LPL Financial Annual Report 2022

Plain-text annual report

2022 ANNUAL REPORT LPL Financial Holdings Inc. Member FINRA/SIPC LPL 2022 Annual Report AT LPL FINANCIAL, WE EXIST TO SERVE FINANCIAL PROFESSIONALS. THEIR GREATNESS IS OUR GOAL. LPL was founded with a revolutionary vision: Help ﬁnancial professionals and enterprises run successful businesses and deliver personalized ﬁnancial advice. And more than 30 years later,r that remains true of LPL today. Building on that foundation, LPL offers comprehensive support across the spectrum of our industry: from independent ﬁnancial advisors to ﬁnancial institutions, from local advisor teams to large RIA ﬁrms, from fully autonomous business owners to advisors employed by LPL. We believe in the value of independent advice. We believe in taking care of our advisors so they can take care of their clients. Throughout this Annual Report, the terms “ﬁnancial advisors” and “advisors” are used to refer to registered representatives and/or investment advisor representatives affiliated with LPL Financial LLC. Securities and advisory services offered through LPL Financial LLC, an SEC-registered broker- dealer and investment advisor. Member FINRA/SIPC. LPL Financial LLC and its affiliated companies provide ﬁnancial services only from the United States. We routinely disclose information that may be important to shareholders in the “Investor Relations” or “Press Releases” section of our website. LPL 2022 Annual Report A Message from the PRESIDENT & CEO Dear Fellow Shareholder, n 2022, against a backdrop of increased market volatility, we delivered another year of solid business and ﬁnancial outcomes at LPL. These results were driven by a combination of thoughtful strategy, strong execution, and alignment with our mission-driven culture. Looking ahead, we believe that this foundation continues to position us well to deliver value for our clients and drive proﬁtable growth for our shareholders. Before I turn to our 2022 performance, I ﬁrst want to acknowledge our advisors, enterprises, and institutions for the extraordinary work they have continued to do for their clients. By providing much-needed ﬁnancial support and guidance to their clients, they have reinforced both the value of their advice and the important role they play for millions of Americans. I also want to thank our employees for their ongoing commitment and dedication to our mission: taking care of our advisors, so they can take care of their clients. We ended the year with 21,275 advisors on our platform, an increase of 1,399 year-over-year, and $1.1 trillion in assets under management. Total assets were down 8% from the prior year, as equity market depreciation more than offset our $96 billion of organic net new assets, which represented an 8% organic growth rate. TOTAL ADVISORY & BROKERAGE ASSETS* ($ billions) $903 $1,206 $1,111 $764 $628 2018 2019 2020 2021 2022 2022 Performance Strategic Context Regarding our ﬁnancial results, we drove solid outcomes through a combination of expense discipline and continued organic growth in both our traditional and new markets. As a result, earnings per share prior to amortization of intangible assets1 and acquisition costs increased 64% year-over-year, to $11.52. GROSS PROFIT*,2 ($ millions) $3,190 $2,455 $2,172 $2,103 $1,948 2018 2019 2020 2021 2022 Our long-term vision is to become the leader across the advisor-mediated marketplace. For us, this means being the best at empowering advisors to deliver great advice to their clients and be great operators of their business. To bring this vision to life, we are providing the capabilities and solutions that help our advisors deliver personalized advice and planning experience to their clients. At the same time, through human-driven, technology-enabled solutions and expertise, we are supporting advisors in their efforts to be extraordinary business owners. Doing this well gives us a sustainable path to industry leadership across advisor experience, organic growth, and market share. To execute on our strategy, we organized our work into four strategic plays, which not only serve as an execution framework, but also provide color on where and how we’re investing. A Message from the President & CEO, continued LPL 2022 Annual Report STRATEGIC PLAY 1 STRATEGIC PLAY 3 Meeting advisors where they are in the evolution of their business In 2022, we remained focused on winning in our traditional independent and enterprise markets, while also leveraging new affiliation models, which expand our addressable markets. In our traditional markets, ongoing enhancements to our platform and the efficacy of our business development led to an expanded pipeline. Large enterprises remained a meaningful source of recruiting in 2022, including the additions of CUNA Brokerage Services, Inc. and People’s United Bank. At the same time, we continued to have success recruiting in our traditional enterprise and institution channel, including the addition of BancorpSouth. Looking ahead, we see our enterprise pipeline building, as demand for our model grows. Within this strategic play, we are also seeing positive early momentum for our most recent innovation, our Liquidity & Succession solution. Over the next decade, it is estimated that up to a third of advisors will be retiring**, and this offering addresses the succession needs of advisors, while preserving the principles of independence. In 2022, we closed on our ﬁrst few Liquidity & Succession transactions, and we look forward to taking the capability to the external marketplace this year. NUMBER OF ADVISORS* 21,275 19,876 16,109 16,464 17,287 Creating an industry-leading service experience, at scale Over the past couple of years, we’ve been on a journey to transform our service model into an omni-channel Client Care Model, including voice, chat, and digital support. As part of this journey, we have evolved the technology and instrumentation of our traditional voice channel and also made meaningful enhancements to our always-on digital support capabilities. As we continue to evolve our service interface, we are also transforming our operational processing. For example, last year we began automating much of the processing of our core clearing functions, including money movement, account opening, and account transfers, which collectively drive the maja ority of our operational processing. With the learnings from our transformation in service and operations, we are now re-engineering other areas of the business, including our compliance and risk management functions. By automating more workﬂows, we continue to increase the scalability of our platform while also enhancing the client experience. STRATEGIC PLAY 4 Helping advisors run successful businesses We’re focused on developing a services portfolio that helps advisors, enterprises, and institutions run thriving businesses and deliver comprehensive advice to their clients. As a result of solid demand for these capabilities, the number of advisors utilizing our Services Group increased throughout 2022, and we ended the year at over 3,000 active users, up more than 30% year-over-year. As we continue to evolve our offerings in 2023, we are focused on several key opportunities for our Services Group: 2018 2019 2020 2021 2022 § Addressing additional channels, speciﬁcally, building solutions STRATEGIC PLAY 2 Providing capabilities that help advisors differentiate and win We’re also focused on providing capabilities and solutions that help advisors differentiate in the marketplace and drive efficiency in their practices. In 2023, we will focus our development efforts in this play across four key areas: § Enhancing our wealth management platforms to help advisors provide their clients with differentiated advice, products, and pricing § Advancing ClientWorks, our core operating platform, with additional digitized workﬂows to help advisors operate more efficiently and increase their scalability to serve more clients that solve for needs of institution and enterprise partners § Developing new services and evolving our existing portfolio through our structured approach to innovation § Contributing to the growth of our new affiliation models, Strategic Wealth and Independent Employee, as well as expanding our ability to serve high-net-worth oriented advisors In summary, throughout 2022 we continued to invest in the value proposition for our advisors, institutions, and their clients, while driving growth and increasing our market leadership. As we look ahead, we remain focused on executing our strategy to help our clients further differentiate and win in the marketplace, and, as a result, drive long-term shareholder value. Thank you for investing in LPL. § Expanding our banking and lending services to help advisors address a broader spectrum of their clients’ ﬁnancial needs Sincerelelyy,yy Sincer § Enriching the end-client experience with expanded digital solutions that increase personalization and self-ff service, as well as enable advisors to create customized experiences for their businesses * Amounts shown in all charts are as of or for the indicated year ended ** Source: 2020 Cerulli Report U.S. Advisor Metrics Dan Arnold, President & CEO 2022 FINANCIAL HIGHLIGHTS LPL 2022 Annual Report CONSOLIDATED STATEMENTS OF INCOME DATA Total revenue (in thousands) 3 Total expense (in thousands) 3 2022 2021 2020 2019 2018 $ 8,600,825 $ 7,77 720,830 $ 5,871,640 $ 5,624,856 $ 5,188,400 $ 7,489,172 $ 7,77 119,501 $ 5,245,567 $ 4,883,021 $ 4,595,763 Income before provision for income taxes (in thousands) 3 $ 1,111,653 $ 601,329 $ 626,073 $ 741,835 $ 592,637 Net income (in thousands) 3 PER SHARE DATA Earnings per diluted share 3 EPS prior to amortization of intangible assets and acquisition costs 1,3 Weighted average diluted shares outstanding (in thousands) 3 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DATA Cash and equivalents (in thousands) 4 Total assets (in thousands) 4 Total debt, net (in thousands) 4,5 OTHER FINANCIAL AND OPERATING DATA Gross proﬁt (in thousands) 2,3 EBITDA (in thousands) 3,6 Number of advisors 4 Total advisory and brokerage assets (in billions) 4 Advisory assets (in billions) 4 $ 845,702 $ 459,866 $ 472,640 $ 559,880 $ 439,459 $ 10.40 $ 11.52 81,285 $ 5.63 $ 7.77 02 81,742 $ 5.86 $ 6.46 80,702 $ 6.62 $ 7.17 84,624 $ 4.85 $ 5.33 90,619 $ 847,519 $ 495,246 $ 808,612 $ 590,209 $ 511,096 $ 9,482,226 $ 7,77 991,600 $ 6,596,16, 2 $ 5,880,238 $ 5,477,468 $ 2,717,444 $ 2,814,044 $ 2,345,414 $ 2,398,818 $ 2,371,808 $ 3,189,935 $ 2,454,717 $ 2,103,308 $ 2,172,225 $ 1,947,670 $ 1,525,264 $ 936,431 $ 908,929 $ 1,032,949 $ 865,568 21,275 $ 1,110.8 $ 583.1 19,876 $ 1,206.4 $ 643.2 17,287 $ 903.1 $ 461.2 16,464 $ 764.4 $ 365.8 16,109 $ 628.1 $ 282.0 1 EPS prior to amortization of intangible assets and acquisition costs, a non-GAAP ﬁnancial measure, is deﬁned as adjusted net income, a non-GAAP ﬁnancial measure deﬁned as net income plus the after- tax impact of amortization of other intangibles and acquisition costs, divided by the weighted average number of diluted shares outstanding for the applicable period. We present adjusted net income and EPS prior to amortization of intangible assets and acquisition costs because we believe these metrics can provide investors with useful insight into our core operating performance by excluding non-cash items and acquisition costs that we do not believe impact our ongoing operations. Adjusted net income and EPS prior to amortization of intangible assets and acquisition costs are not measures of our ﬁnancial performance under GAAP and should not be considered as alternatives to net income, earnings per diluted share, or any other performance measure derived in accordance with GAAP. In millions Total Revenue Advisory and commission expense Brokerage, clearing, and exchange expense Gross proﬁt 2022 2021 2020 2019 2018 $8,601 $7,721 $5,872 $5,625 $5,188 5,325 86 $3,190 5,180 86 $2,455 3,697 71 $2,103 3,388 64 $2,172 3,178 63 $1,948 3 Amounts shown are for the year ended. 4 Amounts shown are as of the indicated year ended. The following is a reconciliation of net income and earnings per diluted share to adjusted net income and EPS prior to amortization of intangible assets and acquisition costs for the periods presented. Totals may not foot due to rounding. 5 Corporate debt and other borrowings, net consists of our senior secured term loan, senior unsecured subordinated notes, and borrowings outstanding under our revolving credit facility and unsecured, uncommitted lines of credit, net of debt issuance costs. In millions, except per share data Net income / earnings per diluted share Amortization of other intangibles Acquisition costs Tax beneﬁt Adjusted net income* Diluted share count 2022 2021 2020 2019 2018 Amount Per Share Amount Per Share Amount Per Share Amount Per Share Amount Per Share $846 $10.40 $460 $5.63 $473 $5.86 $560 $6.62 $439 $4.85 6 EBITDA , a non-GAAP ﬁnancial measure, is deﬁned as net income plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles. We present EBITDA because we believe that it can be a useful ﬁnancial metric in understanding our earnings from operations. EBITDA is not a measure of our ﬁnancial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. The following is a reconciliation of net income to EBITDA for the periods presented. Totals may not foot due to rounding. 88 1.08 79 0.97 67 0.83 65 0.76 60 0.66 36 0.44 76 0.93 - 0.00 - 0.00 - 0.00 (33) (0.40) (41) (0.51) (19) (0.23) (18) (0.21) (17) (0.19) $937 $11.52 $574 $7.02 $521 $6.46 $607 $7.17 $482 $5.33 81 82 81 85 91 In millions Net Income Interest expense on borrowings Provision for income taxes Depreciation and amortization Amortization of other intangibles EBITDA 2022 $846 126 266 200 88 $1,525 2021 $460 104 142 151 79 $936 2020 $473 106 153 110 2019 $560 130 182 96 67 $909 65 $1,033 2018 $439 125 153 88 60 $866 *Adjusted net income / EPS prior to amortization of intangible assets and acquisition costs 2 Gross proﬁt, a non-GAAP ﬁnancial measure, is calculated as total revenue less advisory and commission expense and brokerage, clearing and exchange expense. All other expense categories, including depreciation and amortization of property and equipment and amortization of other intangibles, 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 to be a non-GAAP ﬁnancial measure that may not be comparable to similar measures used by others in our industry. Following is a calculation of annual gross proﬁt for the periods presented: LPL 2022 Annual Report Forward-Looking Statements This introduction to the Company’s 2022 Annual Report contains statements regarding our anticipated enterprise pipeline, our plans to expand our Liquidity & Succession solution and planned areas of focus with respect to our strategic plays. These and any other statements that are not related to present faff cts or current conditions, or that are not purely historical, constitute forward-looking statements. They reﬂect the Company’s expectations and objectives as of March 30, 2023 and are not guarantees that expectations or objectives expressed or implied will be achieved. The achievement of such expectations and objectives involves risks and uncertainties that may cause actual results, levels of activity or the timing of events to differ materially from those expressed or implied by forward-looking statements. Important faff ctors that could cause or contribute to such differences include disruptions in the businesses of the Company that could make it more difficult to maintain relationships with advisors and their clients; the effects of competition in the ﬁnancial services industry and the success of the Company in attracting and retaining ﬁnancial advisors and enterprises; the execution of the Company’s plans and its success in realizing the synergies, expense savings, service improvements and efficiencies expected to result from its initiatives, acquisitions and programs; and the other faff ctors set forth in the Company’s most recent Annual Report on Form 10-K, as may be amended or updated in the Company’s Quarterly Reports on Form 10-Q or other ﬁlings with the Securities and Exchange Commission. FORM 10-K LPL Financial Holdings Inc. 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, 2022 OR 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. (E(( xaEE ct name of rerr gistii rtt arr nt as specifii iff ed inii itstt chartrr er)rr (S(( tate or othtt er jurirr sdii idd ctitt on of inii corprr orarr titt on or orgrr anizaii titt on)n Delaware 20-3717839 (I(( .R.S. EmEE ployer Identitt fii iff catitt on No.) 4707 Executive Drive, San Diego, California (A(( ddrdd err ss of Prirr nii cipii al ExeEE cutitt ve Offff iff ces) 92121 (Z(( ipii Code)e (R(( egistii rtt arr nt’s’ telephone number,rr inii cludidd nii g arerr a code)e (800) 877-7210 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class ( ) Trading Symbol(s) g y g Name of Each Exchange on Which Registered g Common Stock — $0.001 par value per share LPLA The 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. YeYY s x No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. YeYY s o No x 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 fof r such shorter period that the registrant was required to file such reports), and (2) has been subjb ect to such filing requirements foff r the past 90 days. YeYY s x No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or foff r such shorter period that the registrant was required to submit such files). YeYY s x No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer x o Accelerated filer o Smaller reporting company Emerging growth company ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period fof r complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effff ectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive offff icers during the relevant recovery period pursuant to § 240.10D-1(b). o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YeYY s x No As of June 30, 2022, the aggregate market value of the voting stock held by non-affff iliates of the registrant was $14.7 billion. For purposes of this infoff rmation, the outstanding shares of Common Stock owned by directors and executive offff icers of the registrant were deemed to be shares of the voting stock held by affff iliates. The number of shares of Common Stock, par value $0.001 per share, outstanding as of February 15, 2023 was 78,673,766. Portions of the definitive Proxy Statement foff r the Annual Meeting of Stockholders, which the Company intends to file within 120 days of the fiscal year ended December 31, 2022, are incorporated by reference into Part III. DOCUMENTS INCORPORATED BY REFERENCE TABLE OF CONTENTS PART I Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1 Item 1A Risk Factors Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3 Item 4 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information about our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Item 6 Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Our Sources of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Significant Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Key Performance Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions, Integrations and Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic Overview and Impact of Financial Market Events . . . . . . . . . . . . . . . . . . . . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt and Related Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV Page 1 13 29 30 30 30 31 34 35 35 36 36 37 37 38 38 42 42 43 48 50 51 52 53 55 57 97 97 98 99 99 99 99 99 99 Item 15 Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16 Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 101 102 i WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly, and current reports, proxy statements and other infoff rmation required by the Securities Exchange Act of 1934, as amended (“Exchange Act”), with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public on the SEC’s website at sec.govg . We post the foff llowing filings to our website at lpl.comp filed with or furnished to the SEC: our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, 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. Copies of all such filings are available free of charge by request via email (investor.relations@lplfinancial.com), telephone ((617) 897-4574) or mail (LPL Financial Investor Relations at 1055 LPL Way, Fort Mill, SC 29715). The infoff rmation contained or incorporated on our website is not a part of this Annual Report on Form 10-K. as soon as reasonably practicable aftff er they are electronically We may use our website as a means of disclosing material infoff rmation and foff r complying with our disclosure obligations under Regulation Fair Disclosure promulgated by the SEC. These disclosures are included on our website in the “Investor Relations” or “Press Releases” sections. Accordingly, investors should monitor these portions of our website, in addition to foff llowing the Company’s press releases, SEC filings, public conference calls and webcasts. WhWW en weww use thtt e termrr s “L“ PLFHFF ”, “L“ PL”, “w““ eww ”, “u“ s”, “o“ ur” and “t““ htt e Company”, weww mean LPL FiFF nii anciaii a Delawaww rerr corprr orarr titt on, and itstt consolill dated subsididd ai rirr es, tat ken as a whww ole, unless thtt e context othtt erwrr l Holdidd nii gs Inc., inii didd cates. iww seii SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements in Part II, “Item 7. Management’s’ Discuii OpO erarr titt ons” and other sections of this Annual Report on Form 10-K regarding: ssion and Analysi sii of FiFF nii anciaii l l Condidd titt on and Resultstt of • • • • the Company’s future financial and operating results, outlook, growth, plans, business strategies, liquidity, future share repurchases and dividends, including statements regarding future resolution of regulatory matters, legal proceedings and related costs; the Company’s future revenue and expense; future affff iliation models and capabilities; the expected onboarding of advisors, enterprises and assets in connection with our acquisition and recruitment activity; • market and macroeconomic trends, including the effff ects of inflation and the interest rate environment; projo ected savings and anticipated improvements to the Company’s operating model, servirr ces and • technologies as a result of its investments, initiatives, programs and acquisitions; and any other statements that are not related to present facts or current conditions or that are not purely historical, constitute foff rwrr ard-looking statements. • These foff rwrr ard-looking statements reflect the Company’s expectations and objb ectives as of February 23, 2023. The words “anticipates,” “believes,” “expects,” “may,” “plans,” “predicts,” “will” and similar expressions are intended to foff rwrr ard-looking statements, although not all foff rwrr ard-looking statements contain these identifyiff ng words. identifyff Forwrr ard-looking statements are not guarantees that expectations or objb ectives expressed or implied by the Company will be achieved. The achievement of such expectations and objb ectives involves risks and uncertainties that may cause actual results, levels of activity or the timing of events to diffff er materially from those expressed or implied by foff rwrr ard-looking statements. Important factors that could cause or contribute to such diffff erences include: • • • • • • • • changes in general economic and financial market conditions, including retail investor sentiment; changes in interest rates and fees payable by banks participating in the Company’s client cash programs, including the Company’s success in negotiating agreements with current or additional counterparties; the Company’s strategy and success in managing client cash program fees; fluctuations in the levels of advisory and brokerage assets, including net new assets, and the related impact on revenue; effff ects of competition in the financial servirr ces industry; the success of the Company in attracting and retaining financial advisors and enterprises, and their ability to market financial products and servirr ces effff ectively; whether retail investors serverr d by newly-recruited advisors choose to move their respective assets to new accounts at the Company; changes in growth and profitability of the Company’s fee-based offff erings; ii • • • • • • • • • • s; the effff ect of current, pending and future legislation, regulation and regulatory actions, including disciplinary actions imposed by federal and state regulators and self-ff regulatory organizations; the cost of settling and remediating issues related to regulatory matters or legal proceedings, including actual costs of reimbursing customers foff r losses in excess of our reserverr changes made to the Company’s servirr ces and pricing, including in response to competitive developments and current, pending and future legislation, regulation and regulatory actions, and the effff ect that such changes may have on the Company’s gross profit streams and costs; execution of the Company’s capital management plans, including its compliance with the terms of the Company’s amended and restated credit agreement (the “Credit Agreement”), the committed revolving credit facility at our broker-dealer subsidiary, LPL Financial LLC (the “Broker-Dealer Revolving Credit Facility”), and the indentures governing the Company’s senior unsecured notes (the “Indentures”); the price, the availability and trading volumes of shares of the Company’s common stock, which will affff ect the timing and size of future share repurchases by the Company, if any; execution of the Company’s plans and its success in realizing the synergies, expense savings, servirr ce improvements or effff iciencies expected to result from its investments, initiatives and acquisitions, expense plans and technology initiatives; the perfrr off rmance of third-party servirr ce providers to which business processes have been transitioned; the Company’s ability to control operating risks, infoff rmation technology systems risks, cybersecurity risks and sourcing risks; the effff ects of the coronavirus disease 2019 (“COVID-19”) pandemic, including effff off rts to contain it; and the other factors set foff rth in Part I, “I“ tem 1A. Riskii ” FaFF ctors.rr Except as required by law, the Company specifically disclaims any obligation to update any foff rwrr ard-looking statements as a result of developments occurring aftff er the date of this Annual Report on Form 10-K, and you should not rely on statements contained herein as representing the Company’s view as of any date subsequent to the date of this Annual Report on Form 10-K. iii Item 1. Business Overvrr iew PART I LPL serverr s the advisor-mediated marketplace as the nation’s largest independent broker-dealer, a leading investment advisory firm, and a top custodian. We serverr more than 21,000 financial advisors, including advisors at approximately 1,100 enterprises and at approximately 500 registered investment advisor (“RIA”) firms nationwide, providing the front-, middle- and back-offff ice support our advisors need. We offff er integrated technology solutions, brokerage and advisory platfoff rms, clearing servirr ces, compliance servirr ces, consultative practice management programs and training, business servirr ces and planning and advice servirr ces, and in-house research to help our advisors run successful businesses. We are steadfast in our commitment to the advisor-mediated advice model and the belief that investors deserverr access to personalized guidance from a financial advisor. We believe advisors should have the freedom to choose the business model, servirr ces and technology they need and to manage their client relationships. We believe investors achieve better outcomes when working with a financial advisor, and we strive to make it easy foff r advisors to do what is best foff r their clients. We believe that we are the only company that offff ers the unique combination of an integrated technology platfoff rm, comprehensive self-ff clearing servirr ces and access to a wide range of curated non-proprietary products all delivered in an environment unencumbered by conflicts from product manufacturing, underwrr riting and market-making. LPL Financial Holdings Inc., which is the parent company of our business, was incorporated in Delaware in 2005. The Company’s most significant wholly owned subsidiaries are described below: • • • • • • • LPL Holdings, Inc. is a direct subsidiary of LPL Financial Holdings Inc. and is an intermediate holding company of our business. LPL Financial LLC (“LPL Financial”) is a clearing broker-dealer and an investment adviser that clears and settles customer transactions. Fortigent Holdings Company, Inc. and its subsidiaries (“Fortigent”) provide solutions and consulting servirr ces to RIAs, banks and trust companies servirr ng high-net-worth clients. LPL Insurance Associates, Inc. (“LPLIA”) operates as a brokerage general agency that offff ers life and disability insurance products and servirr ces. AWAA Subsidiary, Inc. is a holding company foff r AdvisoryWorld and Blaze Portfoff lio Systems LLC (“Blaze”). AdvisoryWorld offff ers technology products, including proposal generation, investment analytics and portfoff lio modeling, to both the Company’s advisors and external clients in the wealth management industry. Blaze provides an advisor-facing trading and portfoff lio rebalancing platfoff rm. The Private Trust Company, N.A. (“PTC”) provides trust administration, investment management oversight and, along with its affff iliate Fiduciary Trust Company of New Hampshire, Individual Retirement Account (“IRA”) custodial servirr ces. LPL Employee Servirr ces, LLC and its subsidiary, Allen & Company of Florida, LLC (“Allen & Company”), along with their affff iliate, Financial Resources Group Investment Servirr ces, LLC (“FRGIS”) provide primary support foff r the Company’s employee advisor affff iliation model. 1 Our Strategy At LPL, our mission is to take care of our advisors so they can take care of their clients. Our vision is to become the leader across the advisor-mediated marketplace by empowering advisors to deliver great advice to their clients and be great operators of their businesses. In order to achieve this vision, our strategy is to meet advisors and enterprises where they are in the evolution of their businesses, provide capabilities to help advisors diffff erentiate and win investors, create an industry-leading servirr ce experience that delights advisors and enterprises and their clients, and help advisors and enterprises run the most successful businesses in the industry. Our Business Advivv sii or Relall titt onshipii s Our business is dedicated exclusively to our advisors; we are not a market-maker nor do we offff er investment banking or underwrr riting servirr ces. We offff er no proprietary products of our own, and, as a result, we enable the independent financial advisors and enterprises that we support to offff er 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 foff r investors. In addition, we make meaningful investments in technology and servirr ces to support the growth, productivity and effff iciency of advisors across a broad spectrum of business models as their practices evolve. Our advisors are a community of diverse, entrepreneurial financial servirr ces professionals who support approximately 7.9 million client accounts. They build long-term relationships with their clients in communities across the United States by guiding them through the complexities of investment decisions, retirement solutions, financial planning, and wealth management. Our servirr ces are designed to support the evolution of our advisors’ businesses over time and to adapt as our advisors’ needs change. We believe we offff er 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 advisory fees and brokerage commissions than the captive channels — generally 80-100% compared to 30-50% foff r captive channels. Our independent financial advisors are business owners who, unlike their captive counterparts, also have the opportunity to build equity in their own businesses. Furthermore, we believe that our technology and servirr ce platfoff rms enable our advisors to operate their practices with a greater foff cus on servirr ng investors at a lower cost than other independent advisors. Our more than 21,000 advisors average over 20 years in the industry, which generally allows us to foff cus 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 platfoff rm allows our advisors to choose the most appropriate business model to support their clients whether they conduct brokerage business, offff er brokerage and/or fee-based servirr ces on our corporate RIA platfoff rm, or provide fee-based servirr ces through their own RIA practices. The maja ority of our advisors are independent practitioners 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 branding, marketing and promotion and regulatory review. We also support advisors through our independent employee advisor affff iliation model, where they benefit from a full-servirr ce employee relationship while generally retaining ownership of their clients. Advisors licensed with LPL Financial as investment advisory representatives are able to conduct fee-based business on our corporate RIA platfoff rm, and advisors licensed with LPL Financial as registered representatives are able to conduct commission-based business on our brokerage platfoff rm. In order to be licensed with LPL Financial, advisors must be approved through our assessment process, which includes a review of each advisor’s education, experience and compliance history, among other factors. 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 investment advisory representative or registered representative, that all orders foff r 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 500 independent RIA firms that conduct their business through separate registered investment advisor firms (“Independent RIAs”) with approximately 5,800 advisors who conduct their advisory business through these separate entities, rather than through our corporate RIA. Independent RIAs operate 2 pursuant to the Investment Advisers Act of 1940, as amended (the “Advisers Act”), or their respective states’ investment advisory licensing rules. These Independent RIAs engage us foff r technology, clearing and custody servirr ces, as well as access to our investment platfoff rms. Advisors associated with Independent RIAs retain 100% of their advisory fees, and in return, we charge separate fees foff r custody, trading, administrative and support servirr ces. In addition, some financial advisors associated with Independent RIAs carry their brokerage license with LPL Financial and access our fully-integrated brokerage platfoff rm under standard terms. We believe we are the market leader in providing support to over 3,500 financial advisors at approximately 1,100 enterprises nationwide. The core capabilities of these enterprises may not include investment and financial planning servirr ces, or they may find the technology, infrastructure and regulatory requirements of supporting such servirr ces to be cost-prohibitive. For these enterprises, we provide their financial advisors with the infrastructure and servirr ces they need to be successful, allowing the enterprises to foff cus more attention and capital on their core businesses. We also provide support to approximately 3,600 additional financial advisors who are affff iliated and licensed with insurance companies. These arrangements allow us to provide outsourced customized clearing, advisory platfoff rms and technology solutions that enable the financial advisors at these insurance companies to offff er a breadth of servirr ces to their client base in an effff icient manner. Our VaVV lue PrPP orr posititt on We are dedicated to making it easy foff r advisors to do what is best foff r their clients. Our scale and self-ff clearing platfoff rm enable us to provide advisors with the capabilities they need, and the servirr ce they expect, at a compelling price. 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-offff ice solutions through our distinct value proposition: integrated technology solutions, comprehensive clearing servirr ces, compliance servirr ces, consultative practice management programs and training, business servirr ces and planning and advice servirr ces, and in-house research. The comprehensive and increasingly automated nature of our offff ering enables our advisors to foff cus on their clients while successfully and effff iciently managing the complexities of running their own practice. Integrarr ted TeTT chnologygg Solutitt ons We provide our technology and servirr ce to advisors through an integrated technology platfoff rm that is cloud-based and web-accessible. Our technology offff erings are designed to permit our advisors to effff ectively manage all critical aspects of their businesses in an effff icient 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 effff off rt to improve our advisors’ effff iciency and accuracy. Comprerr hensive Clearirr nii g Servirr ces We provide custody and clearing servirr ces foff r the maja ority of our advisors’ transactions and seek to offff er a simplified and streamlined advisor experience with expedited processing capabilities. Our self-ff clearing platfoff rm enables us to control client data, more effff iciently process and report trades, facilitate platfoff rm development, reduce costs and ultimately enhance the servirr ce experience foff r our advisors and their clients. Complill aii nce Servirr ces 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 advisors is imperative to us. As the financial industry and regulatory environment evolve and become more complex, we have made a long-term commitment to enhancing our risk management and compliance structure, as well as our technology-based compliance and risk management tools, in order to further enhance the overall effff ectiveness and scalability of our control environment. Our team of risk and compliance employees assists our advisors through: • • • training and advising advisors on new products, new regulatory guidelines, compliance and risk management tools, security policies and procedures and best practices; advising on sales practice activities and facilitating the supervirr sion of activities by branch managers; conducting technology-enabled surverr illance of trading activities and sales practices; • monitoring of registered investment advisory activities foff r advisors on our corporate RIA platfoff rm; and • inspecting branch offff ices and advising on how to strengthen compliance procedures. 3 Consultat titt ve Prarr ctitt ce Management Prorr grarr ms and TrTT arr inii inii g Our practice management programs are designed to help leaders and financial advisors in independent practices and enterprises 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 effff off rt. Our practice management and training servirr ces include: • • personalized business consulting that helps eligible advisors and program leadership enhance the value and operational effff iciency 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 offff erings and wealth management servirr ces; • marketing strategies, including campaign templates, to enable advisors to build awareness of their servirr ces and capitalize on opportunities in their local markets; • • • • our Liquidity & Succession solution to expand the options of advisors seeking to monetize their businesses or free themselves from entrepreneurial burdens through the sale of their practices; an advisor loan program foff r advisors looking to buy another practice; transition servirr ces 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 platfoff rms and business development. Businii ess Servirr ces and PlPP anninii g and Advice Servirr ces We provide business servirr ces to advisors in areas critical to the operation of their practices, such as marketing, accounting and transaction support. Our business servirr ces portfoff lio includes professional servirr ces and business optimizer offff erings. Professional servirr ces offff erings, including CFO Solutions, Marketing Solutions, Admin Solutions, Bookkeeping and Partial Book Sales, are digital and employee-powered solutions that provide practice management expertise to support growth and operational effff iciency. Business optimizer offff erings, including M&A Solutions, Digital Offff ice, Resilience Plans and Assurance Plans, are digital solutions that provide risk mitigation and business continuity servirr ces to support practice operations and succession planning. Planning and advice servirr ces were launched in January of 2022 and are digital and employee-powered solutions that help advisors expand the breadth and depth of their advice. The foff cus of planning and advice servirr ces is helping advisors increase marketplace diffff erentiation while limiting additional complexity and risk. We are expanding our portfoff lio of servirr ces to address new advisor needs while also enhancing our existing solutions to deliver an industry-leading customer experience. In-House Researchrr We provide our advisors with integrated access to comprehensive research on a broad range of investments. We share market analysis and commentary on macro-economic events, manager research, capital markets assumptions, strategic and tactical asset allocation advice and individual equity guidance. Our research team provides advice that is designed to empower our advisors to better serverr their clients, including the creation of discretionary portfoff lios foff r which we serverr as a portfoff lio manager, available through our turnkey advisory asset management platfoff rms. We are able to provide objb ective and unbiased investment research to our advisors and their clients without the conflict of proprietary products or investment banking servirr ces. Our PrPP orr duct and Solutitt on Access We do not manufacture any financial products. Instead, we provide our advisors with curated access to a broad range of commission, fee-based, cash and money market products and servirr ces. The sales and administration of these products are facilitated through our technology solutions, which allow our advisors to access client accounts, product infoff rmation, asset allocation models, investment recommendations, and economic insight, as well as to perfrr off rm trade execution. Fee-Based PlPP atfoff rmrr s and Supu portrr We have various fee-based platfoff rms that provide centrally managed or customized solutions from which advisors can choose to meet the investment needs of their clients, including wrap-fee programs, mutual fund asset allocation programs, an advisor-enhanced digital advice program, advisory programs offff ered by third-party investment advisor 4 firms, financial planning servirr ces and retirement plan consulting servirr ces. The fee structure of our platfoff rms enables our advisors to provide their clients with higher levels of servirr ce while establishing a recurring revenue stream foff r the advisor and foff r us. Our fee-based platfoff rms provide access to mutual funds, exchange-traded funds, stocks, bonds, certain options strategies, unit investment trusts, institutional money managers and no-load multi-manager variable annuities. As of December 31, 2022, the total advisory assets under custody in these platfoff rms, through both our corporate RIA and Independent RIA advisory platfoff rms, were $583.1 billion. Commissi ii on-Based Prorr ductstt Commission-based products include those foff r which we and our advisors receive an upfront commission and, foff r certain products, a trailing commission. Our brokerage offff erings include variable and fixed annuities, mutual funds, equities, fixed income, alternative investments, retirement and 529 education savings plans and insurance. We regularly review the structure and fees of our commission-based products in the context of retail investor preferences and the changing regulatory environment, as well as the competitive landscape. As of December 31, 2022, the total brokerage assets in commission-based products were $527.7 billion. Clill ent Cash Prorr grarr ms Our client cash programs include two Federal Deposit Insurance Corporation (“FDIC”) insured bank sweep vehicles, a client cash account and a money market account, which enable our advisors to manage their clients’ cash balances. As of December 31, 2022, the total assets in our client cash programs, which are held within advisory and brokerage accounts, were $64.1 billion. Othtt er Servirr ces We provide a number of additional tools and servirr ces that enable advisors to maintain and grow their practices. Through our subsidiary PTC, we provide custodial servirr ces to trusts foff r estates and families. Under our model, an advisor may provide a trust with investment management servirr ces, while administrative servirr ces foff r the trust are provided by PTC. We also offff er retirement solutions foff r commission- and fee-based servirr ces that allow advisors to provide brokerage servirr ces, consultation and advice to retirement plan sponsors using LPL Financial. We offff er proposal generation, investment analytics and portfoff lio modeling capabilities to both our advisors and external clients in the wealth management industry and provide an advisor-facing trading and portfoff lio rebalancing platfoff rm. Our Financial Model Our overall financial perfrr off rmance is a function of the foff llowing: • Our revenue stems from diverse sources, including advisor-generated advisory fees and commission revenue, as well as other asset-based fees from product sponsors, recordkeeping, networking servirr ces, client cash balances, servirr ce and fee revenue, transaction revenue and revenue foff r other ancillary servirr ces that we provide. Revenue is not concentrated by advisor, product or geography. For the year ended December 31, 2022, no single relationship with our independent advisor practices or enterprises accounted foff r more than 3% of our advisory and commission revenue, and no single advisor accounted foff r more than 1% of our advisory and commission revenue. • • The largest variable component of our expense, advisor payout percentages, is directly linked to revenue generated by our advisors. A portion of our revenue is not asset-based or correlated with the equity financial markets. Servirr ce and fee revenue is generated from advisor and retail investor servirr ces, including insurance, licensing, business servirr ces and planning and advice servirr ces, IRA custodian and other client account fees. Servirr ce and fee revenue from business servirr ces is based on recurring subscription fees. We charge separate fees to RIAs foff r technology, clearing, administrative, oversight and custody servirr ces, which may vary. In addition, we host certain advisor conferences that serverr charge sponsors a fee. as training, education, sales and marketing events foff r which we • Our operating model is scalable and is capable of delivering expanding profit margins over time. • We have managed our capital allocation framework and expenditures such that we have been able to both invest in our business and return capital to stockholders. 5 Our Competitive Strengths MaM rkrr ekk t Leadedd rsrr hipii Posititt on and Scale We are the established leader in the independent advisor market, which is our core business foff cus. We use our scale and position as an industry leader to champion the independent business model and the rights of our advisors and their clients. Our scale enables us to benefit from the foff llowing dynamics: • • • Contitt nii ual Reinii vestmtt ent — We actively reinvest in our comprehensive technology platfoff rm 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 U.S., we have been able to obtain attractive economics from product sponsors. Payout Rates to Advisoii that we offff er our advisors the highest average payout rates in our industry. rsrr — As one of the largest U.S. broker-dealers by number of advisors, we believe The combination of our ability to reinvest in our business and maintain highly competitive payout rates has enabled us to attract and retain advisors. This, in turn, has driven our growth and led to a continuous cycle of reinvestment that reinfoff rces our established scale advantage. Comprerr hensivevv Solutitt ons We diffff erentiate through the combination of our capabilities across research, technology, risk management and practice management. We make meaningful investments to support the growth, productivity and effff iciency of advisors across a broad spectrum of models as their practices evolve. Our foff cus is working alongside advisors to navigate complex environments in order to create the best outcomes foff r their clients. We believe we offff er a compelling value proposition to independent financial advisors and enterprises. This value proposition is built upon the delivery of our servirr ces 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 offff er our business model at the scale at which we offff er 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 enterprises, such as regional banks, credit unions and insurance companies, that seek to provide a broad array of servirr ces foff r their clients. We believe many enterprises 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 enterprises to deliver their servirr ces on a cost-effff ective basis. FlFF exee ixx bii ilii ill tyt of Our Businii ess Modedd l Our business model allows our advisors the freedom to choose how they conduct their business, subjb ect to certain regulatory parameters, which has helped us attract and retain advisors from multiple channels, including wirehouses, regional broker-dealers, RIAs and other independent broker-dealers. Our platfoff rm can accommodate a variety of independent advisor business models, including independent financial advisors, RIAs and employee advisors. The flexibility of our business model enables our advisors to select their preferred affff iliation model and product mix as their business evolves and preferences change within the market or their client base all within an environment that allows foff r evolution with minimal interruption to their business and their clients. In addition, our business model provides advisors with a multitude of customizable servirr ce and technology offff erings that allow them to increase their effff iciency, foff cus on their clients and grow their practice. For example, LPL Servirr ces Group provides business support to advisors in areas critical to the operation of their practices, such as marketing, accounting and transaction support. Our Sources of Growth InII crerr asinii g PrPP orr ductitt vivv tyt of ExEE ixx sii titt nii g Advivv sii or Base We believe the productivity of our advisors has the potential to 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 expect to facilitate these productivity improvements by helping our advisors better manage their practices in an increasingly complex external environment, which we believe has 6 the potential to result in the assets per advisor growing over time. Business servirr ces and planning and advice servirr ces are a source of organic growth as a larger share of advisors adopts these servirr ce solutions. Attrtt arr ctitt nii g New Assetstt to Our Plall tftt off rmrr We intend to grow the assets serverr d by our platfoff rm across traditional markets and through new affff iliation models. Ongoing investment in and enhancements to our platfoff rm and support teams have led to an expanded pipeline. We have also experienced momentum from a continued expansion of our advisor affff iliation models, which has attracted prospects from new sources. Finally, we have opened up a new market with our newest enterprise affff iliation model. This resulted in relationships with M&T Bank Corporation and BMO Harris Financial Advisors that we began during 2021 and the onboarding of CUNA Brokerage Servirr ces, Inc. and People’s United Bank in 2022. Related investments in our enterprise platfoff rm have generated interest from new enterprise clients. Competition We compete with a variety of financial firms to attract and retain experienced and productive advisors. These financial firms operate in various channels and markets: • Within the independent broker-dealer channel, the industry is highly fragmented and consists primarily of regional firms that rely on third-party custodians and technology providers to support their operations. • Wirehouses tend to consist of large nationwide firms with multiple lines of business that have a foff cus on the • • highly competitive high-net-worth investor market. Competition foff r advisors also includes regional firms that primarily foff cus on specific client niches or geographic areas. Independent RIA firms, which are registered with the SEC or through their respective states’ investment advisory regulator and not through a broker-dealer, may choose from a number of third-party firms to provide custodial servirr ces. Our advisors compete foff r 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 offff ering direct- to-investor online financial servirr ces and discount brokerage servirr ces. Human Capital Our success depends on our ability to attract, hire, retain and develop highly-skilled professionals in a variety of specialties, including finance, technology, compliance, business development, cybersecurity and management. WoWW rkfrr off rcerr As of December 31, 2022, we had approximately 6,900 full-time employees, all of whom are located in the U.S. Of our employees, approximately 49% self-ff identifyff as women and 40% self-ff identifyff as Black, Indigenous, or People of Color. TaTT lent Management and Culturerr Due to the complexity of our business, we compete with other companies foff r top talent, both inside and outside of our industry, and in multiple geographical areas within the United States. Our Human Capital effff off rts foff cus on further developing our culture of servirr ce in concert with our mission statement: WeWW tat ke carerr of our advisoii tatt ke carerr of thtt eirii clill entstt . ToTT that end, we seek employees who are committed to excellence, integrity, and living our values. Our employees are one team on one mission: to seek, embrace and apply feedback, stop and consider the big picture, and deliver results foff r our advisors and their clients. rsrr so thtt ey can Compensatitt on and Benefiff tstt ToTT maintain a high-caliber, values-driven workfoff rce that is committed to our culture, we strive to offff er total rewards, including compensation, benefits and recognition programs that position our company as an employer of choice. Our compensation is designed to be perfrr off rmance based and competitive in the markets in which we compete. We closely monitor industry trends and practices to ensure we are able to attract and retain the personnel who are critical to our success. We also monitor internal pay equity to help ensure that our compensation practices are fair and equitable across our organization. Our company’s senior leaders have an opportunity to receive a portion of their compensation in Company equity, and, subjb ect to a cap, we match the contributions of all of our employees to our retirement savings plan to help support their long-term financial goals. We also offff er an employee stock 7 purchase plan that enables eligible employees to acquire an ownership interest in our company at a discount to prevailing market prices. We offff er an array of benefits intended to meet the diverse needs of our employees and their eligible dependents. From healthcare to holidays, our aim is to help our employees enjoy happy and healthy lifestyles while maintaining work-life balance. We offff er comprehensive benefits to all full-time employees and part-time employees working at least 30 hours per week, which equates to over 99% of our workfoff rce. Our health and welfare benefits include, among other things: medical coverage; dental and vision coverage; healthcare and dependent-care flexible spending accounts; Health Savings Accounts; accident and critical illness coverage; life and accidental death and dismemberment insurance; short-term and long-term disability insurance; and the LPL Live Well employee wellbeing program, which includes a mental health support program with quick access to therapy and counseling. Recrurr ititt nii g As a Fortune 500 company foff cused on innovation and growth, talent drives the success of our company. Therefoff re, we are foff cused on attracting, developing and retaining our employees. ToTT reach a diverse pool of potential talent, we are continually in the market and take a multi-faceted approach to recruiting in pursuit of diverse, entrepreneurial and dedicated team members. By expanding our reach and sourcing effff off rts and implementing diverse recruitment methods, we seek to create a workfoff rce representative of the communities and partners we serverr . We continue to invest in talent recruitment channels to introduce younger generations to the opportunities within wealth management and financial servirr ces. As part of our university recruitment strategy, we have expanded partnerships with colleges and universities in the local communities we serverr ways to collaborate with students, faculty and diverse campus organizations to increase exposure and opportunities foff r students. LEAP,P our Leadership Excellence and Achievement Program, encompasses the Company’s early talent initiatives and offff ers internship, part time and full time opportunities to develop the next generation of leaders. and beyond. We continuously seek TrTT arr inii inii g and Development We believe in our employees’ potential and provide training and development opportunities intended to maximize their perfrr off rmance and professional growth. ToTT ensure that new employees integrate into our culture and their daily work, we provide a robust new-hire experience, as well as extensive ongoing training foff r existing employees to acquaint them with our business. We require all of our employees to complete courses in key regulatory areas, such as insider trading and anti-money laundering compliance, and we offff er professional development opportunities through training sessions and cross-departmental workshops, resulting in over 140,000 completed courses and workshops and approximatelyy 134,000 development hours ffoff r our employyees. In addition, we have mentorship programs that pair newer employees with more experienced professionals, giving mentees access to experience, expertise, and guidance. Finally, to help employees determine the next steps in their careers, we have a Career Growth Portal that provides employees with tools, resources, training courses and assessments as they chart their career paths. EmEE ployee Safeff tyt We aim to provide a safe, inclusive environment foff r our employees where they feel engaged in our business, supported in who they are and empowered to succeed. We are committed to providing a workplace that is free from violence, harassment and other unsafe or disruptive conditions and require our personnel to attend regular training sessions and workshops on those topics. ToTT promote health and safety in our workplace, we implemented a work-from-home-or-offff ice practice that enables employees in many positions to choose whether to work remotely and/or on-site. For our employees working in our offff ices (including our on-site essential workers), we continue to maximize outdoor air intake and air filtration. In addition, we have installed integrated ionic air purification systems into the HVAVV C systems of our large offff ice locations. We believe we continue to support all health and safety requirements in effff ect, and we continue to provide leaves of absence and workplace accommodations to support employees with mental health concerns, daycare challenges or distance learning foff r their children and dependents. In addition, the LPL Financial Foundation continues to support the LPL CCare Fund, an employyee-to-employyee relieff ffund created to help employyees ffacingg unexpected and unavoidable ffinancial hardships as a result off a natural disaster or epidemic byy providingg tax-ffree grants. Diversirr ty,t Equityt and Inclusion Our diversity, equity and inclusion (“DEI”) effff off rts are overseen by our chief executive offff icer, chief human capital offff icer and chief diversity offff icer. In 2022, the management committee received quarterly updates on these metrics, 8 and they approved a requested financial investment in our DEI program. In addition, our Board of Directors (the “Board”) also received updates during regularly scheduled quarterly meetings. We believe that well-being is more than just physical safety and that our employees should feel welcome and supported as who they are. We seek to foff ster diversity and a culture of inclusivity. Our employee-led resource groups foff cus on the needs, concerns and experiences of various diverse groups to help leaders drive business outcomes. In addition, our professional development and recruitment effff off rts have foff cused on improving the diversity of our employee population, including through targeted outreach to and collaborations with organizations that serverr diverse populations. Continuous improvement is a pillar of our culture, and we regularly solicit employee feedback on the effff ectiveness and quality of our support programs and their level of engagement with our business. We use this feedback to improve our programs and processes and infoff rm decisions about our business. In addition, we closely monitor employee turnover, both in the aggregate and in key subcategories such as diversity and levels in the Company, to evaluate our effff ectiveness in retaining critical personnel. We are committed to an inclusive work environment to encourage and cultivate diversity of thought and ideas within the organization. We sponsor Employee Resource Groups (with representation including but not limited to groups foff r individuals who identifyff as African-American, Asian-American and Pacific Islander, Hispanic, LGBTQ, VeVV terans, Women and People with Disabilities) to leverage the individual talents, perspectives and experiences of our employees to position us foff r continued growth and success. The DEI talent attraction effff off rts are centered on strengthening relationships with community partners, particularly historically Black colleges and universities, where we have hosted several career fairs. These effff off rts helped create a 2022 class of interns where over 70% identified as a woman and/or as Black, Indigenous, or a Person of Color. We continue to improve our non-traditional recruitment channels as well, investing in new methodologies in 2022 to identifyff underrepresented pools of candidates and working with executive search firms that present diverse candidates. We also foff cus our effff off rts on providing advancement opportunities foff r employees underrepresented in the financial industry. Our flagship Emerging Leaders Program virtually hosted a diverse group of top talent leaders with keynotes, small groups, real-world practice and collaborative community discussions to further enhance their leadership capabilities. In addition, we have partnered foff r the twelftff h year with Linkage’s Women in Leadership Institute to send women leaders to the annual conference foff r learning and networking opportunities. We continued our partnership and participation in the McKinsey Black Leadership Academy and expanded participation in the McKinsey Asian Leadership Academy and the McKinsey Hispanic/Latin Leadership Academy in 2022. Regulation The financial servirr ces industry is subjb ect to extensive regulation by U.S. federal, state, and international government agencies as well as various self-ff regulatory organizations. We seek to participate in the development of significant 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. Compliance with all applicable laws and regulations, only some of which are described below, involves a significant investment in time and resources. Any new laws or regulations applicable to our business, any changes to existing laws or regulations, or any changes to the interpretations or enfoff rcement of those laws or regulations may affff ect our operations and/or financial condition. Brorr kekk r-rr Dealer Regulall titt on LPL Financial and FRGIS are registered broker-dealers. LPL Financial is a clearing broker-dealer registered with the SEC, a member of the Financial Industry Regulatory Authority (“FINRA”) 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. FRGIS is registered with the SEC, a member of FINRA, and registered as a broker-dealer in New Jersey, South Carolina, and New YoYY rk. The rules of the Municipal Securities Rulemaking Board, which are enfoff rced by the SEC and FINRA, apply to the municipal securities activities of LPL Financial. LPL Financial is registered as an introducing broker-dealer with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFAFF ”). LPL Financial is regulated by the SEC, FINRA, CFTC and NFAFF . FRGIS is regulated by the SEC and FINRA. Broker-dealers are subjb ect to rules and regulations covering all aspects of the securities business, including sales and trading practices, public offff erings, publication of research reports, use and safekeeping of clients’ funds and securities, capital adequacy, recordkeeping and reporting, the conduct of directors, offff icers and employees, qualification and licensing of supervirr sory and sales personnel, marketing practices, supervirr sory and organizational 9 procedures intended to ensure compliance with securities laws and to prevent improper trading on material nonpublic infoff rmation, limitations on extensions of credit in securities transactions, clearance and settlement procedures and rules designed to promote high standards of commercial honor and just and equitable principles of trade. Broker-dealers are also subjb ect to state securities laws and regulated by state securities administrators in those jurisdictions where they do business. Applicable laws, rules, and regulations may be subjb ect to varying interpretations and change from time to time. Regulators make periodic examinations and inquiries of us and review annual, monthly and other reports on our operations and financial condition. Regulatory actions brought against us alleging violations of applicable laws, rules and regulations could result in censures, penalties and fines, settlements, disgorgement of profits, restitution to customers, remediation or the issuance of cease-and-desist orders. Such actions could also result in the restriction, suspension or expulsion from the securities industry of us or our financial advisors, offff icers or employees. We also may incur substantial expenses, damage to our reputation or similar adverse consequences in connection with any such actions by the SEC, FINRA, CFTC, NFAFF , the U.S. Department of Labor (“DOL”) or state securities regulators, regardless of the outcome. LPL Financial’s margin lending is regulated by the Federal Reserverr Board’s restrictions on lending in connection with client purchases and short sales of securities, and FINRA rules also require LPL Financial 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. On June 30, 2020, the SEC’s new standard of conduct applicable to retail brokerage accounts (“Reg BI”) became applicable. Reg BI requires that broker-dealers act in the best interest of retail customers without placing their own financial or other interests ahead of the customer’s and imposes new obligations related to disclosure, duty of care, conflicts of interest and compliance. Certain state securities and insurance regulators have also adopted, proposed or are considering adopting similar laws and regulations. In December 2020, the DOL finalized a new Prohibited Transaction Exemption 2020-02 (“PTE 2020-02”) that expanded instances where an investment advice fiduciary can receive additional compensation on transactions as a result of fiduciary recommendations to a plan covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), IRA or other account covered by Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”). Compliance with these provisions has increased our compliance costs. Moreover, to the extent new rules or regulations affff ect 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 otherwrr ise present ineffff iciencies in their interactions with us. As industry compliance practices and regulatory approaches to guidance, examinations and enfoff rcement continue to develop, the ultimate impact that these new rules or regulations will have on us, the financial industry and the economy cannot be known at this time. It is unclear how and whether other regulators, including banking regulators, and state securities and insurance regulators, may respond to or attempt to enfoff rce similar issues addressed by Reg BI and PTE 2020-02. InII vevv stmtt ent Advivv sii er Regulall titt on As investment advisers registered with the SEC, our subsidiaries LPL Financial and Fortigent, LLC are subjb ect to the requirements of the Advisers Act, and the regulations promulgated thereunder, including examination by the SEC’s staffff . Such requirements relate to, among other things, fiduciary duties to clients, maintaining an effff ective compliance program, 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 foff r violations of the Advisers Act and associated regulations. Investment advisers also are subjb ect 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, censures, penalties and fines, settlements, disgorgement of profits, restitution to customers, remediation, the issuance of cease-and-desist orders or the termination of an investment adviser’s registration. We also may incur substantial expenses, damage to our reputation or similar adverse consequences in connection with such actions, regardless of the outcome. Retitt rii err ment Plall n Servrr ivv ces Regulall titt on Certain subsidiaries, including LPL Financial, LPL Employee Servirr ces, LLC, PTC, Fiduciary Trust Company of New Hampshire and LPLIA, are subjb ect to ERISA, and Section 4975 of the Code, and to regulations promulgated under ise deal with ERISA or the Code, insofar as the subsidiaries provide servirr ces with respect to plan clients, or otherwrr 10 plan clients, plan participants and retirement, health and educational accounts that are subjb ect to ERISA or Section 4975 of 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 subjb ect to ERISA and fiduciaries or other servirr ce providers to such plans. Non-compliance with or breaches of these provisions may expose an ERISA fiduciary or other servirr ce provider to liability under ERISA, which may include monetary and criminal penalties as well as equitable remedies foff r the affff ected plan. Section 4975 of the Code prohibits certain transactions involving “plans” (as defined in Section 4975(e)(1), which include, foff r example, IRAs and certain Keogh plans) and servirr ce providers, including fiduciaries (as defined in Section 4975(e)(3)), to such plans. Section 4975 imposes excise taxes foff r violations of these prohibitions. On June 29, 2020, the DOL offff icially reinstated its “five-part test” defining fiduciary “investment advice” under ERISA and the Code (the “Five-Part TeTT st”). Under this test, providing non-discretionary investment advice or recommendations with respect to a covered account can cause a person to be a fiduciary under ERISA and/or the Code if the advice is provided foff r a fee, on a regular basis, and subjb ect to a mutual understanding that the advice will be personalized to the needs of the advice recipient and used as a primary basis foff r an investment decision. This action foff rmally implemented the Fiftff h Circuit’s decision in 2019 to vacate the DOL’s 2016 “fiduciary rule,” which had significantly expanded the scope of activities that could otherwrr Section 4975 of the Code. ise result in fiduciary status under ERISA and In December 2020, the DOL finalized PTE 2020-02, providing broad exemptive relief foff r receiving variable or transaction-based compensation, and certain other “prohibited transactions,” in connection with fiduciary investment advice to investors using covered accounts if certain conditions are met. The preamble to this exemption also included the DOL’s new and expanded interpretation of when providing a rollover recommendation (or potentially other recommendations) could result in fiduciary status under the historic Five-Part TeTT st. This new interpretation, as well as other guidance issued by the DOL in connection with this interpretation, is the subjb ect of multiple litigations in federal district courts challenging the DOL’s authority to issue it. On February 13, 2023, a federal court issued a decision that invalidated the DOL’s interpretation of who qualifies as a fiduciary under ERISA in providing a rollover recommendation. We operate our business in compliance with a number of DOL prohibited transaction exemptions, including PTE 2020-02, where applicable. However, as industry compliance practices and regulatory approaches to guidance, examinations and enfoff rcement continue to develop, and the outcomes of litigation remain pending, the ultimate impact that these new rules or regulations will have on us, the financial industry and the economy cannot be known at this time. In addition, it is unclear how and whether the DOL and other regulators, including the SEC, FINRA, banking regulators, and the state securities and insurance regulators may respond to, or enfoff rce elements of the Five-Part TeTT st and PTE 2020-02 rules or interpretations. The DOL also signaled its intent to further amend the definition of “fiduciary” under ERISA and the Code and certain of its existing prohibited transaction exemptions, which we expect, if completed, to result in increased legal, compliance, infoff rmation technology and other costs and could lead to a greater risk of client lawsuits and enfoff rcement activity by the DOL and other regulators. The effff ect of any future DOL regulations and changes on our retirement plan business cannot be anticipated or planned foff r but may have further impacts on our products and servirr ces and results of operations. TrTT urr st Regulall titt on Through our subsidiary, PTC, we offff er trust, investment management oversight and custodial servirr ces foff r 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 Offff ice of the Comptroller of the Currency (“OCC”). PTC files reports with the OCC within 30 days aftff er the conclusion of each calendar quarter. Because the powers of PTC are limited to providing fiduciary servirr ces 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 Reserverr System as a bank holding company. However, PTC is subjb ect to regulation by the OCC and to various laws and regulations enfoff rced by the OCC, such as capital adequacy, change of control restrictions and regulations governing fiduciary duties, conflicts of interest, self-ff dealing and anti-money laundering. For example, the Change in Bank Control Act of 1978, as implemented by OCC supervirr sory 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 LPLFH. 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 serverr are not meant foff r the protection of PTC, PTC Holdings, Inc., LPLFH or their stockholders. specific bank regulatory and supervirr sory purposes and 11 Regulall toryrr Capitatt l Requirii err mentstt The SEC, FINRA, CFTC and NFAFF have stringent rules and regulations with respect to the maintenance of specific levels of net capital by regulated entities. The net capital rule under the Exchange Act requires a broker-dealer to maintain a minimum net capital and applies certain discounts to the value of its assets based on the liquidity of such assets. LPL Financial is also subjb ect to the NFAFF ’AA s financial requirements and is required to maintain net capital that is in excess of or equal to the greatest of the NFAFF ’AA 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 Exchange Act’s net capital rule. The SEC, FINRA, CFTC and NFAFF 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, then certain notice requirements to the regulators are required, and the broker-dealer may be subjb ect 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 effff ect of prohibiting a broker-dealer from distributing or withdrawing capital and require prior notice to the SEC and FINRA foff r certain capital withdrawals. LPL Financial, which is subjb ect to net capital rules, has been and currently is in compliance with those rules and has net capital in excess of the minimum requirements. Antitt -ii Money Laundedd rirr nii g and Sanctitt ons Complill aii nce The USA PAPP TAA RIOT Act of 2001, which amended the Bank Secrecy 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 servirr ces companies. Financial institutions subjb ect to these requirements generally must have an anti-money laundering program in place, which includes monitoring foff r and reporting suspicious activity, implementing specialized employee training programs, designating an anti-money laundering compliance offff icer and annually conducting an independent test of the effff ectiveness of its program. In addition, sanctions administered by the United States Offff ice of Foreign Asset Control prohibit U.S. persons from doing business with blocked persons and entities or certain sanctioned countries. We have established policies, procedures and systems designed to comply with these regulations and work continuously to improve and strengthen our regulatory compliance mechanisms. Securirr tyt and PrPP irr vavv cyc 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 infoff rmation and general concerns about the security of that infoff rmation. ToTT the extent they are applicable to us, we must comply with federal and state infoff rmation-related laws and regulations in the United States, including the Gramm-Leach-Bliley Act of 1999, SEC Regulation S-P,P the Fair Credit Reporting Act of 1970, as amended, and Regulation S-ID, as well as the Califoff rnia Consumer Privacy Act and further potential federal and state requirements. Trademarks Access Overlay®, BlazePortfoff lio®, BranchNet®, CLIENTWORKS®, Fortigent®, LPL®, LPL Career Match®, LPL Financial (& Design)®, Manager Access Network®, Manager Access Select®, OMP® and SPONSORWORKS® are our registered trademarks, and ADVISORYRR WORLD, CLIENTWORKS CONNECTED, ALLEN & COMPAPP NY OF FLORIDA, LLC, and THE PRIVAVV TAA E TRUST COMPAPP NY,YY N.A. (& Design) are among our servirr ce marks. 12 Item 1A. Risk Factors Risk Factor Summaryrr Our business, operations and financial results are subjb ect to varying degrees of risk and uncertainty. We are providing the foff llowing summary of risk factors to enhance readability of our risk factor disclosure. Material risks that may adversely affff ect our business, operations and financial results include, but are not limited to, the foff llowing: Risksii Related to Our Businii ess and Industrtt yry • We depend on our ability to attract and retain experienced and productive advisors, and we are subjb ect to competition in all aspects of our business. • Our financial condition and results of operations may be adversely affff ected by market fluctuations and other economic factors. • • Significant interest rate changes could affff ect our profitability and financial condition. Any damage to our reputation could harm our business and lead to a loss of revenue and net income. • Our business is subjb ect to risks related to litigation, arbitration claims and regulatory actions. • There are risks inherent in the independent broker-dealer business model. • We rely on third-party servirr ce providers, including offff -ff shore providers, to perfrr off rm technology, processing and support functions, and our operations are dependent on financial intermediaries that we do not control. • Lack of liquidity or access to capital could impair our business and financial condition. • Our business could be materially adversely affff ected as a result of the risks associated with acquisitions and investments. • Our risk management policies and procedures may not be fully effff ective in mitigating our risk exposure in all market environments or against all types of risks. • We face competition in attracting and retaining key talent. • The securities settlement process exposes us to risks related to adverse movements in price. • Our indebtedness could adversely affff ect our financial condition and may limit our ability to use debt to fund future capital needs. • • Restrictions under our Credit Agreement and the Indentures governing our senior unsecured notes (the “Notes”) may prevent us from taking actions that we believe would be in the best interest of our business. Provisions of our Credit Agreement and the Indentures could discourage an acquisition of us by a third- party. • Our insurance coverage may be inadequate or expensive. • • • • Poor servirr ce or perfrr off rmance of the financial products that we offff er or competitive pressures on pricing of such servirr ces or products may cause clients of our advisors to withdraw their assets on short notice. A loss of our marketing relationships with manufacturers of financial products could harm our relationship with our advisors and, in turn, their clients. Changes in U.S. federal income tax law could make some of the products distributed by our advisors less attractive to clients. The effff ects of the COVID-19 pandemic have negatively affff ected the global economy, the U.S. economy and global financial markets, and may disrupt our operations. ii Risks g Related to Our Regulatoryr EnEE virii orr nment y • • Any failure to comply with applicable federal or state laws or regulations exposes us to litigation and regulatory actions, which could increase our costs or negatively affff ect our reputation. Regulatory developments could adversely affff ect our business by increasing our costs or making our business less profitable. • We are subjb ect to various regulatory requirements, which, if not complied with, could result in the restriction of the conduct or growth of our business. • Failure to comply with ERISA regulations and certain tax-qualified plan laws and regulations could result in penalties against us. 13 ii Risks Related to Our TeTT chnologygggygg • We rely on technology in our business, and technology and execution failures could subjb ect us to losses, litigation and regulatory actions. • Our infoff rmation technology systems may be vulnerable to security risks. • • • • A cyber-attack or other security breach of our technology systems or those of our advisors or third-party vendors could subjb ect us to significant liability and harm our reputation. Failure to comply with the complex privacy and data protection laws and regulations to which we are subjb ect could result in adverse action from regulators. Failure to maintain technological capabilities, flaws in existing technology, diffff iculties in upgrading our technology platfoff rm or the introduction of a competitive platfoff rm could have a material adverse effff ect on our business. Inadequacy or disruption of our business continuity and disaster recovery plans and procedures in the event of a catastrophe could adversely affff ect our business. Risksii Related to Ownww ershrr p ipii of Our Common Stock • The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses foff r our investors. • 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 servirr ce and other obligations. • Our future ability to pay regular dividends to holders of our common stock or repurchase shares are subjb ect to the discretion of our Board and will be limited by our ability to generate suffff icient earnings and cash flows. Risks Related to Our Business and Industryrr WeWW dedd pe end on our abilii ill tyt competitt titt on inii allll asps ectstt of our businii ess. to attrtt arr ct and rerr tatt inii exee pxx erirr enced and prorr ductitt vevv advivv sii orsrr , and weww arerr subjb ect to We derive a large portion of our revenue 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 serverr . 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 to independent channels slows, our business may suffff er. The market foff r experienced and productive advisors is highly competitive, and we devote significant resources to attracting and retaining well-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, other independent broker-dealers and independent RIA firms. 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 effff off rts to attract and retain the advisors needed to achieve our growth objb ectives. More broadly, we are subjb ect to competition in all aspects of our business from: • • • • • • brokerage and investment advisory firms, including national and regional firms, as well as independent RIA firms; asset management firms; commercial banks and thriftff institutions; insurance companies; other clearing/custodial technology companies; and investment firms offff ering so-called “robo” advice solutions. Many of our competitors have substantially greater resources than we do and may offff er a broader range of servirr ces and financial products across more markets. Some of our competitors operate in a diffff erent regulatory environment than we do, which may give them certain competitive advantages in the servirr ces they offff er. For example, certain of our competitors only provide clearing servirr ces and consequently would not have any supervirr sion or oversight liability relating to actions of their financial advisors. We believe that competition within our industry will intensifyff as a 14 result of consolidation and acquisition activity and because new competitors face few barriers to entry, which could adversely affff ect our ability to recruit new advisors and retain existing advisors. If we fail to continue to attract highly qualified advisors, or if advisors licensed with us leave us to pursue other opportunities, we could face a significant decline in market share, commission and fee revenue or net income. We could face similar consequences if current or potential clients of ours, including current clients that use our outsourced customized clearing, advisory platfoff rms or technology solutions, decide to use one of our competitors rather than us. 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. Our fiff nii anciaii l condidd titt on and rerr sultstt of operarr titt ons may be advevv rsrr elyl affff eff cted by markrr ekk t flff uctuatitt ons and othtt er economic faff ctorsrr . Significant downturns and volatility in equity and other financial markets have had and could continue to have an adverse effff ect on our financial condition and results of operations. General economic and market factors can affff ect our commission and fee revenue. For example, a decrease in market levels or market volatility can: • • • reduce new investments by advisors’ 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 affff ecting our brokerage commission revenue and our transaction revenue; reduce the value of advisory and brokerage assets, thereby reducing advisory fee revenue, trailing commission revenue and asset-based fee revenue; and • motivate clients to withdraw funds from their accounts, thereby reducing advisory and brokerage assets, advisory fee revenue and asset-based fee revenue. Other more specific trends may also affff ect our financial condition and results of operations, including, foff r example, changes in the mix of products preferred by investors may result in increases or decreases in our fee revenue 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 in response to market factors over short periods of time is limited, which could negatively impact our profitability. Sigi nififf cant inii tererr st rarr te changes could affff eff ct our prorr fiff tatt bilii ill tyt and fiff nii anciaii l condidd titt on. Our revenue is exposed to interest rate risk primarily from changes in fees payable to us from banks participating in our client cash programs and changes in interest income earned on deposits in third-party bank accounts and short- term U.S. treasury bills, which are generally based on prevailing interest rates. Our revenue from our client cash programs has declined in the past as a result of a low interest rate environment, and our revenue may decline in the future due to decreases in interest rates, decreases in client cash balances or mix shiftff s among the current or future deposit sweep vehicles, client cash account or money market accounts that we offff er. Though the Federal Reserverr is no guarantee of further increases, or that the higher interest rate environment will be sustained. If the Federal Reserverr reduces its target federal funds rate from current levels, our revenue will be impacted. increased its target federal funds rate in 2022 to combat rising inflation, there Our revenue from our client cash programs also depends on our success in placing deposits and negotiating favorable terms in agreements with third-party banks and money market fund providers participating in our programs, as well as our success in offff ering competitive products, program fees and interest rates payable to clients. The expiration of contracts with favorable pricing terms, less favorable terms in future contracts, the inability to place deposits with third-party sweep banks, or changes in client cash or money market accounts that we offff er could result in declines in our revenue. A sustained low interest rate environment may also 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 client cash programs. Even in a rising interest rate environment, if balances or yields in our client cash programs decrease, future revenue from our client cash programs may be lower than expected. 15 Any dadd mage to our rerr pe utatt titt on could harmrr our businii ess and lead to a loss of rerr vevv nue and net inii come. We have spent many years developing our reputation foff r integrity and client servirr ce, which is built upon our support foff r our advisors through: enabling technology, comprehensive clearing and compliance servirr ces, practice management programs and training and in-house research. Our ability to attract and retain advisors and employees is highly dependent upon external perceptions of our level of servirr ce, 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 acceptable standards of servirr ce and quality, including technology or cybersecurity failures; 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, and could lead advisors to terminate their agreements with us, which they generally have the right to do unilaterally upon short notice. 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 lower net income. Our businii ess isii subjb ect to rirr sii kskk rerr lall ted to lill titt gi atitt on, arbrr itrtt arr titt on clall imii s and rerr gulall toryrr actitt ons. From time to time, we have been subjb ected to and are currently subjb ect to legal and regulatory proceedings arising out of our business operations, including lawsuits, arbitration claims, governmental subpoenas and regulatory, governmental and self-ff regulatory organization (“SRO”) inquiries, investigations and enfoff rcement proceedings, as well as other actions and 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 and proceedings may be, and have been, initiated by state-level and federal regulatory authorities and SROs, including the SEC, FINRA and state securities regulators, as well as clients of Independent RIAs. The outcomes of any such legal or regulatory proceedings, including litigations, arbitrations, inquiries, investigations and enfoff rcement proceedings by the SEC, FINRA, DOL and state securities regulators, are diffff icult to predict. A negative outcome in such a matter could result in substantial legal liability, censures, penalties and fines, disgorgement of profits, restitution to customers, remediation, the issuance of cease-and-desist orders, or injunctive or other equitable relief against us. Further, such negative outcomes individually or in the aggregate may cause us significant reputational harm and could have a material adverse effff ect on our ability to recruit or retain financial advisors or enterprises, or our results of operations, cash flows or financial condition. We may face liabilities foff r deficiencies or failures in our supervirr sory and regulatory compliance systems and programs. We may also face liabilities foff r actual or alleged breaches of legal duties to clients of our advisors or Independent RIAs, including in respect of issues related to the financial products we make available in our curated product platfoff rm or the investment advice or securities recommendations our advisors or Independent RIAs provide to their clients. We are subjb ect to various standards of care, including in some cases fiduciary obligations. In addition, the administration of client accounts involves functions such as recordkeeping and accounting, security pricing, corporate actions, and account reconciliations that are complex and rely on tools and resources to support these operational processes. Failure to properly perfrr off rm operational tasks or errors in the design or function of these tools, could subjb ect us to regulatory sanctions, penalties or litigation and result in reputational damage, and liability to clients. Moreover, new and developing state and federal regulatory requirements with respect to standards of care and other obligations, as discussed under “Risks Related to Our Regulatoryr EnEE virii orr nment” below, may introduce new grounds foff r legal claims or enfoff rcement actions against us in the future, including, in particular with respect to our brokerage servirr ces. We may also become subjb ect to claims, allegations and legal proceedings related to employment matters, including wage and hour, discrimination or harassment claims, or matters involving others’ intellectual property or other proprietary rights, including infringement or misappropriation claims. ii ThTT ererr arerr rirr sii kskk inii hererr nt inii thtt e inii ded pe endedd nt brorr kekk r-rr dedd aler businii ess moded l.ll Compared to wirehouses and other employee model broker-dealers, we generally offff er advisors wider choice in operating their businesses with regard to product offff erings, outside business activities, offff ice technology and supervirr sory models. Our approach may make it more challenging foff r us to comply with our supervirr sory and regulatory compliance obligations, particularly in light of our limited on-site supervirr sion and the complexity of certain advisor business models. 16 Misconduct and errors by our employees, advisors or Independent RIAs could be diffff icult foff r us to detect and could result in actual or alleged violations of law by us, investigations, litigation, regulatory sanctions, or serious reputational or financial harm. Although we have designed policies and procedures to comply with applicable laws, rules, regulations and interpretations, we cannot always prevent or detect misconduct and errors by our employees, advisors or Independent RIAs, and the precautions we take to prevent and detect these activities may not be effff ective in all cases. Prevention and detection among our advisors, who are typically not our direct employees and some of whom tend to be located in small, decentralized offff ices, present additional challenges, particularly in the case of complex products or supervirr sion of outside business activities, including those conducted through Independent RIAs. In addition, although we provide our advisors with requirements and recommendations foff r their offff ice technology, we cannot fully control or monitor the extent of their implementation of our requirements and recommendations. Accordingly, we cannot assure that our advisors’ technology meets our standards, including with regard to infoff rmation security and cybersecurity. We also cannot assure that misconduct or errors by our employees, advisors or Independent RIAs will not lead to a material adverse effff ect on our business, or that our errors and omissions insurance will be suffff icient to cover such misconduct or errors. WeWW rerr lyl on thtt irii drr -dd p- artrr yt servrr ivv ce prorr vivv dedd rsrr , inii cludidd nii g offff -ff shorerr prorr vivv dedd rsrr , to perfrr off rmrr and supu ppp ortrr fuff nctitt ons, and our operarr titt ons arerr dedd pe endedd nt on fiff nii anciaii l inii termrr edidd aii rirr es thtt at weww do not contrtt orr l.ll technologygg ,yy prorr cessinii g We rely on outsourced servirr ce providers to perfrr off rm certain technology, processing and support functions. For example, we have an agreement with Refinitiv US LLC, under which it provides us key operational support, including data processing servirr ces foff r securities transactions and back offff ice processing support (“BETATT Host”). Our use of third-party servirr ce providers may decrease our ability to control operating risks and infoff rmation technology systems risks. Any significant failures by BETATT Host or our other servirr ce providers could cause us to sustain serious operational disruptions and incur losses and could harm our reputation. These third-party servirr ce providers are also susceptible to operational and technology vulnerabilities, including cyber-attacks, security breaches, ransomware, fraud, phishing attacks and computer viruses, which could result in unauthorized access, misuse, loss or destruction of data, an interruption in servirr ce or other similar events that may impact our business. We cannot assure that our third-party servirr ce providers will be able to continue to provide their servirr ces in an effff icient, cost-effff ective manner, if at all, or that they will be able to adequately expand their servirr ces to meet our needs and those of our advisors. An interruption in or the cessation of servirr ce by a third-party servirr ce provider and our inability to make alternative arrangements in a timely manner could cause a disruption to our business and could have a material impact on our ability to serverr costs or time that would be required to find an alternative servirr ce provider. our advisors and their clients. In addition, we cannot predict the We have transitioned certain business and technology processes to offff -ff shore providers, which has increased the related risks described above. For example, we rely on several offff -ff shore servirr ce providers, operating in multiple locations, foff r functions related to cash management, account transfers, infoff rmation technology infrastructure and support and document indexing, among others. ToTT the extent third-party servirr ce providers are located in foff reign jurisdictions, we are exposed to risks inherent in such providers conducting business outside of the United States, including international economic and political conditions, and the additional costs associated with complying with foff reign laws and fluctuations in currency values. We expect that our regulators would hold us responsible foff r any deficiencies in our oversight and control of our third-party relationships and foff r the perfrr off rmance of such third parties. If there were deficiencies in the oversight and control of our third-party relationships, and if our regulators held us responsible foff r those deficiencies, our business, reputation and results of operations could be adversely affff ected. In addition, certain aspects of our operations are dependent on third-party financial institutions that we do not control, such as clearing agents, securities exchanges, clearing houses and other financial intermediaries. Any failure of these intermediaries, or any interruption in their operations, either on a widespread or individual basis, could adversely affff ect our ability to execute transactions, servirr ce our clients and manage our exposure to risk. In the event of such failure or interruption, there is no guarantee that we would be able to find adequate and cost-effff ective replacements on a timely basis, if at all. Like us, these intermediaries are exposed to risks related to fluctuations and volatility in the financial markets and broader economy, as well as specific operational risks related to their business, such as those related to technology, security and the prevailing regulatory environment. Because we rely on these intermediaries, we share indirect exposure to these risks. If these risks were to materialize, or if there was a widespread perception that they could materialize, our business, reputation and results of operations could be adversely affff ected. 17 Lack of lill quididd tyt or access to capitatt l could imii pairii our businii ess and fiff nii anciaii l condidd titt on. 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 servirr ce platfoff rms. In addition, we must maintain certain levels of required capital. As a result, reduced levels of liquidity could have a significant negative effff ect on us. Some potential conditions that could negatively affff ect our liquidity include: • • • • • • illiquid or volatile markets; diminished access to debt or capital markets; unfoff reseen cash or capital requirements; actual or alleged events of default under our Credit Agreement, Broker-Dealer Revolving Credit Facility or other agreements governing our indebtedness; regulatory penalties or fines, settlements, customer restitution or other remediation costs; or adverse legal settlements or judgments. 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 foff r businesses similar to ours. Without suffff icient liquidity, we could be required to limit or curtail our operations or growth plans, and our business would suffff er. We may sometimes be required to fund timing diffff erences arising from the delayed receipt of client funds associated with the settlement of client transactions in securities markets. These timing diffff erences are funded either with internally generated cash flow or, if needed, with funds drawn under our revolving credit facility, Broker-Dealer Revolving Credit Facility or uncommitted lines of credit. We may also need access to capital in connection with the ise. growth of our business, through acquisitions or otherwrr In the event current resources are insuffff icient to satisfyff 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 servirr ces industry; our credit ratings and credit capacity; and the possibility that current or future lenders could develop a negative perception of our long- or short-term financial prospects as a result of industry- or company-specific considerations. 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 satisfyff 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 foff rced to delay raising capital, issue diffff erent types of capital than we would otherwrr ise, less effff ectively deploy such capital, or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility. Our businii ess could be materirr aii llll yl advevv rsrr elyl affff eff cted as a rerr sult of thtt e rirr sii kskk associaii ted wiww thtt acquisii ititt ons and inii vevv stmtt entstt . We have made acquisitions and investments in the past and plan to pursue further acquisitions and investments in the future, including in connection with our Liquidity & Succession solution. These transactions are accompanied by risks. For instance, an acquisition could have a negative effff ect on our financial and strategic position and reputation, or the acquired business could fail to further our strategic or financial goals. We can provide no assurances that advisors who join LPL Financial through acquisitions or investments in advisor practices will remain at LPL Financial. Moreover, we may not be able to successfully integrate acquired businesses into ours, and therefoff re 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 serverr a diversion of our management’s attention from other business concerns, and any of these factors could have a material adverse effff ect on our business. as 18 Our rirr sii k management polill cies and prorr cedurerr s may not be fuff llll yl effff eff ctitt vevv inii mititt gi atitt nii g our rirr sii k exee pxx osurerr allll markrr ekk t envivv rii orr nmentstt or againii st allll tyt pyy es of rirr sii kskk . inii We have adopted policies and procedures to identifyff , monitor and manage our operational risk. These policies and procedures, however, may not be effff ective and may not be adapted quickly enough to respond effff ectively to changed circumstances. Some of our compliance and risk evaluation functions depend upon infoff rmation technology systems, infoff rmation provided by others and public infoff rmation regarding markets, clients or other matters that are ise accessible by us. In some cases, however, that infoff rmation may not be available, accurate, complete or otherwrr up-to-date. Also, because many of our advisors work in decentralized offff ices, additional risk management challenges may exist, including with regard to advisor offff ice technology, vendors and infoff rmation security practices. In addition, our existing systems, policies and procedures, and staffff ing levels may be insuffff icient to support a significant increase in our advisor population. Any such increase could require us to increase our costs, including infoff rmation technology costs, in order to maintain our compliance and risk management obligations, or strain our existing policies and procedures as we evolve to support a larger advisor population. If our systems, policies and procedures are not effff ective, or if we are not successful in capturing risks to which we are or may be exposed, we may suffff er harm to our reputation or be subjb ect to litigation or regulatory actions that could have a material adverse effff ect on our business and financial condition. WeWW faff ce competitt titt on inii attrtt arr ctitt nii g and rerr tatt inii inii g kekk y tatt lent.tt Our success depends upon the continued servirr ces of our key senior management personnel, including our executive offff icers and senior managers. Each of our executive offff icers is an employee at will, and none has an employment agreement. 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 effff ect on our business. Moreover, our success and future growth depends upon our ability to attract and retain qualified employees. There is significant competition foff r qualified employees in the financial servirr ces industry, and 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 effff ect on our business. ThTT e securirr titt es settltt ement prorr cess exee pxx oses us to rirr sii kskk rerr lall ted to advevv rsrr e movevv mentstt inii prirr ce. LPL Financial provides clearing servirr ces and trade processing foff r our advisors and their clients and certain enterprises. Broker-dealers that clear their own trades are subjb ect to substantially more regulatory requirements than brokers that outsource these functions to third-party providers. Errors in perfrr off rming 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 liabilities 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 losses resulting from adverse movements in the prices of such securities. Our inii dedd btedndd ess could advevv rsrr elyl affff eff ct our fiff nii anciaii l condidd titt on and may lill mii fuff turerr capitatt l needsdd . it our abilii ill tyt to use dedd bt to fuff nd At December 31, 2022, we had total indebtedness of $2.7 billion, of which $1.0 billion is subjb ect to floating interest rates. 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 foff r changes in our business and the industry in which we operate and limit our ability to borrow additional funds. With interest rate increases, our interest expense has increased because borrowings under our Credit Agreement are based on variable interest rates. If our cash flows and capital resources are insuffff icient to fund our debt servirr ce obligations, we could face substantial liquidity problems and could be foff rced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may not be successful or feasible. Our 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 servirr ce obligations then due. Furthermore, if an event of default were to occur with respect to our Credit Agreement, our Broker-Dealer Revolving Credit Facility or other future indebtedness, we could lose access to these sources of liquidity and our creditors could, among other things, accelerate the maturity of our indebtedness. 19 Our Credit Agreement and the Indentures governing our Notes permit us to incur additional indebtedness. Under our Credit Agreement we have the right to request additional commitments foff r new term loans, new revolving credit commitments and increases to then-existing term loans and revolving credit commitments subjb ect to certain limitations. Although the Credit Agreement and the Indentures contain restrictions on the incurrence of additional indebtedness, these restrictions are subjb ect to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. In addition, other obligations that do not qualifyff as “indebtedness” under the terms of our Credit Agreement or the Indentures are not restricted by those agreements. ToTT 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 the Credit Agreement or the Indentures. 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. In addition, if such downgrade were to occur, or if ratings agencies indicated that a downgrade may occur, perceptions of our financial strength could be damaged, which could affff ect our client relationships and decrease the number of investors, clients and counterparties that do business with us. Restrtt irr ctitt ons undedd r our Crerr didd t Agrerr ement and thtt e InII dedd nturerr s govevv rnrr inii g our Notes may prerr vevv nt us frff orr m tatt kikk nii g actitt ons thtt at weww belill evevv woww uld be inii thtt e best inii tererr st of our businii ess. Our Credit Agreement and the Indentures contain customary restrictions on our activities, including covenants that may restrict us from: • • • • incurring additional indebtedness or issuing disqualified stock or preferred stock; declaring dividends or other distributions to stockholders; repurchasing equity interests; redeeming indebtedness that is subordinated in right of payment to certain debt instruments; • making investments or acquisitions; • • • • • • creating liens; selling assets; guaranteeing indebtedness; engaging in certain transactions with affff iliates; entering into agreements that restrict dividends or other payments from subsidiaries; and consolidating, merging or transferring all or substantially all of our assets. 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 perfrr off rmance, which may be affff ected by events beyond our control. If we violate any of these covenants or covenants under our Broker-Dealer Revolving Credit Facility and are unable to obtain waivers, we would be in default under our Credit Agreement, the Indentures or the Broker-Dealer Revolving Credit Facility, as applicable. As a result, payment of the indebtedness could be accelerated, which 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 suffff icient 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 foff r any reason, our business could be materially and adversely affff ected. 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 diffff icult foff r us to successfully execute our business strategy and compete against companies that are not subjb ect to such restrictions. PrPP orr vivv sii ions of our Crerr didd t Agrerr ement and thtt e InII dedd nturerr s could didd sii courarr ge an acquisii ititt on of us by a thtt irii drr -dd partrr yt .yy Certain provisions of our Credit Agreement and the Indentures could make it more diffff icult or more expensive foff r 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 Credit Agreement may be accelerated and become due and payable and noteholders will have the right to require us to repurchase the Notes at a purchase price equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to but not including the purchase date. A potential acquirer may not have suffff icient financial resources to purchase our outstanding indebtedness in connection with a change of control. 20 Our inii surarr nce covevv rarr ge may be inii adedd quate or exee pxx ensivevv . We are subjb ect 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 effff ective in all cases. We maintain voluntary and required insurance coverage, including, among others, general liability, property, director and offff icer, excess Securities Investor Protection Corporation, business interruption, cyber and data breach, errors and omissions and fidelity bond insurance. We have self-ff insurance foff r certain potential liabilities through a wholly- owned captive insurance subsidiary. While we endeavor to self-ff insure and purchase coverage that is appropriate based on our assessment of our risk, we are unable to predict with certainty the frequency, nature or magnitude of claims foff r direct or consequential damages. Assessing the probability of a loss occurring and the timing and amount of any loss related to a regulatory matter or a legal proceeding is inherently diffff icult, and there are particular uncertainties and complexities involved when assessing the adequacy of loss reserverr are self-ff insured by our captive insurance subsidiary. The availability of coverage depends on the nature of the claim and the adequacy of reserverr timing and costs of resolving matters that begin in one policy period and are resolved in a subsequent period. Assessing the probability of a loss occurring and the timing and amount of any loss related to a regulatory matter or a legal proceeding is inherently diffff icult and requires complex judgments, 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 foff r settlement and the status of any settlement discussions; as well as the potential foff r insurance coverage and indemnification, if available. In addition, certain types of potential claims foff r damages cannot be insured. Our business may be negatively affff ected if in the future some or all of our insurance proves to be inadequate or unavailable to cover our liabilities related to legal or regulatory matters. Such negative consequences could include additional expense and financial loss, which could be significant in amount. In addition, insurance claims may harm our reputation or divert management resources away from operating our business. s, which in turn depends in part on historical claims experience, including the actual s foff r potential liabilities that Poor servrr ivv ce or perfrr off rmrr ance of thtt e fiff nii anciaii l prorr ductstt such servrr ivv ces or prorr ductstt may cause clill entstt of our advivv sii orsrr thtt at weww offff eff r or competitt titt vevv prerr ssurerr s on prirr cinii g of to wiww thtt drdd arr w thtt eirii assetstt on shortrr notitt ce. Clients of our advisors have control over their assets that are serverr d under our platfoff rms. Poor servirr ce or perfrr off rmance of the financial products that we offff er, the emergence of new financial products or servirr ces from others, harm to our reputation or competitive pressures on pricing of such servirr ces or products may result in the loss of clients. In addition, we must monitor the pricing of our servirr ces 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 servirr ces firms, such as reduced or zero commissions to attract clients or trading volume, direct-to-investor online financial servirr ces, including so-called “robo” advice, or higher deposit rates to attract client cash balances, could result in pricing pressure or otherwrr could have a material adverse effff ect on our business. ise adversely impact our business. The decrease in revenue that could result from such an event A loss of our markrr ekk titt nii g rerr lall titt onshipii s wiww thtt manufaff cturerr rsrr of fiff nii anciaii l prorr ductstt could harmrr our rerr lall titt onshipii wiww thtt our advivv sii orsrr and,dd inii turnrr , thtt eirii clill entstt . Our curated product platfoff rm offff ers no proprietary financial products. ToTT help our advisors meet their clients’ needs with suitable investment options, we have relationships with many of the industry-leading providers of financial and insurance products. We have sponsorship agreements with some manufacturers of fixed and variable annuities, mutual funds and exchange-traded funds that, subjb ect to the survirr val 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 serverr our advisors and, in turn, their clients, and our business, may be materially adversely affff ected. As an example, certain variable annuity product sponsors have ceased offff ering 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. Changes inii U.S. feff ded rarr l inii come tatt x lall w could makekk some of thtt e prorr ductstt didd sii trtt irr bii uted by our advivv sii orsrr attrtt arr ctitt vevv to clill entstt . less 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 21 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 effff ect on our business, results of operations, cash flows or financial condition. The effects of the COVID-19 pandemic have negatively affected the global economy, the U.S. economy and global financial markets, and may disrupt our operations. The CCOOVID-19 pandemic has caused siggnifficant disruption in the international and U.SS. economies and ffinancial markets, and ffuture material impacts on our business remain a possibilityy. For example, a prolongged downturn in equityy and other ffinancial markets could adverselyy afffffff ect our advisoryy, asset-based and trailingg commission revenues. Alternativelyy, we could experience disruptions in technologgyy, processingg or support ffunctions iff our outsourced servirr ce providers or other vendors experience disruptions in their business operations resultingg ffrom the CCOOVID-19 pandemic. OOther pandemic-related developments that could neggativelyy afffffff ect our business are impossible to predict and are outside off our control. We implemented siggnifficant elements off our business continuityy plans in response to the CCOOVID-19 pandemic, and we continue to relyy on capabilities that we put into place to support these plans. While we believe that these plans and their implementation have helped avoid siggnifficant interruptions to our critical servirr ces, there can be no assurance that theyy will be able to do so on an uninterrupted basis, and reliance on such plans could expose our business to other operational risks, includingg risks related to the securityy and reliabilityy off our remote-work solutions. AAnyy compromise, ffailure or interruption in the availabilityy off the solutions that support our remote-work operations could directlyy or indirectlyy result in ycybersecurityy incidents, interruptions to our business and neggative efffffff ects on our reputation and results off operations. Risks Related to Our Regulatoryrr Environment Any faff ilii urerr rerr gulall toryrr actitt ons, whww ich could inii crerr ase our coststt or negatitt vevv lyl affff eff ct our rerr pe utatt titt on. to complyl wiww thtt apppp lill cable feff dedd rarr l or statt te lall wsww or rerr gulall titt ons exee pxx oses us to lill titt gi atitt on and Our business, including securities and investment advisory servirr ces, is subjb ect to extensive regulation under both federal and state laws, rules and regulations. Our subsidiary LPL Financial is: • • • • • registered as a clearing broker-dealer with the SEC, each of the 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands; registered as an investment adviser with the SEC; registered as an introducing broker-dealer with the CFTC; a member of FINRA and various other SROs, and a participant in various clearing organizations, including the Depository Trust Company, the National Securities Clearing Corporation and the Options Clearing Corporation; and subjb ect to oversight by the DOL relative to its servirr cing of retirement plan accounts subjb ect to ERISA and the Code. The primary SRO of LPL Financial’s broker-dealer activity is FINRA, and the primary regulator of LPL Financial’s investment advisory activity is the SEC. LPL Financial is also subjb ect to state laws, including state “blue sky” laws, and the rules of the Municipal Securities Rulemaking Board foff r its municipal securities activities. The CFTC has designated the NFAFF as LPL Financial’s primary regulator foff r futures and commodities trading activities. The SEC, FINRA, DOL, CFTC, OCC, various securities and futures exchanges and other United States and state- level governmental or regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws, regulations or interpretations. There can be no assurance that other federal or state agencies will not attempt to further regulate our business or that specific interactions with foff reign countries or foff reign nationals will not trigger regulation in non-U.S. law in particular circumstances. These legislative and regulatory initiatives may affff ect 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, supervirr sory and risk management personnel. We cannot assure you that our systems and procedures are, or have been, effff ective in complying with all applicable laws, rules and regulations and interpretations. In particular, the diversity of infoff rmation security environments in which our servirr ces are offff ered makes it diffff icult to ensure a unifoff rmly robust level of compliance. Regulators have in the past raised, and may in the future raise, concerns with respect to the 22 quality, consistency or oversight of our compliance systems and programs and our past or future compliance with applicable laws, rules and regulations. As of the date of this Annual Report on Form 10-K, we have a number of pending regulatory matters. For example, in October 2022, we received a request foff r infoff rmation from the SEC in connection with an investigation of the Company’s compliance with records preservarr tion requirements foff r business-related electronic communications stored on personal devices or messaging platfoff rms that we have not approved. We intend to cooperate fully with the SEC’s inquiry. We maintain insurance coverage foff r certain potential liabilities such as this, but we are unable to determine that our coverage will be adequate to cover all potential losses. At this time, we do not believe that this request will have a material adverse effff ect on our results of operations, financial position, or cash flows. For more infoff rmation, see Note 14 - Commitmtt entstt and Contitt nii gencies within the notes to the consolidated financial statements in this Annual Report on Form 10-K. Violations of laws, rules or regulations and settlements in respect of alleged violations have in the past resulted in, and could in the future result in, legal liability, censures, penalties and fines, disgorgement of profits, restitution to customers, remediation, the issuance of cease-and-desist orders or injunctive or other equitable relief against us, which individually or in the aggregate could negatively impact our financial results or adversely affff ect our ability to attract or retain financial advisors and enterprises. Depending on the nature of the violation, we may be required to offff er restitution or remediation to customers, and the costs of doing so could exceed our loss reserverr s. We have established a captive insurance subsidiary that underwrr rites insurance foff r various regulatory and legal risks, although self-ff insurance coverage is not available foff r all matters. For more infoff rmation about the potential limits of our insurance coverage, including our self-ff insurance coverage, please see “Our inii surarr nce coverarr ge may be inii adequate or expensive” above. Regulall toryrr dedd vevv lopmentstt could advevv rsrr elyl affff eff ct our businii ess by inii crerr asinii g our coststt or makikk nii g our businii ess less prorr fiff tatt ble. Our profitability could be affff ected 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 enfoff rcement of laws governing standards of care applicable to investment advice and recommendations, taxation, the classification of our independent advisors as independent contractors rather than our employees, trading, electronic commerce, privacy, data protection and anti-money laundering. Failure to comply with these rules and regulations could subjb ect us to regulatory actions or litigation and it could have a material adverse effff ect on our business, results of operations, cash flows or financial condition. New laws, rules and regulations, or changes to the interpretation or enfoff rcement of existing laws, rules or regulations, could also result in limitations on the lines of business we conduct or plan to conduct, modifications to our current or future business practices, compressed margins, increased capital requirements and additional costs. For example, the SEC’s Reg BI, which requires broker-dealers and their associated persons to act in the best interest of their retail customers when making securities recommendations and establishes a number of new compliance and disclosure obligations foff r broker-dealers, became applicable on June 30, 2020. Nevada enacted a statute that imposes fiduciary standards and other obligations on broker-dealers and investment advisers operating in that state. Other states have adopted or are considering adopting a best interest standard applicable to broker- dealers or the sale of certain annuity and insurance products. The DOL issued PTE 2020-02 with a new and expanded interpretation of fiduciary status. We expect that these developments could negatively impact our results, including by increasing our expenditures related to legal, compliance, and infoff rmation technology and could result in other costs, including greater risks of client lawsuits and enfoff rcement activity by regulators. These changes may also affff ect the array of products and servirr ces we offff er to clients and the compensation that we and our advisors receive in connection with such products and servirr ces. It is unclear how and whether other regulators, including the SEC, FINRA, DOL, banking regulators and other state securities and insurance regulators may respond to, or enfoff rce elements of, these new regulations, or develop their own similar laws and regulations. The impacts, degree and timing of the effff ect of these laws and future regulations on our business cannot now be anticipated or planned foff r, and may have further impacts on our products and servirr ces and the results of operations. Please consult the “R“ etitt rii err ment PlPP an Servirr ces Regulatitt on” section within Part I, “I“ tem 1. Businii ess” foff r specific infoff rmation about risks associated with DOL regulations and related exemptions and their potential impact on our operations. In addition, the Dodd-Frank Act enacted wide-ranging changes in the supervirr sion and regulation of the financial industry designed to provide foff r greater oversight of financial industry participants, reduce risk in banking practices and in securities and derivatives trading, enhance public company corporate governance practices and executive 23 compensation disclosures and provide foff r greater protections to individual consumers and investors. Certain elements of the Dodd-Frank Act remain subjb ect to implementing regulations that are yet to be adopted by the applicable regulatory agencies. Compliance with these provisions could require us to review our product and servirr ce offff erings foff r potential changes and would likely result in increased compliance costs. Moreover, to the extent the Dodd-Frank Act, or other existing or new laws and regulations affff ect 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 otherwrr is not possible to determine the extent of the impact of any new laws, regulations or initiatives that may be imposed, or whether any existing proposals will become law. New laws or regulations could make compliance more diffff icult and expensive and affff ect the manner in which we conduct business. ise present ineffff iciencies in their interactions with us. It Likewise, ffederal and state standards prohibitingg discrimination on the basis off disabilityy in public accommodations and employyment, includingg those related to the Americans with Disabilities Act, are evolvingg to require an increasingg number off public spaces, includingg web-based applications, to be made accessible to the disabled. AAs a result, we could be required to make modiffications to our internet-based applications or to our other client- or advisor-ffacingg technologgies, includingg our website, to provide enhanced or accessible servirr ce to, or make reasonable accommodations ffoff r, disabled persons. This adaptation off our websites and web-based applications and materials could result in increased costs and mayy afffffff ect the products and servirr ces we provide. Failure to complyy with ffederal or state standards could result in litiggation, includingg class action lawsuits. In sum, our profitability may be adversely affff ected by current and future rulemaking and enfoff rcement activity by the various federal, state and self-ff regulatory organizations to which we are subjb ect. The effff ect of these regulatory developments on our business cannot now be anticipated or planned foff r, but may have further impacts on our products and servirr ces and results of operations. WeWW arerr subjb ect to vavv rirr ous rerr gulall toryrr rerr strtt irr ctitt on of thtt e conduct or grorr wthtt of our businii ess. rerr quirii err mentstt , whww ich, if not complill ed wiww thtt , could rerr sult inii thtt e 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 subjb ect to certain regulations regarding changes in control. FINRA Rule 1017 generally provides, among other things, that FINRA approval must be obtained in connection with any transaction resulting in a 25% or more change in our ownership that results in one person or entity directly or indirectly owning or controlling 25% or more of us. Similarly, the OCC imposes advance approval requirements foff r 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 effff off rts to sell shares or raise additional capital may be delayed or prohibited. In addition, the SEC, FINRA, CFTC, OCC and NFAFF have extensive rules and regulations with respect to capital requirements. As a registered broker-dealer, LPL Financial is subjb ect to Rule 15c3-1 (“Net Capital Rule”) under the Exchange Act, and related requirements of SROs. The CFTC and NFAFF also impose net capital requirements. The 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 subjb ect to the Net Capital Rule. However, the ability of our holding companies to withdraw capital from our broker-dealer subsidiary could be restricted in the event of a net capital shortfall at LPL Financial, 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 also adversely affff ect our ability to expand or even maintain our present levels of business. to complyl wiww thtt EREE ISASS rerr gulall titt ons and certrr att inii FaFF ilii urerr penaltitt es againii st us. tatt x-xx qualill fiff ed plall n lall wsww and rerr gulall titt ons could rerr sult inii As discussed above, we are subjb ect to ERISA and Section 4975 of the Code, and to regulations promulgated thereunder, insofar as we provide servirr ces with respect to plan clients, or otherwrr certain types of investment/savings accounts that are subjb ect to ERISA or the Code. ERISA imposes certain duties on persons who are “fiduciaries” (as defined in Section 3(21) of ERISA and the DOL’s Five-Part TeTT st and PTE 2020-02 rules or interpretations) and prohibits certain transactions involving plans subjb ect to ERISA and fiduciaries or other servirr ce providers to such plans. Non-compliance with or breaches of these provisions may expose an ERISA fiduciary or other servirr ce provider to liability under ERISA, which may include monetary and criminal ise deal with plans, participants and 24 penalties as well as equitable remedies foff r the affff ected plan. Section 4975 of the Code prohibits certain transactions involving “plans” (as defined in Section 4975(e)(1)), which include, foff r example, IRAs and certain Keogh plans and other qualified savings accounts, and servirr ce providers, including fiduciaries (as defined in Section 4975(e)(3)), to such plans. Section 4975 also imposes excise taxes foff r violations of these prohibitions. Our failure to comply with ERISA and the Code could result in significant penalties against us that could have a material adverse effff ect on our business or severely limit the extent to which we could act as fiduciaries foff r or provide servirr ces to these plans. Risks Related to Our Technology WeWW rerr lyl on technologygg inii our businii ess, and technologygg and exee ecutitt on faff ilii urerr s could subjb ect us to losses, lill titt gi atitt on and rerr gulall toryrr actitt ons. Our business relies extensively on electronic data processing, storage and communications systems. In addition to better servirr ng our advisors and their clients, the effff ective use of technology increases effff iciency 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: • • • • • • continue to invest significant resources on our technology systems in order to meet industry and regulatory standards, consumer preferences and the effff off rts of threat actors to penetrate our systems; successfully maintain and upgrade the capabilities of our systems; address the needs of our advisors and their clients by using technology to provide products and servirr ces that satisfyff their demands while ensuring the security of the data involving those products and servirr ces; use technology effff ectively and securely to support our regulatory compliance and reporting functions; comply with the changing landscape of laws and regulations that govern protection of personally identifiable infoff rmation; and retain skilled infoff rmation technology employees. Extraordinary trading volumes, malware, ransomware or attempts by hackers to introduce large volumes of fraudulent transactions into our systems, beyond reasonably foff reseeable 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 or failure to effff ectively upgrade those systems or implement new technology-driven products or servirr ces, could result in financial losses, unanticipated disruptions in our servirr ce, liability to our advisors or advisors’ clients, compliance failures, regulatory sanctions and damage to our reputation. Our operations rely on the secure processing, storage and transmission of confidential and other infoff rmation in our computer systems and networks, including personally identifiable infoff rmation of advisors and their clients, as well as our employees. Although we take protective measures and endeavor to modifyff them as circumstances warrant, our computer systems, softff ware and networks are to some degree vulnerable to unauthorized access, human error, computer viruses, denial-of-ff servirr ce attacks, malicious code, spam attacks, phishing, ransomware or other foff rms of social engineering and other events that could impact the security, reliability, confidentiality, integrity and availability of our systems. ToTT the extent third parties, such as product sponsors, also retain similarity sensitive infoff rmation about our advisors or their clients, their systems may face similar vulnerabilities. We are not able to protect against these events completely given the rapid evolution of new vulnerabilities, the complex and distributed nature of our systems, our interdependence on the systems of other companies and the increased sophistication of potential attack vectors and methods against our systems. In particular, advisors work in a wide variety of environments, and although we require minimum security by policy, we cannot ensure the consistent compliance with these policies across all of our advisors, or that our policy will be adequate to address the evolving threat environment. If one or more of these events occur, they could jeopardize our own, our advisors’ or their clients’, or our counterparties’ confidential and other infoff rmation processed, stored in and transmitted through our computer systems and networks, or otherwrr counterparties’, or third parties’ operations. As a result, we could be subjb ect to litigation, client loss, reputational harm, regulatory sanctions and financial losses that are either not insured or are not fully covered through any insurance we maintain. If any person, including any of our employees or advisors, negligently disregards or intentionally breaches our established controls with respect to client data, or otherwrr misappropriates that data, we could also be subjb ect to significant monetary damages, regulatory enfoff rcement actions, fines and/or criminal prosecution in one or more jurisdictions. ise cause interruptions or malfunctions in our own, our advisors’ or their clients’, our ise mismanages or 25 Our inii foff rmrr atitt on technologygg sysyy tems may be vulnll erarr ble to securirr tyt rirr sii kskk . The secure transmission of confidential infoff rmation, including personally identifiable infoff rmation, over public networks is a critical element of our operations. As part of our normal operations, we maintain and transmit confidential infoff rmation about clients of our advisors, our advisors and our employees, as well as proprietary infoff rmation relating to our business operations. The risks related to transmitting data and using servirr ce 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 from criminal elements and hostile nation- states. Cybersecurity requires ongoing investment and diligence against evolving threats and is subjb ect to federal and state regulation relating to the protection of confidential infoff rmation. We may be required to expend significant additional resources to modifyff our protective measures, to investigate and remediate vulnerabilities or other exposures, to make required notifications, or to update our technologies, websites and web-based applications to comply with industry and regulatory standards, but we may not have adequate personnel, financial or other resources to fully meet these threats and evolving standards. We will also be required to effff ectively and effff iciently govern, manage and ensure timely evolutions in our systems, including in their design, architecture and interconnections as well as their organizational and technical protections. The SEC has proposed new cybersecurity regulations foff r investment advisers, and other new regulations may be promulgated by relevant federal and state authorities at any time and compliance with regulatory expectations may become increasingly complex as more state regulatory authorities issue or amend regulations, which sometimes conflict, governing handling of confidential infoff rmation by companies within their jurisdiction. Several states have promulgated cybersecurity requirements that impact our compliance obligations. Compliance with these regulations also could be costly and disruptive to our operations, and we cannot provide assurance that the impact of these regulations would not, either individually or collectively, be material to our business. Our application servirr ce 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 servirr ce provider systems are disrupted or fail foff r any reason, or if our systems or facilities are infiltrated or damaged by unauthorized persons or malicious computer code, we or our advisors could experience data loss, operational disruptions, financial loss, harm to reputation, regulatory violations, class action and commercial litigation and significant business interruption or loss. In addition, vulnerabilities of our external servirr ce providers or within our softff ware supply chain could pose security risks to client infoff rmation. If any such disruption or failure, real or perceived, occurs, we or our advisors may be exposed to unexpected liability, advisors or their clients may withdraw assets, our reputation may be tarnished and there could be a material adverse effff ect on our business. Further, any actual or perceived breach or cybersecurity attack directed at other financial institutions or financial servirr ces companies, whether or not we are targeted, could lead to a general loss of customer confidence in the use of technology to conduct financial transactions, which could negatively impact us, including the market perception of the effff ectiveness of our security measures and technology infrastructure. The occurrence of any of these events may have a material adverse effff ect on our business or results of operations. Our own infoff rmation technology systems are vulnerable to an extent to unauthorized access and other security risks. We rely on our advisors and employees to comply with our policies and procedures to safeguard confidential data, but disloyal or negligent insiders pose risks. The failure of our advisors and employees to comply with such policies and procedures, either intentionally or unintentionally, could result in the loss or wrongful use of their clients’ confidential infoff rmation or other sensitive infoff rmation. In addition, even if we and our advisors comply with our policies and procedures, persons who circumvent security measures or bypass authentication controls could infiltrate or damage our systems or facilities and wrongfully use our confidential infoff rmation or clients’ confidential infoff rmation or cause interruptions or malfunctions in our operations. Cyber-attacks can be designed to collect infoff rmation, manipulate, destroy 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 or hackers access to our proprietary business infoff rmation; subjb ect us to liability foff r a failure to safeguard client data; result in the termination of relationships with our advisors; subjb ect us to regulatory sanctions or obligations, based on state law or the authority of the SEC and FINRA to enfoff rce regulations regarding business continuity planning or cybersecurity; 26 • • • subjb ect us to litigation by consumers, advisors or other business partners that may suffff er damages as a result of such activity; result in inaccurate financial data reporting; and require significant capital and operating expenditures to investigate and remediate a 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 servirr ce providers outside of our network, as well as the storing or processing of data within our network, intensifyff . While we maintain cyber liability insurance, this insurance does not cover certain types of potential losses and, foff r covered losses, may not be suffff icient in amount to protect us against all such losses. A cyc byy er-rr attatt ck or othtt er securirr tyt brerr ach of our technologygg sysyy tems or thtt ose of our advivv sii orsrr or thtt irii drr -dd p- artrr yt vevv ndorsrr could subjb ect us to sigi nififf cant lill aii bilii ill tyt and harmrr our rerr pe utatt titt on. In the course of operations, we share sensitive corporate and personal data with vendors, third parties and other financial institutions. We also rely upon softff ware and data feeds from various third parties. Despite the measures we have taken and may in the future take to address and mitigate cybersecurity, privacy and technology risks, we cannot be certain that our systems and networks will not be subjb ect to successful attacks. Although we conduct some level of due diligence befoff re sharing sensitive data with third-party vendors, this due diligence may not uncover administrative, technical or electronic gaps or flaws in their processes or systems. In the past we have experienced limited breaches of infoff rmation security with our vendors, which have led to notification costs and reputational harm with regulators, current and potential advisors, and advisors’ clients, and we may experience similar or more significant events in the future. Future data security incidents involving individual and regulatory notifications could lead to litigation involving other financial institutions, class actions, regulatory investigations or other harm. Data security incidents within the financial servirr ces industry are increasing, and threat actors continue to find novel ways to attack security environments. In light of the diversity of our advisors’ security environments and the increasing sophistication of malicious actors, an attack could occur and persist foff r an extended period of time without detection. We expect that any investigation of a cyber-attack could take substantial amounts of time, and that there may be extensive delays befoff re we obtain full and reliable infoff rmation. In some cases, the nature of the attack may be such that full and reliable infoff rmation may never be available. During such time we would not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded befoff re they are discovered and remediated, all of which would further increase the costs and consequences of such an attack. These incidents could involve operational disruptions, notification costs, ransom payments and reputational harm, investigations, litigation and fines with regulators as well as litigation, financial disputes and reputational harm with current and potential advisors and advisors’ clients. to complyl wiww thtt FaFF ilii urerr subjb ect could rerr sult inii advevv rsrr e actitt on frff orr m rerr gulall torsrr . thtt e complexee prirr vavv cyc and dadd tatt prorr tectitt on lall wsww and rerr gulall titt ons to whww ich weww arerr Many aspects of our business are subjb ect to comprehensive legal requirements concerning the collection, use and sharing of personal infoff rmation, including client and employee infoff rmation. This includes rules adopted pursuant to the Gramm-Leach-Bliley Act and an ever-increasing number of state laws and regulations, such as the Califoff rnia Consumer Privacy Act. We continue our effff off rts to safeguard the data entrusted to us in accordance with the applicable laws and our internal data protection policies, including taking steps to reduce the potential foff r the improper use or disclosure of personal infoff rmation. We continue to monitor regulations related to data privacy and protection on both a domestic and international level to assess requirements and impacts on our business operations. Further developments could negatively impact our business and operations. to mainii tatt inii FaFF ilii urerr technologygg plall tftt off rmrr or thtt e inii trtt orr ductitt on of a competitt titt vevv plall tftt off rmrr our businii ess. technological capabilii ill titt es, flff all wsww inii exee ixx sii titt nii g technologygg ,yy didd ffff iff cultitt es inii upu grarr didd nii g our could havevv a materirr aii l advevv rsrr e effff eff ct on We believe that 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 and their clients. We depend on highly specialized and, in many cases, proprietary technology to support our business functions, including among others: • • securities trading and custody; portfoff lio management; 27 • • • • perfrr off rmance reporting; customer servirr ce; accounting and internal financial processes and controls; and regulatory compliance and reporting. Our continued success depends on our ability to effff ectively adopt new or adapt existing technologies to meet changing client, industry and regulatory demands. The emergence of new industry standards and practices could render our existing systems obsolete or uncompetitive. There cannot be any assurance that another company will not design a similar or better platfoff rm that renders our technology less competitive. Maintaining competitive technology requires us to make significant capital investments, both in the near term and longer-term. There cannot be any assurance that we will have suffff icient resources to adequately update and expand our infoff rmation technology systems or capabilities, or offff er our servirr ces on the personal and mobile computing devices that may be preferred by our advisors and/or their clients, nor can there be any assurance that any upgrade or expansion effff off rts will be suffff iciently timely, successful, secure and accepted by our current and prospective advisors or their clients. The process of upgrading and expanding our systems has at times caused, and may in the future cause, us to suffff er system degradations, outages and failures. 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 breakdown in advisors’ systems could have similar effff ects. A technological breakdown could also interfrr ere 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. Security, stability and regulatory risks also exist because parts of our infrastructure and softff ware are beyond their manufacturer’s stated end of life. We are working to mitigate such risks through additional controls and increased modernization spending, although we cannot provide assurance that our risk mitigation effff off rts will be effff ective, in whole or in part. InII adedd quacyc or didd sii rurr pu titt on of our businii ess contitt nii uityt and didd sii aster rerr covevv ryrr plall ns and prorr cedurerr s inii evevv nt of a catatt strtt orr phe could advevv rsrr elyl affff eff ct our businii ess. thtt e 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, ransomware attack, human error, loss of power, computer and/or telecommunications failure, or other natural or man-made events. A catastrophic event could have a direct negative impact on us by adversely affff ecting our advisors, employees or facilities, or an indirect impact on us by adversely affff ecting 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. In addition, we depend on the adequacy of the business continuity and disaster recovery plans of our third-party servirr ce providers, including offff -ff shore servirr ce providers, in order to prevent or mitigate servirr ce interruptions. If our business continuity and disaster recovery plans and procedures, or those of our third-party servirr ce providers, were disrupted or unsuccessful in the event of a catastrophe, we could experience a material adverse interruption of our operations. Risks Related to Ownership of Our Common Stock ThTT e prirr ce of our common stock may be vovv lall titt lii e and flff uctuate substatt ntitt aii llll yl ,yy whww ich could rerr sult inii substatt ntitt aii l losses foff r our inii vevv storsrr . The market price of our common stock may fluctuate substantially due to the foff llowing factors (in addition to the other risk factors described in this Item 1A): • • • • • • • • actual or anticipated fluctuations in our results of operations, including with regard to interest rates or revenue associated with our client cash programs; variance in our financial perfrr off rmance from the expectations of equity research analysts; conditions and trends in the markets we serverr announcements of significant new servirr ces or products by us or our competitors; additions or changes to key personnel; ; the commencement or outcome of litigation or arbitration proceedings; the commencement or outcome of regulatory actions, including settlements with the SEC, FINRA, DOL or state securities regulators; changes in market valuation or earnings of our competitors; 28 • • • • • • the trading volume of our common stock; future sales 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 “best interest” and “fiduciary” standards of care; political developments; and general economic conditions. In addition, the equity markets in general have experienced extreme price and volume fluctuations that have oftff en been unrelated or disproportionate to the operating perfrr off rmance of the particular companies affff ected. These broad market and industry factors may materially harm the market price of our common stock irrespective of our operating perfrr off rmance. In addition, in the past, foff llowing periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has oftff en been instituted against the affff ected company. This type of litigation could result in substantial costs and a diversion of our management’s attention and resources. WeWW arerr a holdidd nii g company and rerr lyl on didd vivv dedd ndsdd , didd sii trtt irr bii utitt ons and othtt er paymyy entstt , advavv nces and trtt arr nsfeff rsrr of fuff ndsdd frff orr m our subsididd aii rirr es to meet our dedd bt servrr ivv ce and othtt er oblill gi atitt ons. 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 foff r dividends and other payments or distributions to meet any existing or future debt servirr ce and other obligations. The deterioration of the earnings from, or other available assets of, our subsidiaries foff r 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’AA s prior approval. Compliance with this regulation may impede our ability to receive dividends from our broker-dealer subsidiary. Our fuff turerr abilii ill tyt subjb ect to thtt e didd sii crerr titt on of our Boardrr and wiww lii lll be lill mii cash flff owsww . to pay rerr gulall r didd vivv dedd ndsdd to holdedd rsrr of our common stock or rerr pe urcrr hase sharerr s arerr ited by our abilii ill tyt to generarr te suffff iff cient earnrr inii gs and Our Board declared quarterly cash dividends on our outstanding common stock in 2022 and has authorized 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 subjb ect to the Board’s 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 our Credit Agreement, the Indentures and applicable law. Such determinations will depend upon a number of factors that the Board deems relevant, including future earnings, the success of our business activities, capital requirements, alternative uses of capital, general economic, financial and business conditions, and the future prospects of our own business. 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 suffff icient 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 and repurchase shares is dependent on the ability of our subsidiaries to pay dividends, including compliance with limitations under our Credit Agreement and the Indentures. Our broker-dealer subsidiary is subjb ect to requirements of the SEC, FINRA, CFTC, NFAFF and other regulators relating to liquidity, capital standards and the use of client funds and securities, which may limit funds available foff r the payment of dividends to us. Item 1B. Unresolved Staffff Comments None. 29 Item 2. Properties A summary of our significant locations at December 31, 2022 is shown in the foff llowing table: Location Fort Mill, South Carolina San Diego, Califoff rnia Boston, Massachusetts Austin, TeTT xas Overland Park, Kansas Approximate Square Footage Lease Expiration 452,000 420,000 69,000 57,000 30,000 2036 2029 2023 2029 2023 We also lease smaller administrative and operational offff ices in various locations throughout the United States. We believe that our existing properties are adequate foff r the current operating requirements of our business and that additional space will be available as needed. Item 3. Legal Proceedings From time to time, we have been subjb ected to and are currently subjb ect to legal and regulatory proceedings arising out of our business operations, including lawsuits, arbitration claims and inquiries, investigations and enfoff rcement proceedings initiated by the SEC, FINRA and state securities regulators, as well as other actions and claims. For a discussion of legal proceedings, see Note 14 - Commitmtt entstt and Contitt nii gencies within the notes to the consolidated financial statements and Part I, “I“ tem 1A. Riskii in this Annual Report on Form 10-K. FaFF ctors”rr Item 4. Mine Safety Disclosures Not applicable. 30 Information about our Executive Offff icers On February 16, 2023, the Company announced an organizational realignment of certain business functions in support of its client experience. The foff llowing table provides certain infoff rmation about each of the Company’s executive offff icers as of the date this Annual Report on Form 10-K has been filed with the SEC: Name Dan H. Arnold Matthew J. Audette Matthew Enyedi Greg Gates Aneri Jambusaria Sallie R. Larsen(1) Michelle Oroschakoffff (ff 1) Dayton Semerjr ian(2) Kabir Sethi Richard Steinmeier ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Ageg Position 58 48 49 45 39 69 61 58 52 49 President and Chief Executive Offff icer Chief Financial Offff icer and Head of Business Operations Managing Director, Client Success Managing Director, Chief TeTT chnology & Infoff rmation Offff icer Managing Director, LPL Servir ces Group Managing Director, Chief Human Capital Offff icer Managing Director, Chief Legal Offff icer Managing Director, Chief Customer Care Offff icer Managing Director, Chief Product Offff icer Managing Director, Divisional President, Business Development (1) (2) Ms. Larsen and Ms. Oroschakoffff will be retiring from the Company in 2023. Mr. Semerjr ian will be departing the Company in March 2023. Executive Offff icers Dan H. Arnrr old — PrPP err sidedd nt and Chief ExEE ecutitt vevv Offff iff cer Mr. Arnold has serverr d as our chief executive offff icer since January 2017. He has serverr d as our president since March 2015 with responsibility foff r our primary client-facing functions and long-term strategy foff r growth. Mr. Arnold serverr d as our chief financial offff icer from June 2012 to March 2015 and was responsible foff r foff rmulating financial policy, leading our capital management effff off rts and ensuring the effff ectiveness of the organization’s financial functions. Prior to 2012, he was managing director, head of strategy, with responsibility foff r long-term strategic planning foff r the firm, product and platfoff rm development and strategic investments, including acquisitions. He has also serverr d as divisional president of our Institution Servirr ces. Mr. Arnold joined our Company in January 2007 foff llowing our acquisition of UVEST Financial Servirr ces Group, Inc. Prior to joining us, Mr. Arnold worked at UVEST foff r 13 years servirr ng most recently as president and chief operating offff icer. Mr. Arnold earned a B.S. in electrical engineering from Auburn University and holds an M.B.A. in finance from Georgia State University. MaM tthtt ew J. Audedd tte — Chief FiFF nii anciaii l Offff iff cer and Head of Businii ess OpO erarr titt ons Mr. Audette has serverr d as our chief financial offff icer since 2015 and head of business operations since February 2023, with responsibility foff r the Company’s financial, risk, compliance and client operations functions. He leads the Company’s financial planning and analysis, treasury, controllership, tax, internal audit, corporate development and investor relations functions. In addition, he oversees the teams responsible foff r delivering operational speed and transparency, along with continued strong compliance and risk management, to the Company’s advisors and enterprises. Since joining LPL Financial in 2015 as chief financial offff icer, Mr. Audette has led corporate acquisitions, debt transactions, the client deposit portfoff lio, expense management and capital allocation. In addition, he oversaw the LPL Servirr ces Group from May 2022 until February 2023. Prior to joining LPL Financial, Mr. Audette serverr d as executive vice president and chief financial offff icer of E*TRADE Financial Corporation. During his 16 years with E*TRADE, he was a key contributor in the growth of the franchise, leading a variety of corporate transactions and capital activities. Mr. Audette began his career in the financial servirr ces practice at KPMG. Mr. Audette earned a B.S. in accounting from Virginia Polytechnic Institute and State University, popularly known as Virginia TeTT ch. MaM tthtt ew EnEE yeyy didd — MaMM naginii g Dirii err ctor,rr Clill ent Success Mr. Enyedi has serverr d as managing director, client success since February 2023. The client success organization is a client-centered, cross-functional team responsible foff r fueling the sustained success and satisfaction of the Company’s advisors and enterprises. Under this organization, the relationship management, marketing and 31 communications, servirr ce and supervirr sion teams foff cus on providing an integrated and consistent experience across clients’ primary touchpoints with LPL. Mr. Enyedi serverr d as managing director, national sales and marketing from April 2022 to February 2023, with responsibility foff r growing the Company’s client relationships. He serverr d as managing director, business solutions from November 2020 to April 2022, with responsibility foff r developing and deploying the platfoff rm of professional servirr ces foff r advisors now included in the LPL Servirr ces Group. Prior to that, he led LPL Financial’s national sales and wealth management organizations and was responsible foff r data analytics and accelerating the organic growth of the Company’s advisors across planning, advisory, brokerage and retirement plan servirr ces. Prior to joining LPL Financial in 2003, he worked as a financial advisor with UBS PaineWebber. Mr. Enyedi earned a B.A. in speech communication and business administration from the University of San Diego. He earned the Certified Investment Management Analyst® designation from the Haas School of Business at the University of Califoff rnia, Berkeley. Grerr g Gates — MaMM naginii g Dirii err ctor,rr Chief TeTT chnologygg & InII foff rmrr atitt on Offff iff cer Mr. Gates has serverr d as managing director, chief technology & infoff rmation offff icer of LPL Financial since July 2021. In this role he is responsible foff r managing all aspects of the Company’s technology and systems applications. He leads an infoff rmation technology organization responsible foff r delivering technology solutions and market-leading platfoff rms that enable positive, compelling experiences foff r our advisors, enterprises and employees. Mr. Gates joined LPL Financial in 2018 with nearly two decades of senior-level management experience foff cused on the application of technology to solve business challenges on a global scale. Befoff re joining LPL Financial, Mr. Gates led product management and engineering teams at PayPal from 2011 to 2018, foff cusing on internal technology platfoff rms, merchant and consumer experiences, risk and security, and global operations. Prior to that, he led a number of technology organizations at Bank of America, culminating in leadership of Bank of America’s Contact Center TeTT chnology from 2002 to 2011. Mr. Gates earned his B.S. in biomedical engineering from VaVV nderbilt University and has successfully completed multiple leadership, continuing education and certification programs from several organizations. Anerirr Jambusarirr aii – MaMM naginii g Dirii err ctor,rr LPL Servrr ivv ces Grorr upu Ms. Jambusaria has serverr d as managing director, LPL Servirr ces Group since February 2023. In this role, she is responsible foff r the development and delivery of LPL Financial’s portfoff lio of business servirr ces, planning and advice servirr ces, and value-added consultation functions, which address key challenges advisors and enterprises face in servirr ng investors and operating their businesses. Ms. Jambusaria joined LPL Financial in 2020 as executive vice president, strategy and new ventures and transitioned into an expanded role in 2021 to lead the LPL Servirr ces Group. Prior to joining LPL Financial, Ms. Jambusaria held various positions at Fidelity Investments, most recently as head of the Planning Offff ice foff r Enterprise Strategy and Planning. During her nine years at Fidelity, she helped shape strategy foff r business lines while gaining a strong understanding of wealth management and the products, solutions and technologies that serverr investors. Befoff re Fidelity, she worked as a senior consultant foff r Deloitte’s financial servirr ces practice. Ms. Jambusaria earned her B.S. in economics from the Wharton School at the University of Pennsylvania and her M.B.A. from Northwestern University’s Kellogg School of Management. Sallll ill e R. Larsrr en — MaMM naginii g Dirii err ctor,rr Chief Human Capitatt l Offff iff cer Ms. Larsen is managing director, chief human capital offff icer of LPL Financial. She is responsible foff r overseeing human resources, executive communication, talent development, corporate real estate, total rewards and talent acquisition, advisor and employee learning and development, and diversity, equity and inclusion. Ms. Larsen joined LPL Financial in May 2012 from the Federal Home Loan Bank/Offff ice of Finance, where she serverr d as the chief human resources offff icer from November 2009 to April 2012. In earlier roles, Ms. Larsen was a managing vice president of human resources foff r Capital One Financial Corporation, senior vice president of human resources foff r Marriott International and vice president of human resources and communications foff r TRW Inc. Ms. Larsen earned a M.A. in communications from Purdue University, a B.A. in sociology from Califoff rnia Lutheran University and a certificate in executive leadership coaching from Georgetown University. MiMM chellll e Ororr schakoffff — MaMM naginii g Dirii err ctor,rr Chief Legal Offff iff cer Ms. Oroschakoffff is managing director, chief legal offff icer of LPL Financial. She is responsible foff r company-wide legal, regulatory and government relations matters and has a leading role in LPL Financial’s ongoing foff cus on enhancing the corporate risk profile. Ms. Oroschakoffff has more than 20 years of financial servirr ces industry experience in legal, compliance and risk management, including leading the Company’s compliance and risk management functions from 2013 to February 2023. She joined LPL Financial as managing director, chief risk offff icer in September 2013 from Morgan Stanley, and was promoted to chief legal and risk offff icer in June 2017. She became chief legal offff icer in June 2018. At Morgan Stanley, she most recently serverr d as managing director and 32 global chief risk offff icer of the firm’s Global Wealth Management Group from 2011 to 2013. Previously, while with Morgan Stanley, she serverr d as chief administrative offff icer from 2010 to 2011, as well as chief compliance offff icer from 2006 to 2010. Earlier in her career, Ms. Oroschakoffff 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 serverr d as the general counsel foff r a large and successful RIA firm where she became familiar with the independent model. She is the President of the SIFMA Compliance and Legal Executive Committee. Ms. Oroschakoffff earned a B.A. in English literature from the University of Oregon and a J.D., with honors, from the University of Michigan. Dayton Semerjrr ijj aii n — MaMM naginii g Dirii err ctor,rr Chief Customer Carerr Offff iff cer Mr. Semerjr ian has serverr d as managing director, chief customer care offff icer of LPL Financial since February 2019. He has been responsible foff r LPL Financial’s customer satisfaction and client-centric effff off rts and led Servirr ce, Trading and Operations, LPL Financial’s largest business unit. As a result of the organizational realignment announced in February 2023, Mr. Semerjr ian will depart the Company effff ective March 31, 2023. Befoff re joining LPL Financial, Mr. Semerjr ian was general manager and senior vice president foff r Global Customer Success at CA TeTT chnologies Inc., which he joined in 2005 when the firm acquired Concord Communication Inc. At Concord, he was executive vice president of marketing and strategic alliances. Mr. Semerjr ian also gained experience leading firms in adopting new servirr ce models that foff cus on improving the customer experience at scale through leadership roles at Intel Corp., Nation Street Inc. and Corente Inc., which was acquired by Oracle. Mr. Semerjr ian received a B.B.A. in marketing and management from the University of Massachusetts and an M.B.A. from Harvarr awarded an advanced certificate of executive management by the MIT Sloan School of Management. rd Business School. He was also KaKK birii Sethtt i — MaMM naginii g Dirii err ctor,rr Chief PrPP orr duct Offff iff cer Mr. Sethi has serverr d as managing director, chief product offff icer of LPL Financial since May 2022. He is responsible foff r LPL Financial’s technology platfoff rms and wealth management offff erings, ensuring the delivery of innovative products to advisors and clients. In this role, he provides strategic leadership and direction to the wealth management solutions, investment research, investor product experience, advisor technology products, and data and analytics teams, who are foff cused on delivering wealth solutions and digital capabilities foff r our advisors and enterprises, to enable them to continue driving growth and productivity in all areas of their businesses. Prior to joining LPL Financial, Mr. Sethi spent 18 years at Merrill Lynch, at which he held several leadership positions, including managing director in Bank of America’s Global Wealth & Investment Management division. He also serverr d as head of Digital foff r Merrill Lynch Wealth Management and was responsible foff r digital platfoff rms, including the financial advisor experience, wealth planning, and social media. Mr. Sethi earned a B.A. in economics from St. Stephen’s College at Delhi University, an M.I.B. from Columbia University, and an M.B.A. from Indian Institute of Management. Richardrr Steinii meier — MaMM naginii g Dirii err ctor,rr Divivv sii ional PrPP err sidedd nt,tt Businii ess Devevv lopment Mr. Steinmeier has serverr d as managing director and divisional president, business development of LPL Financial since August 2018. In this role, he has responsibility foff r recruiting new advisors and enterprises to LPL Financial and to existing advisor practices, as well as exploring new markets and merger and acquisition opportunities. Prior to joining LPL Financial, Mr. Steinmeier serverr d as managing director, head of digital strategy and platfoff rms foff r UBS Wealth Management Americas from September 2017 to August 2018 and as managing director, head of the Emerging Affff luent Segment and Wealth Advice Center from August 2012 to September 2017. Prior to UBS, Mr. Steinmeier held a variety of leadership roles at Merrill Lynch, most recently as managing director of the Merrill Edge Advisory Center from February 2009 to August 2012. Prior to joining Merrill Lynch, he serverr d as an engagement manager at McKinsey & Company from 2002 to 2006. Mr. Steinmeier earned a B.S. in economics from the Wharton School at the University of Pennsylvania and an M.B.A. from Stanfoff rd University. 33 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol “LPLA.” The closing sale price as of February 15, 2023 was $247.91 per share. As of that date, there were 938 common stockholders of record based on infoff rmation 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. Perfrr ormance Graph The foff llowing 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 and the Dow Jones U.S. Financial Servirr ces Index foff r the five-year period ended December 31, 2022. The graph assumes a $100 investment at the closing price on December 31, 2017 and reinvestment of the dividends on the respective dividend payment dates without commissions. This graph does not foff recast future perfrr off rmance of the Company’s stock. l e u a V $400 $350 $300 $250 $200 $150 $100 $50 $0 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 03/31/20 06/30/20 09/30/20 12/31/20 03/31/21 06/30/21 09/30/21 12/31/21 03/31/22 06/30/22 09/30/22 12/31/22 Date LPLA S&P 500 Financial Sector Index Dow Jones U.S. Financial Servirr ces Index Dividend Policy The payment, amount and timing of any future dividends will be subjb ect to the discretion of our Board and will depend on a number of factors, including future earnings and cash flows, capital requirements, alternative uses of capital, general business conditions, our future prospects, contractual restrictions and covenants and other factors that our Board may deem relevant. Our Credit Agreement and the Indentures governing the Notes contain restrictions on our activities, including paying dividends on our capital stock. For an explanation of these restrictions, sii of FiFF nii anciai see “Item 7. Management’s’ Discuii l Condidd titt on and Resultstt of OpO erarr titt ons - Debt and ssion and Analysi l 34 Related Covenants.tt ” In addition, FINRA regulations restrict dividends in excess of 10% of a member firm’s excess net capital without FINRA’AA 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 foff rth infoff rmation on compensation plans under which our equity securities are authorized foff r issuance as of December 31, 2022: Plan categoryrr 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 Equity compensation plans approved by security holders 673,764 $ 53.45 13,781,800 Purchases of Equity Securities by the Issuer The table below sets foff rth infoff rmation regarding share repurchases, reported on a trade date basis, during the three months ended December 31, 2022: Period Total number of shares purchased Weighted- average price paid per share Total number of shares purchased as part of publicly announced program Approximate dollar value of shares that may yet be purchased under the program (millions)(1) October 1, 2022 through October 31, 2022 232,104 $ 241.76 November 1, 2022 through November 30, 2022 248,811 $ 238.92 December 1, 2022 through December 31, 2022 155,411 $ 221.70 ToTT tal 636,326 232,104 $ 248,811 $ 155,411 $ 636,326 2,093.9 2,034.5 2,000.0 (1) On September 21, 2022, the Board authorized a $2.1 billion increase to the amount available fof r repurchases of the Company’s issued and outstanding common shares, with $2.0 billion available foff r repurchases beginning in 2023. See Note 15 - Stockholders’rr Equityt , within the notes to the consolidated financial statements foff r additional infof rmation. The repurchases may be executed from time to time, subjb ect to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including transactions with affff iliates, with the timing of purchases and the amount of shares purchased generally determined at the discretion of the Company within the constraints of the Credit Agreement, the Indentures, applicable laws and consideration of the Company’s general liquidity needs. Item 6. Reservrr ed GLOSSARY OF TERMS Adjusted Net Income: A non-GAAAA P financial measure defined as net income plus the aftff er-tax impact of amortization of other intangibles and acquisition costs. Basis Point: One basis point equals 1/100th of 1%. CFTC: The Commodity Futures Trading Commission. Core G&A: A non-GAAAA P financial measure defined as total expense excluding the foff llowing expenses: advisory and commission; depreciation and amortization; interest expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; loss on extinguishment of debt; promotional (ongoing); acquisition costs; employee share-based compensation; and regulatory charges. Corporate Cash: A component of cash and equivalents that includes the sum of cash and equivalents from the foff llowing: (1) cash and equivalents held at LPL Holdings, Inc., (2) cash and equivalents held at regulated subsidiaries as defined by the Company’s Credit Agreement (as defined below), which include LPL Financial LLC and The Private Trust Company, N.A., in excess of the capital requirements of the Company’s Credit Agreement (as defined below), which, in the case of LPL Financial LLC, is net capital in excess of 10% of its aggregate debits, or five times the net capital required in accordance with the Unifoff rm Net Capital Rule (as defined below), and (3) cash and equivalents held at non-regulated subsidiaries. 35 Credit Agreement: The Company’s amended and restated credit agreement. Credit Agreement EBITDA: A non-GAAAA P financial measure defined in the Credit Agreement as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision foff r income taxes, depreciation and amortization, and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments (including unusual or non-recurring charges) and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions. Dodd-Frank Act: The Dodd-Frank Wall Street Refoff rm and Consumer Protection Act. DOL: The United States Department of Labor. EBITDA: A non-GGAAAA P ffinancial measure deffined as net income plus interest expense on borrowinggs, provision ffoff r income taxes, depreciation and amortization, and amortization off other intanggibles. EPS prior to amortization of intangible assets and acquisition costs: A non-GAAAA P financial measure defined as Adjusted Net Income divided by the weighted average number of diluted shares outstanding foff r the applicable period. ERISA: The Employee Retirement Income Security Act of 1974. FINRA: The Financial Industry Regulatory Authority. GAAP: Accounting principles generally accepted in the United States of America. Gross profit: Non-GAAAA P financial measure defined as total revenue less advisory and commission expense and brokerage, clearing and exchange expense. Indentures: The indentures governing the Company’s senior unsecured notes. Leverage Ratio: A financial metric from our Credit Agreement that is calculated by dividing Credit Agreement net debt, which equals consolidated total debt less Corporate Cash, by Credit Agreement EBITDA. NFA: The National Futures Association. OCC: The Offff ice of the Comptroller of the Currency. RIA: Registered investment advisor. SEC: The U.S. Securities and Exchange Commission. SRO: Self-ff regulatory organization. Uniform Net Capital Rule: Refers to Rule 15c3-1 under the Securities Exchange Act of 1934, which specifies minimum capital requirements that are intended to ensure the general financial soundness and liquidity of broker- dealers. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ThTT e foff llll owiww nii g didd scuii consolill dated fiff nii anciaii FiFF nii anciaii foff rwrr aww rdrr -lookinii g statt tementstt thtt ose set foff rtrr htt under “R“ iskii materirr ai llll yl headidd nii g “S“ pS eciai ssion of our fiff nii anciaii l condidd titt on and rerr sultstt of operarr titt ons should be rerr ad inii conjn unctitt on wiww thtt our l stat tementstt and thtt e notes to thtt ose consolill dated fiff nii anciaii l stat tementstt inii cluded inii l Stat tementstt and Supu plementat ryr Datat ” of thtt isii Annual Reportrr on FoFF rmrr 10-K.KK ThTT isii didd scuii thtt at inii volve sigi nifi iff cant rirr sksii FaFF ctors”rr and elsell whww ererr and uncertrr at inii titt es. As a rerr sult of many faff ctors,rr thtt isii Annual Reportrr on FoFF rmrr 10-K,KK our actual rerr sultstt may didd fii fff eff r inii frff orr m thtt ose antitt cipii ated inii thtt ese foff rwrr aww rdrr -lookinii g stat tements.tt PlPP ease alsoll rerr feff r to thtt e sectitt on under “I“ tem 8. ssion contat inii s such as ” l Note Regardrr idd nii g FoFF rwrr aww rdrr -Lookinii g Statt tements.tt Business Overvrr iew We are a leader in the advisor-mediated marketplace as the nation’s largest independent broker-dealer, a leading investment advisory firm, and a top custodian. We serverr independent financial advisors and enterprises, providing them with the technology solutions, brokerage and advisory platfoff rms, clearing servirr ces, compliance servirr ces, consultative practice management programs and training, business servirr ces and planning and advice servirr ces, and in-house research they need to run successful businesses. We enable them to provide personalized financial guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions. Please consult Part I, “I“ tem 1. Businii ess” foff r additional infoff rmation related to our business activities. 36 Our Sources of Revenue Our revenue is derived primarily from fees and commissions from products and advisory servirr ces offff ered 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 foff r the use of our technology, custody, clearing, trust and reporting platfoff rms. We also generate asset- based revenue through our insured bank sweep vehicles, money market account balances and the access we provide to a variety of product providers with the foff llowing product lines: • Alternative Investments • Annuities • Exchange Traded Products • Insurance Based Products • Mutual Funds • Retirement Plan Products • Separately Managed Accounts • Structured Products • Unit Investment Trusts Under our self-ff clearing platfoff rm, we custody the maja ority of client assets invested in these financial products, foff r which we provide statements, transaction processing and ongoing account management. In return foff r these servirr ces, mutual funds, insurance companies, banks and other financial product sponsors pay us fees based on asset levels or number of accounts managed. We also earn interest from margin loans made to our advisors’ clients, cash and equivalents segregated under federal or other regulations, advisor repayable loans and operating cash, which is included in Interest income, net in the consolidated statements of income. A portion of our revenue is not asset-based or correlated with the equity financial markets. We regularly review various aspects of our operations and servirr ce offff erings, including our policies, procedures and platfoff rms, in response to marketplace developments. We seek to continuously improve and enhance aspects of our operations and servirr ce offff erings in order to position our advisors foff r long-term growth and to align with competitive and regulatory developments. For example, we regularly review the structure and fees of our products and servirr ces, including related disclosures, in the context of the changing regulatory environment and competitive landscape foff r advisory and brokerage accounts. Significant Events Closed on thtt e acquisii ititt on of FiFF nii anciaii l Resourcrr es Grorr upu InII vevv stmtt ent Servrr ivv ces On November 2, 2022, we entered into a definitive purchase agreement to acquire FRGIS, an independent branch offff ice and broker-dealer supporting approximately 800 advisors and 85 financial institutions, servirr ng approximately $40 billion of brokerage and advisory assets, foff r an initial payment of approximately $140 million with potential continggent payyments over the three yyears ffoff llowingg the closingg. The transaction closed on January 31, 2023. ThTT e Boardrr apppp rorr vevv d a $2 bilii lll ill on inii crerr ase to thtt e Company’s’ exee ixx sii titt nii g sharerr beginii ninii g inii 2023 rerr pe urcrr hase authtt orirr zaii titt on On September 21, 2022, the Board authorized a $2.1 billion increase to the amount available foff r repurchases of the Company’s issued and outstanding common shares, with $2.0 billion available foff r repurchases beginning in 2023. As of December 31, 2022, the Company had $2.0 billion remaining under its existing share repurchase program. ImII plemented clill ent cash account (“CCACC ”) as prirr mii aryrr sweww epe ovevv rfrr lff ow vevv hicle During the third quarter of 2022, the Company implemented CCA, its cash product held at LPL Financial, as the primary sweep overfrr low vehicle foff r funds in excess of capacity in its third-party sweep program. The Company places sweep overfrr low that cannot be allocated to its insured cash account (“ICA”) product into the CCA. These deposits are either used to fund client margin lending or placed in third-party bank or investment accounts, both of which are segregated under federal or other regulations, where they are held as cash or invested in short-term U.S. treasury bills. 37 Executive Summaryrr FiFF nii anciaii l HiHH gi hlill gi htstt Results foff r the year ended December 31, 2022 included net income of $845.7 million, or $10.40 per diluted share, which compares to $459.9 million, or $5.63 per diluted share, foff r the year ended December 31, 2021. Asset TrTT err ndsd ToTT tal advisory and brokerage assets serverr d were $1.1 trillion at December 31, 2022, compared to $1.2 trillion at December 31, 2021. ToTT tal net new assets were $95.9 billion foff r the year ended December 31, 2022, compared to $190.0 billion foff r the same period in 2021. Net new advisory assets were an inflow of $52.4 billion foff r the year ended December 31, 2022, compared to $123.5 billion in 2021. Advisory assets were $583.1 billion, or 52.5% of total advisory and brokerage assets serverr d, at December 31, 2022, down 9% from $643.2 billion at December 31, 2021. Net new brokerage assets were an inflow of $43.5 billion foff r the year ended December 31, 2022, compared to $66.6 billion in 2021. Brokerage assets were $527.7 billion at December 31, 2022, down 6% from $563.2 billion at December 31, 2021. Grorr ss Prorr fiff t TrTT err ndsd Gross profit, a non-GAAAA P financial measure, was $3.2 billion foff r the year ended December 31, 2022, an increase of 30% from $2.5 billion foff r the year ended December 31, 2021. See the “K“ eKK y Perfrr off rmrr ance Metrtt irr cs” section foff r additional infoff rmation on gross profit. Common Stock Dividendsdd and Sharerr Repurchrr ases During the year ended December 31, 2022, we paid stockholders cash dividends of $79.8 million and repurchased 1,566,527 of our outstanding shares foff r a total of $325.0 million. The Company has increased its quarterly cash dividend by 20% to $0.30 per share beginning in the first quarter of 2023. Key Perfrr ormance Metrics We foff cus on several key metrics in evaluating the success of our business relationships and our resulting financial position and operating perfrr off rmance. Our key operating, business and financial metrics are as foff llows: OpO erarr titt nii g Metrtt irr cs (d(( ollll all rsrr inii bilii lll ill ons)s (1)1 Advisoryrr and Brokerage Assets g y (2) Advisory assets Brokerage assets Total Advisoryrr and Brokerage Assets Advisory as a % of total Advisory and Brokerage Assets Net New Assets(3) Net new advisory assets Net new brokerage assets Total Net New Assets Organic Net New Assets g Organic net new advisory assets Organic net new brokerage assets Total Organic Net New Assets Organic advisory net new assets annualized growth(4) ToTT tal organic net new assets annualized growth(4) 38 As of and for the Years Ended December 31, 2022 2021 583.1 $ 527.7 643.2 563.2 1,110.8 $ 1,206.4 52.5% 53.3% 52.4 $ 43.5 95.9 $ 123.5 66.6 190.0 52.4 $ 43.5 89.4 29.4 95.9 $ 118.8 8.1% 7.9% 19.4% 13.2% $ $ $ $ $ $ Client Cash Balances(5) Insured cash account sweep Deposit cash account sweep Total Bank Sweep Money market sweep Total Client Cash Sweep Held by Third Parties Client cash account Total Client Cash Balances Client Cash Balances as a % of ToTT tal Assets Net buy (sell) activity(6) Businii ess and FiFF nii anciaii l Metrtt irr cs (d(( ollll all rsrr inii milii lll ill ons)s Advisors AveAA rage total assets per advisor(7) Share repurchases Dividends Leverage ratio(8) As of and for the Years Ended December 31, 2021 2022 $ 46.8 $ 11.5 58.4 3.0 61.4 2.7 64.1 $ 5.8% 30.0 9.3 39.3 16.1 55.4 1.7 57.1 4.7% 61.6 $ 69.1 21,275 52.2 $ 19,876 60.7 325.0 $ 79.8 $ 1.39 90.0 80.1 2.26 $ $ $ $ $ FiFF nii anciaii l Metrtt irr cs (d(( ollll all rsrr inii milii lll ill ons, exee cepe t per sharerr dadd tatt )a ToTT tal revenue Net income Earnings per share (“EPS”), diluted Non-GAGG AP FiFF nii anciaii l Metrtt irr cs (d(( ollll all rsrr inii milii lll ill ons, exee cepe t per sharerr dadd tatt )a EPS prior to amortization of intangible assets and acquisition costs(9) Gross profit(10) EBITDA(11) Core G&A(12) ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Years Ended December 31, 2022 2021 8,600.8 $ 7,720.8 845.7 $ 10.40 $ 459.9 5.63 11.52 $ 7.02 3,189.9 $ 2,454.7 1,525.3 $ 936.4 1,191.9 $ 1,058.2 $ $ $ $ $ $ $ (1) (2) (3) ((4)) (5) (6) (7) ToTT tals may not foff ot due to rounding. Consists of total advisory and brokerage assets under custody at the Company’s broker-dealer subsidiary, LPL Financial. Please consult the “Resultstt of OpO erarr titt ons” section foff r a tabular presentation of advisory and brokerage assets. Consists of total client deposits into advisory or brokerage accounts less total client withdrawals from advisory or brokerage accounts, plus dividends, plus interest, minus advisory fees. We consider conversions from and to brokerage or advisory accounts as deposits and withdrawals, respectively. CCalculated as annualized current period orgganic net new assets divided byy precedingg period assets in their respective categgories off advisoryy assets or total advisoryy and brokeragge assets. During the second quarter of 2022, the Company updated its definition of client cash balances to include CCA and exclude purchased money market funds. CCA balances include cash that clients have deposited with LPL Financial that is included in Client payables in the consolidated statements of financial condition. Prior period disclosures have been updated to reflect this change as applicable. Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial. Calculated based on the end of period total advisory and brokerage assets divided by the end of period advisor count. 39 (8) The leverage ratio is a financial metric from our Credit Agreement and is calculated by dividing Credit Agreement net debt, which equals consolidated total debt less Corporate Cash, by Credit Agreement EBITDA. Credit Agreement EBITDA, a non-GAAAA P measure, is defined by the Credit Agreement as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision foff r income taxes, depreciation and amortization, and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments (including unusual or non-recurring charges) and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions. Please consult the “D“ ebt and Related Covenants”tt Agreement net debt as of the dates below and net income to EBITDA and Credit Agreement EBITDA fof r the periods presented below (in millions): section foff r more infof rmation. Below are reconciliations of corporate debt and other borrowings to Credit Credit Agreement Net Debt Reconciliation Corporate debt and other borrowings Corporate Cash(13) Credit Agreement Net Debt(†) EBITDA and Credit Agreement EBITDA Reconciliation Net income Interest expense on borrowings Provision foff r income taxes Depreciation and amortization Amortization of other intangibles EBITDA(†) Credit Agreement Adjustments: Acquisition costs and other Employee share-based compensation M&A accretion(14) Advisor share-based compensation Loss on extinguishment of debt Credit Agreement EBITDA(†) Leverage Ratio ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (†) ToTT tals may not foff ot due to rounding. $ $ $ $ $ December 31, 2022 2021 2,737.9 $ (459.4) 2,278.5 $ 2,838.6 (237.0) 2,601.6 Years Ended December 31, 2022 2021 845.7 $ 126.2 266.0 199.8 87.6 1,525.3 $ 50.7 $ 50.1 10.6 2.5 — 459.9 104.4 141.5 151.4 79.3 936.4 92.1 41.8 53.6 2.3 24.4 $ 1,639.1 $ 1,150.7 December 31, 2022 2021 1.39 2.26 (9) EPS prior to amortization of intangible assets and acquisition costs is a non-GAAAA P financial measure defined as adjusted net income, a non-GAAAA P financial measure defined as net income plus the aftff er-tax impact of amortization of other intangibles and acquisition costs, divided by the weighted average number of diluted shares outstanding fof r the applicable period. The Company presents adjusted net income and EPS prior to amortization of intangible assets and acquisition costs because management believes that these metrics can provide investors with useful insight into the Company’s core operating perfrr of rmance by excluding non-cash items and acquisition costs that management does not believe impact the Company’s ongoing operations. Adjusted net income and EPS prior to amortization of intangible assets and acquisition costs are not measures of the Company's financial perfrr of rmance under GAAAA P and should not be considered as alternatives to net income, earnings per diluted share or any other perfrr of rmance measure derived in accordance with GAAAA P. Below is a reconciliation of net income and earnings per diluted share to adjusted net income and EPS prior to amortization of intangible assets and acquisition costs foff r the periods presented (in millions, except per share data): Adjusted net income / EPS prior to amortization of intangible assets and acquisition costs Reconciliation Net income / earnings per diluted share Amortization of other intangibles Acquisition costs(15) TaTT x benefit Adjusted net income / EPS prior to amortization of intangible assets and acquisition costs(†) Weighted-average shares outstanding, diluted ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (†) ToTT tals may not foff ot due to rounding. Years Ended December 31, 2022 2021 Amount Per Share Amount Per Share $ 845.7 $ 10.40 $ 459.9 $ 87.6 36.2 1.08 0.44 79.3 76.4 5.63 0.97 0.93 (32.7) (0.40) (41.4) (0.51) $ 936.7 $ 11.52 $ 574.1 $ 7.02 81.3 81.7 40 (10) Gross profit is a non-GAAAA P financial measure defined as total revenue less advisory and commission expense and brokerage, clearing and exchange expense. All other expense categories, including depreciation and amortization of property and equipment and amortization of other intangibles, are considered by management to be 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-GAAAA P financial measures that may not be comparable to those of others in our industry. We believe that gross profit amounts can provide investors with useful insight into our core operating perfrr of rmance befoff re indirect costs that are general and administrative in nature. Below is a calculation of gross profit foff r the periods presented (in millions): Gross Profit ToTT tal revenue Advisory and commission expense Brokerage, clearing and exchange expense Gross Profit(†) ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (†) ToTT tals may not foff ot due to rounding. Years Ended December 31, 2022 2021 $ $ 8,600.8 $ 5,324.8 86.1 3,189.9 $ 7,720.8 5,180.1 86.0 2,454.7 ((11)) EBITDA is a non-GGAAAA P ffinancial measure deffined as net income plus interest expense on borrowinggs, provision ffoff r income taxes, depreciation and amortization, and amortization off other intanggibles. The CCompanyy presents EBITDA because managgement believes that it can be a usefful ffinancial metric in understandingg the CCompanyy’s earninggs ffrom operations. EBITDA is not a measure off the CCompanyy's ffinancial perffrr off rmance under GGAAAA P and should not be considered as an alternative to net income or anyy other perffrr off rmance measure derived in accordance with GGAAAA P. Below is a reconciliation off net income to EBITDA ffoff r the periods presented ((in millions)s): EBITDA Reconciliation Net income Interest expense on borrowings Provision fof r income taxes Depreciation and amortization Amortization of other intangibles EBITDA(†) ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (†) ToTT tals may not foff ot due to rounding. Years Ended December 31, 2022 2021 $ 845.7 $ 126.2 266.0 199.8 87.6 $ 1,525.3 $ 459.9 104.4 141.5 151.4 79.3 936.4 (12) Core G&A is a non-GAAAA P financial measure defined as total expense less the foff llowing expenses: advisory and commission; depreciation and amortization; interest expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; loss on extinguishment of debt; promotional (ongoing); acquisition costs; regulatory charges; and employee share-based compensation. Management presents core G&A because it believes core G&A reflects the corporate expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as advisory and commission expense, or which management views as promotional expense necessary to support advisor growth and retention, including conferences and transition assistance. Core G&A is not a measure of the Company’s total expense as calculated in accordance with GAAAA P. Below is a reconciliation of the Company’s total expense to core G&A foff r the periods presented (in millions): Core G&A Reconciliation ToTT tal expense Advisory and commission Depreciation and amortization Interest expense on borrowings Amortization of other intangibles Brokerage, clearing and exchange Loss on extinguishment of debt Total G&A(†) Promotional (ongoing)(15)(16) Employee share-based compensation Acquisition costs(15) Regulatory charges Core G&A(†) ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (†) ToTT tals may not foff ot due to rounding. Years Ended December 31, 2022 2021 $ 7,489.2 $ 5,324.8 199.8 126.2 87.6 86.1 — 1,664.7 353.9 50.1 36.2 32.6 7,119.5 5,180.1 151.4 104.4 79.3 86.0 24.4 1,493.9 288.0 41.8 76.4 29.4 $ 1,191.9 $ 1,058.2 (13) See the “L“ iquididd tyt and Capital Resourcerr s” section foff r additional infoff rmation about Corporate Cash. (14) M&A accretion is an adjustment to reflect the annualized expected run rate EBITDA of an acquisition as permitted by the Credit Agreement foff r up to eight fiscal quarters fof llowing the close of such acquisition. 41 (15) Acquisition costs include the costs to setup, onboard and integrate acquired entities. The below table summarizes the primary components of acquisition costs foff r the periods presented (in millions): Acquisition costs Compensation and benefits Professional servirr ces Promotional(16) Other Acquisition costs Years Ended December 31, 2022 2021 $ $ 20.6 $ 12.0 2.3 1.3 36.2 $ 36.4 18.7 14.3 7.0 76.4 (16) Promotional (ongoing) fof r the year ended December 31, 2022 includes $16.1 million of support costs related to full-time employees that are classified within Compensation and benefits expense in the consolidated statements of income. Promotional (ongoing) foff r the year ended December 31, 2022 excludes $2.3 million of expenses incurred as a result of acquisitions, which are included in the Acquisition costs line item. Acquisitions, Integrations and Divestitures We continuously assess the competitive landscape in connection with our capital allocation framework as we pursue acquisitions, integrations and divestitures. These activities are part of our overall growth strategy but can distort comparability when reviewing revenue and expense trends foff r periods presented. Our recent acquisition activity includes the foff llowing: • On November 2, 2022, we entered into a definitive purchase agreement to acquire FRGIS, an independent branch offff ice and broker-dealer supporting approximately 800 advisors and 85 financial institutions, servirr ng approximately $40 billion of brokerage and advisory assets, foff r an initial payment of approximately $140 million with potential contingent payments over the three years foff llowing the closing. The transaction closed on January 31, 2023. • We acquired customer relationship intangible assets of $54.1 million as a result of acquisitions under our Liquidity & Succession solution, under which we buy advisor practices, during the year ended December 31, 2022. • On April 30, 2021, we acquired the wealth management business of Waddell & Reed Financial, Inc. (“Waddell & Reed”). See Note 4 - Acquisi ii titt ons, within the notes to the consolidated financial statements foff r further detail. Economic Overvrr iew and Impact of Financial Market Events Our business is directly and indirectly sensitive to several macroeconomic factors and the state of the financial markets in the United States. According to the most recent estimate from the U.S. Bureau of Economic Analysis, the U.S. economy grew 2.1% in 2022, and at an annualized pace of 2.7%% in the foff urth quarter of 2022 aftff er growing at an annualized pace of 3.2% in the third quarter of 2022. Growth was mainly concentrated in the beginning of the foff urth quarter as the economy slowed down in December from weaker consumer spending power, rising geopolitical uncertainty and slower business activity. Although inflation, rising interest rates and volatile global markets were all headwinds, the U.S. economy is projo ected to have added approximately 874,000 jobs in the foff urth quarter of 2022, while the unemployment rate averaged 3.6% in the foff urth quarter, consistent with the average during the third quarter of 2022. The equity markets experienced volatility from an increasingly hawkish Federal Reserverr 7% and Bloomberg Barclays U.S. Aggregate Bond Index rose 1.85% during the foff urth quarter. (“Fed”) yet the S&P 500 appreciated Our business is also sensitive to current and expected short-term interest rates, which are largely driven by Fed policy. During the foff urth quarter of 2022, Fed policymakers increased the target range foff r the federal funds rate to 4.25% to 4.50%. The Fed anticipates that ongoing increases to the target range will continue to be appropriate. Please consult the “R“ foff r more infoff rmation about the risks associated with significant interest rate changes and the potential related effff ects on our profitability and financial condition. Related to Our Businii ess and Industrtt y”r section within Part I, “I“ tem 1A. Riskii FaFF ctors”rr ii isks 42 Results of Operations ssion of changes inii our rerr sultstt of operarr titt ons durirr nii g thtt e year ended December 31, 2021 comparerr d to thtt e A didd scuii year ended December 31, 2020 has been omitted frff orr m thtt isii Annual Reportrr on FoFF rmrr 10-K,KK but may be foff und inii 7. Management’s’ Discuii on FoFF rmrr 10-K foff r thtt e fiff scaii sii of FiFF nii anciaii l year ended December 31, 2021, fiff lii ed wiww thtt l Condidd titt on and Resultstt of OpO erarr titt ons” inii our Annual Reportrr thtt e SEC on Februrr aryr 22, 2022. ssion and Analysi l “I“ tem The foff llowing discussion presents an analysis of our results of operations foff r the years ended December 31, 2022 and 2021 (in thousands): Years Ended December 31, 2022 2021 % Change $ 3,875,154 $ 3,525,430 10% 1,292,358 1,033,806 2,326,164 1,404,628 974,055 2,378,683 953,624 806,649 360,847 787,220 1,760,273 1,148,067 467,381 181,260 77,126 (86,533) 411,761 156,336 28,577 71,976 8,600,825 7,720,830 5,324,827 5,180,090 820,736 339,994 219,798 199,817 126,234 87,560 86,063 72,519 67,687 — 143,937 7,489,172 1,111,653 265,951 $ 845,702 $ 741,003 302,285 185,531 151,428 104,414 79,260 86,023 73,231 60,296 24,400 131,540 7,119,501 601,329 141,463 459,866 (8%) 6% (2%) 164% 2% 53% 14% 16% 170% n/m 11% 3% 11% 12% 18% 32% 21% 10% —% (1%) 12% (100%) 9% 5% 85% 88% 84% REVENUE Advisory Commission: Trailing Sales-based ToTT tal commission Asset-based: Client cash Other asset-based ToTT tal asset-based Servirr ce and fee Transaction Interest income, net Other ToTT tal revenue EXPENSE Advisory and commission Compensation and benefits Promotional Occupancy and equipment Depreciation and amortization Interest expense on borrowings Amortization of other intangibles Brokerage, clearing and exchange Professional servirr ces Communications and data processing Loss on extinguishment of debt Other ToTT tal expense INCOME BEFORE PROVISION FOR INCOME TATT XES PROVISION FOR INCOME TATT XES NET INCOME 43 Revevv nue Advisoii ryr Advisory revenue represents fees charged to advisors’ clients’ advisory accounts on our corporate RIA advisory platfoff rm and is based on a percentage of the market value of the eligible assets in the clients’ advisory accounts. We provide ongoing investment advice and act as a custodian, providing brokerage and execution servirr ces on transactions, and perfrr off rm administrative servirr ces foff r these accounts. Advisory fees are primarily billed to clients on a quarterly basis in advance, and are recognized as revenue ratably during the quarter. The perfrr off rmance obligation foff r advisory fees is considered a series of distinct servirr ces that are substantially the same and are satisfied daily. As the value of the eligible assets in an advisory account is susceptible to changes due to customer activity, this revenue includes variable consideration and is constrained until the date that the fees are determinable. The maja ority of these client accounts are on a calendar quarter and are billed using values as of the last business day of the preceding quarter. The value of the eligible assets in an advisory account on the billing date is adjusted foff r estimates of contributions and withdrawals to determine the amount billed, and accordingly, the revenue earned in the foff llowing three-month period. Advisory revenue collected on our corporate RIA advisory platfoff rm is proposed by the advisor and agreed to by the client and was approximately 1% of the underlying assets foff r the year ended December 31, 2022. We also support Independent RIAs through our Independent RIA advisory platfoff rm, which allows advisors to engage us foff r technology, clearing and custody servirr ces, as well as access the capabilities of our investment platfoff rms. The assets held under an Independent RIA’AA s investment advisory accounts custodied with LPL Financial are included in total advisory assets and net new advisory assets. However, the advisory revenue generated by an Independent RIA is not included in our advisory revenue. We charge separate fees to Independent RIAs foff r technology, clearing, administrative, oversight and custody servirr ces, which may vary and are included in our Servirr ce and fee revenue in our consolidated statements of income. The foff llowing table summarizes the composition of advisory assets foff r the periods presented (in billions): Corporate advisory assets Independent RIA advisory assets ToTT tal advisory assets December 31, 2022 2021 $ Change % Change $ $ 389.1 $ 429.6 $ 194.0 213.6 583.1 $ 643.2 $ (40.5) (19.6) ) (60.1) ( ) ( (9)% (9)% (9)% Net new advisory assets are generated throughout the quarter, therefoff re, the full impact of net new advisory assets to advisory revenue is not realized in the same period. The foff llowing table summarizes activity impacting advisory assets foff r the periods presented (in billions): Beginning balance at January 1 Net new advisory assets(1) Market impact(2) Ending balance at December 31 ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Years Ended December 31, 2022 2021 $ $ 643.2 $ 52.4 (112.5) 583.1 $ 461.2 123.5 58.5 643.2 (1) (2) Net new advisory assets consist of total client deposits into custodied advisory accounts less total client withdrawals from custodied advisory accounts, plus dividends, plus interest, minus advisory fees. We consider conversions from and to brokerage accounts as deposits and withdrawals, respectively. Market impact is the diffff erence between the beginning and ending asset balance less the net new asset amounts, representing the implied growth or decline in asset balances due to market changes over the same period of time. Advisory revenue increased during the year ended December 31, 2022 as compared to the same period in 2021. The increase during the year ended December 31, 2022 was driven primarily by continued organic growth and the full year impact of Waddell & Reed assets, partially offff seff changes. t by a decline in advisory asset balances due to market Commissi ii on We generate two types of commission revenue: (1) sales-based commissions that are recognized at the point of sale on the trade date and are based on a percentage of an investment product’s current market value at the time of purchase and (2) trailing commissions that are recognized over time as earned and are generally based on the 44 market value of investment holdings in trail-eligible assets. Sales-based commission revenue, which occurs when clients trade securities or purchase various types of investment products, primarily represents gross commissions generated by our advisors and can vary from period to period based on the overall economic environment, number of trading days in the reporting period and investment activity of our advisors’ clients. We earn trailing commission revenue primarily on mutual funds and variable annuities held by clients of our advisors. See Note 3 - Revenue, within the notes to the consolidated financial statements foff r further detail regarding our commission revenue by product category. The foff llowing table sets foff rth the components of our commission revenue foff r the periods presented (in thousands): Trailing Sales-based ToTT tal commission revenue Years Ended December 31, 2022 2021 $ Change % Change $ 1,292,358 $ 1,404,628 $ (112,270) 1,033,806 974,055 59,751 $ 2,326,164 $ 2,378,683 $ ) (52,519) ( ) ( (8)% 6 % (2)% The decrease in trailing commission revenue in 2022 compared to 2021 was primarily due to volatility-driven declines in trail-eligible assets. The increase in sales-based commission revenue in 2022 compared to 2021 was primarily driven by increases in sales of annuities, partially offff seff t by a decrease in sales of mutual funds. The foff llowing table summarizes activity impacting brokerage assets foff r the periods presented (in billions): Beginning balance at January 1 Net new brokerage assets(1) Market impact(2) Ending balance at December 31 ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Years Ended December 31, 2022 2021 $ $ 563.2 $ 43.5 (79.0) 527.7 $ 441.9 66.6 54.7 563.2 (1) (2) Net new brokerage assets consist of total client deposits into brokerage accounts less total client withdrawals from brokerage accounts, plus dividends, plus interest. We consider conversions from and to advisory accounts as deposits and withdrawals, respectively. Market impact is the diffff erence between the beginning and ending asset balance less the net new asset amounts, representing the implied growth or decline in asset balances due to market changes over the same period of time. Asset-Based Asset-based revenue consists of fees from our client cash programs, fees from our sponsorship programs with financial product manufacturers and fees from omnibus processing and networking servirr ces (collectively referred to as “recordkeeping”). Client cash revenue is generated on advisors’ clients’ cash balances in insured bank sweep accounts and money market accounts. We also receive fees from certain financial product manufacturers in connection with sponsorship programs that support our marketing and sales foff rce education and training effff off rts. Compensation foff r these perfrr off rmance obligations is either a fixed fee, a percentage of the average annual amount of product sponsor assets held in advisors’ clients’ accounts, a percentage of new sales or a combination. Omnibus processing revenue is paid to us by mutual fund product sponsors or their affff iliates and is based on the value of mutual fund assets in accounts foff r which the Company provides omnibus processing servirr ces and the number of accounts in which the related mutual fund positions are held. Networking revenue on brokerage assets is correlated to the number of positions we administer and is paid to us by mutual fund product sponsors and annuity product manufacturers. Asset-based revenue foff r the year ended December 31, 2022 increased by $612.2 million compared to 2021, primarilyy due to an increase in client cash revenue. Client cash revenue foff r the year ended December 31, 2022 increased compared to 2021 due to increases to the federal funds effff ective rate and higher average client cash balances. For the year ended December 31, 2022, our average client cash balances increased to $61.9 billion compared to $47.5 billion foff r the year ended December 31, 2021. Servirr ce and Fee Servirr ce and fee revenue is generated from advisor and retail investor servirr ces, including technology, insurance, conferences, licensing, business servirr ces and planning and advice servirr ces, IRA custodian and other client account fees. We charge separate fees to RIAs on our Independent RIA advisory platfoff rm foff r technology, clearing, administrative, oversight and custody servirr ces, which may vary. We also host certain advisor conferences that serverr as training, education, sales and marketing events foff r which we charge sponsors a fee. Servirr ce and fee revenue foff r the year ended December 31, 2022 increased by $55.6 million compared to 2021, primarily from increases in 45 conference fees, increases in IRA custodian fees driven by growth in accounts, and increases in business servirr ces and planning and advice servirr ces fees due to growth in subscriptions. Conference fees were higher in 2022 as all conferences were held in person compared to 2021, where one of our larger conferences was held virtually and several conferences were cancelled due to the COVID-19 pandemic. TrTT arr nsactitt on Transaction revenue includes transaction charges generated in both advisory and brokerage accounts from mutual funds, exchange-traded funds and fixed income products. Transaction revenue foff r the year ended December 31, 2022 increased by $24.9 million compared to 2021, primarily due to increases in the number of transactions and transaction charges foff r managed assets, mutual funds and fixed income products. Intererr st Income, net We earn interest income primarily from client margin loans, CCA balances segregated under federal or other regulations and advisor repayable loans. Interest income, net foff r the year ended December 31, 2022 increased compared to 2021, primarily due to higher interest earned on margin loans, bank deposits and short-term U.S. treasury bills, partially offff seff t by interest paid on CCA balances. Othtt er Other revenue primarily includes unrealized gains and losses on assets held by us in our advisor non-qualified deferred compensation plan and model research portfoff lios and other miscellaneous revenue, which is not generated from contracts with customers. Other revenue foff r the year ended December 31, 2022 decreased by $158.5 million compared to 2021, primarily due to realized and unrealized losses on assets held in our advisor non- qualified deferred compensation plan, which are based on the market perfrr off rmance of the underlying investment allocations chosen by advisors in the plan. ExEE pxx ense Advisoii ryr and Commissi ii on Advisory and commission expense consists of the foff llowing: payout amounts that are earned by and paid out to advisors and enterprises based on advisory and commission revenue earned on each client’s account, production- based bonuses earned by advisors and enterprises based on the levels of advisory and commission revenue they produce, compensation and benefits paid to employee advisors, the recognition of share-based compensation expense from equity awards granted to advisors and enterprises based on the fair value of the awards at grant date and the deferred advisory and commission fee expense associated with mark-to-market gains or losses on the non- qualified deferred compensation plan offff ered to our advisors. The foff llowing table sets foff rth our payout rate, which is a statistical or operating measure, foff r the periods presented: Payout rate Years Ended December 31, 2022 2021 Change 87.32 % 86.74 % 58 bps Our payout rate increased ffoff r the yyear ended December 31, 2022 compared to 2021 due to increases in sales off higgher-payyout products and the impact off onboardingg off enterprises duringg the yyear. Compensatitt on and Benefiff tstt Compensation and benefits expense includes salaries, wages, benefits, share-based compensation and related taxes foff r our employees, as well as compensation foff r temporary workers and contractors. The foff llowing table sets foff rth our average number of employees foff r the periods presented: AveAA rage number of employees Years Ended December 31, 2022 6,524 2021 5,283 % Change 23% Compensation and benefits expense foff r the year ended December 31, 2022 increased by $79.7 million compared to 2021, primarily due to an increase in headcount. 46 Prorr motitt onal Promotional expense includes business development costs related to advisor recruitment and retention, costs as training, sales and marketing events, and other costs related to hosting certain advisory conferences that serverr that support advisor business growth. For the year ended December 31, 2022 promotional expense increased by $37.7 million compared to 2021, primarilyy due to increases in recruited assets and advisors that led to higher costs to support transition assistance and retention, as well as increases in conference spend as we returned to in-person events. Occupu ancy and Equipii ment Occupancy and equipment expense includes the costs of leasing and maintaining our offff ice spaces, softff ware licensing and maintenance costs, and maintenance expense on computer hardware and other equipment. Occupancy and equipment expense foff r the year ended December 31, 2022 increased by $34.3 million compared to 2021, primarily due to increased expense related to softff ware licenses. Deprerr ciaii titt on and Amortrr itt zaii titt on Depreciation and amortization expense relates to the use of property and equipment, which includes internally developed softff ware, hardware, leasehold improvements and other equipment. Depreciation and amortization expense foff r the year ended December 31, 2022 increased by $48.4 million compared to 2021, primarily due to our continued investment in technology to support the integrations, enhance our advisor platfoff rm and experience, and support onboarding of enterprises. Intererr st ExpEE ense on Borrrr orr wiww nii gs Interest expense on borrowings includes the interest associated with the Company’s senior notes, senior secured TeTT rm Loan B (“TeTT rm Loan B”), amortization of debt issuance costs and fees associated with the Company’s revolving lines of credit. Interest expense on borrowings foff r the year ended December 31, 2022 increased by $21.8 million compared to 2021, primarily due to increases in interest rates associated with our TeTT rm Loan B. See Note 11 - Corprr orarr te Debt and Othtt er Borrrr orr wiww nii gs, Net, within the notes to the consolidated financial statements foff r further detail. Amortrr itt zaii titt on of Othtt er Intat ngibii les Amortization of other intangibles represents the benefits received foff r the use of long-lived intangible assets established through our acquisitions. Amortization of other intangibles foff r the year ended December 31, 2022 increased by $8.3 million compared to 2021, primarily due to increases in intangible assets resulting from acquisitions. See Note 4 - Acquisi consolidated financial statements foff r further detail. titt ons and Note 9 - Goodwiww lii lll and Othtt er Intat ngibii les, Net within the notes to the ii Loss on ExtEE itt nii guishii ment of Debt On March 15, 2021, we issued senior unsecured notes due in 2029 and redeemed our existing senior unsecured notes due in 2025. In connection with these transactions, we incurred a $24.4 million loss on extinguishment of debt foff r the year ended December 31, 2021. There was no loss on extinguishment of debt foff r the year ended December 31, 2022. Othtt er ExpEE ense Other expense includes the costs of the investigation, settlement and resolution of regulatory matters (including customer restitution and remediation), licensing fees, insurance, broker-dealer regulator fees, travel-related expenses and other miscellaneous expenses. Other expense depends in part on the size and timing of resolving regulatory matters and the availability of self-ff insurance coverage, which in turn depend in part on the amount and timing of resolving historical claims. Other expense foff r the year ended December 31, 2022 increased by $12.4 million compared to 2021, primarily due to increases in legal fees and travel-related costs, partially offff seff decreases in costs related to Waddell & Reed transitional support. t by CCOOVIVV DII -19 ImII pactt The COVID-19 pandemic has had a significant impact on global financial markets, and we continue to monitor foff r developments that could have a material effff ect on our operations. Please consult the “R“ Businii ess and Industrtt y”r with COVID-19. foff r more infoff rmation about the risks associated section within Part I, “I“ tem 1A. Riskii Related to Our FaFF ctors”rr isksii 47 Liquidity and Capital Resources We have established liquidity and capital policies intended to support the execution of strategic initiatives, while meeting regulatory capital requirements and maintaining ongoing and suffff icient liquidity. We believe liquidity is of critical importance to the Company and, in particular, to LPL Financial, our primary broker-dealer subsidiary. The objb ective of our policies is to ensure that we can meet our strategic, operational and regulatory liquidity and capital requirements under both normal operating conditions and under periods of stress in the financial markets. Liquididd tyt Our liquidity needs are primarily driven by capital requirements at LPL Financial, interest due on our corporate debt and other capital returns to stockholders. Our liquidity needs at LPL Financial are driven primarily by the level and volatility of our client activity. Management maintains a set of liquidity sources and monitors certain business trends and market metrics closely in an effff off rt to ensure we have suffff icient liquidity. We believe that based on current levels of cash flows from operations and anticipated growth, together with available cash balances and external liquidity sources, we have adequate liquidity to satisfyff our short-term and long-term working capital needs, the payment of all of our obligations and the funding of anticipated capital expenditures. Parerr nt Company Liquididd tyt LPL Holdings, Inc. (“Parent”), the direct holding company of our operating subsidiaries, considers its primary source of liquidity to be Corporate Cash. Corporate Cash, a component of cash and equivalents, is the sum of cash and equivalents from the foff llowing: (1) cash and equivalents held at the Parent, (2) cash and equivalents held at regulated subsidiaries as defined by the Credit Agreement, which include LPL Financial and PTC, in excess of the capital requirements of the Credit Agreement (which, in the case of LPL Financial, is net capital in excess of 10% of its aggregate debits, or five times the net capital required in accordance with Exchange Act Rule 15c3-1) and (3) cash and equivalents held at non-regulated subsidiaries. We believe Corporate Cash is a useful measure of the Parent’s liquidity as it represents the capital available foff r use in excess of the amount we are required to reserverr the components of Corporate Cash (in thousands): pursuant to the Credit Agreement. The foff llowing table presents Cash and equivalents Cash at regulated subsidiaries Excess cash at regulated subsidiaries per the Credit Agreement Corporate Cash Corporate Cash Cash at Parent Excess cash at regulated subsidiaries per the Credit Agreement Cash at non-regulated subsidiaries Corporate Cash December 31, 2022 December 31, 2021 $ $ $ $ 847,519 $ (392,571) 4,439 459,387 $ 448,180 $ 4,439 6,768 459,387 $ 495,246 (284,105) 25,846 236,987 202,407 25,846 8,734 236,987 Corporate Cash is monitored as part of our liquidity risk management. We target maintaining approximately $200.0 million in Corporate Cash, which covers approximately 18 months of principal and interest due on our corporate debt. The Company maintains additional liquidity through a $1.0 billion secured committed revolving credit facility. The Parent has the ability to borrow against the credit facility foff r working capital and general corporate purposes. Dividends from and excess capital generated by LPL Financial are the primary sources of liquidity. Subjb ect to regulatory approval or notification, capital generated by regulated subsidiaries can be distributed to the Parent to the extent the capital levels exceed regulatory requirements, Credit Agreement requirements and internal capital thresholds. During the twelve months ended December 31, 2022 and 2021, LPL Financial paid dividends of $1.1 billion and $465.0 million to the Parent, respectively. 48 Cash requirements and liquidity needs are primarily funded through our cash flow from operations and our capacity foff r additional borrowing. We actively monitor changes to our liquidity needs caused by general business volumes and price volatility, including higher margin requirements of clearing corporations and exchanges, and stress scenarios involving a sustained market downturn and the persistence of current interest rates. We believe that based on current levels of operations and anticipated growth, our cash flow from operations, together with other available sources of funds, which include five uncommitted lines of credit, the revolving credit facility established through our Credit Agreement and the committed revolving credit facility of LPL Financial, will provide us with adequate liquidity to satisfyff our short-term and long-term working capital needs, the payment of all of our obligations and the funding of anticipated capital expenditures. We regularly evaluate our existing indebtedness, including potential refinancing opportunities, 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. The earliest principal maturityy date ffoff r our corporate debt is in 2026 and our revolving credit facilities mature between 2023 and 2026, which makes us less dependent on capital markets in the near-term. Sharerr Repurchrr ases We engage in a share repurchase program that was approved by our Board, pursuant to which we may repurchase our issued and outstanding shares of common stock from time to time. Purchases may be effff ected in open market or privately negotiated transactions. Our current capital deployment framework remains foff cused on investing in organic growth first, pursuing acquisitions where appropriate and returning excess capital to stockholders. While we continue to see opportunities to deploy capital in support of organic growth and acquisitions, we resumed share repurchases in the third quarter of 2021 with the initial foff cus on an amount to offff seff million, representing 1,566,527 shares, during the year ended December 31, 2022. Additionally, on September 21, 2022, the Board authorized a $2.1 billion increase to the amount available foff r repurchases of our issued and outstanding common shares, with $2.0 billion available foff r repurchases beginning in 2023. We currently plan to complete the repurchases over approximately two years. The timing and amount of share repurchases, if any, is determined at our discretion within the constraints of our Credit Agreement, the Indentures, applicable laws and consideration of our general liquidity needs. See Note 15 - Stockholders’rr Equityt , within the notes to the consolidated financial statements foff r additional infoff rmation regarding our share repurchases. t dilution. We repurchased $325.0 Common Stock Dividendsdd The payment, timing and amount of any dividends are subjb ect to approval by the Board as well as certain limits under our Credit Agreement and the Indentures. See Note 15 - Stockholders’rr Equityt , within the notes to the consolidated financial statements foff r additional infoff rmation regarding our dividends. LPL FiFF nii anciaii l Liquididd tyt LPL Financial relies primarily on client payables to fund margin lending. LPL Financial maintains additional liquidity through external lines of credit totaling $1.2 billion at December 31, 2022. LPL Financial also maintains a line of credit with the Parent. ExEE ternrr al Liquididd tyt Sourcrr es The foff llowing table presents amounts outstanding and available under our external lines of credit at December 31, 2022 (in millions): Description Borrower Maturity Date Outstanding Available Senior secured, revolving credit facility LPL Holdings, Inc. March 2026 Broker-dealer revolving credit facility LPL Financial LLC August 2023 Unsecured, uncommitted lines of credit LPL Financial LLC Unsecured, uncommitted lines of credit LPL Financial LLC September 2023 September 2023 Unsecured, uncommitted lines of credit LPL Financial LLC Secured, uncommitted lines of credit Secured, uncommitted lines of credit LPL Financial LLC LPL Financial LLC None None None $ $ $ $ $ $ $ — $ — $ — $ — $ — $ — — 1,000 1,000 75 50 75 unspecified unspecified 49 Capitatt l Resourcrr es The Company seeks to manage capital levels in support of its business strategy of generating and effff ectively deploying capital foff r the benefit of our stockholders. Our primary requirement foff r working capital relates to funds we loan to our advisors’ clients foff r trading conducted on margin and funds we are required to maintain foff r regulatory capital and reserverr regulators and clearing organizations, which also consider client balances and 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 equivalents on hand, the committed revolving credit facility of LPL Financial and proceeds from repledging or selling client securities in margin accounts. When an advisor’s 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, up to 140% of the client’s margin loan balance, that collateralize those margin accounts. s based on the requirements of our Our other working capital needs are primarily related to loans we are making to advisors and timing associated with receivables and payables, which we have satisfied in the past from internally generated cash flows. We may sometimes be required to fund timing diffff erences arising from the delayed receipt of client funds associated with the settlement of client transactions in securities markets and cash sweep balances held at third-party banks. These timing diffff erences are funded either with internally generated cash flows or, if needed, with funds drawn on our uncommitted lines of credit at LPL Financial or one of our revolving credit facilities. LPL Financial is subjb ect to the SEC’s Unifoff rm 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 equal to the greater of $250,000 or 2% of aggregate debit balances arising from client transactions. At December 31, 2022, LPL Financial had net capital of $49.5 million with a minimum net capital requirement of $13.3 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% of aggregate customer debit balances. LPL Financial also acts as an introducing broker-dealer foff r commodities and futures. Accordingly, its trading activities are subjb ect to the NFAFF financial requirements and it is required to maintain net capital that is in excess of or equal to the greatest of NFAFF ’AA s minimum financial requirements. The NFAFF was designated by the Commodity Futures Trading Commission as LPL Financial’s primary regulator foff r such activities. Currently, the highest NFAFF requirement is the minimum net capital calculated and required pursuant to the SEC’s Unifoff rm Net Capital Rule. Our subsidiary, PTC, is also subjb ect to various regulatory capital requirements. Failure to meet the respective minimum capital requirements can result in certain mandatory and discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary impacts on PTC’s operations. Debt and Related Covenants The Credit Agreement and the Indentures contain a number of covenants that, among other things, restrict, subjb ect to certain exceptions, our ability to: incur additional indebtedness or issue disqualified stock or preferred stock; declare dividends, or other distributions to stockholders; repurchase equity interests; redeem indebtedness that is subordinated in right of payment to certain debt instruments; • • • • • make investments or acquisitions; • • • create liens; sell assets; guarantee indebtedness; • • • engage in certain transactions with affff iliates; enter into agreements that restrict dividends or other payments from subsidiaries; and consolidate, merge or transfer all or substantially all of our assets. 50 Our Credit Agreement and the Indentures allow us to pay dividends and distributions or repurchase our common stock only when certain conditions are met. In addition, our revolving credit facility requires us to be in compliance with certain financial covenants as of the last day of each fiscal quarter. The financial covenants require the calculation of Credit Agreement EBITDA, as defined in, and calculated by management in accordance with, the Credit Agreement. The Credit Agreement defines Credit Agreement EBITDA as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision foff r income taxes, depreciation and amortization and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments (including unusual or non-recurring charges) and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions. As of December 31, 2022, we were in compliance with our Credit Agreement financial covenants, which include a maximum Consolidated ToTT tal Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement) or “Leverage Ratio” and a minimum Consolidated EBITDA to Consolidated Interest Expense Ratio (as defined in the Credit Agreement) or “Interest Coverage.” The breach of these financial covenants would be subjb ect to certain equity cure rights. The required ratios under our financial covenants and actual ratios were as foff llows: Financial Ratio Leverage Ratio (Maximum) Interest Coverage (Minimum) December 31, 2022 Covenant Requirement Actual Ratio 5.0 3.0 1.39 14.44 The broker-dealer credit agreement subjb ects LPL Financial to certain financial and non-financial covenants. As of December 31, 2022, LPL Financial’s net capital was 8% of its aggregate debits, below the 10% aggregate debits required by a financial covenant. The agreement allows 5 days to cure non-compliance with this financial covenant, and it was cured within that allowable time period. LPL Financial was in compliance with all other covenants as of December 31, 2022. See Note 11 - Corprr orarr te Debt and Othtt er Borrrr orr wiww nii gs, Net, within the notes to the consolidated financial statements foff r further detail regarding the Credit Agreement and the Indentures. Contractual Obligations The foff llowing table provides infoff rmation with respect to our commitments and obligations as of December 31, 2022 (in thousands): Operating leases(1) Finance leases(1) Purchase obligations(2) Corporate debt and other borrowings, net(3) Interest payments(4) Commitment and other fees(5) Payments Due by Period Total < 1 Year 1-3 Years 3-5 Years > 5 Years $ 155,036 $ 24,820 $ 47,783 $ 48,237 $ 34,196 250,943 209,955 2,737,900 709,753 10,945 8,577 137,212 10,700 133,532 4,236 17,606 72,160 21,400 18,228 206,532 583 1,405,800 — 1,300,000 265,321 195,650 115,250 6,092 617 — Total contractual cash obligations $ 4,074,532 $ 319,077 $ 430,362 $ 1,669,115 $ 1,655,978 ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (1) (2) (3) (4) (5) Represents future payments under operating or finance leases, respectively. See Note 12 - Leases, within the notes to the consolidated financial statements fof r further detail. Includes future minimum payments under servirr ce, development and agency contracts and other contractual obligations. See Note 14 - Commitmtt entstt and Contitt nii gencies, within the notes to the consolidated financial statements fof r further detail on obligations under non- cancelable servirr ce contracts. Represents principal payments on our corporate debt and other borrowings. See Note 11 - Corprr orarr te Debt and Othtt er Borrrr orr wiww nii gs, Net, within the notes to the consolidated financial statements fof r further detail. Represents interest payments under our Credit Agreement, which include a variable interest payment fof r our senior secured credit facilities and a fixed interest payment foff r our senior unsecured notes. VaVV riable interest payments assume the applicable interest rates at December 31, 2022 remain unchanged. See Note 11 - Corprr orarr te Debt and Othtt er Borrrr orr wiww nii gs, Net, within the notes to the consolidated financial statements fof r further detail. Represents commitment fees foff r unused borrowings on the revolving credit facility under our Credit Agreement. See Note 11 - Corprr orarr te Debt and Othtt er Borrrr orr wiww nii gs, Net, within the notes to the consolidated financial statements foff r further detail. As of December 31, 2022, we have a liability foff r unrecognized tax benefits of $52.3 million, which we have included in other liabilities in the consolidated statements of financial condition. This amount has been excluded from the 51 contractual obligations table because we are unable to reasonably predict the ultimate amount or timing of future tax payments. Risk Managgement In order to assist in the mitigation and control of operational risk, we have an enterprise risk management (“ERM”) framework that is designed to enable assessment and reporting on operational risk across the firm. This framework aims to ensure policies and procedures are in place and appropriately designed to identifyff 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 foff llowed and that our employees and advisors operate within established corporate policies and limits. Please consult the “R“ Related to Our TeTT chnology”gg and ii isks foff r more infoff rmation the “R“ about the risks associated with our technology, including risks related to security, our risk management policies and procedures, and the potential related effff ects on our operations. Related to Our Businii ess and Industrtt y”r sections within Part I, “I“ tem 1A. Riskii FaFF ctors”rr ii isks We employ an ERM framework 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 ownership and accountability while providing a structured escalation process foff r key risk infoff rmation and events. Additionally, risk is managed and monitored within business units by embedded risk groups providing guidance on governance, controls, policies and other risk management activities. We operate a three lines of defense model to manage risk throughout the organization. Primary ownership foff r risk and control processes is with the business units and control owners, who are the first line of defense in effff ectively managing risks, and who are responsible foff r day-to-day compliance and risk management, including execution of operating and supervirr sory procedures, as well as training manuals (desktop procedures). These business units and certain control owners implement and execute controls to manage risk, execute risk assessments, identifyff emerging risks and comply with risk management policies. Within these business units a risk management function monitors, provides guidance and works with the business units and control owners to deploy risk management ownership within the first line of defense. The second line of defense consists of certain functions within our Finance and Business Operations department, which provides risk oversight and compliance, and Legal department, which provides related legal counsel. The third line of defense is independent verification of the effff ectiveness of risk management practices and internal controls and is conducted by the Internal Audit department. Our risk management governance approach includes the Board and certain of its committees; our Risk Oversight Committee (the “ROC”) and its subcommittees; and our three lines of defense model. We regularly reevaluate and, when necessary, modifyff our processes to improve the identification and escalation of risks and events. In addition to the ERM framework, 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 foff r client accounts, data, cyber and physical security, compliance with industry regulations and codes of conduct and ethics to govern employee and advisor conduct, among other emerging risk types. Audidd t and Risii k Committee of thtt e Boardrr In addition to its other responsibilities, the Audit and Risk Committee of the Board reviews our policies with respect to risk assessment and risk management, as well as our maja or financial risk exposures and the steps management has undertaken to control them. The Audit and Risk Committee generally provides reports to the Board at each of the Board’s regularly scheduled quarterly meetings. Compensatitt on and Human Resourcrr es Committee of thtt e Boardrr 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 effff ect on the Company. Risii k Ovevv rsrr igi ht Committee of LPL FiFF nii anciaii l The Audit and Risk Committee has mandated that the ROC oversee our risk management activities, including those of our subsidiaries. The CChieff Risk OOfffffff icer off LPL Financial serverr s as chair of the ROC, which generally meets on a quarterly basis with additional ad hoc meetings as necessary. The members of the ROC include certain Managing Directors of LPL Financial, as well as other members of LPL Financial’s senior management team who serverr as ex- 52 offff icio members and represent key control areas of the Company. Participation in the ROC by senior offff icers 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 Chief Risk Offff icer provides updates on pertinent ROC discussions to the Audit and Risk Committee on a regular basis and, if necessary or requested, to the Board. Subcommittees of thtt e Risii k Ovevv rsrr igi ht Committee The ROC has established multiple subcommittees that cover key areas of risk. The subcommittees meet regularly and are responsible foff r keeping the ROC infoff rmed and escalating issues in accordance with the Company’s escalation policies. The responsibilities of such subcommittees include, foff r example, oversight of operational risk; oversight of the approval of new and complex investment products offff ered to advisors’ clients; oversight of the firm’s technology; and issues and trends related to advisor compliance. InII ternrr al Audidd t Depe artrr mtt ent As the third line of defense, the Internal Audit department provides independent and objb ective assurance of the effff ectiveness of the Company’s governance, risk management and internal controls by conducting risk assessments and audits designed to identifyff and cover important risk categories. Internal Audit reports directly to the Audit and Risk Committee, which provides oversight of Internal Audit’s activities and approves its annual plan. The Internal Audit department provides regular updates to the ROC and reports to the Audit and Risk Committee at least quarterly. OpO erarr titt onal Risii k 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 infoff rmation technology systems, as well as third-party servirr ce providers and their systems, to manage a large volume of transactions and confidential infoff rmation, including personally identifiable infoff rmation, effff ectively and securely. Managing these risks is critical, particularly in a rapidly changing operating environment with increasing transaction volumes and in light of increasing reliance on systems capabilities and perfrr off rmance, as well as third- party servirr ce providers. In the event of the breakdown, obsolescence or improper operation of systems, malicious cyber activity or improper action by employees, advisors or third-party servirr ce providers, we could suffff er business disruptions, financial loss, data loss, regulatory sanctions and damage to our reputation. Although we have developed business continuity and disaster recovery plans, those plans could be inadequate, disrupted or otherwrr unsuccessful in maintaining the competitiveness, stability, security or continuity of critical systems as a result of, among other things, obsolescence, improper operation, third-party dependencies or limitations of our current technology. ise Regulall toryrr and Legal Risii k The regulatory environment in which we operate is discussed in detail within Part I, “I“ tem 1. Businii ess” of this Annual Report on Form 10-K. In recent years, and during the period presented in this Annual Report on Form 10-K, we have observerr d the SEC, FINRA, DOL and state regulators broaden the scope, frequency and depth of their examinations and inquiries to include greater emphasis on the quality, consistency and oversight of our compliance systems and programs. Please consult the “R“ Related to Our Businii ess and Industrtt y”r foff r more infoff rmation about the risks associated with operating within our regulatory environment, pending regulatory matters and the potential related effff ects on our operations. isksii sections within Part I, “I“ tem 1A. Riskii ii Related to Our Regulatoryr EnEE virii orr nment” and the “R“ isks FaFF ctors”rr Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAAA P,P which requires management to make estimates, judgments and assumptions that affff ect the amounts reported in the consolidated financial statements and accompanying notes. We consider the foff llowing critical accounting policies to be most significant because they involve a higher degree of judgment and complexity and 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 condition or results of operations. 53 Revenue Recognititt on Revenue is recognized when control of the promised servirr ce is transferred to customers in an amount that reflects the consideration that we expect to be entitled to in exchange foff r those servirr ces. Management exercises judgment to estimate revenue accruals. In particular, our trailing commission revenue, included in commission revenue on the consolidated statements of income, is generally received in arrears and therefoff re requires our management to estimate accrued amounts based on revenue received in prior periods, market perfrr off rmance and payment frequency of each product type or sponsor. See Note 2 - Summaryr of Sigi nifii iff cant Accountitt nii g Polill cies and Note 3 - Revenue, within the notes to the consolidated financial statements foff r further detail. Commitmtt entstt and Contitt nii gencies Liabilities related to loss contingencies are recognized when we believe it is probable a liability has occurred and the amount can be reasonably estimated by management. We have established an accrual foff r those legal proceedings and regulatory matters foff r which a loss is both probable and the amount can be reasonably estimated. We also accrue foff r losses at our captive insurance subsidiary foff r those matters covered by self-ff insurance. Our captive insurance subsidiary records losses and loss reserverr losses incurred, as well as specific reserverr estimable. Assessing the probability of a loss occurring and the timing and amount of any loss related to a legal proceeding or regulatory matter is inherently diffff icult and requires management to make significant judgments. For additional infoff rmation, see Note 2 - Summaryr of Sigi nifi iff cant Accountitt nii g Polill cies and Note 14 - Commitmtt entstt and Contitt nii gencies - “L“ egal and Regulatoryr Matters,rr ” within the notes to the consolidated financial statements. s foff r proceedings and matters that are probable and liabilities based on actuarially determined estimates of VaVV luatitt on of Goodwiww lii lll and Othtt er Intat ngibii les, Net Goodwill is recognized as a result of business combinations and is measured as the excess of the purchase price over the fair value of the net assets acquired. The valuation of goodwill and other intangibles, net requires management to apply judgment and assumptions when estimating future earnings and perfrr off rmance. Management also applies judgment when testing foff r impairment of goodwill and other indefinite-lived intangible assets, including estimating fair values. Goodwill and other indefinite-lived intangible assets are evaluated annually foff r impairment in the foff urth fiscal quarter and between annual tests if certain events occur indicating that the carrying amounts may be impaired. Intangible assets that are deemed to have definite lives are amortized over their useful lives or the estimated period the intangible asset will provide economic benefit. Definite-lived intangible assets are reviewed foff r impairment when there is evidence that events or changes in circumstances indicate that the carrying amount may not be recoverable. For additional infoff rmation, see Note 2 - Summaryr of Sigi nifi iff cant Accountitt nii g Polill cies and Note 9 - Goodwiww lii lll and Othtt er Intat ngibii les, Net within the notes to the consolidated financial statements. Income TaTT xes In preparing the consolidated financial statements, we estimate income tax expense based on various jurisdictions where we conduct business. This requires management to estimate current tax obligations and to assess temporary diffff erences between the financial statement carrying amounts and the tax basis of assets and liabilities. These temporary diffff erences result in deferred tax assets and liabilities, which we must then 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. Changes in the estimate of tax assets and liabilities 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 we had previously taken certain tax positions and newly enacted statutory, judicial and regulatory guidance. For more infoff rmation, see Note 2 - Summaryr of Sigi nifi iff cant Accountitt nii g Polill cies and Note 13 - Income TaTT xes, within the notes to the consolidated financial statements. Recentlyy Issued Accountingg Pronouncements Refer to Note 2 - Summaryr of Sigi nifi iff cant Accountitt nii g Polill cies, within the notes to the consolidated financial statements foff r a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us. 54 Item 7A. QQuantitative and QQualitative 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, to track the perfrr off rmance of our research models and in connection with our dividend reinvestment program. Trading securities are included in investment securities while securities sold, but not yet purchased are included in other liabilities on the consolidated statements of financial condition and can include mutual funds, money market funds, debt securities and equity securities. We enter into market risk sensitive instruments foff r purposes other than trading, which are included in other assets on the consolidated statements of financial condition and can include deferred compensation plan assets invested in life insurance, money market and other mutual funds, investments in fractional shares held by customers, and other non-traded real estate investment trusts and auction rate notes. Changes in the value of our market risk sensitive instruments may result from fluctuations in interest rates, credit ratings of the issuer, equity prices or a combination of these factors. In facilitating client transactions, our securities owned and securities sold, but not yet purchased generally involve mutual funds, including dividend reinvestments. Our positions held are based upon the settlement of client transactions, which are monitored by our Trading and Operations department. Positions held to meet clearing deposit requirements consist of U.S. government securities and equity securities. The amount of securities deposited depends upon the requirements of the clearing organization. The level of securities deposited is monitored by the settlements group within our Trading and Operations department. Our Research department develops model portfoff lios that are used by advisors in developing client portfoff lios. We maintain securities owned in internal accounts based on these model portfoff lios to track the perfrr off rmance of our Research department. At the time a portfoff lio is developed, we purchase the securities in that model portfoff lio in an amount equal to the account minimum, which varies by product. In addition, we are subjb ect to market risk resulting from operational risk events, which can require customer trade corrections. We also bear market risk on the fees we earn that are based on the market value of advisory and brokerage assets, as well as assets on which trailing commissions are paid and assets eligible foff r sponsor payments. As of December 31, 2022, the fair value of our trading securities was $36.8 million, and securities sold, but not yet purchased were not material. The fair value of market risk sensitive instruments entered into foff r other than trading purposes included within other assets was $617.5 million as of December 31, 2022. See Note 5 - FaFF irii VaVV lue Measurerr mentstt within the notes to the consolidated financial statements foff r infoff rmation regarding the fair value of trading securities, securities sold, but not yet purchased and other assets associated with our client facilitation activities. Interest Rate Risk We are exposed to risk associated with changes in interest rates. As of December 31, 2022, $1.0 billion of our outstanding debt was subjb ect to floating interest rate risk. While our senior secured term loan is subjb ect to increases in interest rates, we do not believe that a short-term change in interest rates would have a material impact on our net income given revenue generated by our client cash balances, which is generally subjb ect to the same, but offff -ff setting, interest rate risk. The foff llowing table summarizes the impact of increasing interest rates on our interest expense from the variable portion of our debt outstanding, calculated using the projo ected average outstanding balance over the subsequent twelve-month period (in thousands): Corporate Debt and Other Borrowings TeTT rm Loan B ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Outstanding Balance at December 31, 2022 Annual Impact of an Interest Rate (†) Increase of 100 Basis 50 Basis 25 Basis 10 Basis Points Points Points Points $ 1,037,900 $ 1,031 $ 2,578 $ 5,156 $ 10,312 (†) Our interest rate foff r our TeTT rm Loan B is locked in foff r one, two, three, six or twelve months as allowed under the Credit Agreement. At the end of the selected periods the rates will be locked in at the then current rate. The effff ect of these interest rate locks are not included in the table above. 55 See Note 11 - Corprr orarr te Debt and Othtt er Borrrr orr wiww nii gs, Net,t within the notes to the consolidated financial statements foff r additional infoff rmation. We offff er our advisors and their clients two FDIC insured bank sweep vehicles and a CCA that are interest rate sensitive. Our FDIC insured sweep vehicles include an (1) ICA foff r individuals, trusts, sole proprietorships and entities organized or operated to make a profit, such as corporations, partnerships, associations, business trusts and other organizations and (2) an insured deposit cash account (“DCA”) foff r advisory individual retirement accounts. Clients earn interest on deposits in the ICA and the DCA while we earn a fee. The fees we earn from cash held in the ICA are based primarily on prevailing interest rates in the current interest rate environment. The fees we earn from the DCA are calculated as a per account fee, and such fees increase as the federal funds target rate increases, subjb ect to a cap. The Company places ICA sweep overfrr low into the CCA. These deposits are either used to fund client margin lending or placed in third-party bank or investment accounts, both of which are segregated under federal or other regulations, where they are held as cash or invested in short-term U.S. treasury bills. We earn interest income on these bank deposits and investments in short-term U.S. treasury bills and pay interest to clients on these CCA balances, which are sensitive to prevailing interest rates. This interest income and expense is included in Interest income, net in the consolidated statements of income. Changes in interest rates and fees foff r the deposit sweep vehicles 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 foff r other market or non-market reasons, the RSC considers financial risk of the deposit sweep vehicles relative to other products into which clients may move cash balances. 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. We are subjb ect to credit risk from certain loans extended to advisors and enterprises when we extend loans with repayment terms to facilitate advisors’ and enterprises’ transition to our platfoff rm or to fund business development activities. We are also subjb ect to credit risk when a foff rgivable loan to an advisor or enterprise converts to repayable upon advisor or enterprise termination or change in agreed upon terms. Credit risk also arises when collateral posted with LPL Financial by clients to support margin lending or derivative trading is insuffff icient to meet clients’ contractual obligations to LPL Financial. Our credit exposure in these transactions consists primarily of margin accounts, through which we extend credit to advisors’ clients collateralized by securities in the clients’ accounts. Under many of these agreements, we are permitted to sell, repledge 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 clients’ accounts is insuffff icient to fully cover losses from such investments and our advisors fail to reimburse us foff r such losses. Our losses on margin accounts were immaterial during the years ended December 31, 2022 and 2021. We monitor exposure to industry sectors and individual securities and perfrr off rm 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 subjb ect 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, or if we accept a concentrated position as collateral foff r 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 monitored. We seek to limit this risk through review of the underlying business and the use of limits established by senior management taking into consideration factors including current market conditions, 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. 56 Item 8. Financial Statements and Supplementaryrr Data Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020 . . . . . . . . . . Consolidated Statements of Financial Condition as of December 31, 2022 and 2021 . . . . . . . . . . . . . . . . . . Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 1 - Organization and Description of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 2 - Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 3 - Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 4 - Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 5 - Fair Value Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 6 - Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 7 - Receivables from and Payables to Brokers, Dealers and Clearing Organizations . . . . . . . . . . . Note 8 - Property and Equipment, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 9 - Goodwill and Other Intangibles, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 10 - Other Assets and Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 11 - Corporate Debt and Other Borrowings, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 12 - Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 13 - Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 14 - Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 15 - Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 16 - Share-based Compensation, Employee Incentives and Benefit Plans . . . . . . . . . . . . . . . . . . . . Note 17 - Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 18 - Net Capital and Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 19 - Financial Instruments with Off-Balance Sheet Credit Risk and Concentrations of Credit Risk Note 20 - Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 58 60 61 62 63 65 65 65 72 76 76 81 81 82 82 84 85 87 88 90 92 92 95 95 96 96 57 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ToTT the stockholders and the Board of Directors of LPL Financial Holdings Inc. Opinion on the Financial Statements We have audited the accompanyyingg consolidated statements off ffinancial condition off LPL Financial Holdinggs Inc. and subsidiaries ((the "CCompanyy")) as off December 31, 2022 and 2021, the related consolidated statements off income, stockholders' equityy, and cash fflows, ffoff r each off the three yyears in the period ended December 31, 2022, and the related notes ((collectivelyy refferred to as the "ffinancial statements")). In our opinion, the ffinancial statements present ffairlyy, in all material respects, the ffinancial position off the CCompanyy as off December 31, 2022 and 2021, and the results off its operations and its cash fflows ffoff r each off the three yyears in the period ended December 31, 2022, in conffoff rmityy with accountingg principles ggenerallyy accepted in the United SStates off America. We have also audited, in accordance with the standards off the Public CCompanyy Accountingg OOversigght Board ((United SStates)s) ((PCCAOOB)), the CCompanyy's internal control over ffinancial reportingg as off December 31, 2022, based on (2(( 013)3 issued byy the CCommittee off SSponsoringg criteria established in Internrr al Contrtt orr l — Integrarr ted FrFF arr mewoww rkrr OOrgganizations off the Treadwayy CCommission and our report dated Februaryy 23, 2023 expressed an unqualiffied opinion on the CCompanyy's internal control over ffinancial reportingg. Basis for Opinion These ffinancial statements are the responsibilityy off the CCompanyy's managgement. OOur responsibilityy is to express an opinion on the CCompanyy's ffinancial statements based on our audits. We are a public accountingg ffirm reggistered with the PCCAOOB and are required to be independent with respect to the CCompanyy in accordance with the U.SS. ffederal securities laws and the applicable rules and reggulations off the SSecurities and Exchangge CCommission and the PCCAOOB. We conducted our audits in accordance with the standards off the PCCAOOB. Those standards require that we plan and perffrr off rm the audit to obtain reasonable assurance about whether the ffinancial statements are ffree off material misstatement, whether due to error or ffraud. OOur audits included perffrr off rmingg procedures to assess the risks off material misstatement off the ffinancial statements, whether due to error or ffraud, and perffrr off rmingg procedures that respond to those risks. SSuch procedures included examiningg, on a test basis, evidence reggardingg the amounts and disclosures in the ffinancial statements. OOur audits also included evaluatingg the accountingg principles used and siggnifficant estimates made byy managgement, as well as evaluatingg the overall presentation off the ffinancial statements. We believe that our audits provide a reasonable basis ffoff r our opinion. CCritical Audit Matterr The critical audit matter communicated below is a matter arisingg ffrom the current-period audit off the ffinancial statements that was communicated or required to be communicated to the audit committee and that ((1)) relates to accounts or disclosures that are material to the ffinancial statements and ((2)) involved our especiallyy challenggingg, subjjb ective, or complex jjudggments. The communication off critical audit matters does not alter in anyy wayy our opinion on the ffinancial statements, taken as a whole, and we are not, byy communicatingg the critical audit matter below, providingg a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue - Trailingg CCommission Revenue Accrual — Reffer to Note 3 to the ffinancial statements CCrirr titt cal Audidd t Matter Descrirr pii titt on The CCompanyy’s trailingg commission revenue is ggenerallyy received in arrears and thereffoff re estimated and accrued at yyear-end. The estimate is based on commissions revenue received in prior periods, adjjusted usingg changge ffactors based on market perffrr off rmance and the payyment ffrequen ycy ffoff r each investment product tyype and sponsor. Because off the volume off investment product tyypes and sponsors and variabilityy in the correspondingg payyment ffrequencies, the Company perfrr off rms manual calculations and exercises judgment in determining the revenue estimate. We identiffied the CCompanyy’s trailingg commission revenue accrual as a critical audit matter because off the jjudggments necessaryy ffoff r managgement to estimate the revenue accrual. This required an increased extent off audit efffffff off rt and a higgh deggree off auditor jjudggment when perffrr off rmingg audit procedures to evaluate the inputs and jjudggments related to the revenue accrual and evaluatingg the results off those procedures. 58 How thtt e CCrirr titt cal Audidd t Matter WaWW s Addrdd err ssed inii thtt e Audidd tt OOur audit procedures related to the inputs and jjudggments used byy managgement to estimate the yyear-end accrual ffoff r trailing commission revenues included the foff llowing, among others: • We tested the effff ectiveness of internal controls over the accrual foff r trailing commission revenue, including those over the inputs and judgments used by management in the calculation of the accrual and the historical lookback analysis comparing monthly accruals to subsequent cash receipts • We compared management’s market perfrr off rmance data to external sources and challenged their methodology foff r potential management bias by evaluating the sensitivity of changes in market factors on the accrual • We compared the accrual to actual trailing commission revenue received subsequent to year-end • We tested the historical cash receipts used to estimate the year-end accrual by comparing them to bank statements • We evaluated the payment frequency assumption used by management in the estimation of the accrual foff r a sample of investment product types and sponsors by comparing the assumption to the actual cash receipts frequency • We tested the mathematical accuracy of the accrual /s/ Deloitte & ToTT uche LLP San Diego, Califoff rnia Februaryy 23, 2023 We have serverr d as the Company's auditor since 2001. 59 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data) REVENUE Advisory Commission: Trailing Sales-based ToTT tal commission Asset-based: Client cash Other asset-based ToTT tal asset-based Servirr ce and fee Transaction Interest income, net Other ToTT tal revenue EXPENSE Advisory and commission Compensation and benefits Promotional Occupancy and equipment Depreciation and amortization Interest expense on borrowings Amortization of other intangibles Brokerage, clearing and exchange Professional servirr ces Communications and data processing Loss on extinguishment of debt Other ToTT tal expense INCOME BEFORE PROVISION FOR INCOME TATT XES PROVISION FOR INCOME TATT XES NET INCOME EARNINGS PER SHARE Earnings per share, basic Earnings per share, diluted Weighted-average shares outstanding, basic Weighted-average shares outstanding, diluted Years Ended December 31, 2022 2021 2020 $ 3,875,154 $ 3,525,430 $ 2,327,519 1,292,358 1,033,806 2,326,164 1,404,628 974,055 2,378,683 953,624 806,649 360,847 787,220 1,135,796 770,764 1,906,560 481,388 563,129 1,760,273 1,148,067 1,044,517 467,381 181,260 77,126 (86,533) 411,761 156,336 28,577 71,976 357,722 148,349 29,412 57,561 8,600,825 7,720,830 5,871,640 5,324,827 5,180,090 3,697,147 820,736 339,994 219,798 199,817 126,234 87,560 86,063 72,519 67,687 — 143,937 7,489,172 1,111,653 265,951 741,003 302,285 185,531 151,428 104,414 79,260 86,023 73,231 60,296 24,400 131,540 7,119,501 601,329 141,463 $ $ $ 845,702 $ 459,866 $ 10.60 $ 10.40 $ 79,801 81,285 5.75 $ 5.63 $ 80,002 81,742 609,257 208,250 166,389 109,732 105,765 67,358 71,185 57,067 52,399 — 101,018 5,245,567 626,073 153,433 472,640 5.96 5.86 79,244 80,702 See notes to consolidated financial statements. 60 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition (In thousands, except share data) ASSETS Cash and equivalents Cash and equivalents segregated under federal or other regulations Restricted cash Receivables from clients, net Receivables from brokers, dealers and clearing organizations Advisor loans, net Other receivables, net Investment securities Property and equipment, net Goodwill Other intangibles, net Other assets ToTT tal assets LIABILITIES: LIABILITIES AND STOCKHOLDERS’ EQUITY Client payables Payables to brokers, dealers and clearing organizations Accrued advisory and commission expenses payable Corporate debt and other borrowings, net Accounts payable and accrued liabilities Other liabilities ToTT tal liabilities Commitments and contingencies (Note 14) STOCKHOLDERS’ EQUITY: Common stock, $0.001 par value; 600,000,000 shares authorized; 129,655,843 shares and 128,758,086 shares issued at December 31, 2022 and 2021, respectively Additional paid-in capital Treasury stock, at cost — 50,407,844 shares and 48,768,145 shares at December 31, 2022 and 2021, respectively Retained earnings ToTT tal stockholders’ equity ToTT tal liabilities and stockholders’ equity See notes to consolidated financial statements. December 31, 2022 2021 $ 847,519 $ 2,199,362 90,389 561,569 56,276 1,123,004 677,766 52,610 780,357 1,642,468 427,676 1,023,230 9,482,226 $ 2,694,929 $ 147,752 203,292 2,717,444 448,630 1,102,627 7,314,674 $ $ 495,246 1,496,463 80,655 578,889 102,503 963,869 581,483 49,192 658,841 1,642,443 455,028 886,988 7,991,600 1,712,224 170,119 222,379 2,814,044 384,025 1,018,276 6,321,067 130 1,912,886 129 1,841,402 (2,846,536) 3,101,072 2,167,552 9,482,226 $ (2,498,600) 2,327,602 1,670,533 7,991,600 $ 61 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (In thousands) BALANCE — December 31, 2019 126,494 $ 126 $1,703,973 46,260 $(2,234,793) $1,554,567 $ 1,023,873 Common Stock Shares Amount Additional Paid-In Capital Treasuryrr Stock Shares Amount Retained Earnings Total Stockholders’ Equity Cumulative effff ect of accounting change Net income Issuance of common stock to settle restricted stock units Treasury stock purchases Cash dividends on common stock - $1.00 per share Stock option exercises and other Share-based compensation BALANCE — December 31, 2020 Net income Issuance of common stock to settle restricted stock units Treasury stock purchases Cash dividends on common stock - $1.00 per share Stock option exercises and other Share-based compensation BALANCE — December 31, 2021 Net income Issuance of common stock to settle restricted stock units Treasury stock purchases Cash dividends on common stock - $1.00 per share — — 417 — — 675 — 127,586 $ — — — — — — — — — — 24,822 1 — 127 $1,762,770 33,975 — 406 — — — — — — — — — — 766 — 128,758 $ 34,457 2 — 129 $1,841,402 44,175 — 368 — — — — — — — — — — Stock option exercises and other Share-based compensation BALANCE — December 31, 2022 530 — 129,656 $ 18,876 1 — 130 $1,912,886 52,608 — — 134 — — (7,317) 472,640 (9,420) 1,810 (150,036) — — — (89) — — (79,097) 3,187 2,226 — — (7,317) 472,640 (9,420) (150,036) (79,097) 30,236 33,975 48,115 $(2,391,062) $1,943,019 $ 1,314,854 — 147 580 — (74) — — 459,866 (20,230) (90,011) — — — (80,095) 2,703 4,812 — — 459,866 (20,230) (90,011) (80,095) 41,974 44,175 48,768 $(2,498,600) $2,327,602 $ 1,670,533 — 845,702 — 136 (25,157) 1,566 (325,031) — — — (62) — — (79,833) 2,252 7,601 — — 50,408 $(2,846,536) $3,101,072 $ ) ) ( ( 845,702 (25,157) (325,031) (79,833) 28,730 52,608 2,167,552 See notes to consolidated financial statements. 62 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) CASH FLOWS FROM OPERATAA ING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of other intangibles Amortization of debt issuance costs Share-based compensation Provision foff r credit losses Deferred (benefit) provision foff r income taxes Loss on extinguishment of debt Loan foff rgiveness Other Changes in operating assets and liabilities: Receivables from clients, net Receivables from brokers, dealers and clearing organizations Advisor loans, net Other receivables, net Investment securities - trading Other assets Client payables Payables to brokers, dealers and clearing organizations Accrued advisory and commission expenses payable Accounts payable and accrued liabilities Other liabilities Operating lease assets Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures Acquisitions, net of cash acquired Purchases of securities classified as held-to-maturity Proceeds from maturities of securities classified as held-to-maturity Purchases of other investments Net cash used in investing activities Continued on fof llowing page Years Ended December 31, 2022 2021 2020 $ 845,702 $ 459,866 $ 472,640 199,817 87,560 6,853 52,608 13,667 (93,349) — 179,529 14,783 17,254 46,227 (341,872) (107,588) (73) (148,263) 982,705 (22,367) (19,087) 50,664 183,381 (2,574) 1,945,577 (306,596) (56,458) (10,936) 5,000 (7,410) (376,400) 151,428 79,260 5,733 44,175 9,168 18,464 24,400 151,427 (10,007) (174,236) (4,764) (526,677) (140,021) (8,732) (136,182) 177,703 80,376 29,771 12,390 211,819 (2,227) 453,134 (215,987) (245,913) (1,741) 5,000 — (458,641) 109,732 67,358 5,384 33,975 5,824 (23,684) — 113,126 (12,673) 28,475 (57,372) (219,813) (18,480) 16,072 (126,641) 256,977 (2,259) 12,710 (6,585) 137,142 (1,967) 789,941 (155,532) (30,556) (6,511) 5,100 — (187,499) 63 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities Repayments of revolving credit facilities Repayment of senior secured term loans Repayment of senior unsecured notes Proceeds from senior unsecured notes Payment of debt issuance costs Make-whole premium on redemption of senior unsecured notes Payment of contingent consideration TaTT x payments related to settlement of restricted stock units Repurchase of common stock Dividends on common stock Proceeds from stock option exercises and other Principal payment of finance leases and obligations Net cash (used in) provided by financing activities Years Ended December 31, 2022 2021 2020 815,000 1,585,000 1,806,000 (905,000) (10,700) — — (1,872) — — (25,157) (325,031) (79,833) 28,730 (408) (504,271) (1,495,000) (10,700) (900,000) 1,300,000 (15,929) (1,851,000) (10,700) — — — (25,875) (8,941) (20,230) (90,011) (80,095) 41,974 (1,356) 278,837 — (10,000) (9,420) (150,036) (79,097) 30,236 (1,169) (275,186) NET INCREASE IN CASH AND EQUIVAVV LENTS, CASH AND EQUIVAVV LENTS SEGREGATAA ED UNDER FEDERAL OR OTHER REGULATAA IONS AND RESTRICTED CASH CASH AND EQUIVAVV LENTS, CASH AND EQUIVAVV LENTS SEGREGATAA ED UNDER FEDERAL OR OTHER REGULATAA IONS AND RESTRICTED CASH — Beginning of year 1,064,906 273,330 327,256 2,072,364 1,799,034 1,471,778 CASH AND EQUIVAVV LENTS, CASH AND EQUIVAVV LENTS SEGREGATAA ED UNDER FEDERAL OR OTHER REGULATAA IONS AND RESTRICTED CASH — End of year $ 3,137,270 $ 2,072,364 $ 1,799,034 SUPPLEMENTATT L DISCLOSURES OF CASH FLOW INFORMATAA ION: Interest paid Income taxes paid Cash paid foff r amounts included in the measurement of operating lease liabilities $ $ $ 118,824 $ 238,155 $ 103,689 $ 144,556 $ 106,879 169,237 24,657 $ 22,355 $ 21,368 Cash paid foff r amounts included in the measurement of finance lease liabilities $ 8,825 $ 9,716 $ 9,592 NONCASH DISCLOSURES: Capital expenditures included in accounts payable and accrued liabilities Lease assets obtained in exchange foff r operating lease liabilities Cash and equivalents Cash and equivalents segregated under federal or other regulations Restricted cash $ $ $ 33,957 $ 10,785 $ 21,373 $ 3,602 $ 12,186 7,968 December 31, 2022 847,519 $ 2021 495,246 $ 2,199,362 1,496,463 2020 808,612 923,158 90,389 80,655 67,264 ToTT tal cash and equivalents, cash and equivalents segregated under federal or other regulations and restricted cash shown in the statements of cash flows $ 3,137,270 $ 2,072,364 $ 1,799,034 See notes to consolidated financial statements. 64 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 - 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 platfoff rm of brokerage and investment advisory servirr ces to independent financial advisors and financial advisors at enterprises (collectively, “advisors”) in the United States. Through its custody and clearing platfoff rm, using both proprietary and third-party technology, the Company provides access to diversified financial products and servirr ces, enabling its advisors to offff er personalized financial advice and brokerage servirr ces to retail investors (their “clients”). The Company’s most significant, wholly owned subsidiaries are described below: • • • • • • • LPL Holdings, Inc. (“LPLH” or “Parent”), a Massachusetts holding corporation, is an intermediate holding company and directly or indirectly owns 100% of the issued and outstanding common stock of all of LPLFH’s indirect subsidiaries, including a captive insurance subsidiary (the “Captive Insurance Subsidiary”) that underwrr rites insurance foff r various legal and regulatory risks of the Company. LPL Financial LLC (“LPL Financial”), with primary offff ices in San Diego, Califoff rnia; Fort Mill, South Carolina; Boston, Massachusetts; and Austin, TeTT xas, is a clearing broker-dealer and an investment advisor that principally transacts business as an agent foff r its advisors and enterprises on behalf of their clients in a broad array of financial products and servirr ces. 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 provide solutions and consulting servirr ces to registered investment advisors (“RIAs”), banks and trust companies servirr ng high-net-worth clients. LPL Insurance Associates, Inc. operates as an insurance brokerage general agency that offff ers life and disability insurance products and servirr ces foff r LPL Financial advisors. AWAA Subsidiary, Inc. is a holding company foff r AdvisoryWorld and Blaze Portfoff lio Systems LLC (“Blaze”). AdvisoryWorld offff ers technology products, including proposal generation, investment analytics and portfoff lio modeling, to both the Company’s advisors and external clients in the wealth management industry. Blaze provides an advisor-facing trading and portfoff lio rebalancing platfoff rm. PTC Holdings, Inc. (“PTCH”) is a holding company foff r 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 servirr ces foff r estates and families. PTC, together with its affff iliate Fiduciary Trust Company of New Hampshire, also provides Individual Retirement Account (“IRA”) custodial servirr ces foff r LPL Financial. Each member of PTCH’s Board of Directors meets the direct equity ownership interest requirements that are required by the Offff ice of the Comptroller of the Currency (“OCC”). LPL Employee Servirr ces, LLC and its subsidiary, Allen & Company of Florida, LLC, provide primary support foff r the Company’s employee advisor affff iliation model. NOOTE 2 - SSUMMARY OOF SSIGGNIFICCANT ACCCCOOUNTINGG POOLICCIESS Basisii of PrPP err sentatt titt on These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAAA P”), which require the Company to make estimates and assumptions regarding the valuation of certain financial instruments, goodwill and other intangibles, allowance foff r credit losses on receivables, share-based compensation, accruals foff r liabilities, income taxes, revenue and expense accruals and other matters that affff ect the consolidated financial statements and related disclosures. Actual results could diffff er from those estimates under diffff erent assumptions or conditions and the diffff erences may be material to the consolidated financial statements. 65 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Consolill dadd ted FiFF nii anciaii l Statt tement PrPP err sentatt titt on Changes The Company reclassified certain financial statement line items in the consolidated statements of income during the year ended December 31, 2021 to more closely align with industry practice and the Company’s business, and to better serverr financial statement users. Prior period amounts in the consolidated statements of income have been reclassified to confoff rm to this presentation as foff llows: • • The Company has disaggregated the activity previously reported in the Transaction and fee line item in ToTT tal revenue into its Servirr ce and fee and Transaction components; The Company has included Interest expense on borrowings and Loss on extinguishment of debt in ToTT tal expense. Previously, these amounts were presented aftff er ToTT tal operating expense. These changes did not impact total net income foff r the periods presented. Consolill dadd titt on These consolidated financial statements include the accounts of LPLFH and its subsidiaries. Intercompany transactions and balances have been eliminated. Relall ted Partrr yt TrTT arr nsactitt ons In the ordinary course of business, the Company enters into related party transactions with beneficial owners of more than ffive percent of the Company’s outstanding common stock. Additionally, through its subsidiary LPL Financial, the Company provides servirr ces and charitable contributions to LPL Financial Charitable Foundation Inc., a charitable organization that provides volunteer and financial support within the Company’s local communities. The Company recognized revenue foff r servirr ces provided to these related parties of $5.7 million, $6.1 million and $4.8 million during the years ended December 31, 2022, 2021 and 2020, respectively. The Company incurred expense foff r servirr ces provided by these related parties of $3.4 million, $2.2 million and $3.8 million during the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022 and 2021, receivables from and payables to related parties were not material. Repe ortrr att ble Segment Management has determined that the Company operates in one segment, given the similarities in economic characteristics between its operations and the common nature of its products and servirr ces, production and distribution process and regulatory environment. Revevv nue Recognititt on Revenue is recognized when control of the promised servirr ce is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange foff r those servirr ces. For additional infoff rmation, see Note 3 - Revenue. Compensatitt on and Benefiff tstt The Company records compensation and benefits expense foff r 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 perfrr off rm similar servirr ces to those perfrr off rmed by the Company’s employees. Sharerr -Based Compensatitt on Certain employees, offff icers, directors, advisors and enterprises participate in the Company’s various long-term incentive plans that provide foff r granting stock options, warrants, restricted stock awards, restricted stock units, deferred stock units and perfrr off rmance stock units. Stock options, warrants and restricted stock units generally vest in equal increments over a three-year period and expire on the tenth anniversary foff llowing the date of grant. Restricted stock awards and deferred stock units generally vest over a one-year period, and perfrr off rmance stock units generally vest in full at the end of a three-year perfrr off rmance period. 66 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The Company recognizes share-based compensation foff r equity awards granted to employees, offff icers 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, restricted stock units and deferred stock units is equal to the closing price of the Company’s stock on the date of grant. The fair value of perfrr off rmance stock units is estimated using a Monte-Carlo simulation model on the date of grant. Share-based compensation is recognized over the requisite servirr ce period of the individual awards, which generally equals the vesting period. The Company recognizes share-based compensation foff r equity awards granted to advisors and enterprises as advisory and commission expense on the consolidated statements of income. The fair value of 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 servirr ce period of the individual awards, which generally equals the vesting period. The Company makes assumptions regarding the number of restricted stock awards, restricted stock units, deferred stock units and perfrr off rmance stock units that will be foff rfrr eited. The foff rfrr eiture assumption is ultimately adjusted to the actual foff rfrr eiture rate. As a result, changes in the foff rfrr eiture assumptions do not impact the total amount of expense ultimately recognized over the servirr ce period. Rather, diffff erent foff rfrr eiture assumptions would only impact the timing of expense recognition over the servirr ce period. See Note 16 - Sharerr -Based Compensatitt on, EmEE ployee Incentitt ves and Benefiff t PlPP ans, foff r additional infoff rmation regarding share-based compensation foff r equity awards granted. EaEE rnrr inii gs Per Sharerr Basic earnings per share is computed by dividing net income available to common stockholders by the 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. InII come TaTT xes In preparing the consolidated financial statements, the Company estimates income tax expense based on various jurisdictions where it conducts business. The Company needs to estimate current tax obligations and to assess temporary diffff erences between the financial statement carrying amounts and the tax basis of assets and liabilities. These temporary diffff erences result in deferred tax assets and liabilities. 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 its provision foff r income taxes, deferred tax assets and liabilities and any valuation allowances recorded against the deferred tax assets. 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 effff ect 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 foff r using the flow-through method as a reduction of income tax expense in the period they are generated. The Company recognizes the tax effff ects 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; otherwrr ise, 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 infoff rmation. Cash and Equivavv lentstt 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 equivalents are composed of interest and noninterest-bearing deposits, money market funds and U.S. government obligations. 67 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Cash and Equivavv lentstt Segrerr gated UnUU dedd r FeFF dedd rarr l or Othtt er Regulall titt ons account foff r the exclusive benefit of its customers in accordance with Rule 15c3-3 of the The Company’s broker-dealer subsidiary, LPL Financial, is required to maintain cash or qualified securities in a segregated reserverr Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other regulations. At December 31, 2022, this line item included interest bearing deposits, U.S. treasury bills with original maturities of 90 days or less and approximately $100,000 of cash foff r the proprietary accounts of broker-dealers. The U.S. treasury bills accrue income as earned. Discounts are accreted using a method that approximates the effff ective yield method over the term of the bill and are recorded to interest income, net as an adjustment to the investment yield. Restrtt irr cted Cash Restricted cash primarily represents cash held and foff r use by the Captive Insurance Subsidiary. Receivavv bles frff orr m Clill entstt , Net and Clill ent Payayy bles 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. Client payables 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. The Company pays interest on certain client payable balances. Receivables from clients are generally fully secured by securities held in the clients’ accounts. ToTT the extent that margin loans and other receivables from clients are not fully collateralized by client securities, the Company establishes an allowance foff r credit losses that it believes is suffff icient to cover expected credit losses. When establishing this allowance foff r credit losses, the Company considers a number of factors, including its ability to collect from the client or the client’s advisor and its historical experience in collecting on such transactions. The foff llowing table reflects a roll-foff rwrr ard of the allowance foff r credit losses on receivables from clients (in thousands): Beginning balance — January 1 Provision foff r credit losses (Charge-offff s)ff recoveries, net Ending balance — December 31 Advivv sii or Loans, Net December 31, 2022 2021 2020 $ 987 $ 520 $ 66 (144) 424 43 $ 909 $ 987 $ 115 432 (27) 520 Advisor loans, net include loans made to new and existing advisors and enterprises to facilitate their partnership with the Company, transition to the Company’s platfoff rm or fund business development activities. The decision to extend credit to an advisor or enterprise is generally based on their credit history and ability to generate future revenue. Loans made can be either repayable or foff rgivable over terms generally up to ten yyears provided that the advisor or enterprise remains licensed through LPL Financial. Forgivable loans are not repaid in cash and are amortized over the term of the loan. If an advisor or enterprise terminates their arrangement with the Company prior to the loan maturity date, the remaining balance becomes repayable immediately. An allowance foff r credit losses is recorded at the inception of a repayable loan or upon conversion to a repayable loan upon termination or change in agreed upon terms using estimates and assumptions based on historical lifetime loss experience and expectations of future loss rates based on current facts. Advisor repayable loans, net totaled $280.0 million and $191.2 million as of December 31, 2022 and 2021. 68 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The foff llowing table reflects a roll-foff rwrr ard of the allowance foff r credit losses on advisor loans (in thousands): Beginning balance — January 1 Impact of ASU 2016-13 adoption Provision foff r credit losses Recoveries (charge-offff s)ff , net Other Ending balance — December 31 Othtt er Receivavv bles, Net December 31, 2022 2021 2020 $ 11,575 $ 8,797 $ 13,461 — — 4,790 7,074 8,748 3,642 361 (4,296) (17,054) (1,582) — — $ 15,144 $ 11,575 $ 8,797 Other receivables, net primarily consist of receivables due from product sponsors and others and miscellaneous receivables. An allowance foff r credit losses is recorded at inception using estimates and assumptions based on historical experience, current facts and other factors. Management monitors the adequacy of these estimates through periodic evaluations against actual trends experienced. The foff llowing table reflects a roll-foff rwrr ard of the allowance foff r credit losses on other receivables (in thousands): Beginning balance — January 1 Impact of ASU 2016-13 adoption Provision foff r credit losses Charge-offff s,ff net of recoveries Other Ending balance — December 31 InII vevv stmtt ent Securirr titt es December 31, 2022 2021 2020 $ 1,083 $ 1,068 $ 805 — — 8,811 1,670 1,097 1,610 (8,688) (1,655) (2,444) 1,582 — — $ 2,788 $ 1,083 $ 1,068 Investment securities include trading and held-to-maturity securities. The Company also has securities that have been sold, but not yet purchased, which are reflected in other liabilities on the consolidated statements of financial condition. The Company generally classifies its investments in debt and equity instruments as trading securities, except foff r U.S. government notes held by its wholly owned subsidiary PTC, which are held to satisfyff minimum capital requirements of the OCC and classified as held-to-maturity securities because the Company has both the intent and the ability to hold these investments to maturity. The Company has not classified any investments as available-foff r-sale. 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 servirr ces to measure the fair value of its trading securities. Prices received from the pricing servirr ces are validated using various methods including comparison to prices received from additional pricing servirr ces, comparison to available quoted market prices and review of other relevant market data including implied yields of maja or categories of securities. In general, these quoted prices are derived from active markets foff r identical assets or liabilities. When quoted prices in active markets foff r 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 observarr ble, either directly or indirectly. For certificates of deposit and treasury securities, the Company utilizes market-based inputs, including observarr ble market interest rates that correspond to the remaining maturities or the next interest reset dates. Interest income is accrued as earned. Premiums and discounts are amortized using a method that approximates the effff ective 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 foff r recognizing losses based on market conditions and other factors. If these estimates change, the Company may recognize additional losses. 69 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Realized and unrealized gains and losses on trading securities are recognized in other revenue on a net basis in the consolidated statements of income. PrPP orr pertrr yt and Equipii ment,tt Net Internally developed softff ware, leasehold improvements, computers and softff ware 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 expenses softff ware development costs as incurred during the preliminary projo ect stage while capitalizing costs at the point at which the conceptual foff rmulation, design and testing of possible softff ware projo ect alternatives are complete and management authorizes foff r capitalization are and commits to funding the projo ect. The costs of internally developed softff ware that qualifyff included in property and equipment and subsequently amortized over the estimated useful life of the softff ware, which is generally 3 to 5 years. The Company does not capitalize pilot projo ects or projo ects foff r 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 softff ware are depreciated over a period of 3 to 5 years. Furniture and equipment are depreciated over a period of 3 to 7 years. Land is not depreciated. Management reviews property and equipment foff r impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. No impairment occurred foff r the years ended December 31, 2022, 2021 or 2020. Acquisii ititt ons Accounting foff r business combinations requires the Company to make significant estimates and assumptions with respect to intangible assets, liabilities assumed and pre-acquisition contingencies. These assumptions include, but are not limited to, future expected cash flows and discount rates, and are based in part on historical experience, market data and infoff rmation obtained from the management of the acquired companies. When acquiring companies in business combinations, the Company recognizes separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill is recognized foff r business combinations as of the acquisition date and is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subjb ect to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offff seff t to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of income. The Company also enters into asset acquisitions foff r single identifiable assets. Accounting foff r asset acquisitions requires the Company to make significant estimates and assumptions with respect to the useful life of the asset purchased. These assumptions are based in part on historical experience and market data. Goodwiww lii lll and Othtt er InII tatt ngibii les, Net Goodwill and other indefinite-lived intangibles are evaluated annually foff r impairment in the foff urth 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 is more likely than not (i.e., a likelihood of more than 50%) less than its carrying amount, a quantitative impairment analysis will be perfrr off rmed. An impairment loss will be recognized if a reporting unit’s carrying amount exceeds its fair value, to the extent that it does not exceed the total carrying amount of goodwill. No impairment of goodwill or other indefinite-lived intangibles was recognized foff r the years ended December 31, 2022, 2021 or 2020. Intangibles that are deemed to have definite lives are amortized over their useful lives generally ranging from 5 to 20 years. They are reviewed foff r impairment when there is evidence that events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized foff r the amount by which the carrying amount of the asset exceeds the estimated fair value. There was no impairment of 70 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements definite-lived intangibles recognized foff r the years ended December 31, 2022, 2021 or 2020. See Note 9 - Goodwiww lii lll and Othtt er Intat ngibii les, Net, foff r additional infoff rmation. Securirr titt es Borrrr orr weww d The Company borrows securities from other broker-dealers to make deliveries or to facilitate customer short sales. Securities borrowed, which are included in other assets in the consolidated statements of financial condition, are accounted foff r as collateralized borrowings and are recorded at the contract value, which represents the amount of cash provided foff r 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. As of December 31, 2022, the contract and collateral market values of borrowed securities were $9.6 million and $9.3 million, respectively. As of December 31, 2021, the contract and collateral market values of borrowed securities were $10.0 million and $9.7 million, respectively. FrFF arr ctitt onal Sharerr s The Company acts in a principal capacity in respect of fractional shares resulting from the dividend reinvestment program (“DRIP”) that is offff ered to clients by aggregating dividends received by clients, executing purchases of whole shares and allocating the whole shares to clients on a fractional basis based on the dividend amounts that are reinvested. Shares remaining aftff er this process and fractional shares purchased by the Company in client liquidations are included in the Company’s inventory and reflected as investment securities on the Company’s consolidated statements of financial condition. Fractional shares that have been allocated to clients do not meet the criteria foff r sale accounting in ASC 860, TrTT arr nsfeff rsrr and Servirr cinii g, and are accounted foff r as a secured borrowing (repurchase obligation related to shares held by clients) with a corresponding investment in fractional shares. These are reflected in other assets and other liabilities, respectively, on the Company’s consolidated statements of financial condition. The Company has elected the fair value option to measure these financial assets and the corresponding repurchase obligation and determines fair value based on quoted prices in active markets. Debt IsII suance Coststt Debt issuance and amendment costs are capitalized and amortized as additional interest expense over the expected term of the related debt agreement. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt liability. Costs incurred while obtaining the revolving credit facility are included in other assets in the consolidated statements of financial condition 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. Leases Lease assets and liabilities are recognized based on the present value of the future lease payments over the lease term at the lease commencement date and reflected in other assets and other liabilities, respectively, on the consolidated statements of financial condition. The Company estimates its incremental borrowing rate based on infoff rmation available at the commencement date in determining the present value of future payments. For additional infoff rmation, see Note 12 - Leases. Commitmtt entstt and Contitt nii gencies The Company recognizes a liability foff r 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, the Company accrues the minimum amount in the range. The Company has established an accrual foff r those legal proceedings and regulatory matters foff r which a loss is both probable and the amount can be reasonably estimated. The Company also accrues foff r losses at its Captive Insurance Subsidiary foff r those matters covered by self-ff insurance. The Captive Insurance Subsidiary records losses and loss reserverr liabilities based on actuarially determined estimates of losses incurred, but not yet reported to the Company as well as specific reserverr proceedings and matters that are probable and estimable. The Captive Insurance Subsidiary is funded by payments s foff r 71 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements from LPL Financial and has cash reserverr Insurance Subsidiary. Assessing the probability of a loss occurring and the timing and amount of any loss related to a legal proceeding or regulatory matter is inherently diffff icult and requires management to make significant judgments. For additional infoff rmation, see Note 14 - Commitmtt entstt and Contitt nii gencies - “L“ egal and Regulatoryr ” Matters.rr s to cover losses, including $$88.7 million in restricted cash at the Captive Recentltt yl IsII sued or Adopted Accountitt nii g PrPP orr nouncementstt There are no relevant recently issued accounting pronouncements that would materially impact the Company’s consolidated financial statements and related disclosures. There were no new accounting pronouncements adopted during the year ended December 31, 2022 that materially impacted the Company’s consolidated financial statements and related disclosures. NOTE 3 - REVENUE Revenue is recognized when control of the promised servirr ces is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange foff r those servirr ces. Revenue is analyzed to determine whether the Company is the principal (i.e., reports revenue on a gross basis) or agent (i.e., reports revenue on a net basis) in the contract. Principal or agent designations depend primarily on the control an entity has over the product or servirr ce befoff re control is transferred to a customer. The indicators of which party exercises control include primary responsibility over perfrr off rmance obligations, inventory risk befoff re the good or servirr ce is transferred and discretion in establishing the price. Advivv sii oryrr Advisory revenue represents fees charged to advisors’ clients’ advisory accounts on the Company’s corporate RIA advisory platfoff rm and is based on a percentage of the market value of the eligible assets in the clients’ advisory accounts. The Company provides ongoing investment advice and acts as a custodian, providing brokerage and execution servirr ces on transactions, and perfrr off rms administrative servirr ces foff r these accounts. Advisory fees are primarily billed to clients in advance, on a quarterly basis, and are recognized as revenue ratably during the quarter. The perfrr off rmance obligation foff r advisory fees is considered a series of distinct servirr ces that are substantially the same and are satisfied daily. As the value of the eligible assets in an advisory account is susceptible to changes due to customer activity, this revenue includes variable consideration and is constrained until the date that the fees are determinable. The maja ority of our client accounts are on a calendar quarter and are billed using values as of the last business day of the preceding quarter. The value of the eligible assets in an advisory account on the billing date is adjusted foff r estimates of contributions and withdrawals to determine the amount billed, and accordingly, the revenue earned in the foff llowing three-month period. Advisory revenue collected on the Company’s corporate advisory platfoff rm is proposed by the advisor and agreed to by the client and was approximately 1% of the underlying assets foff r the year ended December 31, 2022. The Company also supports independent RIA firms that conduct their business through separate registered investment advisor firms (“Independent RIAs”) through its Independent RIA advisory platfoff rm, which allows advisors to engage the Company foff r technology, clearing and custody servirr ces, as well as access the capabilities of the Company’s investment platfoff rms. The assets held under an Independent RIA’AA s investment advisory accounts custodied with LPL Financial are included in total advisory assets and net new advisory assets. The advisory revenue generated by an Independent RIA is not included in the Company’s advisory revenue. The Company charges separate fees to Independent RIAs foff r technology, clearing, administrative, oversight and custody servirr ces, which may vary and are included in servirr ce and fee revenue in the consolidated statements of income. Commisii sion The Company earns commission revenue from sales commissions generated by advisors foff r their clients’ purchases and sales of securities or other investment products and from product sponsors foff r the selling, distribution and marketing, or any combination thereof, of investment products to such clients both of which are viewed as a single perfrr off rmance obligation. 72 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The Company is generally the principal foff r commission revenue, as it is responsible foff r the execution of the clients’ purchases and sales, and maintains relationships with the product sponsors. Advisors assist the Company in perfrr off rming its obligations. Accordingly, total commission revenue is reported on a gross basis. The foff llowing table presents total commission revenue disaggregated by product category (in thousands): Commission revenue Annuities Mutual funds Fixed income Equities Other Years Ended December 31, 2022 2021 2020 $ 1,269,634 $ 1,210,899 $ 679,912 119,196 114,446 142,976 768,168 126,543 131,975 141,098 976,357 590,074 88,714 126,920 124,495 Total commission revenue $ 2,326,164 $ 2,378,683 $ 1,906,560 The Company generates two types of commission revenue: (1) sales-based commissions that are recognized at the point of sale on the trade date and are based on a percentage of an investment product’s current market value at the time of purchase and (2) trailing commissions that are recognized over time as earned and are generally based on the market value of investment holdings in trail-eligible assets. Sales-based commission revenue, which occurs when clients trade securities or purchase various types of investment products, primarily represents gross commissions generated by the Company’s advisors and can vary from period to period based on the overall economic environment, number of trading days in the reporting period and investment activity of the Company’s advisors’ clients. The Company earns trailing commission revenue primarily on mutual funds and variable annuities held by clients of the Company’s advisors. Trailing commission revenue is recognized over the time the client owns the investment or holds the contract and is generally earned based on a fixed rate applied. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and the client's investment hold period. The revenue will not be recognized until it is probable that a significant reversal will not occur. The foff llowing table presents sales-based and trailing commission revenue disaggregated by product category (in thousands): Commission revenue Sales-based Annuities Mutual funds Fixed income Equities Other Total sales-based revenue Trailing Annuities Mutual funds Other Total trailing revenue Total commission revenue Years Ended December 31, 2022 2021 2020 $ 542,310 $ 425,164 $ 154,742 119,196 114,446 103,112 191,449 126,543 131,975 98,924 327,412 145,836 88,714 126,920 81,882 $ $ $ $ 1,033,806 $ 974,055 $ 770,764 727,324 $ 785,735 $ 525,170 39,864 576,719 42,174 648,945 444,238 42,613 1,292,358 $ 1,404,628 $ 1,135,796 2,326,164 $ 2,378,683 $ 1,906,560 73 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Asset-tt Based Asset-based revenue consists of fees from the Company’s client cash programs, fees from our sponsorship programs with financial product manufacturers and fees from omnibus processing and networking servirr ces (collectively referred to as “recordkeeping”). Clill ent Cash Revenue Client cash revenue is earned daily and is generated on advisors’ clients’ cash balances in insured bank sweep accounts and a money market account based on a rate applied, as a percentage, to the deposits placed. The Company also receives fees based on account type and invested balances foff r administration and recordkeeping. These fees are generally earned and recognized over time on a net basis as the Company acts as an agent in these arrangements. The perfrr off rmance obligation with the financial institutions that participate in the sweep program is considered a series of distinct servirr ces that are substantially the same and are satisfied each day. Recordrr kedd epinii g The Company generates revenue from fees it collects foff r providing recordkeeping, account maintenance, reporting and other related servirr ces to product sponsors. This includes revenue from omnibus processing in which the Company establishes and maintains sub-account records foff r its clients to reflect the purchase, exchange and redemption of mutual fund shares and consolidates clients’ trades within a mutual fund. Omnibus processing fees are paid to the Company by the mutual fund product sponsors or their affff iliates and are based on the value of mutual fund assets in accounts foff r which the Company provides omnibus processing servirr ces and the number of accounts in which the related mutual fund positions are held. Recordkeeping also includes revenue from networking servirr ces. Networking revenue on brokerage assets is correlated to the number of positions or value of assets that the Company administers and is paid by mutual fund and annuity product manufacturers. Recordkeeping revenue is recognized over time as the Company fulfills its perfrr off rmance obligations. As recordkeeping fees are susceptible to unpredictable market changes that influence market value and fund positions, this revenue includes variable consideration and is constrained until the date that the fees are determinable. SpS onsorshrr ipii Prorr grarr ms The Company receives fees from certain financial product manufacturers in connection with sponsorship programs that support the Company’s marketing and sales foff rce education and training effff off rts. Compensation foff r these perfrr off rmance obligations is either a fixed fee, a percentage of the average annual amount of product sponsor assets held in advisors’ clients’ accounts, a percentage of new sales or a combination of these. As the value of product sponsor assets held in advisors’ clients’ accounts is susceptible to unpredictable market changes, this revenue includes variable consideration and is constrained until the date that the fees are determinable. Sponsorship revenue is generally recognized over time as the Company fulfills its perfrr off rmance obligations. The foff llowing table sets foff rth asset-based revenue disaggregated by product category (in thousands): Asset-based revenue Client cash Recordkeeping Sponsorship programs Total asset-based revenue Servrr ivv ce and FeFF e Years Ended December 31, 2022 2021 2020 $ 953,624 $ 360,847 $ 412,468 394,181 401,429 385,791 481,388 290,194 272,935 $ 1,760,273 $ 1,148,067 $ 1,044,517 Servirr ce and fee revenue is generated from advisor and retail investor servirr ces, including technology, insurance, conferences, licensing, business servirr ces and planning and advice servirr ces, IRA custodian and other client account fees. The Company charges separate fees to RIAs foff r technology, clearing, administrative, oversight and custody servirr ces, which may vary. The Company also hosts certain advisor conferences that serverr as training, education, sales and marketing events foff r which the Company collects a fee from sponsors. Servirr ce and fee revenue is recognized when the Company satisfies its perfrr off rmance obligations. Recognition varies from point-in-time to over time depending on whether the servirr ce is provided once at an identifiable point-in-time or if the servirr ce is provided continually over the contract life. Perfrr off rmance obligations foff r servirr ce and fee revenue recognized over time are 74 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements considered a series of distinct servirr ces that are substantially the same and are satisfied each day over the contract term. The Company is the principal and recognizes servirr ce and fee revenues on a gross basis as it is primarily responsible foff r delivering the respective servirr ces being provided, which is demonstrated by the Company’s ability to control the fee amounts charged to customers. The foff llowing table sets foff rth servirr ce and fee revenue disaggregated by recognition pattern (in thousands): Servrr ice and fee revenue Point-in-time(1) Over time(2) Total servrr ice and fee revenue ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Years Ended December 31, 2022 2021 2020 $ $ 115,916 $ 110,459 $ 351,465 301,302 467,381 $ 411,761 $ 85,451 272,271 357,722 (1) (2) Servirr ce and fee revenue recognized at a point-in-time includes revenue such as IRA termination fees, conference servirr ces and account fees. Servirr ce and fee revenue recognized over time includes revenue such as error and omission insurance fees, IRA custodian fees and technology fees. TrTT arr nsactitt on Transaction revenue includes transaction charges generated by advisory and brokerage accounts from mutual funds, exchange-traded funds and fixed income products and is primarily recognized at a point-in-time. Point-in-time transaction revenue includes revenue from clearing and transaction charges and is recognized on a trade-date basis as the perfrr off rmance obligation is satisfied when the underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks and rewards of ownership have been transferred to/from the customer. The Company is the principal and recognizes transaction revenue on a gross basis as it is primarily responsible foff r delivering the respective servirr ces being provided, which is demonstrated by the Company’s ability to control the fee amounts charged to customers. InII tererr st InII come, net The Company earns interest income primarily from client margin loans, cash and equivalents segregated under federal or other regulations and advisor repayable loans and pays interest on certain client cash balances held in the client cash account. Othtt er Other revenue primarily includes unrealized gains and losses on assets held by the Company foff r its advisor non- qualified deferred compensation plan and model research portfoff lios and other miscellaneous revenue, which is generally not generated from contracts with customers. UnUU earnrr ed Revevv nue The Company records unearned revenue when cash payments are received or due in advance of the Company’s perfrr off rmance obligations, including amounts which are refundable. Unearned revenue decreased from $160.9 million as of December 31, 2021 to $138.1 million as of December 31, 2022. The decrease in unearned revenue foff r the year ended December 31, 2022 is primarily driven by $159.5 million of revenue recognized during the year ended December 31, 2022 that was included in the unearned revenue balance as of December 31, 2021, t by cash payments received or due in advance of satisfyiff ng the Company’s perfrr off rmance obligations. partially offff seff The Company receives cash in advance foff r advisory servirr ces to be perfrr off rmed and conferences to be held in future periods. For advisory servirr ces, revenue is recognized as the Company provides the administration, brokerage and execution servirr ces over time to satisfyff recognizes revenue as the conferences are held. the perfrr off rmance obligations. For conference revenue, the Company 75 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOOTE 4 - ACCQQUISSITIOONSS On November 2, 2022, the Company entered into a definitive purchase agreement to acquire Financial Resources Group Investment Servirr ces, LLC (“FRGIS”), a broker-dealer and independent branch offff ice. The transaction closed on Januaryy 31, 2023 ffoff r an initial payyment off approximatelyy $$140 million with potential continggent payyments over the three yyears ffoff llowingg the closingg. GGiven the recent closingg, the purchase accountingg analyysis has not yyet been completed. During the year ended December 31, 2022, the Company acquired client relationship intangible assets of $54.1 million as a result of acquisitions under its Liquidity & Succession solution. These acquisitions were accounted foff r as asset acquisitions with an assigned useful life of 9 years. See Note 9 - Goodwiww lii lll and Othtt er Intat ngibii les, Net, foff r additional infoff rmation. On April 30, 2021, the Company acquired the wealth management business of Waddell & Reed Financial, Inc. foff r $300.0 million in order to expand its addressable markets and complement organic growth (the “Waddell & Reed Acquisition”). The Company accounted foff r the acquisition under the acquisition method of accounting foff r business combinations. The Company allocated $128.6 million of the purchase price to goodwill, $122.7 million to definite- lived intangible assets, $62.3 million to cash acquired and the remainder to other assets acquired and liabilities assumed as part of the acquisition. The goodwill primarily includes the synergies expected to result from combining operations and onboarding advisors and assets to the Company’s platfoff rm and is deductible foff r tax purposes. See Note 9 - Goodwiww lii lll and Othtt er Intat ngibii les, Net, foff r additional infoff rmation. NOTE 5 - FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received foff r an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market foff r 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 observarr ble inputs and minimize the use of unobservarr ble inputs. The three levels of inputs used to measure fair value are as foff llows: Level 1 — Quoted prices in active markets foff r identical assets or liabilities. Level 2 — Observarr ble inputs other than quoted prices included in Level 1, such as quoted prices foff r similar assets and liabilities in active markets; quoted prices foff r identical or similar assets and liabilities in markets that are not active; or other inputs that are observarr ble or can be corroborated by observarr ble market data. Level 3 — Unobservarr ble 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 unobservarr ble inputs. There have been no transfers of assets or liabilities between these fair value measurement classifications during the years ended December 31, 2022 or 2021. 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, 2022 and 2021, the Company had the foff llowing financial assets and liabilities that are measured at fair value on a recurring basis: Cash Equivalentstt — The Company’s cash equivalents include money market funds and U.S. government obligations, which are short term in nature with readily determinable values derived from active markets. Cash Equivalentstt Segrerr gated Under Federarr l or Othtt er Regulatitt ons — The Company’s cash equivalents segregated under federal or other regulations include U.S. treasury bills, which are short term in nature with readily determinable values derived from active markets. TrTT arr didd nii g Securirr titt es and Securirr titt es Sold,d But Not YeYY t Purchrr ased — The Company’s trading securities consist of house account model portfoff lios established and managed foff r the purpose of benchmarking the perfrr off rmance of its fee-based advisory platfoff rms and temporary positions resulting from the processing of client transactions. The Company uses prices obtained from independent third-party pricing servirr ces to measure the fair value of its trading securities. Prices received from the pricing servirr ces are validated using various methods including 76 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements comparison to prices received from additional pricing servirr ces, comparison to available quoted market prices and review of other relevant market data including implied yields of maja or categories of securities. In general, these quoted prices are derived from active markets foff r identical assets or liabilities. When quoted prices in active markets foff r 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 observarr ble, either directly or indirectly. For negotiable certificates of deposit and treasury securities, the Company utilizes market-based inputs, including observarr ble market interest rates that correspond to the remaining maturities or the next interest reset dates. At December 31, 2022 and 2021, the Company did not adjust prices received from the independent third- party pricing servirr ces. Othtt er Assetstt — The Company’s other assets include: (1) deferred compensation plan assets that are invested in life insurance, money market and other mutual funds, which are actively traded and valued based on quoted market prices, and (2) certain non-traded real estate investment trusts and auction rate notes, which are valued using quoted prices foff r identical or similar securities and other inputs that are observarr ble or can be corroborated by observarr ble market data. FrFF arr ctitt onal Sharerr s — The Company’s investment in fractional shares held by customers is reflected in other assets while the related purchase obligation foff r such shares is reflected in other liabilities. The Company uses prices obtained from independent third-party pricing servirr ces to measure the fair value of its investment in fractional shares held by customers and the related repurchase obligation. Prices received from the pricing servirr ces are validated using various methods including comparison to prices received from additional pricing servirr ces, comparison to available quoted market prices and review of other relevant market data including implied yields of maja or categories of securities. At December 31, 2022 and 2021, the Company did not adjust prices received from the independent third-party pricing servirr ces. Accountstt Payable and Accrurr ed Liaii bilii ill titt es — The Company’s accounts payable and accrued liabilities include contingent consideration liabilities that are measured using Level 3 inputs. Levevv l 3 Recurrrr irr nii g FaFF irii VaVV lue Measurerr mentstt The Company determines the fair value foff r its contingent consideration obligations using a scenario-based approach whereby the Company assesses the expected number of future transactions. The contingent payment is estimated by applying a discount rate to the expected payment to calculate the fair value as of the valuation date. The Company evaluates the underlying projo ections and other related factors used in determining fair value each period and makes updates when there have been significant changes in management’s expectations. 77 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Recurring Fair Value Measurements The foff llowing table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (in thousands): December 31, 2022 Assets Level 2 Level 3 Level 1 Total Cash equivalents Cash equivalents segregated under federal or other regulations Investment securities - trading: U.S. treasury obligations Mutual funds Equity securities Debt securities Money market funds ToTT tal investment securities - trading Other assets: Deferred compensation plan Fractional shares - investment(1) Other investments ToTT tal other assets ToTT tal assets at fair value Liabilities Accounts payable and accrued liabilities Other liabilities: Securities sold, but not yet purchased: Debt securities Equity securities Mutual funds ToTT tal securities sold, but not yet purchased Fractional shares - repurchase obligation(1) ToTT tal other liabilities ToTT tal liabilities at fair value ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ $ 13,639 $ 1,131,040 — $ — — $ — 13,639 1,131,040 24,402 10,679 980 — 112 36,173 489,976 122,253 — 612,229 $ 1,793,081 $ — — — 585 — 585 — — 5,248 5,248 5,833 $ — — — — — — 24,402 10,679 980 585 112 36,758 489,976 — 122,253 — 5,248 — — 617,477 — $ 1,798,914 $ — $ — $ 3,860 $ 3,860 — 20 4 24 122,253 122,277 122,277 $ $ 61 — — 61 — 61 61 $ — — — — — — 3,860 $ 61 20 4 85 122,253 122,338 126,198 (1) Investment in and related repurchase obligation foff r fractional shares resulting from the Company’s DRIP. 78 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The foff llowing table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (in thousands): December 31, 2021 Assets Cash equivalents Investment securities - trading: U.S. treasury obligations Mutual funds Equity securities Money market funds ToTT tal investment securities — trading Other assets: Deferred compensation plan Other investments Fractional shares - investment(1) ToTT tal other assets ToTT tal assets at fair value Liabilities Accounts payable and accrued liabilities Other liabilities: Securities sold, but not yet purchased: Equity securities Debt securities ToTT tal securities sold, but not yet purchased Fractional shares - repurchase obligation(1) ToTT tal other liabilities ToTT tal liabilities at fair value ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Level 1 Level 2 Level 3 Total $ 12,056 $ — $ — $ 12,056 19,599 19,112 440 123 39,274 — — — — — 499,548 — 114,574 614,122 665,452 $ — 9,166 — 9,166 9,166 $ — — — — — — — — — — $ 19,599 19,112 440 123 39,274 499,548 9,166 114,574 623,288 674,618 — $ — $ 3,530 $ 3,530 467 — 467 114,574 115,041 115,041 $ — 105 105 — 105 105 $ — — — — — 3,530 $ 467 105 572 114,574 115,146 118,676 $ $ $ (1) Investment in and related repurchase obligation foff r fractional shares resulting from the Company’s DRIP. 79 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Fair Value of Financial Instruments Not Measured at Fair Value The foff llowing tables summarize the carrying values, fair values and fair value hierarchy level classification of financial instruments that are not measured at fair value (in thousands): December 31, 2022 Assets Cash Cash segregated under federal or other regulations Restricted cash Receivables from clients, net Receivables from brokers, dealers and clearing organizations Advisor repayable loans, net(1) Other receivables, net Investment securities - held-to-maturity securities Other assets: Securities borrowed Deferred compensation plan(2) Other investments(3) ToTT tal other assets Liabilities Client payables Payables to brokers, dealers and clearing organizations Corporate debt and other borrowings, net December 31, 2021 Assets Cash Cash segregated under federal or other regulations Restricted cash Receivables from clients, net Receivables from brokers, dealers and clearing organizations Advisor repayable loans, net(1) Other receivables, net Investment securities - held-to-maturity securities Other assets: Securities borrowed Other investments(3) ToTT tal other assets Liabilities Client payables Payables to brokers, dealers and clearing organizations Corporate debt and other borrowings, net ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Carryrr ing Value Level 1 Level 2 Level 3 Total Fair Value $ 833,880 $ 833,880 $ — $ — $ 833,880 1,068,322 90,389 561,569 1,068,322 90,389 — 56,276 280,040 677,766 15,852 9,626 6,343 4,647 20,616 — — — — — 6,343 — 6,343 — — 561,569 56,276 — 677,766 15,471 9,626 — 4,647 14,273 — — — 1,068,322 90,389 561,569 — 219,062 — — — — — — 56,276 219,062 677,766 15,471 9,626 6,343 4,647 20,616 $ 2,694,929 $ — $ 2,694,929 $ — $ 2,694,929 147,752 2,717,444 Carryrr ing Value — — 147,752 2,530,011 — — 147,752 2,530,011 Level 1 Level 2 Level 3 Total Fair Value $ 483,190 $ 483,190 $ — $ — $ 483,190 1,496,463 80,655 578,889 1,496,463 80,655 — 102,503 191,242 581,483 9,918 9,958 4,595 14,553 — — — — — — — — — 578,889 102,503 — 581,483 9,915 9,958 4,595 14,553 — — — 1,496,463 80,655 578,889 — 176,864 — — — — — 102,503 176,864 581,483 9,915 9,958 4,595 14,553 $ 1,712,224 $ — $ 1,712,224 $ — $ 1,712,224 170,119 2,814,044 — — 170,119 2,885,536 — — 170,119 2,885,536 (1) (2) (3) Includes repayable loans and fof rgivable loans which have converted to repayable upon advisor termination or change in agreed upon terms. Includes cash balances awaiting investment or distribution to plan participants. Other investments include Depository Trust Company common shares and Federal Reserverr stock. 80 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 6 - INVESTMENT SECURITIES The Company’s investment securities include debt and equity securities that the Company has classified as trading securities, which are carried at fair value, as well as investments in U.S. government notes, which are held by The Private Trust Company, N.A. to satisfyff minimum capital requirements of the OCC. These securities are recorded at amortized cost and classified as held-to-maturity as the Company has both the intent and ability to hold these investments to maturity. The foff llowing table summarizes investment securities (in thousands): Trading securities - at fair value: U.S. treasury obligations Mutual funds Equity securities Debt securities Money market funds ToTT tal trading securities Held-to-maturity securities - at amortized cost: U.S. government notes ToTT tal held-to-maturity securities ToTT tal investment securities December 31, 2022 2021 $ 24,402 $ 19,599 10,679 19,112 980 585 440 — 112 36,758 $ 123 39,274 15,852 $ 15,852 $ 9,918 9,918 52,610 $ 49,192 $ $ $ $ At December 31, 2022, the held-to-maturity securities were scheduled to mature as foff llows (in thousands): U.S. government notes — at amortized cost U.S. government notes — at fair value $ $ 5,508 $ 5,427 $ 10,344 $ 10,044 $ — $ — $ Within one year Aftff er one but within five years Aftff er five but within ten years Aftff er ten years Total — $ — $ 15,852 15,471 NOTE 7 - RECEIVABLES FROM AND PAYAYY BLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS Receivables from and payables to brokers, dealers, and clearing organizations were as foff llows (in thousands): Receivables: Receivables from clearing organizations Securities failed-to-deliver Receivables from brokers and dealers ToTT tal receivables Payables: Payables to brokers and dealers Payables to clearing organizations Securities failed-to-receive ToTT tal payables 81 December 31, 2022 2021 $ 46,075 $ 80,548 9,083 1,118 56,276 $ 16,978 4,977 102,503 82,685 41,495 78,080 20,112 23,572 147,752 $ 71,927 170,119 $ $ $ LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 8 - PROPERTY AND EQUIPMENT, NET The components of property and equipment, net were as foff llows at December 31, 2022 (in thousands): Internally developed softff ware Computers and softff ware Buildings Leasehold improvements Furniture and equipment Land Construction in progress(1) Historical Cost Accumulated Depreciation and Amortization Net Carryrr ing Value $ 942,432 $ 290,412 107,873 94,959 87,204 4,678 69,794 (476,653) $ (208,299) (15,503) (43,678) (72,862) — — 465,779 82,113 92,370 51,281 14,342 4,678 69,794 ToTT tal property and equipment, net $ 1,597,352 $ ( (816,995) $ ( ) ) 780,357 ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (1) Construction in progress includes $69.2 million of internal softff ware in development and related hardware and softff ware at December 31, 2022. The components of property and equipment, net were as foff llows at December 31, 2021 (in thousands): Historical Cost Accumulated Depreciation and Amortization Net Carryrr ing Value Internally developed softff ware Computers and softff ware Buildings Leasehold improvements Furniture and equipment Land Construction in progress(1) $ 716,179 $ 214,223 107,873 88,538 83,356 4,678 68,318 (342,408) $ (167,573) (11,627) (36,988) (65,728) — — 373,771 46,650 96,246 51,550 17,628 4,678 68,318 ToTT tal property and equipment, net $ 1,283,165 $ ( (624,324) $ ( ) ) 658,841 ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (1) Construction in progress includes $37.7 million of internal softff ware in development and related hardware and softff ware at December 31, 2021. Depreciation and amortization was $199.8 million, $151.4 million and $109.7 million foff r the years ended December 31, 2022, 2021 and 2020, respectively. NOTE 9 - GOODWILL AND OTHER INTANGIBLES, NET On April 30, 2021, the Company completed the Waddell & Reed Acquisition. The Company allocated $128.6 million of the purchase price to goodwill, $122.7 million to definite-lived intangible assets, $62.3 million to cash acquired and the remainder to other assets acquired and liabilities assumed as part of the Waddell & Reed Acquisition. The intanggible assets are comprised primarilyy off advisor relationships with a weigghted averagge usefful liffe off approximatelyy 9 yyears. SSee Note 4 - AAcquisi titt ons, ffoff r additional inffoff rmation. ii A summary of the activity impacting goodwill is presented below (in thousands): Balance at December 31, 2020 Goodwill acquired Balance at December 31, 2021 Goodwill acquired Balance at December 31, 2022 $ 1,513,866 128,577 1,642,443 25 $ 1,642,468 82 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of other intangibles, net were as foff llows at December 31, 2022 (thousands): Definite-lived intangibles, net: Advisor and enterprise relationships Product sponsor relationships Client relationships(1) TeTT chnology Trade names Weighted- Average Life Remaining (in years) Gross Carryrr ing Value Accumulated Amortization Net Carryrr ing Value 5.1 3.2 8.0 5.4 0.0 $ 809,872 $ (542,415) $ 267,457 234,086 102,491 19,040 1,200 (197,165) (30,318) (7,734) (1,200) 36,921 72,173 11,306 — ToTT tal definite-lived intangible assets, net $ 1,166,689 $ ( (778,832) $ ( ) ) 387,857 Other indefinite-lived intangibles: Trademark and trade name ToTT tal other intangibles, net ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ 39,819 $ 427,676 (1) During the year ended December 31, 2022, the Company acquired client relationship intangible assets of $54.1 million as a result of acquisitions under its Liquidity & Succession solution. These acquisitions were accounted foff r as asset acquisitions with an assigned useful life of 9 years. The components of other intangibles, net were as foff llows at December 31, 2021 (thousands): Definite-lived intangibles, net: Advisor and enterprise relationships Product sponsor relationships Client relationships TeTT chnology Trade names ToTT tal definite-lived intangibles, net Other indefinite-lived intangibles: Trademark and trade name ToTT tal other intangibles, net Weighted- Average Life Remaining (in years) Gross Carryrr ing Value Accumulated Amortization Net Carryrr ing Value 5.9 4.1 7.2 6.4 0.3 $ 806,531 $ (476,000) $ 330,531 234,086 45,623 19,040 1,200 (185,255) (23,379) (5,477) (1,160) 48,831 22,244 13,563 40 $ 1,106,480 $ ( (691,271) $ ( ) ) 415,209 39,819 $ 455,028 ToTT tal amortization of other intangibles was $87.6 million, $79.3 million and $67.4 million foff r the years ended December 31, 2022, 2021 and 2020, respectively. Future amortization is estimated as foff llows (in thousands): 2023 2024 2025 2026 2027 Thereaftff er Total $ 86,288 85,517 77,143 38,887 33,738 66,284 $ 387,857 83 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 - OTHER ASSETS AND OTHER LIABILITIES The components of other assets and other liabilities were as foff llows (dollars in thousands): Other assets: Deferred compensation Prepaid assets Fractional shares - investment(1) Deferred tax assets, net(2) Operating lease assets(3) Debt issuance costs, net Other ToTT tal other assets Other liabilities: Deferred compensation Unearned revenue(4) Operating lease liabilities(3) Fractional shares - repurchase obligation(1) Finance lease liabilities(3) Other ToTT tal other liabilities ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (1) See Note 2 - Summaryr of Sigi nifi iff cant Accountitt nii g Polill cies foff r further infoff rmation. (2) (3) (4) See Note 13 - Income TaTT xes fof r further infoff rmation. See Note 12 - Leases fof r further infoff rmation. See Note 3 - Revenue fof r further infoff rmation. December 31, 2022 2021 $ 496,319 $ 144,607 122,253 98,997 92,534 6,422 62,098 499,548 115,018 114,574 5,648 95,075 7,303 49,822 $ $ 1,023,230 $ 886,988 497,736 $ 138,109 125,280 122,253 105,660 113,589 499,245 160,926 130,304 114,574 106,067 7,160 $ 1,102,627 $ 1,018,276 84 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 11 - CORPORATE DEBT AND OTHER BORROWINGS, NET The Company’s outstanding corporate debt and other borrowings, net were as foff llows (in thousands): Corporate Debt TeTT rm Loan B(1) 2027 Senior Notes(1) 2029 Senior Notes(1) 2031 Senior Notes(1) ToTT tal Corporate Debt Less: Unamortized Debt Issuance Cost Corporate debt, net Other Borrowings Revolving Credit Facility(2)(3) Unsecured, Uncommitted Lines of Credit(3) December 31, 2022 December 31, 2021 Balance Applicable Margin Interest Rate Balance Applicable Margin Interest rate Maturity $ 1,037,900 LIBOR+175 bps 5.87 % $ 1,048,600 LIBOR+175 bps 1.85 % 11/12/2026 400,000 900,000 Fixed Rate Fixed Rate 4.63 % 4.00 % 400,000 900,000 Fixed Rate Fixed Rate 4.63 % 11/15/2027 4.00 % 3/15/2029 400,000 Fixed Rate 4.38 % 400,000 Fixed Rate 4.38 % 5/15/2031 2,737,900 (20,456) $ 2,717,444 2,748,600 (24,556) $ 2,724,044 — LIBOR+125 bps Rate Determined at Time of Borrowing — 5.64 % 55,000 ABR+25 bps 3.50 % 3/15/2026 Broker Base Rate+75 bps 1.00 % 9/30/2023 — % $ 35,000 90,000 $ 2,814,044 ToTT tal other borrowings $ — Corporate Debt and Other Borrowings, Net $ 2,717,444 ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (1) No leverage or interest coverage maintenance covenants. (2) Borrowings bear interest at a rate per annum ranging from 125 to 175 basis points over the Eurodollar Rate or 25 to 75 basis points over the base rate (PRIME rate) depending on the Consolidated Secured Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement). (3) Balances outstandingg under our external lines off credit at December 31, 2021 were repaid in Januaryy 2022. The minimum calendar year payments and maturities of the corporate debt and other borrowings as of December 31, 2022 were as foff llows (in thousands): 2023 2024 2025 2026 2027 Thereaftff er Total $ 10,700 10,700 10,700 1,005,800 400,000 1,300,000 $ 2,737,900 The foff llowing table presents amounts outstanding and available under the Company’s external lines of credit at December 31, 2022 (in millions): Description Borrower Maturity Date Outstanding Available Senior secured, revolving credit facility LPL Holdings, Inc. March 2026 Broker-dealer revolving credit facility LPL Financial LLC August 2023 Unsecured, uncommitted lines of credit LPL Financial LLC Unsecured, uncommitted lines of credit LPL Financial LLC Unsecured, uncommitted lines of credit LPL Financial LLC Secured, uncommitted lines of credit Secured, uncommitted lines of credit LPL Financial LLC LPL Financial LLC September 2023 September 2023 None None None $ $ $ $ $ $ $ — $ — $ — $ — $ — $ — — 1,000 1,000 75 50 75 unspecified unspecified 85 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Issuance of 2031 Senior Notes LPLH raised $400.0 million in aggregate principal amount of 4.375% senior notes on May 18, 2021, which were issued at par (“2031 Senior Notes”). The Company used the proceeds from the issuance to repay borrowings made under the senior secured revolving credit facility related to the Waddell & Reed Acquisition. In connection with the issuance of the 2031 Senior Notes, the Company incurred $3.8 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition. Issuance of 2029 Senior Notes LPLH raised $900.0 million in aggregate principal amount of 4.00% senior notes on March 15, 2021, which were issued at par (“2029 Senior Notes”). The Company used the proceeds from the issuance of the 2029 Senior Notes, along with existing corporate cash available, to redeem its existing 5.75% senior unsecured notes due in 2025. In connection with this redemption, the Company recognized $24.4 million as a loss on extinguishment of debt on the consolidated statements of income foff r the year ended December 31, 2021. In connection with the issuance of the 2029 Senior Notes, the Company incurred $9.0 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition. Crerr didd t Agrerr ement On March 15, 2021, LPLFH and LPLH entered into a fiftff h amendment agreement (the “Amendment”) to the Company’s amended and restated credit agreement (“Credit Agreement”), which, among other things, increased the size of its senior secured revolving credit facility to $1.0 billion and extended its maturity date. In connection with the execution of the Amendment, the Company incurred $3.2 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition. The Credit Agreement subjb ects the Company to certain financial and non-financial covenants. As of December 31, 2022, the Company was in compliance with such covenants. Parerr nt Revolvinii g Crerr didd t FaFF cilii ill tyt Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 125 to 175 basis points over the Eurodollar Rate or 25 to 75 basis points over the base rate depending on the Consolidated Secured Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement). Brorr ker-rr Dealer Revolvinii g Crerr didd t FaFF cilii ill tyt On August 4, 2022, LPL Financial, the Company’s broker-dealer subsidiary, entered into a committed senior unsecured revolving credit facility that matures on August 3, 2023 and allows foff r a maximum borrowing of up to $1.0 billion. This revolving credit facility replaced the $300.0 million credit facility that was due to mature on July 31, 2024. Borrowings under the credit facility bear interest at a rate per annum equal to 1.25% per annum plus the greatest of (i) the secured overnight financing rate plus 0.10%, (ii) the effff ective federal funds rate and (iii) the overnight bank funding rate, in each case, as such rate is administered or determined by the Federal Reserverr Bank of New YoYY rk from time to time. In connection with the credit facility, LPL Financial incurred $$1.9 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition. The broker- dealer credit agreement subjb ects LPL Financial to certain financial and non-financial covenants. At December 31, 2022, LPL Financial’s net capital was 8% of its aggregate debits, below the 10% aggregate debits required by a financial covenant. The agreement allows 5 days to cure non-compliance with this financial covenant, and it was cured within that allowable time period. LPL Financial was in compliance with all other covenants as of December 31, 2022. Othtt er ExtEE ernrr al Linii es of Crerr didd t LPL Financial maintained five uncommitted lines of credit as of December 31, 2022. TwTT o of the lines have unspecified limits, which are primarily dependent on LPL Financial’s ability to provide suffff icient collateral. The other three lines have a total limit of $200.0 million, which allow foff r uncollateralized borrowings. There was $35 million outstanding under these lines of credit as of December 31, 2021 and no balances outstanding as of December 31, 2022. 86 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 12 - LEASES The Company determines if an arrangement is a lease or contains a lease at inception. The Company has operating and finance leases foff r corporate offff ices and equipment with remaining lease terms of 1 to 14 years, some of which include options to extend the lease foff r up to 20 years. For leases with renewal options, the lease term is extended to reflect renewal options the Company is reasonably certain to exercise. Operating lease assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. As most of the Company’s leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on infoff rmation available at the commencement date in determining the present value of future payments. Lease expense related to the net present value of payments is recognized on a straight-line basis over the lease term. Finance lease assets are included in Property and equipment, net in the consolidated statements of financial condition and were $92.4 million and $97.1 million at December 31, 2022 and December 31, 2021, respectively. The components of lease expense were as foff llows (in thousands): Operating lease cost Finance lease cost: Amortization of right-of-ff use assets Interest on lease liabilities ToTT tal finance lease cost $ $ $ Years Ended December 31, 2022 2021 2020 21,862 $ 19,712 $ 18,757 4,753 $ 8,417 13,170 $ 5,150 $ 8,360 13,510 $ 5,141 8,423 13,564 Supplemental weighted-average infoff rmation related to leases was as foff llows: Weighted-average remaining lease term (years): Finance leases Operating leases Weighted-average discount rate: Finance leases Operating leases December 31, 2022 2021 23.8 6.2 7.94 % 6.77 % 24.6 6.9 7.89 % 6.96 % Maturities off lease liabilities as off December 31, 2022 were as ffoff llows ((in thousands)s): 2023 2024 2025 2026 2027 Thereaftff er ToTT tal lease payments Less imputed interest ToTT tal Operating Leases Finance Leases $ $ 24,820 $ 24,049 23,734 23,928 24,309 34,196 155,036 29,756 125,280 $ 8,577 8,727 8,879 9,035 9,193 206,532 250,943 145,283 105,660 87 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 13 - INCOME TAXES The components of the provision foff r income taxes were as foff llows (in thousands): Current provision foff r income taxes: Federal State ToTT tal current provision foff r income taxes Deferred (benefit) provision foff r income taxes: Federal State ToTT tal deferred (benefit) provision foff r income taxes Provision foff r income taxes Years Ended December 31, 2022 2021 2020 $ $ 276,499 $ 82,801 359,300 96,389 $ 26,610 122,999 137,360 39,757 177,117 (69,656) (23,693) (93,349) 265,951 $ 14,446 4,018 18,464 141,463 $ (17,991) (5,693) (23,684) 153,433 The foff llowing table reflects a reconciliation of the U.S. federal statutory income tax rates to the Company’s effff ective income tax rates: Federal statutory income tax rates State income taxes, net of federal benefit Share-based compensation Research and development credits Non-deductible expenses Other Effff ective income tax rates Years Ended December 31, 2022 2021 2020 21.0 % 4.2 (1.8) (0.4) 0.3 0.6 23.9 % 21.0 % 4.1 (2.7) (0.4) 0.7 0.8 23.5 % 21.0 % 4.4 (1.0) (0.3) 0.3 0.1 24.5 % The CCompanyy’s efffffff ective income tax rate difffffff ers ffrom the ffederal corporate tax rate off 21.0%% primarilyy as a result off certain state taxes, benefits from share-based compensation, and other permanent diffff erences in tax deductibility of certain expenses. Deferred income taxes reflect the net tax effff ects of temporary diffff erences between the carrying amounts of assets and liabilities foff r financial reporting purposes and the amounts used foff r income tax purposes. 88 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of the net deferred income taxes included in the consolidated statements of financial condition were as foff llows (in thousands): Deferred tax assets: Accrued liabilities Operating lease liabilities Finance lease liabilities Forgivable loans Share-based compensation Provision foff r credit losses State taxes Other ToTT tal deferred tax assets Deferred tax liabilities: Depreciation of property and equipment Amortization of other intangibles Operating lease assets Unrealized gains ToTT tal deferred tax liabilities Deferred tax assets, net December 31, 2022 2021 $ 149,501 $ 148,566 33,826 28,528 19,688 19,246 5,040 2,402 10,120 35,182 28,647 17,369 16,597 3,691 5,654 4,604 268,351 260,310 (94,136) (147,659) (50,072) (25,146) — (58,833) (25,832) (22,338) (169,354) (254,662) $ 98,997 $ 5,648 The increase in deferred tax assets, net as of December 31, 2022 compared to December 31, 2021 was primarily driven by deferred tax estimates the Company recorded as a result of the change in Internal Revenue Code Section 174, which requires research and development costs to be capitalized and amortized. Prior to this change the Company deducted these costs in the year incurred. The foff llowing 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 foff r tax positions taken during the current year Reductions as a result of a lapse of the applicable statute of limitations and decreases in prior-year tax positions Balance — end of year December 31, 2022 2021 2020 $ 57,014 $ 54,435 $ 52,098 14,777 15,637 8,053 (19,521) (13,058) (5,716) $ 52,270 $ 57,014 $ 54,435 At December 31, 2022 and 2021, there were $46.6 million and $53.8 million, respectively, of unrecognized tax benefits that if recognized, would favorably affff ect the effff ective income tax rate in any future periods. The Company accrues interest and penalties related to unrecognized tax benefits in its provision foff r income taxes within the consolidated statements of financial condition. At December 31, 2022 and 2021, the liability foff r unrecognized tax benefits included accrued interest of $4.6 million and $7.5 million, respectively, and penalties of $4.1 million and $3.9 million, respectively. The Company and its subsidiaries file federal and state income tax returns, which are subjb ect to routine examinations by the respective taxing authorities. The Company has concluded all federal and state income tax matters foff r years through 2011. The tax years of 2012 to 2016 and 2019 to 2021 remain open to examination in the federal jurisdiction. The tax years of 2012 to 2021 remain open to examination in the state jurisdictions. In the next 12 months it is reasonably possible that the Company mayy realize a reduction in unrecoggnized tax beneffits off $3.7 million related to settlements and the statute of limitations expiration in federal and various state jurisdictions. 89 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14 - COMMITMENTS AND CONTINGENCIES Servrr ivv ce and Devevv lopment Contrtt arr ctstt The Company is party to certain long-term contracts foff r systems and servirr ces that enable back offff ice trade processing and clearing foff r its product and servirr ce offff erings. Future minimum payments under servirr ce, development and agency contracts, and other contractual obligations with initial terms greater than one year were as foff llows at December 31, 2022 (in thousands): 2023 2024 2025 2026 2027 Thereaftff er Total Guararr ntees $ 137,212 53,742 18,418 422 161 — $ 209,955 The Company occasionally enters into contracts that contingently require it to indemnifyff 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. LPL Financial provides guarantees to securities clearing houses and exchanges under their standard membership agreements, which require a member to guarantee the perfrr off rmance of other members. Under these agreements, if a member becomes unable to satisfyff be required to meet any shortfall. The Company’s liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, the potential requirement foff r the Company to make payments under these agreements is remote. Accordingly, no liability has been recognized foff r these transactions. its obligations to the clearing houses and exchanges, all other members would Loan Commitmtt entstt From time to time, LPL Financial makes loans to advisors and enterprises, primarily to newly recruited advisors and enterprises to assist in the transition process, which may be foff rgivable. Due to timing diffff erences, LPL Financial may make commitments to issue such loans prior to actually funding them. These commitments are generally contingent upon certain events occurring, including but not limited to the advisor or enterprise joining LPL Financial. LPL Financial had no significant unfunded loan commitments at December 31, 2022 or December 31, 2021. Legal and Regulall toryrr MaMM ttersrr ise, to respond to inquiries, infoff rmational requests and The Company is subjb ect to extensive regulation and supervirr sion by U.S. federal and state agencies and various self-ff regulatory organizations. The Company and its advisors periodically engage with such agencies and organizations, in the context of examinations or otherwrr investigations. From time to time, such engagements result in regulatory complaints or other matters, the resolution of which has in the past and may in the future include fines, customer restitution and other remediation. Assessing the probability of a loss occurring and the timing and amount of any loss related to a legal proceeding or regulatory matter is inherently diffff icult. 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; or the potential opportunities foff r settlement and the status of any settlement discussions. The Company monitors these factors and assumptions foff r 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 90 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements established an accrual foff r those legal proceedings and regulatory matters foff r which a loss is both probable and the amount can be reasonably estimated. In October 2022, the Company received a request foff r infoff rmation from the Securities and Exchange Commission (“SEC”) in connection with an investigation of the Company’s compliance with records preservarr tion requirements foff r business-related electronic communications stored on personal devices or messaging platfoff rms that have not been approved by the Company. The Company intends to cooperate fully with the SEC’s inquiry. The Company has estimated that it is reasonably possible that it could incur losses as a result of this request; however, the Company cannot estimate a possible loss or range of loss at this time. At this time, the Company does not believe that this request will have a material adverse effff ect on its results of operations, financial position, or cash flows. ThTT irii drr -Partrr yt Insurarr nce The Company maintains third-party insurance coverage foff r certain potential legal proceedings, including those involving certain client claims. With respect to such client claims, the estimated losses on many of the pending matters are less than the applicable deductibles of the insurance policies. Self-ff Insurarr nce The Company has self-ff insurance foff r certain potential liabilities through the Captive Insurance Subsidiary. 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 actuarial assumptions and estimates. The estimated accruals foff r these potential liabilities could be significantly affff ected if future occurrences and claims diffff er from such assumptions and historical trends, so there are particular complexities and uncertainties involved when assessing the adequacy of loss reserverr s foff r potential liabilities that are self-ff insured. Self-ff insurance liabilities are included in accounts payable and accrued liabilities in the consolidated statements of financial condition. Self-ff insurance related charges are included in other expense in the consolidated statements of income. The foff llowing table provides a reconciliation of the beginning and ending balances of self-ff insurance liabilities foff r the years presented (in thousands): Beginning balance — January 1 Losses incurred Losses paid Ending balance — December 31 Othtt er Commitmtt entstt 2022 December 31, 2021 2020 $ $ 67,152 $ 36,462 (29,543) 74,071 $ 51,501 $ 34,756 (19,105) 67,152 $ 40,096 34,784 (23,379) 51,501 As of December 31, 2022, the Company had approximately $466.0 million of client margin loans that were collateralized with securities having a fair value of approximately $652.5 million that LPL Financial can repledge, loan or sell. Of these securities, approximately $121.1 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, 2022, there were no restrictions that materially limited the Company’s ability to repledge, loan or sell the remaining $531.4 million of client collateral. Investment securities on the consolidated statements of financial condition include $4.5 million and $4.6 million of trading securities pledged to the Options Clearing Corporation at December 31, 2022 and 2021, respectively, and $19.9 million and $15.0 million of trading securities pledged to the National Securities Clearing Corporation at December 31, 2022 and 2021. 91 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 15 - STOCKHOLDERS’ EQUITY Divivv dedd ndsdd The payment, timing, and amount of any dividends are subjb ect to approval by the Company’s Board of Directors as well as certain limits under the Credit Agreement and the indentures governing the Company’s senior unsecured notes (the “Indentures”). Cash dividends per share of common stock and total cash dividends paid on a quarterly basis were as foff llows (in millions, except per share data): 2022 2021 2020 Dividend per Share Total Cash Dividend Dividend per Share Total Cash Dividend Dividend per Share Total Cash Dividend $ $ $ $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 20.0 $ 20.0 $ 20.0 $ 19.9 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 20.0 $ 20.0 $ 20.1 $ 20.0 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 19.7 19.7 19.8 19.8 First quarter Second quarter Third quarter Fourth quarter Sharerr Repe urcrr hases The Company engages in a share repurchase program that was approved by the Board of Directors (the “Board”), 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. The Company resumed share repurchases in the third quarter of 2021, and during the year ended December 31, 2022 repurchased 1,566,527 shares of common stock at a weighted-average price of $207.49 foff r a total of $325.0 million. On September 21, 2022, the Board authorized a $2.1 billion increase to the amount available foff r repurchases of the Company’s issued and outstanding common shares. As of December 31, 2022, the Company had $2.0 billion remaining under the existing share repurchase program. Future share repurchases may be effff ected in open market or privately negotiated transactions, including transactions with affff iliates, with the timing of purchases and the amount of stock purchased generally determined at the discretion of the Company within the constraints of the Credit Agreement, the Indentures and the Company’s general working capital needs. NOTE 16 - SHARE-BASED COMPENSATION, EMPLOYEE INCENTIVES AND BENEFIT PLANS In May 2021, the Company adopted its 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), which provides foff r the granting of stock options, warrants, restricted stock awards, restricted stock units, deferred stock units, perfrr off rmance stock units and other equity-based compensation to the Company’s employees, non-employee directors and other servirr ce providers. The 2021 Plan serverr Equity Incentive Plan (the “2010 Plan”). Following the adoption of the 2021 Plan, the Company is no longer making grants under the 2010 Plan, and the 2021 Plan is the only plan under which equity awards are granted. However, awards previously granted under the 2010 Plan will remain outstanding until vested, exercised or foff rfrr eited, as applicable. s as the successor to the Company’s 2010 Omnibus There were 17,754,197 shares authorized foff r grant under the 2021 Plan and 13,781,800 shares remaining available foff r future issuance at December 31, 2022. 92 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Stock OpO titt ons and WaWW rrrr arr ntstt The Company has not granted stock options or warrants since 2019. The foff llowing table summarizes the Company’s stock option and warrant activity as of and foff r the year ended December 31, 2022: Outstanding — December 31, 2021 Granted Exercised Forfrr eited and Expired Outstanding — December 31, 2022 Exercisable — December 31, 2022 Exercisable and expected to vest — December 31, 2022 Number of Shares Weighted- Average Exercise Price 1,204,420 $ — $ (527,595) $ (3,061) $ 673,764 $ 673,764 $ 673,764 $ 45.65 — 35.66 51.19 53.45 53.45 53.45 Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In thousands) 4.36 $ 4.36 $ 4.36 $ 109,632 109,632 109,632 The foff llowing table summarizes infoff rmation about outstanding stock options and warrants as of December 31, 2022: Range of Exercise Prices $19.85 - $25.00 $25.01 - $35.00 $35.01 - $45.00 $45.01 - $65.00 $65.01 - $75.00 $75.01 - $80.00 Outstanding Weighted- Average Remaining Life (Years) Exercisable Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price 3.15 $ 0.15 $ 4.19 $ 1.79 $ 5.06 $ 6.14 $ 4.36 $ 19.85 31.60 39.48 49.06 65.50 77.53 53.45 84,929 $ 23,826 $ 166,168 $ 72,274 $ 153,639 $ 172,928 $ 673,764 $ 19.85 31.60 39.48 49.06 65.50 77.53 53.45 Total Number of Shares 84,929 23,826 166,168 72,274 153,639 172,928 673,764 The Company recognized share-based compensation expense related to the vesting of stock options awarded to employees and offff icers of $0.2 million, $2.6 million and $4.4 million during the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, there was no unrecognized compensation cost related to non-vested stock options as the remaining share-based compensation expense was recognized during the three months ended March 31, 2022. 93 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Restrtt irr cted Stock and Stock UnUU itstt The foff llowing summarizes the Company’s activity in its restricted stock awards and stock units, which include restricted stock units, deferred stock units and perfrr off rmance stock units, foff r the year ended December 31, 2022: Restricted Stock Awards Stock Units Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Outstanding — December 31, 2021 Granted VeVV sted Forfrr eited Outstanding — December 31, 2022 Expected to vest — December 31, 2022 ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ (1) Includes 82,222 vested and undistributed deferred stock units. 1,051 $ 1,864 $ (2,101) $ — $ 814 $ 814 $ 156.54 173.78 165.16 — 173.78 173.78 915,907 393,006 (369,186) (76,553) $ $ $ $ 863,174 (1) $ $ 744,561 111.49 190.76 101.24 149.57 148.59 155.57 The Company grants restricted stock awards and deferred stock units to its directors and restricted stock units and perfrr off rmance stock units to its employees and offff icers. Restricted stock awards and stock units must vest or are subjb ect to foff rfrr eiture; however, restricted stock awards are included in shares outstanding upon grant and have the same dividend and voting rights as the Company’s common stock. The Company recognized $45.4 million, $37.2 million and $25.1 million of share-based compensation expense related to the vesting of these restricted stock awards and stock units during the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, total unrecognized compensation cost foff r restricted stock awards and stock units was $62.5 million, which is expected to be recognized over a weighted-average remaining period of 1.91 years. The Company also grants restricted stock units to its advisors and to enterprises. The Company recognized share- based compensation expense of $2.6 million, $2.3 million and $2.3 million related to the vesting of these awards during the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, total unrecognized compensation cost foff r restricted stock units granted to advisors and enterprises was $5.1 million, which is expected to be recognized over a weighted-average remaining period of 2.15 years. EmEE ployeyy e InII centitt vevv s and Benefiff t Plall ns The Company participates in a 401(k) defined contribution plan sponsored by LPL Financial. All employees meeting minimum age and length of servirr ce 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 foff r matching contributions aftff er completing six months of servirr ce. For eligible employees, the Company matches up to 75% of the first 8% of an employee’s designated deferral of their eligible compensation. The Company’s total cost related to the 401(k) plan was $24.7 million, $20.9 million and $18.8 million foff r the years ended December 31, 2022, 2021 and 2020, respectively, which is classified as compensation and benefits expense in the consolidated statements of income. The Company established its 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, subjb ect to limitations. The ESPP provides foff r a 15% discount on the market value of the stock at the lower of the grant date price (first day of the offff ering period) and the purchase date price (last day of the offff ering period). The Company recognized $4.4 million, $2.0 million and $2.2 million of share-based compensation expense related to the ESPP during the years ended December 31, 2022, 2021 and 2020, respectively. The Company’s 2012 Employee Stock Purchase Plan was replaced by its 2021 Employee Stock Purchase Plan in May 2021. The Company maintains a non-qualified deferred compensation plan foff r the purpose of attracting and retaining advisors who operate, foff r tax purposes, as independent contractors, by providing an opportunity foff r 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 foff r benefits accrued under the non-qualified deferred compensation plan totaled $477.0 million and $482.1 94 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements million at December 31, 2022 and 2021, respectively, which is included in other liabilities in the consolidated statements of financial condition. The cash value of the related trust assets was $475.6 million and $482.5 million at December 31, 2022 and 2021, respectively, which is measured at fair value and included in other assets in the consolidated statements of financial condition. Certain employees of the Company participate in a non-qualified deferred compensation plan that permits participants to defer portions of their compensation and may receive a return based on the allocation of notional investments offff ered under the plan. Plan assets are held by the Company in a Rabbi Trust and accounted foff r in the manner described above. As of December 31, 2022, the Company has recorded assets of $20.7 million and liabilities of $20.8 million, which are included in other assets and other liabilities, respectively, in the consolidated statements of financial condition. As of December 31, 2021, the Company had recorded assets of $17.1 million and liabilities of $17.1 million. NOTE 17 - EARNINGS PER SHARE Basic earnings per share is computed by dividing net income available to common stockholders by the 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. The calculation of basic and diluted earnings per share foff r the years noted was as foff llows (in thousands, except per share data): 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, 2022 2021 2020 $ 845,702 $ 459,866 $ 472,640 79,801 1,484 81,285 80,002 1,740 81,742 79,244 1,458 80,702 $ $ 10.60 $ 10.40 $ 5.75 $ 5.63 $ 5.96 5.86 The computation of diluted earnings per share excludes stock options, warrants and stock units that are anti- dilutive. For the years ended December 31, 2022, 2021 and 2020, stock options, warrants and stock units representing common share equivalents of 9,770 shares, 684 shares and 376,598 shares, respectively, were anti- dilutive. NOTE 18 - NET CAPITAL AND REGULATORY REQUIREMENTS The Company’s registered broker-dealer, LPL Financial, is subjb ect to the SEC’s Unifoff rm Net Capital Rule (Rule 15c3-1 under the Exchange Act), which requires the maintenance of minimum net capital. The net capital rules also provide that the broker-dealer’s capital may not be withdrawn if the resulting net capital would be less than minimum requirements. Additionally, certain withdrawals require the approval of the SEC and FINRA to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than minimum requirements. 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, 2022, had net capital of $49.5 million, which was $36.2 million in excess of its minimum net capital requirement of $13.3 million. The Company’s subsidiary, PTC, also operates in a highly regulated industry and is subjb ect 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 on PTC’s operations. 95 LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements AAs off December 31, 2022 and 2021, LPL Financial and PTCC met all capital adequa ycy requirements to which theyy were subjjb ect. NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK AND CONCENTRATIONS OF CREDIT RISK LPL Financial may offff er loans to new and existing advisors and enterprises to facilitate their partnership with LPL Financial, transition to LPL Financial’s platfoff rm or fund business development activities. LPL Financial may incur losses if advisors or enterprises do not fulfill their obligations with respect to these loans. ToTT mitigate this risk, LPL Financial evaluates the perfrr off rmance and creditworthiness of the advisor or enterprise prior to offff ering repayable loans. 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, subjb ect to various regulatory and internal margin requirements, which is 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 suffff icient to fully cover losses that clients may incur from these strategies. ToTT 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 two business days aftff er 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-issued securities. When-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 diffff er 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. ToTT mitigate the risk of losses, long and short positions are marked-to- market daily and are continuously monitored by LPL Financial. NOTE 20 - SUBSEQUENT EVENTS The Company’s Board declared a cash dividend of $0.30 per share on the Company’s outstanding common stock to be paid on March 28, 2023 to all stockholders of record on March 14, 2023. 96 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 Management, with the participation of our Chief Executive Offff icer and Chief Financial Offff icer, evaluated the effff ectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Offff icer and Chief Financial Offff icer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effff ective. Change in Internal Control over Financial Reporting There were no changges in our internal control over financial reporting that occurred during the foff urth quarter ended December 31, 2022, that have materially affff ected, or are reasonably likely to materially affff ect, our internal control over financial reporting. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible foff r 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 supervirr sion of, our Chief Executive Offff icer and Chief Financial Offff icer, and effff ected 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 foff r 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 assurance 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 effff ect on our consolidated financial statements. As of December 31, 2022, management conducted an assessment of the effff ectiveness of our internal control over (2(( 013)3 issued by financial reporting based on the framework established in Internrr al Contrtt orr l – Integrarr ted FrFF arr mewoww rkrr 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, 2022 was effff ective. Deloitte & ToTT uche LLP,P our independent registered public accounting firm, has issued an audit report appearing on the foff llowing page on the effff ectiveness of our internal control over financial reporting as of December 31, 2022. 97 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ToTT the stockholders and the Board of Directors of LPL Financial Holdings Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of LPL Financial Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internrr al Contrtt orr l — Integrarr ted FrFF arr mewoww rkrr (2(( 013)3 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effff ective internal control over financial reporting as of December 31, 2022, based on criteria established in Internrr al Contrtt orr l — Integrarr ted FrFF arr mewoww rkrr (2(( 013)3 issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and foff r the year ended December 31, 2022, of the Company and our report dated Februaryy 23, 2023, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible foff r maintaining effff ective internal control over financial reporting and foff r its assessment of the effff ectiveness 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perfrr off rm the audit to obtain reasonable assurance about whether effff ective 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 effff ectiveness of internal control based on the assessed risk, and perfrr off rming such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis foff r our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements foff r 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 effff ect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projo ections of any evaluation of effff ectiveness to future periods are subjb ect to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & ToTT uche LLP San Diego, Califoff rnia Februaryy 23, 2023 Item 9B. Other Information 98 None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. Item 10. Directors, Executive Offff icers and Corporate Governance PART III Other than the infoff rmation relating to our executive offff icers provided in Part I of this Annual Report on Form 10-K, the infoff rmation required to be furnished pursuant to this item is incorporated herein by reference to the Company’s definitive Proxy Statement foff r the 2023 Annual Meeting of Stockholders, which the Company intends to file with the SEC within 120 days of the fiscal year ended December 31, 2022. Items 11, 12, 13 and 14. The infoff rmation required by Items 11, 12, 13 and 14 is incorporated herein by reference to the Company’s definitive Proxy Statement foff r the 2023 Annual Meeting of Stockholders, which the Company intends to file with the SEC within 120 days of the fiscal year ended December 31, 2022. Item 15. Exhibits and Financial Statement Schedules (a(( )a Consolill dadd ted FiFF nii anciaii l Statt tementstt and Schedules PART IV l Stat tementstt and Supu plementat ryr Datatt ” of Our consolidated financial statements are included in “I“ tem 8. FiFF nii anciai this Annual Report on Form 10-K. Other financial statement schedules have been omitted because they are not applicable, not material or the infoff rmation is otherwrr ise included. (b(( )b ExEE hxx ibii itstt Exhibit No. 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 10.1 10.2 p Amended and Restated Certificate of Incorporation of LPL Investment Holdings Inc., dated November 23, 2010 (incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-1 filed on July 9, 2010, File No. 333-167325). Description of Exhibit Certificate of Ownership and Merger Merging LPL Financial Holdings Inc. with and into LPL Investment Holdings Inc., dated June 14, 2012 (incorporated by reference to the Form 8-K filed on June 19, 2012, File No. 001-34963). Certificate of Amendment to the Amended and Restated Certificate of Incorporation of LPL Financial Holdings Inc., dated May 8, 2014 (incorporated by reference to the Form 8-K filed on May 9, 2014, File No. 001-34963). Sixth Amended and Restated Bylaws of LPL Financial Holdings Inc. (incorporated by reference to the Form 8-K filed on February 23, 2022, File No. 001-34963). Indenture, dated as of November 12, 2019, among LPL Holdings, U.S. Bank National Association, as trustee, and certain subsidiaries of LPL Holdings, as guarantors (incorporated by reference to the Form 8-K filed on November 12, 2019, File No. 001-34963). Indenture, dated as of March 15, 2021, among LPL Holdings, U.S. Bank National Association, as trustee, and certain subsidiaries of LPL Holdings, as guarantors (incorporated by reference to the Form 8-K filed on March 15, 2021, File No. 001-34963). Indenture, dated as of May 18, 2021, among LPL Holdings, U.S. Bank National Association, as trustee, and certain subsidiaries of LPL Holdings, as guarantors (incorporated by reference to the Form 8-K filed on May 18, 2021, File No. 001-34963). Description of Registrant’s Securities.* Form of Indemnification Agreement (incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-1 filed on July 9, 2010, File No. 333-167325). LPL Investment Holdings Inc. 2010 Omnibus Equity Incentive Plan (incorporated by reference to Amendment No. 2 to the Registration Statement on Form S-1 filed on July 9, 2010, File No. 333-167325). 99 Exhibit No. 10.3 10.4 10.5 10.6 10.7 0.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 0.18 10.19 10.20 Description of Exhibit p Form of Senior Management Stock Option Award granted under the LPL Investment Holdings Inc. 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2013, File No. 001-34963). Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc. 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2014, File No. 001-34963). Form of Employee Stock Option Award granted under the LPL Financial Holdings Inc. 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 26, 2014, File No. 001-34963). Amended and Restated LPL Financial Holdings Inc. 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 8-K filed on May 15, 2015, File No. 001-34963). Form of Employee Stock Option Award granted under the LPL Financial Holdings Inc. Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 24, 2017, File No. 001-34963). Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc. Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 24, 2017, File No. 001-34963). Form of Employee Performance Stock Unit Award granted under the LPL Financial Holdings Inc. Amended and Restated 2010 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-K filed on February 24, 2017, File No. 001-34963). LPL Financial Holdings Inc. 2021 Omnibus Equity Incentive Plan (incorporated by reference to the Form 8-K filed on May 5, 2021, File No. 001-34963). LPL Financial Holdings Inc. 2021 Employee Stock Purchase Plan (incorporated by reference to the Form 8-K filed on May 5, 2021, File No. 001-34963). Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc. 2021 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-Q filed on August 3, 2021, File No. 001-34963). Form of Employee Restricted Stock Unit Award granted under the LPL Financial Holdings Inc. 2021 Omnibus Equity Incentive Plan, as amended February 6, 2023.* Form of Employee Performance Stock Unit Award granted under the LPL Financial Holdings Inc. 2021 Omnibus Equity Incentive Plan (incorporated by reference to the Form 10-Q filed on August 3, 2021, File No. 001-34963). LPL Financial Holdings Inc. Non-Employee Director Deferred Compensation Plan, as amended May 5, 2021 (incorporated by reference to the Form 10-K filed on February 22, 2022, File No. 001-34963). LPL Financial Holdings Inc. Non-Employee Director Compensation Policy, as amended May 18, 2022 (incorporated by reference to the Form 10-Q filed on August 4, 2022, File No. 001-34963). LPL Financial LLC Executive Severance Plan, amended and restated as of February 23, 2017 (incorporated by reference to the Form 10-K filed on February 24, 2017, File No. 001-34963). Fourth Amendment Agreement, dated as of March 10, 2017, among LPL Financial Holdings Inc., LPL Holdings, Inc., certain subsidiaries of the Company, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase bank, N.A. and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A. and Morgan Stanley Bank, N.A., as Swingline Lenders (incorporated by reference to the Form 8-K filed on March 10, 2017, File No. 001-34963). Amendment Agreement, dated June 20, 2017, among LPL Holdings, Inc., LPL Financial Holdings Inc. and JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to the Form 10-Q filed on August 1, 2017, File No. 001-34963). Second Amendment, dated as of September 21, 2017, among LPL Financial Holdings Inc., LPL Holdings Inc., certain subsidiaries of the Company, as Guarantors, the incremental lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase bank, N.A. and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A. and Goldman Sachs Bank USA, as Swingline Lenders (incorporated by reference to the Form 8-K filed on September 21, 2017, File No. 001-34963). 100 Exhibit No. 10.21 p Description of Exhibit Third Amendment, dated as of April 25, 2019, among LPL Financial Holdings Inc., LPL Holdings Inc., certain subsidiaries of the Company, as Guarantors, the incremental lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase Bank, N.A. and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A. and Goldman Sachs Bank USA, as Swingline Lenders (incorporated by reference to the Form 10-Q filed on July 30, 2019, File No. 001-34963). 10.22 0.23 Fourth Amendment, dated as of November 12, 2019, among LPL Financial Holdings Inc., LPL Holdings Inc., certain subsidiaries of the Company, as Guarantors, the incremental lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., JPMorgan Chase Bank, N.A. and Morgan Stanley Bank, N.A., as Letter of Credit Issuers and JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A. and Goldman Sachs Bank USA, as Swingline Lenders (incorporated by reference to the Form 8-K filed on November 12, 2019, File No. 001-34963). Fifth Amendment, dated March 15, 2021, among LPL Financial Holdings Inc., LPL Holdings, Inc., certain subsidiaries of the Company, as Subsidiary Guarantors (as defined therein), the Incremental Revolving Lenders (as defined therein), JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, letter of credit issuer and swingline lender, and the lenders and parties party thereto from time to time (incorporated by reference to the Form 8-K filed on March 15, 2021, File No. 001-34963). 10.24 BETA Services First Amended and Restated Master Subscription Agreement, dated as of January 29, 2021, between LPL Financial LLC and Refinitiv US LLC (incorporated by reference to the Form 10-Q filed on May 4, 2021, File No. 001-34963).† 21.1 23.1 31.1 31.2 2.1 32.2 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.SCH Inline XBRL TaTT xonomy Extension Schema* 101.CAL 101.DEF 101.LAB 101.PRE 104 Inline XBRL TaTT xonomy Extension Calculation* Inline XBRL TaTT xonomy Extension Definition* Inline XBRL TaTT xonomy Extension Label* Inline XBRL TaTT xonomy Extension Presentation* Cover Page Interactive Data File (foff rmatted as Inline XBRL and contained in Exhibit 101) ____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ * Filed herewith. ** Furnished herewith. † Pursuant to 17 C.F.R. §§230.406 and 230.83, the confidential portions of this exhibit have been omitted and are marked accordingly. Item 16. Form 10-K Summaryrr None. 101 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/ Dan H. Arnold Dan H. Arnold President and Chief Executive Offff icer Dated: February 23, 2023 102 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the foff llowing persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature g Title Date /s/ Dan H. Arnold Dan H. Arnold /s/ Matthew J. Audette Matthew J. Audette /s/ Brent B. Simonich Brent B. Simonich /s/ Edward C. Bernard Edward C. Bernard /s/ Paulett Eberhart Paulett Eberhart /s/ William F. Glavin, Jr. William F. Glavin, Jr. /s/ Albert J. Ko Albert J. Ko /s/ Allison H. Mnookin Allison H. Mnookin /s/ Anne M. Mulcahy Anne M. Mulcahy /s/ James S. Putnam James S. Putnam /s/ Richard P. Schiftff er Richard P. Schiftff er /s/ Corey E. Thomas Corey E. Thomas President, Chief Executive Offff icer, and Director (Principal Executive Offff icer) February 23, 2023 Chief Financial Offff icer (Principal Financial Offff icer) February 23, 2023 Chief Accounting Offff icer (Principal Accounting Offff icer) February 23, 2023 Director February 23, 2023 Director February 23, 2023 Director February 23, 2023 Director February 23, 2023 Director February 23, 2023 Director February 23, 2023 Director February 23, 2023 Director February 23, 2023 Director February 23, 2023 103 CORPORATE INFORMATION LPL 2022 Annual Report Board of Directors (AS OF 03/30/23) Dan H. Arnold President and Chief Executive Officer LPL Financial Holdings Inc. Edward C. Bernard Former Vice Chair and Vice President T. Rowe Price Group, Inc. H. Paulett Eberhart Chair and Chief Executive Officer HMS Ventures William F. Glavin, Jr. Former Chair and Chief Executive Officer and President OppenheimerFunds, Inc. Albert J. Ko Chief Executive Officer Early Warning Services, LLC Allison H. Mnookin Former Chief Executive Officer QuickBase, Inc. Anne M. Mulcahy Former Chair and Chief Executive Officer Xerox Corporation James S. Putnam Chair of the Board of Directors LPL Financial Holdings Inc. Richard P. Schifter Senior Advisor TPG Corey E. Thomas Chair and Chief Executive Officer Rapid7, Inc. Investor Relations Send requests for ﬁnancial information to: Michael Adams Senior Vice President, Investor Relations LPL Financial 1055 LPL Way Fort Mill, SC 29715 investor.relations@lplﬁnancial.com Transfer Agent Computershare P.O. Box 505000 Louisville, KY 40233 Accounting Firm Deloitte & Touche LLP San Diego, CA Legal Counsel Ropes & Gray LLP Boston, MA Stock Listing & Trading Symbol LPL Financial Holdings Inc.’s common stock is listed on the Nasdaq Global Select Market under the trading symbol “LPLA.” 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, and also available on LPL’s website. Annual Meeting LPL Financial Holdings Inc.’s annual meeting of stockholders will be held at: 8:00 a.m. ET on May 11, 2023 LPL Financial 1055 LPL Way, Park Building Fort Mill, SC 29715 LPL 2022 Annual Report LPL 2022 Annual Report AUSTIN LPL Financial 13620 N FM 620 Building C, Suite 200 Austin, TX 78717 BOSTON LPL Financial 75 State Street, Floor 22 Boston, MA 02109 CAROLINAS LPL Financial 1055 LPL Way Fort Mill, SC 29715 SAN DIEGO LPL Financial 4707 Executive Drive San Diego, CA 92121 (800) 877-7210 | lpl.com Securities and advisory services offered through LPL Financial LLC (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity. If your ﬁnancial professional is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are: Not Insured by FDIC/NCUA or Any Other Government Agency Not Bank/Credit Union Guaranteed Not Bank/Credit Union Deposits or Obligations May Lose Value IR-1439064-0223 Tracking # 1-05364677 LPL.COM

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