19,062

138,389

(24,972)

(5,181)

(30,153)

(20,800)

(3,300)

(24,100)

(25,586)

(3,357)

(28,943)

113,771

116,654

109,446

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

Goodwill derecognition

Contingent consideration obligations

Other

Effective income tax rates

F-25

Years Ended December 31,

2015

2014

2013

35.0%

3.6

0.7

—

1.0

40.3%

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%

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The increase in the Company's effective tax rate and income tax expense in 2015 compared to 2014 was

primarily due to change in estimates in unrecognized tax positions.

The increase in the Company's 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 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

Captive Insurance

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,

2015

2014

66,750

26,774

8,387

4,755

5,316

404
1,590
11,867

125,843

55,731

24,537

8,500

4,768

4,192

999

—

4,339

103,066

(128,646)

(136,140)

(33,125)

(32,509)

(375)

(598)

(162,146)

(169,247)

(36,303) $

(66,181)

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,

2015

2014

2013

20,987

19,522

19,867

4,404

(644)

4,656

(3,191)

3,972

(4,317)

24,747

20,987

19,522

At December 31, 2015 and 2014, the gross unrecognized tax benefits included $17.6 million and $15.0

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, 2015 and 2014, the liability for
unrecognized tax benefits included accrued interest of $3.0 million and $2.3 million, respectively, and penalties of
$4.3 million and $3.7 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 2011 and all state income tax matters for years through
2006.

F-26

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The tax years of 2012 to 2015 remain open to examination in the federal jurisdiction. The tax years of 2007 to

2015 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 $2.1 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 $25.6 million, $30.1 million,
and $19.4 million for the years ended December 31, 2015, 2014, and 2013, 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 a real estate project in Fort Mill,
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 $74.7 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.

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, 2015 (in
thousands):

2016

2017

2018

2019

2020

Thereafter

111,347

58,387

57,132

38,649

33,493

335,792

Total(1)
_____________________
(1) Future minimum payments have not been reduced by minimum sublease rental income of $4.0 million due in

634,800

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

F-27

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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, 2015.

Legal & Regulatory Matters

The Company is 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. 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, except as otherwise covered by third-party insurance or
self-insurance through the Captive Insurance subsidiary, as discussed below.

Third-Party Insurance

The Company maintains insurance coverage for certain potential 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.

Self-Insurance

The Company has self-insurance for certain potential liabilities through a wholly-owned captive insurance

subsidiary that began operating in 2015. Liabilities associated with the risks that are retained by the Company are
not discounted and are estimated by considering, in part, historical claims experience, severity factors, and other
actuarial assumptions. The estimated accruals for these potential liabilities could be significantly affected if future
occurrences and claims differ from such assumptions and historical trends. As of December 31, 2015, these self-
insurance liabilities are included in accounts payable and accrued liabilities in the consolidated statements of
financial condition. Self-insurance related charges are included in other expenses in the consolidated statements of
income for the year ended December 31, 2015.

Other Commitments

As of December 31, 2015, the Company had received collateral, primarily in connection with client margin

loans, with a market value of approximately $334.5 million, which it can repledge, loan, or sell. Of these securities,
approximately $31.9 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, 2015 there were no restrictions that
materially limited the Company's ability to repledge, loan, or sell the remaining $302.6 million of client collateral.

Trading securities on the consolidated statements of financial condition includes $4.3 million and $4.0 million

pledged to clearing organizations at December 31, 2015 and 2014, respectively.

The Company is involved in a build-to-suit lease arrangement in Fort Mill, South Carolina, under which it
serves as the construction agent on behalf of the landlord. Under such arrangement, the Company has obligations
to fund cost over-runs in its capacity as the construction agent, and accordingly has determined that under lease
accounting standards it bears substantially all of the risks and rewards of ownership as measured under GAAP. The
Company is therefore required to report the landlord's costs of construction on its consolidated statements of
financial condition as a fixed asset during the construction period as if the Company owned such asset. As of
December 31, 2015, the Company has recorded $59.9 million in fixed assets in connection with this arrangement
and an equal and off-setting leasehold financing obligation on the consolidated statements of financial condition.

F-28

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

14. Stockholders' Equity

Dividends

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

certain limits under the Company's credit facilities. Cash dividends per share of common stock and total cash
dividends paid on a quarterly basis were as follows (in millions, except per share data):

First quarter

Second quarter

Third quarter

Fourth quarter

Share Repurchases

2015

2014

Dividend per
Share

Total Cash
Dividend

Dividend per
Share

Total Cash
Dividend

0.25

24.2

24.1

23.8

0.24

24.1

24.0

23.5

The Board of Directors approves 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 within the
constraints of the Credit Agreement and general liquidity needs.

On October 25, 2015 the Board of Directors authorized an increase to the share repurchase program of up to

$500.0 million shares of common stock. On November 24, 2015, the Company entered into an accelerated share
repurchase agreement (ASR Agreement) with Goldman, Sachs and Co. to acquire $250.0 million of shares of
common stock. On December 10, 2015, the Company entered into an early settlement agreement with Goldman
Sachs and Co to settle and terminate the transaction. On December 15, 2015, Goldman delivered 5,622,628 shares
of common stock. Of the delivered shares, 4,319,537 shares were from TPG Partners IV, L.P. ("TPG"), a related
party, pursuant to a stock purchase agreement directly negotiated between Goldman and TPG. During the year
ended December 31, 2015 the Company purchased a total of 8,947,680 shares of its common stock at a weighted-
average price of $43.68. As of December 31, 2015 there is $250.0 million remaining in the share repurchase
program.

15. Share-Based Compensation

Certain employees, advisors, institutions, officers, and directors of the Company participate in various long-

term incentive plans, which 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.

In November 2010, the Company adopted a 2010 Omnibus Equity Incentive Plan (as amended and restated
in May 2015, 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 20,055,945 shares authorized for grant under the 2010 Plan after amendment and restatement of

the plan in May 2015. There were 5,003,283 shares reserved for issuance upon exercise or conversion of
outstanding awards granted, and 12,993,267 shares remaining available for future issuance, under the 2010 plan
as of December 31, 2015.

F-29

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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 and officers stock options
that have been granted during the year ended December 31, 2015:

Expected life (in years)

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Fair value of options

Years Ended December 31,

2015

2014

2013

5.30

6.02

6.25

25.78%

44.25%

45.03%

2.30%

1.58%

1.77%

2.17%

1.72%

1.39%

8.81

20.51

12.05

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 used during the year ended December 31, 2015:

Expected life (in years)

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Fair value of options

Years Ended December 31,

2015

2014

2013

5.25

6.82

6.24

25.91%

25.87%

40.99%

2.35%

1.84%

2.24%

1.96%

1.89%

2.04%

12.12

15.12

25.92

The following table summarizes the Company’s stock option and warrant activity at December 31, 2015:

Outstanding — December 31, 2014

Granted

Exercised

Forfeited

Outstanding — December 31, 2015

Exercisable — December 31, 2015

Exercisable and expected to vest — December 31, 2015

Number of
Shares

Weighted-
Average
Exercise Price

6,287,410

1,168,508

(1,119,137) $

(620,293) $

5,716,488

3,459,118

5,615,265

31.59

45.44

27.67

39.78

34.31

29.78

34.14

Weighted-
Average
Remaining
Contractual
Term
(Years)

Aggregate
Intrinsic
Value
(In thousands)

6.13

4.90

6.09

47,704

44,507

47,799

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, 2015:

Range of Exercise Prices

$18.04 - $23.02

$23.41 - $30.00

$31.60 - $32.33

$34.01 - $39.60

$42.60 - $54.81

Outstanding

Weighted-
Average
Remaining
Life
(Years)

Weighted-
Average
Exercise
Price

3.47

4.94

6.68

5.20

8.88

6.13

21.36

28.25

31.88

34.60

48.36

34.31

Exercisable

Number of
Shares

941,445

980,611

555,362

792,094

189,606

3,459,118

Weighted-
Average
Exercise
Price

21.36

28.16

31.91

34.54

53.92

29.78

Total
Number of
Shares

941,445

1,246,423

1,056,895

904,970

1,566,755

5,716,488

The Company recognized share-based compensation for stock options awarded to employees, and directors
based on the grant date fair value over the requisite service period of the award, which generally equals the vesting
period. The Company recognized share-based compensation related to the vesting of these awards of $14.5
million, $14.7 million, and $12.7 million during the years ended December 31, 2015, 2014, and 2013, respectively.
As of December 31, 2015, total unrecognized compensation cost related to non-vested stock options granted to
employees, officers, and directors was $10.5 million, which is expected to be recognized over a weighted-average
period of 1.61 years.

The Company recognizes share-based compensation for stock options and warrants awarded to its advisors

and to financial institutions based on the fair value of the awards at each reporting period. The Company
recognized share based compensation of $3.4 million, $5.3 million, and $9.2 million during the years ended
December 31, 2015, 2014, and 2013, respectively, related to the vesting of stock options and warrants awarded to
its advisors and financial institutions, which is classified within commission and advisory expense on the condensed
consolidated statement of income. As of December 31, 2015, total unrecognized compensation cost related to non-
vested stock options and warrants granted to advisors and financial institutions was $3.5 million, which is expected
to be recognized over a weighted-average period of 1.60 years.

Restricted Stock

The following summarizes the Company’s activity in its restricted stock awards and restricted stock units for

the year ended December 31, 2015:

Nonvested — December 31, 2014

Granted

Vested

Forfeited

Nonvested — December 31, 2015

Expected to vest — December 31, 2015

Restricted Stock Awards

Restricted Stock Units

Number of
Shares

Weighted-
Average
Grant-Date
Fair Value

Number of
Shares

Weighted-
Average
Grant-Date
Fair Value

33,634

34,734

(26,892) $

— $

41,476

41,046

42.78

41.25

38.93

—

43.99

44.02

546,725

382,866

(183,929) $

(108,961) $

636,701

585,248

43.34

41.74

39.63

44.12

43.32

43.43

The Company recognizes share-based compensation for restricted stock awards and restricted stock units

granted to its employees, officers, and directors based on the grant date fair value over the requisite service period
of the award, which generally equals the vesting period. The Company recognized $8.3 million, $6.1 million, and
$2.5 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, 2015, 2014, and 2013,
respectively, which is included in compensation and benefits expense on the condensed consolidated statements of
income. As of December 31, 2015, total unrecognized compensation cost for the restricted stock units granted to

F-31

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

employees, officers, and directors was $11.3 million, which is expected to be recognized over a weighted-average
remaining period of 1.90 years.

The Company began granting restricted stock units to its advisors and to financial institutions in the second

quarter of 2014. The Company recognizes share-based compensation for restricted stock units granted to its
advisors and to financial institutions based on the fair value of the awards at each reporting period. The Company
recognized share-based compensation of $2.5 million and $1.0 million related to the vesting of these awards during
the years ended December 31, 2015 and December 31, 2014, respectively, which is classified within commission
and advisory expense on the condensed consolidated statement of income. As of December 31, 2015, total
unrecognized compensation cost for restricted stock units granted to advisors and financial institutions was $5.9
million, which is expected to be recognized over a weighted-average remaining period of 2.01 years.

16. Earnings per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the

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,

2015

2014

2013

168,784

178,043

181,857

95,273

1,513

96,786

99,847

1,804

104,698

1,305

101,651

106,003

1.77

1.74

1.78

1.75

1.74

1.72

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, 2015, 2014, and 2013, stock options, warrants, and
restricted stock units representing common share equivalents of 2,223,886 shares, 864,488 shares, and
3,440,171 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 2015, 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 2014
and 2013, contributions were made in an amount equal to 65% and 50%, of the first 8% and 10% of an employee's
designated deferral of their eligible compensation respectively. The Company’s total cost related to the 401(k) plan
was $9.9 million, $8.7 million, and $6.3 million for the years ended December 31, 2015, 2014, and 2013,
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).

F-32

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In January 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 $98.8
million at December 31, 2015, 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 $98.5 million at December 31,
2015, 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, 2015, the Company has recorded assets of $2.1 million and liabilities
of $0.9 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 certain portfolio companies of TPG Capital, a 9.8%

shareholder of the Company's common stock, and LPL Financial Foundation. During the years ended
December 31, 2015, 2014, and 2013 the Company recognized revenue for services provided to these TPG Capital
portfolio companies of $0.6 million, $1.0 million, and $0.5 million, respectively. The Company incurred expenses for
the services provided by certain of the TPG portfolio companies and LPL Foundation of $6.8 million, $4.2 million,
and $0.6 million, during the years ended December 31, 2015, 2014 and 2013 respectively. As of December 31,
2015 and 2014, payables to related parties were less than $0.2 million and less than $0.5 million, respectively, and
receivables from related parties were $0.0 and less than $0.2 million, respectively.

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, as of December 31, 2015, had net capital of $104.0 million with a minimum net capital requirement of
$6.6 million.

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, 2015 and 2014, 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

2015

(In thousands, except per share data)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 1,109,302

$ 1,090,661

$ 1,054,745

$ 1,020,346

50,678

0.52

0.24

50,242

0.52

0.24

41,052

0.43

0.24

26,812

0.29

0.28

0.24

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

F-34

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

22. Subsequent Event

On February 23, 2016, 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 14, 2016 to all stockholders of record on March 4, 2016.

During the period January 1, 2016 through February 25, 2016, the Company has purchased 634,651 shares

of its common stock at a weighted-average price of $39.41.

******

F-35

CORPORATE INFORMATION

BOARD OF DIRECTORS
MARK S. CASADY
Chairman of the Board and CEO
LPL Financial

RICHARD W. BOYCE
Retired Partner
TPG Capital

JOHN J. BRENNAN
Chairman Emeritus and Senior Advisor
The Vanguard Group, Inc.

H. PAULETT EBERHART
Chairman and Chief Executive Officer
HMS Ventures

VIET D. DINH
Partner
Bancroft PLLC

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 Capital

ANNUAL MEETING
LPL Financial Holdings Inc.’s annual meeting
of stockholders will be held at 12 p.m. ET on
May 10, 2016, at
LPL Financial’s Boston office,
which is located at
75 State Street, 22 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, 22
Boston, MA 02109
(617) 897-4574
investor.relations@lpl.com

Floor

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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
Boston, MA 02109
USA

n d
, 22 Floor

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.

2015 ANNUAL REPORT

LPL FINANCIAL HOLDINGS INC.

Boston
LPL Financial
75 State Street
22nd 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. Insurance products offered through LPL Financial
or its licenced affiliates.

Not FDIC/NCUA Insured

Not Bank/Credit Union Guaranteed

May Lose Value

Not Guaranteed by any Government Agency

Not a Bank/Credit Union Deposit

CM-00493-0316
Tracking #1-474008