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, 2023
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
Commission File Number 001-34963
LPL Financial Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
20-3717839
(I.R.S. Employer Identification No.)
4707 Executive Drive, San Diego, California
(Address of principal executive offices)
92121
(Zip Code)
(800)
877-7210
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock — $0.001 par value per share
Trading Symbol(s)
LPLA
Name of each exchange on which registered
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. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
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 for such shorter period that the registrant was required to submit such files). Yes No
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
Accelerated filer
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 for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness 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.
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.
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 officers during the relevant recovery period pursuant to § 240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No
As of June 30, 2023, the aggregate market value of the voting stock held by non-affiliates of the registrant was $16.6 billion. For purposes of this information, the outstanding
shares of Common Stock owned by directors and executive officers of the registrant were deemed to be shares of the voting stock held by affiliates.
The number of shares of Common Stock, par value $0.001 per share, outstanding as of February 16, 2024 was 74,452,950.
Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders, which the Company intends to file within 120 days of the fiscal year ended December 31,
2023, are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Information about our Executive Officers
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Reserved
Glossary of Terms
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
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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 1
Item 1A
Item 1B
Item 1C
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Exhibits and Financial Statement Schedules
Item 16
Form 10-K Summary
SIGNATURES
PART IV
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public on the
SEC’s website at sec.gov.
We post the following filings to our website at lpl.com as soon as reasonably practicable after they are electronically 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 information contained or incorporated on our website is not a part of this Annual
Report on Form 10-K.
We may use our website as a means of disclosing material information and for 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 following the Company’s press releases, SEC
filings, public conference calls and webcasts.
When we use the terms “LPLFH”, “LPL”, “we”, “us”, “our” and “the Company”, we mean LPL Financial Holdings Inc., a Delaware corporation,
and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections
of this Annual Report on Form 10-K regarding:
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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;
a potential settlement with the SEC related to its civil investigation into the Company’s compliance with records preservation
requirements for business-related electronic communications stored on personal devices in connection with an industry-wide review
of off-platform communications (the “Off-Channel Investigation”);
the Company’s future revenue and expense;
future affiliation models and capabilities;
the expected closing of the Company’s acquisition of Atria Wealth Solutions, Inc. (“Atria”)
the expected transition and onboarding of advisors, enterprises and assets in connection with our acquisition and recruitment activity;
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• market and macroeconomic trends, including the effects of inflation and the interest rate environment;
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projected savings and anticipated improvements to the Company’s operating model, services 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 forward-
looking statements.
•
These forward-looking statements reflect the Company’s expectations and objectives as of February 21, 2024. The words “anticipates,”
“believes,” “expects,” “may,” “plans,” “predicts,” “will” and similar expressions are intended to identify forward-looking statements, although
not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees that expectations or
objectives expressed or implied by the Company 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 factors that could cause or contribute to such differences include:
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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;
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effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors
and enterprises, and their ability to market financial products and services effectively;
• whether retail investors served by newly-recruited advisors choose to move their respective assets to new accounts at the Company;
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difficulties and delays in onboarding the assets of acquired or recruited advisors, including the receipt and timing of regulatory
approvals that may be required;
disruptions in the businesses of the Company that could make it more difficult to maintain relationships with advisors and their
clients;
the choice by clients of acquired or recruited advisors not to open brokerage and/or advisory accounts at the Company;
changes in the growth and profitability of the Company’s fee-based offerings;
the effect of current, pending and future legislation, regulation and regulatory actions, including disciplinary actions imposed by
federal and state regulators and self-regulatory organizations;
the cost of settling and remediating issues related to regulatory matters or legal proceedings, including actual costs of reimbursing
customers for losses in excess of our reserves;
the negotiation of the civil monetary penalty and definitive documentation in connection with the settlement of the Off-Channel
Investigation;
changes made to the Company’s services and pricing, including in response to competitive developments and current, pending and
future legislation, regulation and regulatory actions, and the effect 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 primary broker-dealer subsidiary,
LPL Financial LLC (the “Broker-Dealer Revolving Credit Facility”), and the indentures governing the Company’s senior unsecured
notes (the “Indentures”);
strategic acquisitions and investments, including pursuant to the Company’s Liquidity & Succession solution, and the effect that such
acquisitions and investments may have on the Company’s capital management plans and liquidity;
the price, availability and trading volumes of shares of the Company’s common stock, which will affect 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, service improvements or efficiencies
expected to result from its investments, initiatives and acquisitions, expense plans and technology initiatives;
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• whether advisors affiliated with Prudential Financial, Inc. (“Prudential”) will transition registration to the Company and whether assets
reported as serviced by such financial advisors will translate into assets of the Company;
the failure to satisfy the closing conditions applicable to the strategic relationship agreement between the Company and Prudential,
including regulatory approval;
the performance of third-party service providers to which business processes have been transitioned;
the Company’s ability to control operating risks, information technology systems risks, cybersecurity risks and sourcing risks; and
the other factors set forth in Part I, “Item 1A. Risk Factors.”
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Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of
developments occurring after the date of this Annual Report 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.
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Item 1. Business
Overview
PART I
LPL serves the advisor-mediated marketplace as the nation’s largest independent broker-dealer, a leading investment advisory firm, and a
top custodian. We serve more than 22,000 financial advisors, including advisors at approximately 1,100 enterprises and at approximately 570
registered investment advisor (“RIA”) firms nationwide, providing the front-, middle- and back-office support our advisors need. Through our
comprehensive platform, we offer integrated technology solutions; brokerage and advisory platforms; clearing, compliance, business and
planning and advice services; consultative practice management programs and training; and in-house research to help our advisors deliver
advice to their clients and run successful businesses.
We are steadfast in our commitment to the advisor-mediated model and the belief that investors deserve access to personalized guidance
from a financial advisor. We believe advisors should have the freedom to choose the business model, services 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 for advisors to do what is best for their clients.
We believe that we are the only company that offers the unique combination of an integrated technology platform, comprehensive self-
clearing services and access to a wide range of curated non-proprietary products all delivered in an environment unencumbered by conflicts
from product manufacturing, underwriting 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:
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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.
LPL Insurance Associates, Inc. (“LPLIA”) operates as a brokerage general agency that offers life and disability insurance products
and services.
AW Subsidiary, Inc. is a holding company for AdvisoryWorld and Blaze Portfolio Systems LLC (“Blaze”). AdvisoryWorld offers
technology products, including proposal generation, investment analytics and portfolio modeling, to both the Company’s advisors and
external clients in the wealth management industry. Blaze provides an advisor-facing trading and portfolio rebalancing platform.
The Private Trust Company, N.A. (“PTC”) provides trust administration, investment management oversight and, along with its affiliate
Fiduciary Trust Company of New Hampshire, Individual Retirement Account (“IRA”) custodial services.
LPL Employee Services, LLC and its subsidiary, Allen & Company of Florida, LLC (“Allen & Company”), along with their affiliate,
Financial Resources Group Investment Services, LLC (“FRGIS”), provide primary support for the Company’s employee advisor
affiliation model.
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 advice to their clients and operate thriving 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 differentiate and win investors, create an industry-leading service experience that delights advisors and enterprises and their clients,
and help advisors and enterprises run the most successful businesses in the industry.
Our Business
Advisor Relationships
Our business is dedicated exclusively to our advisors; we are not a market-maker nor do we offer investment banking or underwriting
services. We offer no proprietary products of our own, and, as a result, we enable the independent financial advisors and enterprises that we
support to offer their clients lower-conflict advice.
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We work alongside advisors to navigate complex market and regulatory environments and strive to empower them to create the best
outcomes for investors. In addition, we make meaningful investments in technology and services to support the growth, productivity and
efficiency of advisors across a broad spectrum of business models as their practices evolve. Our advisors are a community of diverse
financial services professionals who support approximately 8.3 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 services are designed to support the evolution of our advisors’ businesses over time and to adapt as
our advisors’ needs change.
The majority of our advisors are independent practitioners who are viewed as local providers of independent advice. Many of our advisors
operate under their own business name, with LPL offering assistance with their branding, marketing and promotion and regulatory review.
We believe we offer a compelling economic value proposition to independent advisors, which is a key factor in our ability to attract and retain
advisors and their practices. The independent channels pay advisors a greater share of advisory fees and brokerage commissions than the
captive channels — generally 80-100% compared to 30-50% for captive channels. Most of our independent financial advisors are business
owners who, unlike their captive counterparts, also benefit from building equity value in their own businesses. We also support advisors
through our independent employee advisor affiliation model, where they benefit from a full-service employee relationship with us while
generally retaining ownership of their client relationships in exchange for a slightly lower payout than our traditional independent model.
Furthermore, we believe that our technology and service platforms enable our advisors to operate their practices with a greater focus on
serving investors at a lower cost than other independent advisors.
Our more than 22,000 advisors average over 20 years in the industry, which generally allows us to focus on supporting and enhancing our
advisors’ businesses without needing to provide basic training or subsidizing advisors who are new to the industry. Our flexible business
platform allows our advisors to choose the most appropriate business model to support their clients whether they conduct brokerage
business, offer brokerage and/or fee-based services on our corporate RIA platform, or provide fee-based services through their own RIA.
Advisors licensed with LPL Financial as investment advisory representatives conduct fee-based business on our corporate RIA platform, and
advisors licensed with LPL Financial as registered representatives conduct commission-based business on our brokerage platform. 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 for securities will be placed through
LPL Financial, that the advisor will sell only products that LPL Financial has approved and that the advisor will comply with LPL Financial
policies and procedures as well as securities rules and regulations. These advisors also agree not to engage in any outside business activity
without prior approval from us and not to act in competition with us.
LPL Financial also supports approximately 570 independent RIA firms that conduct their business through separate registered investment
advisor firms (“Independent RIAs”) with approximately 6,300 advisors who conduct their advisory business through these separate entities.
Independent RIAs operate 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 for technology, clearing and custody services, as well as access to
our investment platforms and business services. Advisors associated with Independent RIAs retain 100% of their advisory fees, and in return,
we charge separate fees for custody, trading, administrative and support services. In addition, some financial advisors associated with
Independent RIAs are registered representatives of LPL Financial and access our fully-integrated brokerage platform under standard terms.
We believe we are the market leader in the enterprise channel, providing support to over 3,600 financial advisors at approximately 1,100
enterprises nationwide. The core capabilities of these enterprises may not include investment and financial planning services, or they may
find the technology, infrastructure and regulatory requirements of supporting such services to be cost-prohibitive. For these enterprises, we
provide their financial advisors with the infrastructure and services they need to be successful, allowing the enterprises to focus more
attention and capital on their core businesses.
Finally, we provide support to approximately 3,800 additional financial advisors who are affiliated and licensed with insurance companies.
These arrangements allow us to provide outsourced customized clearing, advisory platforms and technology solutions that enable the
financial advisors at these insurance companies to offer a breadth of services to their client base in an efficient manner.
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Our Value Proposition
We are dedicated to making it easy for advisors to do what is best for their clients. Our scale and self-clearing platform enable us to provide
advisors with the capabilities they need, and the service 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-office solutions through our distinct value proposition: integrated technology
solutions, comprehensive clearing services, compliance services, consultative practice management programs and training, business
services and planning and advice services, along with in-house research. The comprehensive and increasingly automated nature of our
offering enables our advisors to focus on their clients while successfully and efficiently managing the complexities of running their own
practice.
Integrated Technology Solutions
We provide our technology and service to advisors through an integrated technology platform that is cloud-based and web-accessible. Our
technology offerings are designed to permit our advisors to effectively manage all critical aspects of their businesses in an efficient manner
while remaining responsive to their clients’ needs. We continue to automate time-consuming processes, such as account opening and
management, document imaging, transaction execution, and account rebalancing, in an effort to improve our advisors’ efficiency and
accuracy.
Comprehensive Clearing Services
We provide custody and clearing services for the majority of our advisors’ transactions and seek to offer a simplified and streamlined advisor
experience with expedited processing capabilities. Our self-clearing platform enables us to control client data, more efficiently process and
report trades, facilitate platform development, reduce costs and ultimately enhance the service experience for our advisors and their clients.
Compliance Services
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 effectiveness and scalability of our control environment.
Our team of risk and compliance employees assists our advisors through:
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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 supervision of activities by branch managers;
conducting technology-enabled surveillance of trading activities and sales practices;
• monitoring of registered investment advisory activities for advisors on our corporate RIA platform; and
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inspecting branch offices and advising on how to strengthen compliance procedures.
Consultative Practice Management Programs and Training
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 effort. Our practice management and training services include:
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personalized business consulting that helps eligible advisors and program leadership enhance the value and operational efficiency of
their businesses;
advisory and brokerage consulting and financial planning to support advisors in growing their businesses through our broad range of
products and fee-based offerings and wealth management services;
• marketing strategies, including campaign templates, to enable advisors to build awareness of their services and capitalize on
opportunities in their local markets;
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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;
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an advisor loan program for advisors looking to buy another practice;
transition services to help advisors establish independent practices and migrate client accounts to us; and
in-person and virtual training and educational programs on topics including technology, use of advisory platforms and business
development.
Business Services and Planning and Advice Services
We provide business services to advisors in areas critical to the operation of their practices, such as marketing, accounting and transaction
support. Our business services portfolio includes professional services and business optimizer offerings. Professional services offerings,
including CFO Solutions, Marketing Solutions, Admin Solutions, Advisor Institute, Bookkeeping, Partial Book Sales, and CFO Essentials are
digital and employee-powered solutions that provide expertise to increase business-level growth and operational efficiency. Business
optimizer offerings, including M&A Solutions, Digital Office, Resilience Plans and Assurance Plans, are digital solutions that provide risk
mitigation and business continuity services to support practice operations and succession planning.
Our planning and advice services are digital and employee-powered solutions that help advisors and enterprises expand the breadth and
depth of their advice in areas such as tax planning, paraplanning and private client support for high-net-worth relationships. The focus of
planning and advice services is helping advisors increase marketplace differentiation while limiting additional complexity and risk. We are
expanding our portfolio of services to address new advisor needs while also enhancing our existing solutions to deliver an industry-leading
customer experience.
In-House Research
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 serve their clients,
including the creation of discretionary portfolios for which we serve as a portfolio manager, available through our turnkey advisory asset
management platforms. We are able to provide objective and unbiased investment research to our advisors and their clients without the
conflict of proprietary products or investment banking services.
Our Product and Solution 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 services. The sales and administration of these products are facilitated through our technology
solutions, which allow our advisors to access client accounts, product information, asset allocation models, investment recommendations and
economic insight, as well as to perform trade execution.
Fee-Based Platforms and Support
We have various fee-based platforms 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 offered by third-party investment advisor firms, financial planning services and retirement plan consulting
services. The fee structure of our platforms enables our advisors to provide their clients with higher levels of service while establishing a
recurring revenue stream for the advisor and for us. Our fee-based platforms provide access to 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, 2023, the total advisory assets under custody in these platforms, through both our corporate RIA and Independent RIA
advisory platforms, were $735.8 billion.
Commission-Based Products
Commission-based products include those for which we and our advisors receive an upfront commission and, for certain products, a trailing
commission. Our brokerage offerings include variable and fixed annuities, mutual funds, equities, 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,
2023, the total brokerage assets in commission-based products were $618.2 billion.
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Client Cash Programs
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, 2023, the total assets
in our client cash programs, which are held within advisory and brokerage accounts, were $48.5 billion.
Other Services
We provide a number of additional tools and services that enable advisors to maintain and grow their practices. Through our subsidiary PTC,
we provide custodial services to trusts for estates and families. Under our model, an advisor may provide a trust with investment
management services, while administrative services for the trust are provided by PTC. We also offer retirement solutions for commission-
and fee-based services that allow advisors to provide brokerage services, consultation and advice to retirement plan sponsors using LPL
Financial. We offer proposal generation, investment analytics and portfolio modeling capabilities to both our advisors and external clients in
the wealth management industry and provide an advisor-facing trading and portfolio rebalancing platform.
Our Financial Model
Our overall financial performance is a function of the following:
• 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 services, client cash balances, service and fee revenue,
transaction revenue and revenue for other ancillary services that we provide. Revenue is not concentrated by advisor, product or
geography. For the year ended December 31, 2023, no single relationship with our independent advisor practices or enterprises
accounted for more than 2% of our advisory and commission revenue, and no single advisor accounted for more than 1% of our
advisory and commission revenue.
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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. Service and fee revenue is generated
from advisor and retail investor services, including insurance, licensing, business services and planning and advice services, IRA
custodian and other client account fees. Service and fee revenue from business services is based on recurring subscription fees. We
charge separate fees to RIAs for technology, clearing, administrative, oversight and custody services, which may vary. In addition, we
host certain advisor conferences that serve as training, education, sales and marketing events for which we charge sponsors a fee.
• 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.
Our Competitive Strengths
Market Leadership Position and Scale
We are the established leader in the independent advisor market, which is our core business focus. We use our scale and position as an
industry leader to champion the independent business model and the rights of our advisors and their clients. Our scale enables us to benefit
from the following dynamics:
• Continual Reinvestment — We actively reinvest in our comprehensive technology platform and practice management support, which
further improves the productivity of our advisors.
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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 Advisors — As one of the largest U.S. broker-dealers by number of advisors, we believe that we offer our advisors
the highest average payout rates in our industry.
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 reinforces our established scale advantage.
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Comprehensive Solutions
We differentiate through the combination of our capabilities across research, technology, risk management and practice management. We
make meaningful investments to support the growth, productivity and efficiency of advisors across a broad spectrum of models as their
practices evolve. Our focus is working alongside advisors to navigate complex environments in order to create the best outcomes for their
clients.
We believe we offer a compelling value proposition to independent financial advisors and enterprises. This value proposition is built upon the
delivery of our services through our scale, independence, and integrated technology, the sum of which we believe is not replicated in the
industry. As a result, we believe that we do not have any direct competitors that offer our business model at the scale at which we offer it. For
example, because we do not have any proprietary manufactured financial products, we do not view firms that manufacture asset
management products and other financial products as direct competitors.
We provide comprehensive solutions to enterprises, such as regional banks, credit unions and insurance companies, that seek to provide a
broad array of services for 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 services on a cost-effective basis.
Flexibility of Our Business Model
Our business model allows our advisors the freedom to choose how they conduct their business, subject to certain regulatory parameters,
which has helped us attract and retain advisors from multiple channels, including wirehouses, regional broker-dealers, banks, other RIAs and
other independent broker-dealers. Our platform can accommodate a variety of independent advisor business models, including financial
advisors as independent contractors, employee advisors and Independent RIAs. The flexibility of our business model enables our advisors to
select their preferred affiliation model and product mix as their business evolves and preferences change within the market or their client
base all within an environment that allows for evolution with minimal interruption to their business and their clients.
In addition, our business model provides advisors with a multitude of customizable service and technology offerings that allow them to
increase their efficiency, focus on their clients and grow their practice. For example, LPL Services 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
Increasing Productivity of Existing Advisor 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 the potential to result in the assets per advisor growing over time. Business services and planning and
advice services are a source of organic growth as a larger share of advisors adopts these service solutions.
Attracting New Assets to Our Platform
We intend to grow the assets served by our platform across traditional markets and through new affiliation models. Ongoing investment in
and enhancements to our platform and support teams have led to an expanded pipeline. We have also experienced momentum from a
continued expansion of our advisor affiliation models, which has attracted prospects from new sources. Finally, we have opened up a new
market with our newest enterprise affiliation model resulting in strategic relationships with M&T Bank Corporation, BMO Harris Financial
Advisors, CUNA Brokerage Services, Inc., People’s United Bank, Bancwest Investment Services and Commerce Financial Advisors. Most
recently, we announced an agreement with Prudential to transition the brokerage and investment advisory assets of Prudential Advisors,
Prudential’s retail wealth management business, from its current third-party custodian to the Company’s Institution Services platform in the
second half of 2024, subject to receipt of regulatory approval and other conditions. Related investments in our enterprise platform have
generated interest from new enterprise clients.
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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 focus on the highly competitive high-
net-worth investor market.
• Competition for advisors also includes regional firms that primarily focus 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 services.
Our advisors compete for clients with financial advisors of brokerage firms, banks, insurance companies, asset management and investment
advisory firms. In addition, they also compete with a number of firms offering direct-to-investor online financial services and discount
brokerage services.
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.
Workforce
As of December 31, 2023, we had approximately 8,400 full-time employees, all of whom are located in the U.S. Approximately 49% of our
employees self-identify as women and 40% self-identify as Black, Indigenous or People of Color.
Talent Management and Culture
Due to the complexity of our business, we compete with other companies for top talent, both inside and outside of our industry, and in
multiple geographical areas within the United States. Our Human Capital efforts focus on further developing our culture of service in concert
with our mission statement: We take care of our advisors so they can take care of their clients. To 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 for our advisors and their clients.
Compensation and Benefits
To maintain a high-caliber, values-driven workforce that is committed to our culture, we strive to offer total rewards, including compensation,
benefits and recognition programs that position our company as an employer of choice. Our compensation is designed to be performance
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, subject 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 offer an employee stock purchase plan that enables eligible employees to acquire an ownership
interest in our Company at a discount to prevailing market prices.
We offer 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 offer 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 workforce.
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 supports employees and
their family members in their wellness journeys as well as offering targeted and focused programming for mental health, Type 2 Diabetes
care and maternity management.
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Recruiting
As a Fortune 500 company focused on innovation and growth, talent drives the success of our company. Therefore, we are focused on
attracting and retaining our employees. To reach a diverse pool of 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 efforts and
implementing diverse recruitment methods, we seek to create a workforce representative of the communities and partners we serve.
We continue to invest in talent recruitment channels to introduce emerging talent to the opportunities within wealth management and financial
services. As part of our university recruitment strategy, we have expanded partnerships with colleges and universities in the local
communities we serve and beyond. We continuously seek ways to collaborate with students, faculty and diverse campus organizations to
increase exposure and opportunities for students. LEAP, our Leadership Excellence and Achievement Program, encompasses the
Company’s emerging talent initiatives and offers internship, part time and full time opportunities to develop the next generation of leaders.
Training and Development
We believe in our employees’ potential and provide training and development opportunities intended to maximize their performance and
professional growth. To 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 for 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 offer professional development
opportunities through training sessions, on-demand learning and cross-departmental workshops, resulting in over 170,000 completed
courses and workshops and approximately 200,000 development hours for our employees. In addition, we have mentorship programs that
pair employees with more experienced professionals, giving mentees access to experience, expertise, and guidance. To help employees
determine the next steps in their careers, we continue to provide a Career Growth Portal that provides employees with tools, resources,
training courses and assessments as they chart their career paths. Lastly, we have created skills cards with curated content targeting key
skills and desired capabilities to help employees develop.
Employee Safety
We aim to provide a safe, inclusive environment for 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.
To promote health and safety in our workplace, we have an environment, health and safety function that partners with others across the
organization to support compliance with applicable workplace health and safety requirements. We also have a cross-functional team, with
members who have been trained to conduct threat assessments to support workplace violence prevention. We provide leaves of absence
and workplace accommodations, and we provide employees with the flexibility to support their individual circumstances, where possible. In
addition, the LPL Financial Foundation continues to support the LPL Care Fund, an employee-to-employee relief fund created to help
employees facing unexpected and unavoidable financial hardships as a result of a natural disaster or epidemic by providing tax-free grants.
Diversity, Equity and Inclusion
Our diversity, equity and inclusion (“DEI”) efforts are overseen by our chief executive officer, chief human capital officer and chief diversity
officer. In 2023, the management committee received quarterly updates on DEI-related issues. Our Board of Directors, its compensation and
human resources committee and its nominating and governance committee, which oversees our environmental, social and governance
program, also received multiple updates on our progress in this area.
At LPL, 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 foster a culture of inclusivity. Our employee-led resource groups give voice to the needs, concerns and experiences of
various diverse groups so that our leaders can ensure that all employees, regardless of background, are valued, respected and fully
supported.
Continuous improvement is a pillar of our culture, and we regularly solicit employee feedback on the effectiveness and quality of our
programs, including our diversity and inclusion programs, and their level of engagement with our business. We use this feedback to improve
our programs and processes and inform decisions about our business.
In furtherance of our commitment to cultivating diversity of thought and ideas within the organization, we sponsor and encourage all of our
team members to participate in Employee Resource Groups to leverage the individual
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talents and share the perspectives and experiences of our employees across all demographics. These include, but are not limited to, groups
open to all employees focusing on the experience of individuals who identify as African-American, Asian-American and Pacific Islander,
Hispanic, LGBTQ, Veterans, Women, People with Disabilities and Working Parents.
Finally, our professional development and recruitment efforts include targeted outreach to and collaborations with organizations that serve
historically underserved and underrepresented populations. We closely monitor employee turnover across a variety of dimensions to
evaluate our effectiveness in retaining personnel. In addition, our DEI talent attraction efforts are centered on strengthening relationships with
community partners, particularly historically Black colleges and universities. Our goal has been to broaden the pool of talented applicants to
include groups historically underrepresented so that we can truly reach the best candidates, and our efforts towards this goal helped create a
2023 class of interns with significant representation by people identifying as a woman and/or as Black, Indigenous or a Person of Color.
Regulation
The financial services industry is subject to extensive regulation by U.S. federal, state and international government agencies as well as
various self-regulatory organizations. We 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 enforcement of those laws or regulations may affect our operations and/or financial condition.
Broker-Dealer Regulation
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. The rules of the Municipal Securities Rulemaking Board, which are enforced by the SEC and FINRA, apply to the
municipal securities activities of LPL Financial. 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 (“NFA”). LPL Financial is regulated by the SEC, FINRA,
CFTC and NFA.
Broker-dealers are subject to rules and regulations covering all aspects of the securities business, including sales and trading practices,
public offerings, publication of research reports, use and safekeeping of clients’ funds and securities, capital adequacy, recordkeeping and
reporting, the conduct of directors, officers and employees, qualification and licensing of supervisory and sales personnel, marketing
practices, supervisory and organizational procedures intended to ensure compliance with securities laws and to prevent improper trading on
material nonpublic information, limitations on extensions of credit in securities transactions, clearance and settlement procedures, anti-money
laundering, cybersecurity, credit risk management and rules designed to promote high standards of commercial honor and just and equitable
principles of trade. Broker-dealers are also subject to state securities laws and regulated by state securities administrators in those
jurisdictions where they do business. Applicable laws, rules and regulations may be subject 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, officers 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, NFA, 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 Reserve 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.
LPL Financial's recommendations to retail customers are subject to a standard of conduct specified by the SEC (“Reg BI”). Reg BI requires
that, when making recommendations, broker-dealers act in the best interest of retail
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customers without placing their own financial or other interests ahead of the customer’s and imposes 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 addition, the DOL has proposed a “Retirement Security Rule” that would broaden the definition of
fiduciary advice and modify the prohibited transaction exemptions in effect as of the date of this Annual Report that enable investment advice
fiduciaries to receive 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 proposed conduct standards could increase the complexity and costs of our compliance or affect
our revenue streams, including, in the case of the DOL proposal, our ability to rely on the current prohibited transaction exemptions.
Moreover, to the extent new rules or regulations affect the operations, financial condition, liquidity and capital requirements of financial
institutions with which we do business, those institutions may seek to pass on increased costs, reduce their capacity to transact, or otherwise
present inefficiencies in their interactions with us. As industry compliance practices and regulatory approaches to guidance, examinations
and enforcement 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 enforce similar issues addressed by Reg BI and the DOL.
Investment Adviser Regulation
As an investment adviser registered with the SEC, our subsidiary LPL Financial is subject to the requirements of the Advisers Act, and the
regulations promulgated thereunder, including examination by the SEC’s staff. Such requirements relate to, among other things, fiduciary
duties to clients, maintaining an effective 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 for violations of the Advisers Act and associated regulations.
Investment advisers also are subject to certain state securities laws and regulations. Failure to comply with the Advisers Act or other federal
and state securities laws and regulations could result in investigations, 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.
Retirement Plan Services Regulation
Certain subsidiaries, including LPL Financial, LPL Employee Services, LLC, PTC, Fiduciary Trust Company of New Hampshire and LPLIA,
are subject to ERISA, Section 4975 of the Code, and to regulations promulgated under ERISA or the Code, insofar as the subsidiaries
provide services with respect to plan clients, or otherwise deal with plan clients, plan participants and retirement, health and educational
accounts that are subject 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 subject to ERISA and fiduciaries or other service providers to
such plans. Non-compliance with or breaches of these provisions may expose an ERISA fiduciary or other service provider to liability under
ERISA, which may include monetary and criminal penalties as well as equitable remedies for the affected plan. Section 4975 of the Code
prohibits certain transactions involving “plans” (as defined in Section 4975(e)(1), which include, for example, IRAs and certain Keogh plans)
and service providers, including fiduciaries (as defined in Section 4975(e)(3)), to such plans. Section 4975 imposes excise taxes for
violations of these prohibitions.
The DOL has a “five-part test” defining fiduciary “investment advice” under ERISA and the Code (the “Five-Part Test”). 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 for a fee, on a regular basis, and subject to a mutual understanding that the advice will
be personalized to the needs of the advice recipient and used as a primary basis for an investment decision. In addition, the DOL has
proposed a “Retirement Security Rule” that would modify the Five-Part Test to broaden the definition of fiduciary advice and the prohibited
transaction exemptions in effect as of the date of this Annual Report.
The DOL’s prohibited transaction exemption 2020-03 (“PTE 2020-02”) provides broad exemptive relief for 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 Test.
This new
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interpretation, as well as other guidance issued by the DOL in connection with this interpretation, has been the subject 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,
in part, 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 enforcement 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 enforce elements of the Five-Part Test and PTE
2020-02 rules or interpretations.
The DOL also proposed amendments to 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, information technology and other costs and
could lead to a greater risk of client lawsuits and enforcement activity by the DOL and other regulators. The effect of any future DOL
regulations and changes on our retirement plan business cannot be anticipated or planned for but may have further impacts on our products
and services and results of operations.
Trust Regulation
Through our subsidiary, PTC, we offer trust, investment management oversight and custodial services for estates and families. PTC is
chartered as a non-depository national banking association. As a limited purpose national bank, PTC is regulated and regularly examined by
the Office of the Comptroller of the Currency (“OCC”). PTC files reports with the OCC within 30 days after the conclusion of each calendar
quarter. Because the powers of PTC are limited to providing fiduciary services and investment advice, it does not have the power or authority
to accept deposits or make loans. For this reason, trust assets under PTC’s management are not insured by the FDIC.
Because of its limited purpose, PTC is not a “bank” as defined under the Bank Holding Company Act of 1956. Consequently, neither its
immediate parent, PTC Holdings, Inc., nor its ultimate parent, LPLFH, is regulated by the Board of Governors of the Federal Reserve System
as a bank holding company. However, PTC is subject to regulation by the OCC and to various laws and regulations enforced by the OCC,
such as capital adequacy, change of control restrictions and regulations governing fiduciary duties, conflicts of interest, self-dealing and anti-
money laundering. For example, the Change in Bank Control Act of 1978, as implemented by OCC supervisory policy, imposes restrictions
on parties who wish to acquire a controlling interest in a limited purpose national bank such as PTC or the holding company of a limited
purpose national bank such as 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 serve specific bank regulatory and
supervisory purposes and are not meant for the protection of PTC, PTC Holdings, Inc., LPLFH or their stockholders.
Regulatory Capital Requirements
The SEC, FINRA, CFTC and NFA have stringent rules and regulations with respect to the maintenance of specific levels of net capital by
regulated entities. 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 subject to the NFA’s financial requirements and
is required to maintain net capital that is in excess of or equal to the greatest of the NFA’s minimum financial requirements. Under these
requirements, LPL Financial is currently required to maintain minimum net capital that is in excess of or equal to the minimum net capital
calculated and required pursuant to the Exchange Act’s net capital rule.
The SEC, FINRA, CFTC and NFA impose rules that require notification when net capital falls below certain predefined criteria. These broker-
dealer capital rules also dictate the ratio of debt to equity in regulatory capital composition and constrain the ability of a broker-dealer to
expand its business under certain circumstances. If a broker-dealer fails to maintain the required net capital, then certain notice requirements
to the regulators are required, and the broker-dealer may be subject to suspension or revocation of registration by the applicable regulatory
agency, and suspension or expulsion by these regulators ultimately could lead to the broker-dealer’s liquidation. Additionally, the net capital
rule and certain FINRA rules impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing
capital and require prior notice to the SEC and FINRA for certain capital withdrawals. LPL Financial, which is subject to net capital rules, has
been and currently is in compliance with those rules and has net capital in excess of the minimum requirements.
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Anti-Money Laundering and Sanctions Compliance
The USA PATRIOT 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 services
companies. Financial institutions subject to these requirements generally must have an anti-money laundering program in place, which
includes monitoring for and reporting suspicious activity, implementing specialized employee training programs, designating an anti-money
laundering compliance officer and annually conducting an independent test of the effectiveness of its program. In addition, sanctions
administered by the United States Office 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.
Security and Privacy
Regulatory activity in the areas of privacy and data protection continues to grow worldwide and is generally being driven by the growth of
technology and related concerns about the rapid and widespread dissemination and use of information and general concerns about the
security of that information. To the extent they are applicable to us, we must comply with federal and state information-related laws and
regulations in the United States, including the Gramm-Leach-Bliley Act of 1999, SEC Regulation S-P, the Fair Credit Reporting Act of 1970,
as amended, and Regulation S-ID, as well as the California Consumer Privacy Act and further potential federal and state requirements.
Trademarks
®
Access Overlay , BlazePortfolio , BranchNet , CLIENTWORKS , Fortigent , LPL , LPL Career Match , LPL Financial (& Design) , Manager
Access Network , Manager Access Select , OMP and SPONSORWORKS are our registered trademarks, and ADVISORYWORLD,
CLIENTWORKS CONNECTED, ALLEN & COMPANY OF FLORIDA, LLC, and THE PRIVATE TRUST COMPANY, N.A. (& Design) are
among our service marks.
®
®
®
®
®
®
®
®
®
®
®
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Item 1A. Risk Factors
Risk Factor Summary
Our business, operations and financial results are subject to varying degrees of risk and uncertainty. We are providing the following summary
of risk factors to enhance readability of our risk factor disclosure. Material risks that may adversely affect our business, operations and
financial results include, but are not limited to, the following:
Risks Related to Our Business and Industry
• We depend on our ability to attract and retain experienced and productive advisors, and we are subject to competition in all aspects
of our business.
• Our financial condition and results of operations may be adversely affected by market fluctuations and other economic factors.
•
•
Significant interest rate changes could affect 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 subject 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 service providers, including off-shore providers, to perform 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 affected as a result of the risks associated with acquisitions, investments, and strategic
relationships.
• Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or
against all types of risks.
• We 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 affect our financial condition and may limit our ability to use debt to fund future capital needs.
• Restrictions under our Credit Agreement may prevent us from taking actions that we believe would be in the best interest of our
business.
•
Provisions of our Credit Agreement and certain of the Indentures could discourage an acquisition of us by a third-party.
• Our insurance coverage may be expensive and we may exceed our limits of insurance coverage.
•
•
Poor service or performance of the financial products that we offer or competitive pressures on pricing of such services or products
may cause clients of our advisors to withdraw their assets on short notice.
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.
Risks Related to Our Regulatory Environment
•
Any failure to comply with applicable federal or state laws or regulations, or self-regulatory organization rules, exposes us to litigation
and regulatory actions, which could increase our costs or negatively affect our reputation.
• Regulatory developments could adversely affect our business by increasing our costs or making our business less profitable.
• We are subject 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.
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Risks Related to Our Technology
• We rely on technology in our business, and technology and execution failures could subject us to losses, litigation and regulatory
actions.
• Our information 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 negatively
impact our normal operations and, as a result, subject 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 subject could result in adverse
action from regulators and adversely affect our business, reputation, results of operations and financial condition.
Failure to maintain technological capabilities, flaws in existing technology, difficulties in upgrading our technology platform or the
introduction of a competitive platform could have a material adverse effect on our business.
Inadequacy or disruption of our business continuity and disaster recovery plans and procedures in the event of a catastrophe could
adversely affect our business.
Risks Related to Ownership of Our Common Stock
•
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for 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 service and other obligations.
• Our future ability to pay regular dividends to holders of our common stock or repurchase shares are subject to the discretion of our
Board and will be limited by our ability to generate sufficient earnings and cash flows.
Risks Related to Our Business and Industry
We depend on our ability to attract and retain experienced and productive advisors, and we are subject to competition in all
aspects of our business.
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 serve. If we fail to attract new advisors or to retain and motivate our current advisors, replace
our advisors who retire, or assist our retiring advisors with transitioning their practices to other advisors on our platform, or if advisor
migration away from wirehouses to independent channels slows, our business may suffer.
The market for 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 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 efforts to attract and retain the advisors needed to achieve our growth objectives.
More broadly, we are subject to competition in all aspects of our business from:
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brokerage and investment advisory firms, including national and regional firms, as well as Independent RIAs;
asset management firms;
commercial banks and thrift institutions;
insurance companies;
other clearing/custodial technology companies; and
investment firms offering so-called “robo” advice solutions.
Many of our competitors have substantially greater resources than we do and may offer a broader range of services and financial products
across more markets. Some of our competitors operate in a different regulatory environment than we do, which may give them certain
competitive advantages in the services they offer. For example, certain of our competitors only provide clearing services and consequently
would not have any supervision or oversight
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liability relating to actions of their financial advisors. We believe that competition within our industry will intensify as a result of consolidation
and acquisition activity and because new competitors face few barriers to entry, which could adversely affect our ability to recruit new
advisors and retain existing advisors.
If we fail to continue to attract highly qualified advisors, or 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 platforms 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 financial condition and results of operations may be adversely affected by market fluctuations and other economic factors.
Significant downturns and volatility in equity and other financial markets have had and could continue to have an adverse effect on our
financial condition and results of operations.
General economic and market factors can affect our commission and fee revenue. For example, a decrease in market levels or market
volatility can:
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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 affecting 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 affect our financial condition and results of operations, including, for example, changes in the mix of
products preferred by investors may result in increases or decreases in our fee 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.
Significant interest rate changes could affect our profitability and financial condition.
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 shifts among the current or future deposit
sweep vehicles, client cash account or money market accounts that we offer. Though the Federal Reserve increased its target federal funds
rate in 2022 to combat rising inflation, there is no guarantee of further increases, or that the higher interest rate environment will be
sustained. If the Federal Reserve reduces its target federal funds rate from current levels, our revenue will be impacted.
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 offering 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
offer 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.
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Any damage to our reputation could harm our business and lead to a loss of revenue and net income.
We have spent many years developing our reputation for integrity and client service, which is built upon our support for our advisors through:
enabling technology, comprehensive clearing and compliance services, 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 service, business
practices and financial condition. Damage to our reputation could cause significant harm to our business and prospects and may arise from
numerous sources, including:
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litigation or regulatory actions;
failing to deliver acceptable standards of service 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 business is subject to risks related to litigation, arbitration claims and regulatory actions.
From time to time, we have been subjected to and are currently subject to legal and regulatory proceedings arising out of our business
operations, including lawsuits, arbitration claims, governmental subpoenas and regulatory, governmental and self-regulatory organization
(“SRO”) inquiries, investigations and enforcement 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 enforcement
proceedings by the SEC, FINRA, DOL and state securities regulators or attorneys general, are difficult 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 effect on our ability to recruit or retain financial
advisors or institutions, or our results of operations, cash flows or financial condition.
We may face liabilities for deficiencies or failures in our supervisory and regulatory compliance systems and programs. We may also face
liabilities for 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 or the investment advice or securities recommendations our advisors or Independent RIAs provide
to their clients.
In addition, the administration of client accounts involves operational processes such as recordkeeping and accounting, security pricing,
corporate actions, and account reconciliations that are complex and rely on various tools and resources. Failure to properly perform
operational tasks or errors in the design or function of these tools, could subject us to regulatory sanctions, penalties or litigation and result in
reputational damage, and liability to clients.
We are subject to various standards of care, including in some cases fiduciary obligations. 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 Regulatory
Environment” below, may introduce new grounds for legal claims or enforcement actions against us in the future, in particular with respect to
our brokerage services. We may also become subject 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.
There are risks inherent in the independent broker-dealer business model.
Compared to wirehouses and other employee model broker-dealers, we generally offer advisors wider choice in operating their businesses
with regard to product offerings, outside business activities, office technology and supervisory models. Our approach may make it more
challenging for us to comply with our supervisory and
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regulatory compliance obligations, particularly in light of our limited on-site supervision and the complexity of certain advisor business
models.
Misconduct and errors by our employees, advisors or Independent RIAs could be difficult for 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 effective 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 offices, present additional challenges, particularly in the case of complex products or
supervision of outside business activities, including those conducted through Independent RIAs. In addition, although we provide our
advisors with requirements and recommendations for their office 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 information 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 effect on our business, or that our insurance will be available or
sufficient to cover the cost to our business of such misconduct or errors.
We rely on third-party service providers, including off-shore providers, to perform technology, processing and support functions,
and our operations are dependent on financial intermediaries that we do not control.
We rely on outsourced service providers to perform certain technology, processing and support functions. For example, we have an
agreement with Refinitiv US LLC (“BETAHost”), under which it provides us key operational support, including data processing services for
securities transactions and back office processing support. Our use of third-party service providers may decrease our ability to control
operating risks and information technology systems risks.
Any significant failures by BETAHost or our other service providers could cause us to sustain serious operational disruptions and incur losses
and could harm our reputation. These third-party service 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 service or other similar events that may impact our business.
We cannot assure that our third-party service providers will be able to continue to provide their services in an efficient, cost-effective manner,
if at all, or that they will be able to adequately expand their services to meet our needs and those of our advisors. An interruption in or the
cessation of service by a third-party service 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 serve our advisors and their clients. In addition, we cannot
predict the costs or time that would be required to find an alternative service provider.
We have transitioned certain business and technology processes to off-shore providers, which has increased the related risks described
above. For example, we rely on several off-shore service providers, operating in multiple locations, for functions related to cash
management, account transfers, information technology infrastructure and support and document indexing, among others. To the extent
third-party service providers are located in foreign jurisdictions, we are exposed to risks inherent in such providers conducting business
outside of the United States, including international economic and political conditions as well as natural disasters, and the additional costs
associated with complying with foreign laws and fluctuations in currency values.
We expect that our regulators would hold us responsible for any deficiencies in our oversight and control of our third-party relationships and
for the performance 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 for those deficiencies, our business, reputation and results of operations could be adversely affected.
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 affect our ability to execute transactions, service 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-effective 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,
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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 affected.
Lack of liquidity or access to capital could impair our business and financial condition.
Liquidity, or ready access to funds, is essential to our business. We expend significant resources investing in our business, particularly with
respect to our technology and service platforms. In addition, we must maintain certain levels of required capital. As a result, reduced levels of
liquidity could have a significant negative effect on us. Some potential conditions that could negatively affect our liquidity include:
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illiquid or volatile markets;
diminished access to debt or capital markets;
unforeseen cash or capital requirements;
actual or alleged events of default under our Credit Agreement, Broker-Dealer Revolving Credit Facility, Indentures 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 for businesses similar to ours. Without sufficient liquidity, we could be
required to limit or curtail our operations or growth plans, and our business would suffer.
We may sometimes be required to fund timing differences arising from the delayed receipt of client funds associated with the settlement of
client transactions in securities markets. These timing differences are funded either with internally generated cash flow or, if needed, with
funds drawn under our revolving credit facility, Broker-Dealer Revolving Credit Facility or uncommitted lines of credit. We may also need
access to capital in connection with the growth of our business, through acquisitions or otherwise.
In the event current resources are insufficient to satisfy our needs, we may need to rely on financing sources such as bank debt. The
availability of additional financing will depend on a variety of factors such as:
• market conditions;
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the general availability of credit;
the volume of trading activities;
the overall availability of credit to the financial services industry;
our credit ratings and credit capacity; and
the possibility that 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 satisfy statutory capital requirements, generate commission, fee and other market-related
revenue to meet liquidity needs and access the capital necessary to grow our business. As such, we may be forced to delay raising capital,
issue different types of capital than we would otherwise, less effectively deploy such capital, or bear an unattractive cost of capital, which
could decrease our profitability and significantly reduce our financial flexibility.
Our business could be materially adversely affected as a result of the risks associated with acquisitions, investments and strategic
relationships.
We have made acquisitions and investments and entered into strategic relationships in the past and plan to pursue further acquisitions,
investments and strategic relationships in the future, including in connection with our institution offering and Liquidity & Succession solution.
These transactions are accompanied by risks. For instance, an acquisition could have a negative effect on our financial and strategic position
and reputation, or the acquired business could fail to further our strategic 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 therefore we may not be able to
realize the intended benefits from an acquisition. We may have a
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lack of experience in new markets, products or technologies brought on by the acquisition, and we may have an initial dependence on
unfamiliar supply or distribution partners. An acquisition may create an impairment of relationships with customers or suppliers of the
acquired business or our advisors or suppliers. All of these and other potential risks may serve as a diversion of our management’s attention
or other resources from other business concerns, and any of these factors could have a material adverse effect on our business. For more
information about risks relating to updating our technology in connection with our business development opportunities, see “We rely on
technology in our business, and technology and execution failures could subject us to losses, litigation and regulatory actions” below.
Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments
or against all types of risks.
We have adopted policies and procedures to identify, monitor and manage our risk. These policies and procedures, however, may not be
effective and may not be adapted quickly enough to respond effectively to changed circumstances. Some of our compliance and risk
evaluation functions depend upon information technology systems, information provided by others and public information regarding markets,
clients or other matters that are otherwise accessible by us. In some cases, however, that information may not be available, accurate,
complete or up-to-date. Also, because many of our advisors work in decentralized offices, additional risk management challenges exist,
including with regard to advisor office technology, vendors and information security practices. In addition, our existing systems, policies and
procedures, and staffing levels may be insufficient to support a significant increase in our advisor population. Any such increase could require
us to increase our costs, including information 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 effective, or if we are not successful in capturing risks to which we are or may be exposed, we may suffer harm to our reputation or be
subject to litigation or regulatory actions that could have a material adverse effect on our business and financial condition.
We face competition in attracting and retaining key talent.
Our success depends upon the continued services of our key senior management personnel, including our executive officers and senior
managers. Each of our executive officers 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 effect on
our business.
Moreover, our success and future growth depends upon our ability to attract and retain qualified employees. There is significant competition
for qualified employees in the financial services 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 effect on our
business.
The securities settlement process exposes us to risks related to adverse movements in price.
LPL Financial provides clearing services and trade processing for our advisors and their clients and certain institutions. Broker-dealers that
clear their own trades are subject to substantially more regulatory requirements than brokers that outsource these functions to third-party
providers. Errors in performing clearing functions, including clerical, technological and other errors related to the handling of funds and
securities held by us on behalf of our advisors’ clients, could lead to censures, fines or other sanctions imposed by applicable regulatory
authorities, as well as losses and 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 indebtedness could adversely affect our financial condition and may limit our ability to use debt to fund future capital needs.
At December 31, 2023, we had total indebtedness of $3.7 billion, of which $1.3 billion is subject 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 for 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.
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If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and
could be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness. These alternative measures may
not be successful or feasible. Our Credit Agreement restricts our ability to sell assets. Even if we could consummate those sales, the
proceeds that we realize from them may not be adequate to meet any debt service obligations then due. Furthermore, if an event of default
were to occur with respect to our 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.
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 for new term loans, new revolving credit commitments and increases to then-existing term
loans and revolving credit commitments subject to certain limitations. Although the Credit Agreement contains restrictions on the incurrence
of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness
incurred in compliance with these restrictions could be substantial. In addition, other obligations that do not qualify as “indebtedness” under
the terms of our Credit Agreement are not restricted by that agreement. To the extent new debt or other obligations are added to our currently
anticipated debt levels, the substantial indebtedness risks described above would increase.
A credit rating downgrade would not impact the terms of our repayment obligations under the Credit Agreement or the Indentures. However,
a credit rating downgrade to a below investment grade rating could cause currently suspended restrictive covenants and guarantees under
certain of our Indentures to automatically be reinstated. 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 affect our client relationships and decrease the number of investors, clients and counterparties that do business with us.
Restrictions under our Credit Agreement may prevent us from taking actions that we believe would be in the best interest of our
business.
Our Credit Agreement contains customary restrictions on our activities, including covenants that may restrict us from:
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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;
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creating liens;
selling assets;
guaranteeing indebtedness;
engaging in certain transactions with affiliates;
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 performance, which may be affected 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 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 the Indentures and other agreements that contain cross-default or cross-
acceleration provisions. If our indebtedness is accelerated, we may not be able to repay that indebtedness or borrow sufficient funds to
refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to
us. If our indebtedness is in default for any reason, our business could be materially and adversely affected. In addition, complying with these
covenants may also cause us to take actions that are not favorable to holders of our common stock and may make it more difficult for us to
successfully execute our business strategy and compete against companies that are not subject to such restrictions.
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Provisions of our Credit Agreement and certain of the Indentures could discourage an acquisition of us by a third-party.
Certain provisions of our Credit Agreement and the Indentures could make it more difficult or more expensive for a third-party to acquire us,
and any of our future debt agreements may contain similar provisions. Upon the occurrence of certain transactions constituting a change of
control, all indebtedness under our Credit Agreement may be accelerated and become due and payable and, under certain of the Indentures,
noteholders will have the right to require us to repurchase our senior unsecured notes (the “Notes”) issued under such Indentures at a
purchase price equal to 101% of the principal amount of such Notes plus accrued and unpaid interest, if any, to but not including the
purchase date. A potential acquirer may not have sufficient financial resources to purchase our outstanding indebtedness in connection with
a change of control.
Our insurance coverage may be expensive and we may exceed our limits of insurance coverage.
We are subject to claims in the ordinary course of business. These claims may involve substantial amounts of money and involve significant
defense costs. It is not always possible to prevent or detect activities giving rise to claims, and the precautions we take may not be effective
in all cases.
We maintain voluntary and required insurance coverage, including, among others, general liability, property, director and officer, excess
Securities Investor Protection Corporation, business interruption, cyber and data breach, error and omission and fidelity bond insurance. We
have self-insurance for certain potential liabilities through a wholly-owned captive insurance subsidiary. While we endeavor to self-insure and
purchase coverage that is appropriate based on our assessment of our risk, we are unable to predict with certainty the frequency, nature or
magnitude of claims for 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 difficult, and there are particular uncertainties and complexities involved
when assessing the adequacy of loss reserves for potential liabilities that are self-insured by our captive insurance subsidiary. The availability
of coverage depends on the nature of the claim and the adequacy of reserves, which in turn depends in part on historical claims experience,
including the actual timing and costs of resolving matters that begin in one policy period and are resolved in a subsequent period. Further to
the difficulties noted above regarding assessing the probability of a loss occurring and the timing and amount of any loss related to a
regulatory matter or a legal proceeding, such assessment 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 for settlement and
the status of any settlement discussions; as well as the potential for insurance coverage and indemnification, if available. In addition, certain
types of potential claims for damages cannot be insured. Our business may be negatively affected if in the future unforeseen circumstances
cause us to exceed the limits of our insurance coverage or some or all of our insurance proves to be 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.
Poor service or performance of the financial products that we offer or competitive pressures on pricing of such services or
products may cause clients of our advisors to withdraw their assets on short notice.
Clients of our advisors have control over their assets that are served under our platforms. Poor service or performance of the financial
products that we offer, the emergence of new financial products or services from others, harm to our reputation or competitive pressures on
pricing of such services or products may result in the loss of clients. In addition, we must monitor the pricing of our services and financial
products in relation to competitors and periodically may need to adjust commission and fee rates, interest rates on deposits and margin loans
and other fee structures to remain competitive. Competition from other financial services firms, such as reduced or zero commissions to
attract clients or trading volume, direct-to-investor online financial services, including so-called “robo” advice, or higher deposit rates to attract
client cash balances, could result in pricing pressure or otherwise adversely impact our business. The decrease in revenue that could result
from such an event could have a material adverse effect on our business.
A loss of our marketing relationships with manufacturers of financial products could harm our relationship with our advisors and,
in turn, their clients.
Our curated product platform offers no proprietary financial products. To 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, subject to the survival of
certain terms and conditions, may be
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terminated by the manufacturer upon notice. If we lose our relationships with one or more of these manufacturers, our ability to serve our
advisors and, in turn, their clients, and our business, may be materially adversely affected. As an example, certain variable annuity product
sponsors have ceased offering and issuing new variable annuity contracts. If this trend continues, we could experience a loss in the revenue
currently generated from the sale of such products. In addition, certain features of such contracts have been eliminated by variable annuity
product sponsors. If this trend continues, the attractiveness of these products would be reduced, potentially reducing the revenue we
currently generate from the sale of such products.
Changes in U.S. federal income tax law could make some of the products distributed by our advisors less attractive to clients.
Some of the financial products distributed by our advisors, such as variable annuities, enjoy favorable treatment under current U.S. federal
income tax law. Changes in U.S. federal income tax law, in particular with respect to variable annuity products, or with respect to tax rates on
capital gains or dividends, could make some of these products less attractive to clients and, as a result, could have a material adverse effect
on our business, results of operations, cash flows or financial condition.
Risks Related to Our Regulatory Environment
Any failure to comply with applicable federal or state laws or regulations, or SRO rules, exposes us to litigation and regulatory
actions, which could increase our costs or negatively affect our reputation.
Our business, including securities and investment advisory services, is subject to extensive regulation under both federal and state laws,
rules and regulations, as well as SRO rules. Our subsidiary LPL Financial is:
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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
subject to oversight by the DOL relative to its servicing of retirement plan accounts subject 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 subject to state laws, including state “blue sky” laws, and the rules of the Municipal Securities Rulemaking
Board for its municipal securities activities. The CFTC has designated the NFA as LPL Financial’s primary regulator for futures and
commodities trading activities.
The SEC, FINRA, DOL, CFTC, NFA, 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 foreign countries or foreign nationals will not trigger regulation in non-U.S. law in particular circumstances. These
legislative and regulatory initiatives may affect the way in which we conduct our business and may make our business model less profitable.
Our ability to conduct business in the jurisdictions in which we currently operate depends on our compliance with the laws, rules and
regulations promulgated by federal regulatory bodies and the regulatory authorities in each of the states and other jurisdictions in which we
do business. Our ability to comply with all applicable laws, rules and regulations and interpretations is largely dependent on our
establishment and maintenance of compliance, audit and reporting systems and procedures, as well as our ability to attract and retain
qualified compliance, audit, supervisory and risk management personnel. We cannot assure you that our systems and procedures are, or
have been, effective in complying with all applicable laws, rules and regulations and interpretations. In particular, the diversity of information
security environments in which our services are offered makes it difficult to ensure a uniformly robust level of compliance. Regulators have in
the past raised, and may in the future raise, concerns with respect to the quality, consistency or oversight of certain aspects 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 for information from the SEC in connection with an investigation of the
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Company’s compliance with records preservation requirements for business-related electronic communications stored on personal devices or
messaging platforms that we have not approved. Under the SEC’s proposed resolution, we would pay a $50.0 million civil monetary penalty.
As a result of the foregoing, we have recorded $40.0 million in other expense on the consolidated statements of income for the year ended
December 31, 2023, to reflect the amount of the penalty that is not covered by our captive insurance subsidiary. We have not yet reached a
settlement in principle with the SEC, and any settlement agreement remains subject to negotiation of the civil monetary penalty and definitive
documentation. For more information, see Note 14 - Commitments and Contingencies 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 affect our ability to attract or retain financial advisors and institutions. Depending on the nature of the violation, we may
be required to offer restitution or remediation to customers, and the costs of doing so could exceed our loss reserves.
We have established a captive insurance subsidiary that underwrites insurance for various regulatory and legal risks, although self-insurance
coverage is not available for all matters, and may not be sufficient to protect us from losses we may incur. For more information about the
potential limits of our insurance coverage, including our self-insurance coverage, see “Our insurance coverage may be expensive and we
may exceed our limits of insurance coverage” above.
Regulatory developments could adversely affect our business by increasing our costs or making our business less profitable.
Our profitability could be affected by rules and regulations that impact the business and financial communities generally and, in particular, our
advisors and their clients, including changes to the interpretation or enforcement of laws governing 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 subject us to regulatory actions or litigation and it could have a material adverse effect on our business, results of
operations, cash flows or financial condition.
New laws, rules and regulations, or changes to the interpretation or enforcement 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. The regulatory environment, including a significant number of rule proposals
from the SEC, continues to evolve, and will likely increase the complexity of operating our business. For example, regulators have introduced
and adopted rules that subject broker-dealers and investment advisers to a higher standard of care. This includes the SEC’s Reg BI, fiduciary
duty rules in Massachusetts and Nevada, and state best interest standards applicable to broker-dealers or the sale of certain annuity and
insurance products. In addition, the DOL proposed a “Retirement Security Rule” that would broaden the definition of fiduciary advice and
modify the prohibited transaction exemptions that enable firms to receive various types of compensation. These developments could
negatively impact our results, including by increasing our expenditures related to legal, compliance, and information technology and could
result in other costs, including greater risks of client lawsuits and enforcement activity by regulators. These changes may also affect the array
of products and services we offer to clients and the compensation that we and our advisors receive in connection with such products and
services.
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 enforce elements of, these new regulations, or develop their own similar laws and regulations. The impacts,
degree and timing of the effect of these laws and future regulations on our business cannot now be anticipated or planned for, and may have
further impacts on our products and services and the results of operations. Consult the “Retirement Plan Services Regulation” section within
Part I, “Item 1. Business” for specific information 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 supervision and regulation of the financial industry designed to provide
for 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 compensation disclosures and provide for greater protections to individual
consumers and investors. Certain elements of the Dodd-Frank Act remain subject 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 service
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offerings for 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 affect the operations, financial condition, liquidity and capital requirements of financial institutions with
which we do business, those institutions may seek to pass on increased costs, reduce their capacity to transact, or otherwise present
inefficiencies in their interactions with us. It 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 difficult and
expensive and affect the manner in which we conduct business.
Likewise, federal and state standards prohibiting discrimination on the basis of disability in public accommodations and employment,
including those related to the Americans with Disabilities Act, are evolving to require an increasing number of public spaces, including web-
based applications, to be made accessible to the disabled. As a result, we could be required to make modifications to our internet-based
applications or to our other client- or advisor-facing technologies, including our website, to provide enhanced or accessible service to, or
make reasonable accommodations for, disabled persons. This adaptation of our websites and web-based applications and materials could
result in increased costs and may affect the products and services we provide. Failure to comply with federal or state standards could result
in litigation, including class action lawsuits.
In sum, our profitability may be adversely affected by current and future rulemaking and enforcement activity by the various federal, state and
self-regulatory organizations to which we are subject. The effect of these regulatory developments on our business cannot now be
anticipated or planned for, but may have further impacts on our products and services and results of operations.
We are subject to various regulatory requirements, which, if not complied with, could result in the restriction of the conduct or
growth of our business.
The business activities that we may conduct are limited by various regulatory agencies. Our membership agreement with FINRA may be
amended by application to include additional business activities. This application process is time-consuming and may not be successful. As a
result, we may be prevented from entering into or acquiring new potentially profitable businesses in a timely manner, or at all. In addition, as
a member of FINRA, we are subject to certain regulations regarding changes in control. 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 the ownership of a
FINRA member that results in one person or entity directly or indirectly owning or controlling 25% or more of such member. Similarly, the
OCC imposes advance approval requirements for a change of control, and control is presumed to exist if a person acquires 10% or more of
our common stock. These regulatory approval processes can result in delay, increased costs or impose additional transaction terms in
connection with a proposed change of control or material change in business operations of us or a FINRA member that we seek to acquire.
As a result of these regulations, our future efforts to sell shares, raise additional capital or participate in acquisition activity may be delayed,
prohibited or limited.
In addition, the SEC, FINRA, CFTC, OCC and NFA have extensive rules and regulations with respect to capital requirements. Our registered
broker-dealer subsidiaries, including LPL Financial, are subject to Rule 15c3-1 (“Net Capital Rule”) under the Exchange Act, and related
requirements of SROs. The CFTC and NFA 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 subject to the Net Capital Rule. However, the ability of our holding companies to withdraw capital from
our broker-dealer subsidiaries, including LPL Financial, could be restricted in the event they experience a net capital shortfall, which in turn
could limit our ability to repay debt, redeem or repurchase shares of our outstanding stock or pay dividends. A large operating loss or charge
against net capital could also adversely affect our ability to expand or maintain our present levels of business.
Failure to comply with ERISA regulations and certain tax-qualified plan laws and regulations could result in penalties against us.
As discussed above, we are subject to ERISA and Section 4975 of the Code, and to regulations promulgated thereunder, insofar as we
provide services with respect to plan clients, or otherwise deal with plans, participants and certain types of investment/savings accounts that
are subject to ERISA or the Code. ERISA imposes certain duties on persons who are “fiduciaries” (as defined in Section 3(21) of ERISA and
the related rules or interpretations) and prohibits certain transactions involving plans subject to ERISA and fiduciaries or other service
providers to such plans. Non-compliance with or breaches of these provisions may expose an ERISA fiduciary or other service provider to
liability under ERISA, which may include monetary and criminal penalties as well as equitable remedies for the affected plan. Section 4975 of
the Code prohibits certain transactions involving “plans” (as defined in Section
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4975(e)(1)), which include, for example, IRAs and certain Keogh plans and other qualified savings accounts, and service providers, including
fiduciaries (as defined in Section 4975(e)(3)), to such plans. Section 4975 also imposes excise taxes for 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 effect on our
business or severely limit the extent to which we could act as fiduciaries for or provide services to these plans.
Risks Related to Our Technology
We rely on technology in our business, and technology and execution failures could subject us to losses, litigation and regulatory
actions.
Our business relies extensively on electronic data processing, storage and communications systems. In addition to better serving our
advisors and their clients, the effective use of technology increases efficiency and enables firms like ours to reduce costs, support our
regulatory compliance and reporting functions, and better serve advisors and their clients. Our continued success will depend, in part, upon
our ability to continue to invest significant resources on our technology systems in order to:
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successfully maintain and upgrade the capabilities and resiliency of our systems;
address the needs of our advisors and their clients by using technology to provide products and services that satisfy their demands
while ensuring the security of the data involving those products and services;
use technology effectively 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 information; and
retain skilled information technology employees.
Extraordinary trading volumes, malware, ransomware or attempts by hackers to introduce large volumes of fraudulent transactions into our
systems, beyond reasonably foreseeable spikes in volumes, could cause our computer systems to operate at an unacceptably slow speed or
even fail. Failure of our systems, which could result from these or other events beyond our control, or an inability or failure to effectively
upgrade those systems, implement new technology-driven products or services, or implement adequate disaster recovery capabilities, could
result in financial losses, unanticipated disruptions in our service, liability to our advisors or advisors’ clients, compliance failures, regulatory
sanctions and damage to our reputation.
We continually update our technology platform with the goal of improving its reliability, resiliency, security and functionality, including in
connection with regulatory requirements, acquisitions and strategic relationships. While we seek to implement these updates with no or
limited interruption to our operations or the availability of our systems, we may not be successful and resulting interruptions could be
widespread, lengthy, or both. Even if no interruption occurs, these updates may not result in the benefits to our systems that we contemplate.
For example, we are upgrading our technology systems in connection with our current and future business development opportunities,
pending acquisitions, investments and strategic relationships. These efforts involve a significant investment of financial and personnel
resources and we cannot guarantee that these upgrades or the investments that support them will be completed successfully, on time or at
all, or that they will not result in interruptions to the availability of our technology systems or business operations. More generally, our failure
to upgrade our systems successfully could have a material adverse effect on our business, financial condition and results of operations, as
well as our ability to achieve our growth objectives. For more information about risks related to upgrading our technology platform, see
“Failure to maintain technological capabilities, flaws in existing technology, difficulties in upgrading our technology platform or the introduction
of a competitive platform could have material adverse effect on our business” below.
Our operations rely on the secure processing, storage and transmission of confidential and other proprietary information in our computer
systems and networks, including personally identifiable information of advisors and their clients, as well as our employees. Although we take
protective measures and endeavor to strengthen the security of these systems as circumstances warrant, our computer systems, software
and networks are to some degree vulnerable to unauthorized access, human error, computer viruses, denial-of-service attacks, malicious
code, spam attacks, phishing, ransomware or other forms of social engineering and other events that could impact the security, reliability,
confidentiality, integrity and availability of our systems. To the extent third parties, such as product sponsors, also retain similarity sensitive
information 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 our advisors to maintain certain
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minimum security levels and adopt certain security procedures by policy, we cannot ensure the universal or 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 proprietary
information processed, stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or
malfunctions in our own, our advisors’ or their clients’, our counterparties’, or third parties’ operations. As a result, we could be subject 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 confidential client data, or otherwise mismanages or misappropriates that data, we could also be subject
to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.
We currently and may in the future use, develop, and incorporate within our technology platform and services, systems and tools that
incorporate artificial intelligence (“AI”) and machine learning, including generative AI. As with many innovations, AI and machine learning
present risks and challenges that could adversely impact our business. The development, adoption and application of generative AI
technologies are still in their early stages, and ineffective or inadequate AI development or deployment practices by third-party developers or
vendors could result in unintended consequences. For example, AI algorithms that we use may be flawed or may be based on datasets that
are biased or insufficient. In addition, any latency, disruption or failure in our AI and machine learning systems or infrastructure could result in
delays or errors in our products and services. Developing, testing, and deploying resource-intensive AI systems may require additional
investment and increase our costs. There also may be real or perceived social harm, unfairness or other outcomes that undermine public
confidence in the use and deployment of AI and machine learning. Any of the foregoing may result in harm to our business, results of
operations or reputation.
The legal and regulatory landscape surrounding AI and machine learning technologies is rapidly evolving and remains uncertain, including in
the areas of intellectual property, cybersecurity, privacy and data protection. For example, there is uncertainty around the validity and
enforceability of intellectual property rights related to use, development and deployment of AI and machine learning. Compliance with new or
changing laws, regulations or industry standards relating to AI may impose significant operational costs and may limit our ability to develop,
deploy or use AI and machine learning technologies. Failure to appropriately respond to this evolving landscape may result in legal liability,
regulatory action or brand and reputational harm.
Our information technology systems may be vulnerable to security risks.
The secure transmission of confidential information, including personally identifiable information, over public networks is a critical element of
our operations. As part of our normal operations, we maintain and transmit confidential information about clients of our advisors, our advisors
and our employees, as well as proprietary information relating to our business operations. The risks related to transmitting data and using
service providers outside of and storing or processing data within our network are increasing based on escalating and malicious cyber
activity, including activity that originates outside of the United States from criminal elements and hostile nation-states.
Cybersecurity requires ongoing investment and diligence against evolving threats and is subject to federal and state regulation relating to the
protection of confidential information. We may be required to expend significant additional resources to modify 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 effectively and efficiently govern, manage and ensure timely
enhancements to our systems, including in their design, architecture and interconnections as well as their organizational and technical
protections. The SEC has proposed new cybersecurity regulations for investment advisers, and other new regulations may be promulgated
by relevant federal and state authorities at any time. In addition, compliance with regulatory expectations may become increasingly complex
as more state regulatory authorities issue or amend regulations, which sometimes conflict, governing handling of confidential information 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.
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Our application service provider systems maintain and process confidential data on behalf of advisors and their clients, some of which is
critical to our advisors’ business operations. If our application service provider systems are disrupted or fail for any reason, or if our systems
or facilities are infiltrated or damaged by unauthorized persons 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 service providers or within our software supply chain could pose security risks to
client information. If any such disruption or failure occurs, or is perceived to have occurred, we or our advisors may be exposed to
unexpected liability, advisors or their clients may withdraw assets, our reputation may be harmed and there could be a material adverse
effect on our business. Further, any actual or perceived breach or cybersecurity attack directed at other financial institutions or financial
services 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 effectiveness of our security measures and
technology infrastructure. The occurrence of any of these events may have a material adverse effect on our business or results of operations.
Even though we monitor and seek to improve the security of our information technology systems, they remain vulnerable to security risks,
and there can be no guarantee that they will not be subject to unauthorized access. 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 information or other sensitive information. 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 information or clients’ confidential information or cause interruptions or malfunctions in our operations.
Cyber-attacks can be designed to collect information, 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:
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damage our reputation;
allow competitors or hackers access to our proprietary business information;
subject us to liability for a failure to safeguard client data;
result in the termination of relationships with our advisors;
subject us to regulatory sanctions or obligations, based on state law or the authority of the SEC and FINRA to enforce regulations
regarding business continuity planning or cybersecurity;
subject us to litigation by consumers, advisors or other business partners that may suffer 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 service providers outside of our network, as well as the storing or processing of data within our network, intensify.
While we maintain cyber liability insurance, this insurance does not cover certain types of potential losses and, for covered losses, may not
be sufficient in amount to protect us against all such losses.
A cyber-attack or other security breach of our technology systems or those of our advisors or third-party vendors could negatively
impact our normal operations, and as a result, subject us to significant liability and harm our reputation.
We cannot be certain that our systems and networks will not be subject to successful attacks, despite the measures we have taken and may
take in the future to address and mitigate cybersecurity, privacy and technology risks. Additionally, in the course of operations, we share
sensitive proprietary information and personal data with vendors, third parties and other financial institutions. We also rely upon software and
data feeds from various third parties. Although we have a third party management program and conduct due diligence before 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 information 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.
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Data security incidents within the financial services 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 for 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 before we obtain full and reliable information. In some cases, the nature
of the attack may be such that full and reliable information 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 before 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, and increases in insurance premiums as well as litigation, financial disputes and reputational harm with current and
potential advisors and advisors’ clients.
Failure to comply with the complex privacy and data protection laws and regulations to which we are subject could result in
adverse action from regulators and adversely affect our business, reputation, results of operations and financial condition.
Many aspects of our business are subject to comprehensive legal requirements concerning the collection, use and sharing of personal
information, including client and employee information. This includes rules adopted pursuant to the Gramm-Leach-Bliley Act and an ever-
increasing number of state laws and regulations, such as the California Consumer Privacy Act, as amended by the California Privacy Rights
Act. Similar laws are in force in Colorado, Connecticut, Utah, and Virginia, and other such laws will go into force over the next few years. We
continue our efforts to safeguard the data entrusted to us in accordance with applicable law and our internal data protection policies,
including taking steps to reduce the potential for the improper use or disclosure of personal information. 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. The evolving patchwork of differing state and federal privacy and data security laws increases the cost and complexity of
operating our business and our exposure to regulatory investigations, enforcement, fines, and penalties, any of which could negatively impact
our business and operations. Failure to comply with these obligations could 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 affect our ability to attract or retain
financial advisors and institutions. Depending on the nature of the violation, we may be required to offer restitution or remediation to
customers, and the costs of doing so could exceed our loss reserves.
Failure to maintain technological capabilities, flaws in existing technology, difficulties in upgrading our technology platform or the
introduction of a competitive platform could have a material adverse effect on our business.
We 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:
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securities trading and custody;
portfolio management;
performance reporting;
customer service;
accounting and internal financial processes and controls; and
regulatory compliance and reporting.
Our continued success depends on our ability to effectively 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 platform 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 sufficient resources to adequately update and expand our information technology systems or capabilities,
or offer our services 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 efforts will be sufficiently timely, successful, secure and accepted by our current and
prospective
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advisors or their clients. The process of upgrading and expanding our systems has at times caused, and may in the future cause, us to suffer
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 effects. A technological breakdown could also interfere with our ability to comply with financial reporting and other
regulatory requirements, exposing us to disciplinary action and to liability to our advisors and their clients. Security, stability and regulatory
risks also exist because parts of our infrastructure and software 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
efforts will be effective, in whole or in part. For more information about risks related to upgrading our technology, see “We rely on technology
in our business, and technology and execution failures could subject us to losses, litigation and regulatory actions” above.
Inadequacy or disruption of our business continuity and disaster recovery plans and procedures in the event of a catastrophe
could adversely affect our business.
We have made significant investments 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 affecting our advisors, employees or facilities, or an indirect impact on us by adversely affecting the financial markets or
the overall economy. While we have implemented business continuity and disaster recovery plans and maintain business interruption
insurance, it is impossible to fully anticipate and protect against all potential catastrophes. In addition, we depend on the adequacy of the
business continuity and disaster recovery plans of our third-party service providers, including off-shore service providers, in order to prevent
or mitigate service interruptions. If our business continuity and disaster recovery plans and procedures, or those of our third-party service
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
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for our
investors.
The market price of our common stock may fluctuate substantially due to the following factors (in addition to the other risk factors described
in this Item 1A):
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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 performance from the expectations of equity research analysts;
conditions and trends in the markets we serve;
announcements of significant new services or products by us or our competitors;
additions or changes to key personnel;
the commencement or outcome of litigation or 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;
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 often been unrelated or
disproportionate to the operating performance of the particular companies affected. These broad market and industry factors may materially
harm the market price of our common stock irrespective of our operating
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performance. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities,
securities class action litigation has often been instituted against the affected company. This type of litigation could result in substantial costs
and a diversion of our management’s attention and resources.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our
subsidiaries to meet our debt service and other obligations.
We have no direct operations and derive all of our cash flow from our subsidiaries. Because we conduct our operations through our
subsidiaries, we depend on those entities for dividends and other payments or distributions to meet any existing or future debt service and
other obligations. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could limit or impair
their ability to pay dividends or other distributions to us. In addition, FINRA regulations restrict dividends in excess of 10% of a member firm’s
excess net capital without FINRA’s prior approval. Compliance with this regulation may impede our ability to receive dividends from our
broker-dealer subsidiaries. For more information about potential limits on our ability to receive dividends from our broker-dealer subsidiaries,
see “We are subject to various regulatory requirements, which, if not complied with, could result in the restriction of the conduct or growth of
our business” above.
Our future ability to pay regular dividends to holders of our common stock or repurchase shares are subject to the discretion of
our Board and will be limited by our ability to generate sufficient earnings and cash flows.
Our Board declared quarterly cash dividends on our outstanding common stock in 2023 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 subject 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 sufficient earnings and cash flows from our business, we may not be able to pay dividends on our common stock or
repurchase additional shares. In addition, our ability to pay cash dividends on our common stock 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 subsidiaries, including LPL Financial, are subject to requirements of the SEC, FINRA, CFTC, NFA and other regulators relating to
liquidity, capital standards and the use of client funds and securities, which may limit funds available for the payment of dividends to us.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We maintain an information security program (the “Program”) to help manage material risks and cybersecurity threats to our business,
operations and assets. As part of our Program, we maintain policies, procedures and standards that outline the Company’s expectations,
guidelines and structured approach to managing cybersecurity risks. We leverage established security frameworks, such as the National
Institute of Standards and Technology Cybersecurity Framework, as guides to organize, assess and improve our Program. In addition, our
employees are required to complete a cybersecurity and privacy training program each year, which is supplemented with additional
awareness efforts, including phishing campaigns and informational articles.
We operate a security operation center to ingest threat intelligence, monitor for cybersecurity threats and coordinate incident response
resources. In the event of a cybersecurity incident, the Company has developed a security incident response plan that establishes a
structured approach for the Company’s response. The security incident response plan includes processes through which cybersecurity
incidents are escalated based on a defined incident risk rating to business stakeholders and a security incident response team, as well as to
the Company’s executive officers, which may result in engagement with management’s risk oversight committee (the “ROC”), the Board and
the Audit and Risk Committee of the Board (“ARC”), as needed. To improve preparedness for a cybersecurity
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incident, we conduct tabletop exercises at least annually. These exercises are conducted by internal personnel and with assistance from
third-party experts, as needed.
Cybersecurity Governance
The Program is situated within the Company’s information security department, which is comprised of multiple teams, including security
operations, security architecture and engineering, technology governance, mergers and acquisitions information security, and advisor
security. The information security department is led by the chief information security officer, who has primary responsibility for managing the
Program. The current chief information security officer has over 20 years of experience in information security, including a lead auditor
certification from the International Organization for Standardization, an international standard for information security management systems.
The Board has delegated oversight of the Program to the ARC, including oversight of the Company’s cyber- and technology-related risks and
the steps management has taken to identify, assess, monitor, and manage those risks. In addition, the Board has established a reporting
structure and cadence related to oversight of the Program, which includes respective oversight responsibilities for the Board, the ARC and
management risk committees, including the Technology Risk Committee, the Operational Risk Oversight Committee and the Risk Oversight
Committee. Each of the Board and the ARC receive staggered periodic reports on the Program’s effectiveness and progress on at least an
annual basis.
The assessment, identification and management of cybersecurity-related risks are integrated into the Company’s overall Enterprise Risk
Management (“ERM”) process. Cybersecurity risk is included among the significant residual risks identified during the Company’s
assessment of business risk. This risk assessment process is used to inform the Company’s strategic planning process, and to develop
action plans to appropriately address and manage risk. It is also used to focus our Board and its committees on the most significant risks to
our Company. In addition, the enterprise risk function has established foundational frameworks for assessing, monitoring and overseeing the
Company’s risks, including risks from cybersecurity threats. This includes reporting on issues, risk events or incidents and emerging risks to
applicable risk committees to provide monitoring of key risk exposures.
Engagement of Third Parties
We engage third-party subject matter experts and consultants to conduct evaluations of our security controls, including, but not limited to,
penetration testing, maturity assessments or consulting on our response to emerging threats. Results of these evaluations are used to help
determine priorities and initiatives to improve the overall Program. As necessary, we also engage third-party experts and consultants to assist
with the incident response process to augment our internal security operation center team.
We use a third-party risk performance management program to evaluate cybersecurity risk for third-party service providers. Vendor
cybersecurity controls are then assessed to determine if the vendor’s control environment meets the Company’s standards. Vendors are also
assessed on a periodic ongoing basis according to their risk classification.
We have not identified any cybersecurity incidents that individually, or in the aggregate, have materially affected or are reasonably likely to
materially affect the Company. Regardless, we recognize cybersecurity threats are ongoing and evolving, and there can be no guarantee that
we will not be subject to a cybersecurity incident that has a material effect on our business. Please consult the “Risks Related to Our
Technology” section within Part I, “Item 1A. Risk Factors” for more information about the risks associated with cybersecurity.
Item 2. Properties
A summary of our significant locations at December 31, 2023 is shown in the following table:
Location
Fort Mill, South Carolina
San Diego, California
Austin, Texas
Approximate Square Footage
461,000
420,000
57,000
Lease Expiration
2036
2029
2029
We also lease smaller administrative and operational offices in various locations throughout the United States. We believe that our existing
properties are adequate for the current operating requirements of our business and that additional space will be available as needed.
Item 3. Legal Proceedings
From time to time, we have been subjected to and are currently subject to legal and regulatory proceedings arising out of our business
operations, including lawsuits, arbitration claims and inquiries, investigations and enforcement proceedings initiated by the SEC, FINRA and
state securities regulators, as well as other actions and claims.
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For a discussion of legal proceedings, see Note 14 - Commitments and Contingencies within the notes to the consolidated financial
statements and Part I, “Item 1A. Risk Factors” in this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
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Information about our Executive Officers
The following table provides certain information about each of the Company’s executive officers as of the date this Annual Report on
Form 10-K has been filed with the SEC:
Name
Dan H. Arnold
Matthew J. Audette
Althea Brown
Sara Dadyar
Matthew Enyedi
Greg Gates
Aneri Jambusaria
Kabir Sethi
Richard Steinmeier
Executive Officers
Age
59
49
47
50
50
46
40
53
50
Position
President and Chief Executive Officer
Chief Financial Officer and Head of Business Operations
Managing Director, Chief Legal Officer
Managing Director, Chief Human Capital Officer
Managing Director, Client Success
Managing Director, Chief Technology & Information Officer
Managing Director, LPL Services Group
Managing Director, Chief Product Officer
Managing Director, Divisional President, Business Development
Dan H. Arnold — President and Chief Executive Officer
Mr. Arnold has served as our chief executive officer since January 2017. He has served as our president since March 2015 with responsibility
for our primary client-facing functions and long-term strategy for growth. Mr. Arnold served as our chief financial officer from June 2012 to
March 2015 and was responsible for formulating financial policy, leading our capital management efforts and ensuring the effectiveness of
the organization’s financial functions. Prior to 2012, he was managing director, head of strategy, with responsibility for long-term strategic
planning for the firm, product and platform development and strategic investments, including acquisitions. He has also served as divisional
president of our Institution Services. Mr. Arnold joined our Company in January 2007 following our acquisition of UVEST Financial Services
Group, Inc. Prior to joining us, Mr. Arnold worked at UVEST for 13 years serving most recently as president and chief operating officer. Mr.
Arnold earned a B.S. in electrical engineering from Auburn University and holds an M.B.A. in finance from Georgia State University.
Matthew J. Audette — Chief Financial Officer and Head of Business Operations
Mr. Audette has served as our chief financial officer since 2015 and head of business operations since February 2023, with responsibility for
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 for
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 officer, Mr. Audette has led corporate acquisitions, debt transactions, the client deposit
portfolio, expense management and capital allocation. In addition, he oversaw the LPL Services Group from May 2022 until February 2023.
Prior to joining LPL Financial, Mr. Audette served as executive vice president and chief financial officer 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 services practice at KPMG. Mr. Audette earned a B.S. in accounting from
Virginia Polytechnic Institute and State University, popularly known as Virginia Tech.
Althea Brown — Managing Director, Chief Legal Officer
Ms. Brown has served as managing director, chief legal officer since September 2023. She is responsible for company-wide legal, regulatory
and government relations matters and has a leading role in LPL Financial’s ongoing focus on enhancing the corporate risk profile. Ms. Brown
has more than 25 years of experience in the financial services, technology and retail industries, leading high-performing legal teams for large
corporations. She joined LPL Financial from Google, where she spent 11 years, serving most recently as Legal Director, overseeing a large
team of product and commercial lawyers advising subsidiary Fitbit and Google’s Devices and Services’ marketing, e-commerce, retail,
customer support, and vendor management teams. Earlier in her career, Ms. Brown served as supervising attorney for Morgan Stanley Smith
Barney, and spent 10 years in a variety of roles at J.P. Morgan
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Chase in their Investment Management and Investment Banking divisions. Ms. Brown received a B.A. in economics and French from New
York University and a J.D. from Fordham University School of Law. She holds a Six Sigma Black Belt and is a Fellow with the Leadership
Council on Legal Diversity.
Sara Dadyar — Managing Director, Chief Human Capital Officer
Ms. Dadyar has served as managing director, chief human capital officer of LPL Financial since January 2024. She is responsible for
overseeing human resources, talent development, corporate real estate, total rewards and talent acquisition, advisor and employee learning
and development, culture and engagement, and diversity, equity, inclusion and belonging. Ms. Dadyar joined LPL Financial in January 2024
from Proterra Inc., where she served as the chief people officer from October 2022 to December 2023. Prior to Proterra, Ms. Dadyar worked
at GE for over 24 years, including as the executive Human Resources leader for GE Gas Power and GE Capital Americas, global executive
director of Human Resources for GE Working Capital Solutions, and senior Human Resources director of GE Media, Communications and
Entertainment. Ms. Dadyar earned a B.A. in art history from the University of Connecticut and completed M.S. coursework in human
resources management from Manhattanville College.
Matthew Enyedi — Managing Director, Client Success
Mr. Enyedi has served as managing director, client success since February 2023. The client success organization is a client-centered, cross-
functional team responsible for fueling the sustained success and satisfaction of the Company’s advisors and enterprises. Under this
organization, the relationship management, marketing and communications, service and supervision teams focus on providing an integrated
and consistent experience across clients’ primary touchpoints with LPL. Mr. Enyedi served as managing director, national sales and
marketing from April 2022 to February 2023, with responsibility for growing the Company’s client relationships. He served as managing
director, business solutions from November 2020 to April 2022, with responsibility for developing and deploying the platform of professional
services for advisors now included in the LPL Services Group. Prior to that, he led LPL Financial’s national sales and wealth management
organizations and was responsible for data analytics and accelerating the organic growth of the Company’s advisors across planning,
advisory, brokerage and retirement plan services. 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 California, Berkeley.
Greg Gates — Managing Director, Chief Technology & Information Officer
Mr. Gates has served as managing director, chief technology & information officer of LPL Financial since July 2021. In this role he is
responsible for managing all aspects of the Company’s technology and systems applications. He leads an information technology
organization responsible for delivering technology solutions and market-leading platforms that enable positive, compelling experiences for
our advisors, enterprises and employees. Mr. Gates joined LPL Financial in 2018 with nearly two decades of senior-level management
experience focused on the application of technology to solve business challenges on a global scale. Before joining LPL Financial, Mr. Gates
led product management and engineering teams at PayPal from 2011 to 2018, focusing on internal technology platforms, 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 Technology from 2002 to 2011. Mr. Gates earned his B.S. in
biomedical engineering from Vanderbilt University and has successfully completed multiple leadership, continuing education and certification
programs from several organizations.
Aneri Jambusaria – Managing Director, LPL Services Group
Ms. Jambusaria has served as managing director, LPL Services Group since February 2023. In this role, she is responsible for the
development and delivery of LPL Financial’s portfolio of business services, planning and advice services, and value-added consultation
functions, which address key challenges advisors and enterprises face in serving 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 Services Group. Prior to joining LPL Financial, Ms. Jambusaria held various positions at Fidelity Investments, most recently as head
of the Planning Office for Enterprise Strategy and Planning. During her nine years at Fidelity, she helped shape strategy for business lines
while gaining a strong understanding of wealth management and the products, solutions and technologies that serve investors. Before
Fidelity, she worked as a senior consultant for Deloitte’s financial services 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.
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Kabir Sethi — Managing Director, Chief Product Officer
Mr. Sethi has served as managing director, chief product officer of LPL Financial since May 2022. He is responsible for LPL Financial’s
technology platforms and wealth management offerings, 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 focused on delivering wealth solutions and digital capabilities for 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 served as head of Digital for Merrill Lynch Wealth Management and was responsible for
digital platforms, 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.
Richard Steinmeier — Managing Director, Divisional President, Business Development
Mr. Steinmeier has served as managing director and divisional president, business development of LPL Financial since August 2018. In this
role, he has responsibility for 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 served as managing director, head of
digital strategy and platforms for UBS Wealth Management Americas from September 2017 to August 2018 and as managing director, head
of the Emerging Affluent 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 served 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 Stanford University.
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 16, 2024
was $257.66 per share. As of that date, there were 871 common stockholders of record based on information provided by our transfer agent.
The number of stockholders of record does not reflect the number of individual or institutional stockholders that beneficially own the
Company’s stock because most stock is held in the name of nominees.
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Performance Graph
The following graph compares the cumulative total stockholder return (rounded to the nearest whole dollar) of the Company’s common stock,
the Standard & Poor’s 500 Financial Sector Index and the Dow Jones U.S. Financial Services Index for the five-year period ended
December 31, 2023. The graph assumes a $100 investment at the closing price on December 31, 2018 and reinvestment of the dividends on
the respective dividend payment dates without commissions. This graph does not forecast future performance of the Company’s stock.
Dividend Policy
The payment, amount and timing of any future dividends will be subject 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 contains restrictions on
our activities, including paying dividends on our capital stock. For an explanation of these restrictions, see “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Debt and Related Covenants.” In addition, FINRA regulations restrict
dividends in excess of 10% of a member firm’s excess net capital without FINRA’s prior approval, potentially impeding our ability to receive
dividends from LPL Financial.
Securities Authorized for Issuance Under Equity Compensation Plans
The table below sets forth information on compensation plans under which our equity securities are authorized for issuance as of
December 31, 2023:
Plan category
Equity compensation plans approved by security holders
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
546,820 $
54.81
12,796,123
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Purchases of Equity Securities by the Issuer
The table below sets forth information regarding share repurchases, reported on a trade date basis, during the three months ended
December 31, 2023:
Period
October 1, 2023 through October 31, 2023
November 1, 2023 through November 30, 2023
December 1, 2023 through December 31, 2023
Total
Total number of
shares
purchased
50,145 $
569,041 $
394,277 $
1,013,463
Weighted-
average price
paid per share
223.28
223.36
219.96
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)
50,145 $
569,041 $
394,277 $
1,013,463
1,113.8
986.7
900.0
(1) On September 21, 2022, the Board authorized a $2.1 billion increase to the amount available for repurchases of the Company’s issued and outstanding common shares,
with $2.0 billion available for repurchases beginning in 2023. See Note 15 - Stockholders’ Equity, within the notes to the consolidated financial statements for additional
information.
The repurchases may be executed from time to time, subject to general business and market conditions and other investment opportunities,
through open market purchases or privately negotiated transactions, including transactions with affiliates, 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,
applicable laws and consideration of the Company’s general liquidity needs.
Item 6. Reserved
GLOSSARY OF TERMS
Adjusted EPS: A non-GAAP financial measure defined as Adjusted Net Income divided by the weighted average number of diluted shares
outstanding for the applicable period.
Adjusted Net Income: A non-GAAP financial measure defined as net income plus the after-tax impact of amortization of other intangibles,
acquisition costs and a regulatory charge related to an investigation of the Company’s compliance with records preservation requirements for
business-related electronic communications stored on personal devices or messaging platforms that have not been approved by the
Company.
Basis Point: One basis point equals 1/100th of 1%.
CFTC: The Commodity Futures Trading Commission.
Core G&A: A non-GAAP financial measure defined as total expense excluding the following expenses: advisory and commission;
depreciation and amortization; interest expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; market
fluctuations on employee deferred compensation; promotional (ongoing); employee share-based compensation; regulatory charges; and
acquisition costs.
Corporate Cash: A component of cash and equivalents that includes the sum of cash and equivalents from the following: (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, which include LPL Financial LLC and The Private Trust Company, N.A., in excess of the capital requirements of the Company’s
Credit Agreement, 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 Uniform Net Capital Rule, and (3) cash and equivalents held at non-regulated subsidiaries.
Credit Agreement: The Company’s amended and restated credit agreement.
Credit Agreement EBITDA: A non-GAAP 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 for income taxes, depreciation
and amortization, and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments,
and to include future expected cost savings, operating expense reductions or other synergies from certain transactions.
Dodd-Frank Act: The Dodd-Frank Wall Street Reform and Consumer Protection Act.
DOL: The United States Department of Labor.
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EBITDA: A non-GAAP financial measure defined as net income plus interest expense on borrowings, provision for income taxes,
depreciation and amortization, and amortization of other intangibles.
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: A non-GAAP financial measure defined as total revenue less advisory and commission expense; brokerage, clearing and
exchange expense; and market fluctuations on employee deferred compensation.
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 Office of the Comptroller of the Currency.
RIA: Registered investment advisor.
SEC: The U.S. Securities and Exchange Commission.
SRO: Self-regulatory organization.
Uniform Net Capital Rule: Refers to Rule 15c3-1 under the Exchange Act, 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
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and the notes to those consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of
this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a
result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K, our actual results
may differ materially from those anticipated in these forward-looking statements. Please also refer to the section under heading “Special Note
Regarding Forward-Looking Statements.”
Business Overview
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 serve independent financial advisors and enterprises, providing them with the technology solutions, brokerage and
advisory platforms, clearing services, compliance services, consultative practice management programs and training, business services and
planning and advice services, 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, “Item 1. Business” for information related to our business activities.
Our Sources of Revenue
Our revenue is derived primarily from fees and commissions from products and advisory services offered by our advisors to their clients, a
substantial portion of which we pay out to our advisors, as well as fees we receive from our advisors for the use of our technology, custody,
clearing, trust and reporting platforms. We also generate asset-based revenue through our insured bank sweep vehicles, money market
account balances and the access we provide to a variety of product providers with the following product lines:
• Alternative Investments
• Annuities
• Exchange Traded Products
• Insurance Based Products
• Mutual Funds
• Retirement Plan Products
• Separately Managed Accounts
• Structured Products
• Unit Investment Trusts
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Under our self-clearing platform, we custody the majority of client assets invested in these financial products, for which we provide
statements, transaction processing and ongoing account management. In return for these services, mutual funds, insurance companies,
banks and other financial product 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 service offerings, including our policies, procedures and platforms, in response to
marketplace developments. We seek to continuously improve and enhance aspects of our operations and service offerings in order to
position our advisors for long-term growth and to align with competitive and regulatory developments. For example, we regularly review the
structure and fees of our products and services, including related disclosures, in the context of the changing regulatory environment and
competitive landscape for advisory and brokerage accounts.
Significant Events
Entered into a definitive purchase agreement to acquire Atria Wealth Solutions, Inc.
On February 13, 2024, the Company announced that it had entered into a definitive purchase agreement to acquire Atria, a wealth
management solutions holding company headquartered in New York. As part of the agreement, Atria will transition its brokerage and
advisory assets, currently custodied with its network of broker-dealers, to the Company’s platform. The Company expects to close the
transaction in the second half of 2024 with the conversion expected in mid-2025, subject to receipt of regulatory approval and other closing
conditions.
Completed initial investment grade debt offering
On November 17, 2023, the Company completed its initial investment grade debt offering with the issuance of $750.0 million in aggregate
principal amount of 6.750% senior unsecured notes due 2028. See Note 11 - Corporate Debt and Other Borrowings, Net, within the notes to
the consolidated financial statements for further detail.
Announced a strategic relationship agreement with Prudential’s retail wealth management business
On August 24, 2023, the Company announced an agreement with Prudential to transition the brokerage and investment advisory assets of
Prudential Advisors, Prudential’s retail wealth management business, from its current third-party custodian to LPL Financial in the second
half of 2024, subject to receipt of regulatory approval and other conditions.
Closed various acquisitions during the year
During the year ended December 31, 2023, the Company completed 19 acquisitions under our Liquidity & Succession solution, in which we
buy advisor practices. The Company also completed the acquisition of Boenning & Scattergood’s Private Client Group and FRGIS on
January 31, 2023. See Note 4 - Acquisitions, within the notes to the consolidated financial statements for further detail.
Executive Summary
Financial Highlights
Results for the year ended December 31, 2023 included net income of $1.1 billion, or $13.69 per diluted share, which compares to $845.7
million, or $10.40 per diluted share, for the year ended December 31, 2022.
Asset Trends
Total advisory and brokerage assets served were $1.4 trillion at December 31, 2023, compared to $1.1 trillion at December 31, 2022. Total
net new assets were $104.1 billion for the year ended December 31, 2023, compared to $95.9 billion for the same period in 2022.
Net new advisory assets were $76.0 billion for the year ended December 31, 2023, compared to $52.4 billion in 2022. Advisory assets were
$735.8 billion, or 54.3% of total advisory and brokerage assets served, at December 31, 2023, up 26% from $583.1 billion at December 31,
2022.
Net new brokerage assets were $28.1 billion for the year ended December 31, 2023, compared to $43.5 billion in 2022. Brokerage assets
were $618.2 billion at December 31, 2023, up 17% from $527.7 billion at December 31, 2022.
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Gross Profit Trend
Gross profit, a non-GAAP financial measure, was $4.0 billion for the year ended December 31, 2023, an increase of 26% from $3.2 billion for
the year ended December 31, 2022. See the “Key Performance Metrics” section for additional information on gross profit.
Common Stock Dividends and Share Repurchases
During the year ended December 31, 2023, we paid stockholders cash dividends of $92.2 million and repurchased 5,075,900 of our
outstanding shares for a total of $1.1 billion.
Key Performance Metrics
We focus on several key metrics in evaluating the success of our business relationships and our resulting financial position and operating
performance. Our key operating, business and financial metrics are as follows:
Operating Metrics (dollars in billions)
Advisory and Brokerage Assets
Advisory assets
Brokerage assets
(2)
(1)
Total Advisory and Brokerage Assets
Advisory as a % of total Advisory and Brokerage Assets
(3)
Net New Assets
Net new advisory assets
Net new brokerage assets
Total Net New Assets
Organic Net New Assets
Organic net new advisory assets
Organic net new brokerage assets
Total Organic Net New Assets
Organic advisory net new assets annualized growth
Total organic net new assets annualized growth
(4)
(4)
Client Cash Balances
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 Total Assets
40
As of and for the Years Ended
December 31,
2023
2022
735.8 $
618.2
1,354.1 $
54.3 %
583.1
527.7
1,110.8
52.5 %
76.0 $
28.1
104.1 $
75.0 $
25.4
100.4 $
12.9 %
9.0 %
34.5 $
9.3
43.8
2.4
46.2
2.3
48.5 $
3.6%
52.4
43.5
95.9
52.4
43.5
95.9
8.1 %
7.9 %
46.8
11.5
58.4
3.0
61.4
2.7
64.1
5.8%
$
$
$
$
$
$
$
$
Table of Contents
Net buy (sell) activity
(5)
Business and Financial Metrics (dollars in millions)
Advisors
Average total assets per advisor
(6)
Share repurchases
Dividends
Leverage ratio
(7)
Financial Metrics (dollars in millions, except per share data)
Total revenue
Net income
Earnings per share (“EPS”), diluted
Non-GAAP Financial Metrics (dollars in millions, except per share data)
Adjusted EPS
Gross profit
EBITDA
(10)
Core G&A
(9)
(8)
(11)
As of and for the Years Ended
December 31,
2023
2022
137.6 $
61.6
22,660
59.8 $
1,100.1 $
92.2 $
1.63
21,275
52.2
325.0
79.8
1.39
Years Ended December 31,
2023
2022
10,052.8 $
1,066.3 $
13.69 $
15.72 $
4,027.0 $
1,985.8 $
1,369.4 $
8,600.8
845.7
10.40
11.52
3,189.9
1,525.3
1,191.9
$
$
$
$
$
$
$
$
$
$
$
____________________
(1)
(2)
(3)
(4)
(5)
(6)
Totals may not foot due to rounding.
Consists of total advisory and brokerage assets under custody at the Company’s primary broker-dealer subsidiary, LPL Financial. Please consult the “Results of
Operations” section for 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.
Calculated as annualized current period organic net new assets divided by preceding period assets in their respective categories of advisory assets or total advisory and
brokerage assets.
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.
41
Table of Contents
(7)
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-GAAP financial 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 for income taxes, depreciation and
amortization, and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments, and to include future expected
cost savings, operating expense reductions or other synergies from certain transactions. Please consult the “Debt and Related Covenants” section for more information.
Below are reconciliations of corporate debt and other borrowings to Credit Agreement net debt as of the dates below and net income to EBITDA and Credit Agreement
EBITDA for the periods presented (in millions):
Credit Agreement Net Debt Reconciliation
Corporate debt and other borrowings
Corporate Cash
(12)
Credit Agreement Net Debt
(†)
EBITDA and Credit Agreement EBITDA Reconciliation
Net income
Interest expense on borrowings
Provision for income taxes
Depreciation and amortization
Amortization of other intangibles
EBITDA
(†)
Credit Agreement Adjustments:
Acquisition costs and other
Employee share-based compensation
M&A accretion
Advisor share-based compensation
(13)(14)
(15)
Credit Agreement EBITDA
(†)
Leverage Ratio
____________________
(†) Totals may not foot due to rounding.
$
$
$
$
$
$
December 31,
2023
2022
3,757.2 $
(183.7)
3,573.5 $
2,737.9
(459.4)
2,278.5
Years Ended December 31,
2023
2022
1,066.3 $
186.8
378.5
247.0
107.2
1,985.8 $
110.2 $
66.0
30.3
2.6
845.7
126.2
266.0
199.8
87.6
1,525.3
50.7
50.1
10.6
2.5
2,194.8 $
1,639.1
December 31,
2023
2022
1.63
1.39
(8)
Adjusted EPS is a non-GAAP financial measure defined as adjusted net income, a non-GAAP financial measure defined as net income plus the after-tax impact of
amortization of other intangibles, acquisition costs and a regulatory charge related to an investigation of the Company’s compliance with records preservation
requirements for business-related electronic communications stored on personal devices or messaging platforms that have not been approved by the Company, divided
by the weighted average number of diluted shares outstanding for the applicable period. The Company presents adjusted net income and adjusted EPS because
management believes that these metrics can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items,
acquisition costs and a regulatory charge that management does not believe impact the Company’s ongoing operations. Adjusted net income and adjusted EPS are not
measures of the Company's 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. Below is a reconciliation of net income and earnings per diluted share to adjusted net income and adjusted
EPS for the periods presented (in millions, except per share data):
Adjusted Net Income / Adjusted EPS Reconciliation
Amount
Per Share
Amount
Per Share
Years Ended December 31,
2023
2022
Net income / earnings per diluted share
Regulatory charge
Amortization of other intangibles
Acquisition costs
Tax benefit
(13)
(14)
Adjusted Net Income / Adjusted EPS
(†)
Weighted-average shares outstanding, diluted
____________________
(†) Totals may not foot due to rounding.
42
$
1,066.3 $
40.0
107.2
48.1
(37.4)
$
1,224.1 $
77.9
13.69 $
0.51
1.38
0.62
(0.48)
15.72 $
845.7 $
—
87.6
36.2
(32.7)
936.7 $
81.3
10.40
—
1.08
0.44
(0.40)
11.52
Table of Contents
(9)
Gross profit is a non-GAAP financial measure defined as total revenue less advisory and commission expense; brokerage, clearing and exchange expense; and market
fluctuations on employee deferred compensation. 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-GAAP 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 performance before indirect costs that are general and administrative in
nature. Below is a calculation of gross profit for the periods presented (in millions):
Gross Profit
Total revenue
Advisory and commission expense
Brokerage, clearing and exchange expense
Employee deferred compensation
(16)
Gross Profit
(†)
____________________
(†) Totals may not foot due to rounding.
Years Ended December 31,
2023
2022
$
$
10,052.8 $
5,915.8
106.0
4.1
4,027.0 $
8,600.8
5,324.8
86.1
—
3,189.9
(10)
EBITDA is a non-GAAP financial measure defined as net income plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and
amortization of other intangibles. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s
earnings from operations. EBITDA is not a measure of the Company's 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. Below is a reconciliation of net income to EBITDA for the periods presented (in millions):
EBITDA Reconciliation
Net income
Interest expense on borrowings
Provision for income taxes
Depreciation and amortization
Amortization of other intangibles
EBITDA
(†)
____________________
(†) Totals may not foot due to rounding.
Years Ended December 31,
2023
2022
$
$
1,066.3 $
186.8
378.5
247.0
107.2
1,985.8 $
845.7
126.2
266.0
199.8
87.6
1,525.3
(11)
Core G&A is a non-GAAP financial measure defined as total expense less the following expenses: advisory and commission; depreciation and amortization; interest
expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; market fluctuations on employee deferred compensation; promotional
(ongoing); employee share-based compensation; regulatory charges; and acquisition costs. 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 GAAP. Below is
a reconciliation of the Company’s total expense to core G&A for the periods presented (in millions):
Core G&A Reconciliation
Total expense
Advisory and commission
Depreciation and amortization
Interest expense on borrowings
Amortization of other intangibles
Brokerage, clearing and exchange
Employee deferred compensation
(16)
Total G&A
(†)
(14)(17)
Promotional (ongoing)
Regulatory charges
Employee share-based compensation
Acquisition costs
(13)
(14)
Core G&A
(†)
____________________
(†) Totals may not foot due to rounding.
$
Years Ended December 31,
2023
2022
8,608.1 $
(5,915.8 )
(247.0 )
(186.8 )
(107.2 )
(106.0 )
(4.1 )
2,041.2
(486.3 )
(71.3 )
(66.0 )
(48.1 )
7,489.2
(5,324.8 )
(199.8 )
(126.2 )
(87.6 )
(86.1 )
—
1,664.7
(353.9 )
(32.6 )
(50.1 )
(36.2 )
$
1,369.4 $
1,191.9
(12)
(13)
See the “Liquidity and Capital Resources” section for additional information about Corporate Cash.
The Company recorded a $40.0 million regulatory charge for the year ended December 31, 2023 related to an investigation of the Company’s compliance with records
preservation requirements for business-related electronic communications stored on personal
43
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devices or messaging platforms that have not been approved by the Company applicable to broker-dealer firms and investment advisors. See Note 14 - Commitments
and Contingencies, within the notes to the consolidated financial statements for further detail.
(14)
Acquisition costs include the costs to setup, onboard and integrate acquired entities and other costs that were incurred as a result of the acquisition. The below table
summarizes the primary components of acquisition costs for the periods presented (in millions):
Acquisition Costs
Fair value mark on contingent consideration
Professional services
Compensation and benefits
Promotional
Other
(17)
Acquisition Costs
Years Ended December 31,
2023
2022
$
$
26.7 $
10.0
6.1
3.6
1.7
48.1 $
—
12.0
20.6
2.3
1.3
36.2
(15) M&A accretion is an adjustment to reflect the annualized expected run rate EBITDA of an acquisition as permitted by the Credit Agreement for up to eight fiscal quarters
following the close of such acquisition.
(16)
(17)
During the first quarter of 2023, the Company updated its presentation of employee deferred compensation to be consistent with its presentation of advisor deferred
compensation. This change has not been applied retroactively as the impact on prior periods was not material.
Promotional (ongoing) for the years ended December 31, 2023 and December 31, 2022 includes $30.7 million and $16.1 million, respectively, of support costs related to
full-time employees that are classified within compensation and benefits expense in the consolidated statements of income. Promotional (ongoing) for the years ended
December 31, 2023 and December 31, 2022 excludes $3.6 million and $2.3 million, respectively, of expenses incurred as a result of acquisitions, which are included in
the acquisition costs line item.
Economic Overview 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 2.5% in 2023, and at an
annualized pace of 3.3% in the fourth quarter of 2023 after growing at an annualized pace of 4.9% in the third quarter of 2023. Although
geopolitical tension and high interest rates were all headwinds, the U.S. economy added approximately 494,000 jobs in the fourth quarter of
2023, down from 663,000 in the third quarter. The unemployment rate averaged 3.7% in the fourth quarter, up slightly from the average in the
third quarter of 2023.
Our business is also sensitive to current and expected short-term interest rates, which are largely driven by Federal Reserve (“Fed”) policy.
During the fourth quarter of 2023, Fed policymakers maintained the target range for the federal funds rate at 5.25% to 5.50%, and the equity
markets rebounded as the Fed appeared to end their tightening cycle and prepare markets for future rate cuts. Please consult the “Risks
Related to Our Business and Industry” section within Part I, “Item 1A. Risk Factors” for more information about the risks associated with
significant interest rate changes and the potential related effects on our profitability and financial condition.
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Table of Contents
Results of Operations
A discussion of changes in our results of operations during the year ended December 31, 2022 compared to the year ended December 31,
2021 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with
the SEC on February 23, 2023.
The following discussion presents an analysis of our results of operations for the years ended December 31, 2023 and 2022 (in thousands):
Years Ended December 31,
2023
2022
% Change
REVENUE
Advisory
Commission:
Trailing
Sales-based
Total commission
Asset-based:
Client cash
Other asset-based
Total asset-based
Service and fee
Transaction
Interest income, net
Other
Total 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
Communications and data processing
Professional services
Other
Total expense
INCOME BEFORE PROVISION FOR INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
$
4,135,681 $
3,875,154
1,299,840
1,252,783
2,552,623
1,509,869
867,860
2,377,729
508,437
199,939
159,415
119,024
10,052,848
5,915,807
979,681
459,233
248,620
246,994
186,804
107,211
105,984
75,717
72,583
209,439
8,608,073
1,444,775
378,525
1,066,250 $
1,292,358
1,033,806
2,326,164
953,624
806,649
1,760,273
467,381
181,260
77,126
(86,533)
8,600,825
5,324,827
820,736
339,994
219,798
199,817
126,234
87,560
86,063
67,687
72,519
143,937
7,489,172
1,111,653
265,951
845,702
$
45
7 %
1 %
21 %
10 %
58 %
8 %
35 %
9 %
10 %
107 %
n/m
17 %
11 %
19 %
35 %
13 %
24 %
48 %
22 %
23 %
12 %
— %
46 %
15 %
30 %
42 %
26 %
Table of Contents
Revenue
Advisory
Advisory revenue represents fees charged to advisors’ clients’ advisory accounts on our corporate RIA advisory platform 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 services on transactions, and perform administrative services for 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
performance obligation for advisory fees is considered a series of distinct services 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 majority 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 for estimates of contributions and withdrawals to determine the amount billed, and accordingly, the revenue earned in
the following three-month period. Advisory revenue collected on our corporate RIA advisory platform is proposed by the advisor and agreed
to by the client and was approximately 1% of the underlying assets for the year ended December 31, 2023.
We also support independent RIA firms that conduct their business through our Independent RIA advisory platform, which allows advisors to
engage us for technology, clearing and custody services, as well as access the capabilities of our investment platforms. The assets held
under an Independent RIA’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 for technology, clearing, administrative, oversight and custody services, which may vary and are included
in our service and fee revenue in our consolidated statements of income.
The following table summarizes the composition of advisory assets for the periods presented (in billions):
Corporate advisory assets
Independent RIA advisory assets
Total advisory assets
December 31,
2023
2022
$ Change
% Change
$
$
496.5 $
239.3
735.8 $
389.1 $
194.0
583.1 $
107.4
45.3
152.7
28 %
23 %
26 %
Net new advisory assets are generated throughout the quarter, therefore, the full impact of net new advisory assets to advisory revenue is
not realized in the same period. The following table summarizes activity impacting advisory assets for the periods presented (in billions):
Beginning balance at January 1
Net new advisory assets
Market impact
(1)
(2)
Ending balance at December 31
____________________
Years Ended December 31,
2023
2022
$
$
583.1 $
76.0
76.7
735.8 $
643.2
52.4
(112.5)
583.1
(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 difference 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, 2023 as compared to the same period in 2022. The increase during the
year ended December 31, 2023 was driven by continued organic growth, which increased advisory asset balances during the period, and a
positive market impact as compared to the prior period.
Commission
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 market value of investment holdings in trail-eligible assets. Sales-based
commission revenue, which occurs when
46
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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 for further detail regarding our
commission revenue by product category.
The following table sets forth the components of our commission revenue for the periods presented (in thousands):
Trailing
Sales-based
Total commission revenue
Years Ended December 31,
2023
1,299,840 $
1,252,783
2,552,623 $
$
$
2022
$ Change
% Change
1,292,358 $
1,033,806
2,326,164 $
7,482
218,977
226,459
1 %
21 %
10 %
The increase in trailing commission revenue in 2023 compared to 2022 was primarily due to an increase in sales of annuities during the
period. The increase in sales-based commission revenue in 2023 compared to 2022 was primarily driven by an increase in sales of annuities
and fixed income securities as a result of the higher interest rate environment, partially offset by a decrease in sales of mutual funds and
equities.
The following table summarizes activity impacting brokerage assets for the periods presented (in billions):
Beginning balance at January 1
Net new brokerage assets
Market impact
(2)
Ending balance at December 31
(1)
Years Ended December 31,
2023
2022
$
$
527.7 $
28.1
62.4
618.2 $
563.2
43.5
(79.0)
527.7
____________________
(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 difference 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 services (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 force education and
training efforts. Compensation for these performance 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 affiliates and is based on the value of mutual fund assets in accounts for which the Company provides
omnibus processing services 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 for the year ended December 31, 2023 increased by $617.5 million compared to 2022, primarily due to an increase in
client cash revenue. Client cash revenue for the year ended December 31, 2023 increased compared to 2022 due to increases to the federal
funds effective rate, partially offset by lower average client cash balances. For the year ended December 31, 2023, our average client cash
balances decreased to $48.8 billion compared to $61.9 billion for the year ended December 31, 2022.
Service and Fee
Service and fee revenue is generated from advisor and retail investor services, including technology, insurance, conferences, licensing,
business services and planning and advice services, IRA custodian and other client account fees. We charge separate fees to RIAs on our
Independent RIA advisory platform for technology, clearing, administrative, oversight and custody services, which may vary. We also host
certain advisor conferences that serve as training, education, sales and marketing events for which we charge sponsors a fee. Service and
fee revenue for the year ended December 31, 2023 increased by $41.1 million compared to 2022, primarily due to increases in IRA
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custodian fees, business services and planning and advice services fees, and fees relating to confirmations and error and omission
insurance.
Transaction
Transaction revenue includes transaction charges generated in both advisory and brokerage accounts from mutual funds, exchange-traded
funds and fixed income products. Transaction revenue for the year ended December 31, 2023 increased by $18.7 million compared to 2022,
primarily due to increases in the number of transactions and transaction charges for fixed income products, partially offset by a decrease in
charges for managed assets.
Interest Income, net
We earn interest income primarily from client margin loans, client cash account (“CCA”) balances segregated under federal or other
regulations and advisor repayable loans. Interest income, net for the year ended December 31, 2023 increased compared to 2022, primarily
due to increases in interest earned on bank deposits, short-term U.S. treasury bills and margin loans, partially offset by an increase in
interest paid on CCA balances.
Other
Other revenue primarily includes unrealized gains and losses on assets held by us in our advisor non-qualified deferred compensation plan
and model research portfolios and other miscellaneous revenue, which is not generated from contracts with customers. Other revenue for the
year ended December 31, 2023 increased by $205.6 million compared to 2022, primarily due to unrealized gains on assets held in our
advisor non-qualified deferred compensation plan, which are based on the market performance of the underlying investment allocations
chosen by advisors in the plan, and a related increase in dividend income on assets held in our advisor non-qualified deferred compensation
plan.
Expense
Advisory and Commission
Advisory and commission expense consists of the following: 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, 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 offered to our advisors.
The following table sets forth our payout rate, which is a statistical or operating measure, for the periods presented:
Payout rate
Years Ended December 31,
2022
2023
Change
86.97 %
87.32 %
(35) bps
Our payout rate decreased for the year ended December 31, 2023 compared to 2022, primarily due to the effect of acquisitions during the
year and changes in product mix.
Compensation and Benefits
Compensation and benefits expense includes salaries, wages, benefits, share-based compensation and related taxes for our employees, as
well as compensation for temporary workers and contractors. The following table sets forth our average number of employees for the periods
presented:
Average number of employees
Years Ended December 31,
2022
2023
6,524
7,669
% Change
18%
Compensation and benefits expense for the year ended December 31, 2023 increased by $158.9 million compared to 2022, primarily due to
an increase in headcount.
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Promotional
Promotional expense includes business development costs related to advisor recruitment and retention, costs related to hosting certain
advisory conferences that serve as training, sales and marketing events, and other costs that support advisor business growth. Promotional
expense for the year ended December 31, 2023 increased by $119.2 million compared to 2022, primarily due to increases in recruited assets
and advisors that led to higher costs to support transition assistance and retention.
Occupancy and Equipment
Occupancy and equipment expense includes the costs of leasing and maintaining our office spaces, software licensing and maintenance
costs, and maintenance expense on computer hardware and other equipment. Occupancy and equipment expense for the year ended
December 31, 2023 increased by $28.8 million compared to 2022, primarily due to increased expense related to software licenses and our
technology portfolio.
Depreciation and Amortization
Depreciation and amortization expense relates to the use of property and equipment, which includes internally developed software,
hardware, leasehold improvements and other equipment. Depreciation and amortization expense for the year ended December 31, 2023
increased by $47.2 million compared to 2022, primarily due to our continued investment in technology to support the integrations, enhance
our advisor platform and experience, and support onboarding of enterprises.
Interest Expense on Borrowings
Interest expense on borrowings includes the interest associated with the Company’s senior notes, senior secured Term Loan B (“Term Loan
B”) and revolving credit facilities; amortization of debt issuance costs; and fees associated with the Company’s revolving lines of credit.
Interest expense on borrowings for the year ended December 31, 2023 increased by $60.6 million compared to 2022, primarily due to
increases in interest rates associated with our Term Loan B and revolving credit facilities and higher outstanding debt balances. See Note 11
- Corporate Debt and Other Borrowings, Net, within the notes to the consolidated financial statements for further detail.
Amortization of Other Intangibles
Amortization of other intangibles represents the benefits received for the use of long-lived intangible assets established through our
acquisitions. Amortization of other intangibles for the year ended December 31, 2023 increased by $19.7 million compared to 2022, primarily
due to increases in intangible assets resulting from acquisitions. See Note 4 - Acquisitions and Note 9 - Goodwill and Other Intangibles, Net
within the notes to the consolidated financial statements for further detail.
Brokerage, Clearing and Exchange
Brokerage, clearing and exchange expense includes expenses originating from trading or clearing operations as well as any exchange
membership fees. These fees fluctuate largely in line with the volume of sales and trading activity. Brokerage, clearing and exchange
expense for the year ended December 31, 2023 increased by $19.9 million compared to 2022, primarily due to an increase in the volume of
trades and expenses for quote services.
Other Expense
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-insurance coverage, which in turn
depend in part on the amount and timing of resolving historical claims. Other expense for the year ended December 31, 2023 increased by
$65.5 million compared to 2022, primarily due to a $40.0 million regulatory charge recognized in anticipation of a potential settlement with the
SEC to resolve the civil investigation into compliance with records preservation requirements for business-related electronic communications
stored on personal devices applicable to broker-dealer firms and investment advisors and a fair value adjustment to our contingent
consideration liabilities. See Note 4 - Acquisitions and Note 14 - Commitments and Contingencies, within the notes to the consolidated
financial statements for further detail.
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Provision for Income Taxes
Our effective income tax rate was 26.2% and 23.9% for the years ended December 31, 2023 and 2022, respectively. The increase in our
effective tax rate for the year ended December 31, 2023 was primarily due to a decreased benefit from share-based compensation
recognized during the year as well as an increase in non-deductible expenses due to the $40.0 million regulatory charge described above.
See Note 14 - Commitments and Contingencies, within the notes to the consolidated financial statements for further detail.
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 sufficient liquidity. We believe liquidity is of critical importance to the Company and, in particular,
to LPL Financial, our primary broker-dealer subsidiary. The objective 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.
Liquidity
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 effort to ensure we have sufficient
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 satisfy our short-term and long-term working capital needs, the payment of all of
our obligations and the funding of anticipated capital expenditures.
Parent Company Liquidity
LPL Holdings, Inc. (the “Parent”), the direct holding company of our operating subsidiaries, considers its primary sources of liquidity to be
dividends from and excess capital generated by LPL Financial, as well as capacity for additional borrowing under its $2.0 billion secured
revolving credit facility, which it has the ability to borrow against for working capital and general corporate purposes.
Dividends from and excess capital generated by LPL Financial are primarily generated through our cash flow from operations. Subject 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 and internal capital thresholds. During the years ended December 31, 2023 and 2022, LPL Financial paid
dividends of $710.0 million and $1.1 billion to the Parent, respectively.
We believe Corporate Cash, a component of cash and equivalents, is a useful measure of the Parent’s liquidity as it represents the capital
available for use in excess of the amount we are required to maintain pursuant to the Credit Agreement. Corporate Cash is the sum of cash
and equivalents from the following: (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.
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The following table presents the components of Corporate Cash (in thousands):
Cash and equivalents
Cash at regulated subsidiaries
Excess cash at regulated subsidiaries per the Credit Agreement
Corporate Cash
Corporate Cash
Cash at the Parent
Excess cash at regulated subsidiaries per the Credit Agreement
Cash at non-regulated subsidiaries
Corporate Cash
December 31, 2023
December 31, 2022
$
$
$
$
465,671 $
(410,313)
128,327
183,685 $
26,587 $
128,327
28,771
183,685 $
847,519
(392,571)
4,439
459,387
448,180
4,439
6,768
459,387
Corporate Cash is monitored as part of our liquidity risk management. We target maintaining approximately $200 million in Corporate Cash,
which covers approximately 12 months of principal and interest due on our corporate debt. The decrease in Corporate Cash during the year
ended December 31, 2023 was driven primarily by investments in the business, including acquisitions and capital expenditures, and capital
returns to shareholders in the form of dividends and share repurchases offset by increases in cash resulting from operating activities and net
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 satisfy 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 issuances and 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. As of December 31, 2023, the earliest principal maturity date for our corporate debt with outstanding balances is in 2026
and our revolving credit facilities and uncommitted lines of credit mature between 2024 and 2026.
Share Repurchases
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 effected in open market or privately negotiated transactions. Our
current capital deployment framework remains focused on investing in organic growth first, pursuing acquisitions where appropriate and
returning excess capital to stockholders. We repurchased 5,075,900 shares for a total of $1.1 billion for the year ended December 31, 2023.
As of December 31, 2023 we had $900.0 million remaining under our existing repurchase program. The timing and amount of share
repurchases, if any, is determined at our discretion within the constraints of our Credit Agreement, applicable laws and consideration of our
general liquidity needs. See Note 15 - Stockholders’ Equity, within the notes to the consolidated financial statements for additional
information regarding our share repurchases.
Common Stock Dividends
The payment, timing and amount of any dividends are subject to approval by the Board, as well as certain limits under our Credit Agreement.
The Board approved an increase to the quarterly cash dividend to $0.30 per share beginning in the first quarter of 2023. See Note 15 -
Stockholders’ Equity, within the notes to the consolidated financial statements for additional information regarding our dividends.
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LPL Financial Liquidity
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, 2023. LPL Financial also maintains a line of credit with the Parent.
External Liquidity Sources
The following table presents amounts outstanding and available under our external lines of credit at December 31, 2023 (in millions):
Description
Senior secured, revolving credit facility
Broker-dealer revolving credit facility
Unsecured, uncommitted lines of credit
Unsecured, uncommitted lines of credit
Secured, uncommitted lines of credit
Secured, uncommitted lines of credit
Secured, uncommitted lines of credit
Capital Resources
Borrower
LPL Holdings, Inc.
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
Maturity Date
March 2026
July 2024
None
September 2024
March 2025
None
None
$
$
$
$
$
$
$
Outstanding
Available
280 $
— $
— $
— $
— $
—
—
1,720
1,000
75
50
75
unspecified
unspecified
The Company seeks to manage capital levels in support of its business strategy of generating and effectively deploying capital for the benefit
of our stockholders.
Our primary requirement for working capital relates to funds we loan to our advisors’ clients for trading conducted on margin and funds we
are required to maintain for regulatory capital and reserves based on the requirements of our 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.
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 capital requirements necessary to effect client transactions in securities markets and cash sweep
balances held at third-party banks that arise from the delayed receipt of client funds. These capital requirements 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.
Our broker-dealer subsidiaries are subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 under the Exchange Act), which requires the
maintenance of minimum net capital. LPL Financial, our primary broker-dealer subsidiary, 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.
The following table presents the net capital position of the Company’s primary broker-dealer subsidiary (in thousands):
LPL Financial LLC
Net capital
Less: required net capital
Excess net capital
December 31, 2023
$
$
205,314
16,678
188,636
Payment by our broker-dealer subsidiaries of dividends greater than 10% of their respective excess net capital during any 35-day rolling
period requires approval from FINRA. In addition, each broker-dealer subsidiary’s ability to pay dividends would be restricted if its net capital
would be less than 5% of aggregate customer debit balances.
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LPL Financial also acts as an introducing broker-dealer for commodities and futures. Accordingly, its trading activities are subject to the
NFA’s financial requirements and it is required to maintain net capital that is in excess of or equal to the greatest of NFA’s minimum financial
requirements. The NFA was designated by the Commodity Futures Trading Commission as LPL Financial’s primary regulator for such
activities. Currently, the highest NFA requirement is the minimum net capital calculated and required pursuant to the SEC’s Uniform Net
Capital Rule.
Our subsidiary PTC is also subject to various regulatory capital requirements. Failure to meet the respective minimum capital requirements
can result in certain mandatory and discretionary actions by regulators that, if undertaken, could have substantial monetary and non-
monetary impacts on PTC’s operations.
Supplemental Guarantor Financial Information
The Company filed a registration statement on Form S-3 to register, among other things, non-convertible debt securities that may be offered
by LPL Holdings, Inc. (the “Issuer”), a wholly owned subsidiary of LPLFH (together with the Issuer, the “Obligor Group”), and full and
unconditional guarantees by LPLFH of such debt securities. The debt securities issued by the Issuer pursuant to such registration statement
are fully and unconditionally guaranteed by LPLFH. LPLFH is a Delaware holding corporation that manages substantially all of its operations
through investments in subsidiaries. See Note 1 - Organization and Description of the Company and Note 11- Corporate Debt and Other
Borrowings, Net, within the notes to the consolidated financial statements for additional information.
Pursuant to Rule 3-10 of Regulation S-X under the Securities Act of 1933, as amended, the following tables present summarized financial
information for the Obligor Group on a combined basis. Balances and transactions between the Obligor Group have been eliminated.
Financial information for non-guarantor subsidiaries, which includes all other subsidiaries of the Issuer, has been excluded and intercompany
balances and transactions between the Obligor Group and non-guarantor subsidiaries are presented on separate lines. The summarized
financial information below should be read in conjunction with the Company’s consolidated financial statements contained herein as the
summarized financial information for the Obligor Group may not be indicative of results of operations or financial position of the Issuer or
LPLFH had they operated as independent entities.
The following tables present the summarized financial information for the periods presented (in thousands):
(1)
Combined Summarized Statements of Income
Revenues
Revenues from non-guarantor subsidiaries
Advisory and commission expense
Interest expense on borrowings
Expenses from non-guarantor subsidiaries
Loss before provision for income taxes
Net loss
(1)
$
LPL Holdings, Inc. & LPL Financial Holdings Inc.
Year Ended December 31, 2023
105,631
21,340
104,987
182,559
14,034
(251,223)
(185,794)
____________________
(1)
Revenues primarily include unrealized gains and losses on assets held in the non-qualified deferred compensation plan offered to advisors and employees, while
advisory and commission expense includes the deferred advisory and commission fee expense associated with mark-to-market gains or losses on the non-qualified
deferred compensation plan offered to advisors.
Combined Summarized Statements of Financial Condition
Cash and equivalents
Other receivables, net
Property and equipment, net
Goodwill
Other intangibles, net
Receivables from non-guarantor subsidiaries
Other assets
Corporate debt and other borrowings, net
Accounts payable and accrued liabilities
Payables to non-guarantor subsidiaries
Other liabilities
LPL Holdings, Inc. & LPL Financial Holdings Inc.
December 31, 2022
December 31, 2023
26,587 $
2,793
154,920
1,251,908
95,461
153,377
1,017,289
3,734,111
53,817
76,683
986,274
448,180
10,926
165,649
1,251,908
123,435
86,069
705,048
2,717,444
32,060
67,135
839,479
$
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Debt and Related Covenants
The Credit Agreement contains a number of covenants that, among other things, restrict, subject 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 affiliates;
enter into agreements that restrict dividends or other payments from subsidiaries; and
consolidate, merge or transfer all or substantially all of our assets.
Our Credit Agreement allows 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 for income taxes, depreciation and amortization
and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments, and to include
future expected cost savings, operating expense reductions or other synergies from certain transactions.
As of December 31, 2023, we were in compliance with our Credit Agreement financial covenants, which include a maximum Consolidated
Total 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 subject to certain equity cure rights. The required ratios under our financial covenants and actual ratios were as follows:
December 31, 2023
Financial Ratio
Leverage Ratio (Maximum)
Interest Coverage (Minimum)
Covenant Requirement
4.0
3.0
Actual Ratio
1.63
12.54
Certain restrictive covenants under certain of our Indentures are currently suspended. However, a credit rating downgrade to a below
investment grade rating could cause currently suspended restrictive covenants under certain of our Indentures to be automatically reinstated.
See Note 11 - Corporate Debt and Other Borrowings, Net, within the notes to the consolidated financial statements for further detail regarding
the Credit Agreement.
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Contractual Obligations
The following table provides information with respect to our commitments and obligations as of December 31, 2023 (in thousands):
(1)
(1)
Operating leases
Finance leases
Purchase obligations
Corporate debt and other borrowings, net
Interest payments
Commitment and other fees
(2)
(4)
(5)
(3)
Total contractual cash obligations
____________________
Total
< 1 Year
Payments Due by Period
1-3 Years
3-5 Years
> 5 Years
$
$
148,205 $
242,366
274,023
3,757,200
912,324
12,639
5,346,757 $
28,483 $
8,727
135,217
10,700
217,414
6,346
406,887 $
54,413 $
17,914
114,645
1,296,500
406,410
6,293
1,896,175 $
52,539 $
18,547
24,161
1,150,000
226,750
—
1,471,997 $
12,770
197,178
—
1,300,000
61,750
—
1,571,698
(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 for further
detail.
Includes future minimum payments under service, development and agency contracts and other contractual obligations. See Note 14 - Commitments and Contingencies,
within the notes to the consolidated financial statements for further detail on obligations under non-cancelable service contracts.
Represents principal payments on our corporate debt and other borrowings. See Note 11 - Corporate Debt and Other Borrowings, Net, within the notes to the
consolidated financial statements for further detail.
Represents interest payments under our Credit Agreement, which include a variable interest payment for our senior secured credit facilities and a fixed interest payment
for our senior unsecured notes. Variable interest payments assume the applicable interest rates at December 31, 2023 remain unchanged. See Note 11 - Corporate Debt
and Other Borrowings, Net, within the notes to the consolidated financial statements for further detail.
Represents commitment fees for unused borrowings on the revolving credit facility under our Credit Agreement. See Note 11 - Corporate Debt and Other Borrowings,
Net, within the notes to the consolidated financial statements for further detail.
As of December 31, 2023, we have a liability for unrecognized tax benefits of $61.6 million, which we have included in other liabilities in the
consolidated statements of financial condition. This amount has been excluded from the contractual obligations table because we are unable
to reasonably predict the ultimate amount or timing of future tax payments.
Risk Management
Risk is an inherent part of our businesses and activities. To effectively manage these risks, we have an ERM framework designed to facilitate
the incorporation of risk assessment into decision-making processes across the Company, enable execution our business strategy, and
protect our Company and its franchise. This framework aims to ensure policies and procedures are in place and appropriately designed to
identify and manage risk at appropriate levels throughout our organization and within various departments.
Our framework is designed to promote clear lines of risk management ownership and accountability while providing a structured escalation
process for key risk information 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 for risk and control processes is
with the business units and control owners, who are the first line of defense in effectively managing risks, and who are responsible for day-to-
day compliance and risk management, including execution of operating and supervisory procedures. These business units and certain
control owners implement and execute controls to manage risk, execute risk assessments, identify 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 effectiveness 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 ROC and its subcommittees; and our three
lines of defense model. We regularly reevaluate and, when necessary, modify our processes to improve the identification and escalation of
risks and events.
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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 for 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.
Risk Governance Structure
Audit and Risk Committee of the Board
The ARC oversees and monitors, among other things, the Company’s enterprise risk management (except for risks assigned to other
committees of the Board or retained by the Board), and is responsible for reviewing and assessing the Company’s processes to manage and
control risk. In this capacity, the ARC reviews reports from risk-focused management committees; reviews emerging risks and regulatory
matters; and reviews Internal Audit reports on the assessment of the Company’s control environment. The ARC reports to the Board on a
regular basis and coordinates with the Board and other Board committees with respect to the oversight of risk management and risk
assessment guidelines.
Compensation and Human Resources Committee of the Board
In addition to its other responsibilities, the Compensation and Human Resources Committee of the Board assesses whether our
compensation arrangements encourage inappropriate risk-taking, and whether risks arising from our compensation arrangements are
reasonably likely to have a material adverse effect on the Company.
Risk Oversight Committee of LPL Financial
The ROC, a management committee chaired by the chief risk officer, oversees our risk management activities, including those of our
subsidiaries. The chief risk officer of LPL Financial serves as chair of the ROC, which generally meets once every two months, 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 serve as ex-officio members and represent key control areas of the Company. Participation in
the ROC by senior officers is intended to ensure that the ROC covers the key risk areas of the Company, including its subsidiaries, and that
the ROC thoroughly reviews significant matters relating to risk priorities, policies, control procedures and related exceptions, certain new and
complex products and business arrangements, transactions with significant risk elements and identified emerging risks.
The chief risk officer 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 the Risk Oversight Committee
The ROC has established multiple subcommittees to support effective supervision of our risk exposures and processes. The subcommittees
meet regularly and are responsible for keeping the ROC informed and escalating issues in accordance with the Company’s escalation
protocols. The responsibilities of such subcommittees include, for example, oversight of operational risk; oversight of the approval of new and
complex investment products offered to advisors’ clients; oversight of the firm’s technology; and issues and trends related to advisor
compliance.
Internal Audit Department
As the third line of defense, the Internal Audit department provides independent and objective assurance of the effectiveness of the
Company’s governance, risk management and internal controls by conducting risk assessments and audits designed to identify and cover
important risk categories. Internal Audit reports directly to the ARC, which provides oversight of Internal Audit’s activities and approves its
annual plan. The Internal Audit department reports to the ARC at least quarterly.
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Operational Risk
Operational Risk is reviewed, monitored and challenged by the Operational Risk Oversight Committee (the “OROC”), which is a
subcommittee of the ROC. Operational risk is defined as the risk of loss resulting from failed or inadequate processes or systems, actions by
people or external events. We are exposed to a variety of operational risks and actively monitor and manage them across the following risk
categories:
•
Information Security & Cybersecurity Risk – the potential disclosure, misuse or loss of our data (including client data) that may
adversely impact the availability, integrity and/or confidentiality of our data or information through unintentional or malicious acts,
either internal or external.
Information Technology Risk – the potential for a technology failure, obsolescence or improper operation of our technology systems.
•
•
Third Party Risk – the risk of exposure caused by our reliance on third-party service providers to execute critical processes.
• General Operational Risk – all other types of operational risks not detailed above, including external or internal fraud, execution,
process or internal control failures, business disruptions unrelated to technology, or human capital risk, such as key person
dependencies.
Regulatory and Legal Risk
The regulatory environment in which we operate is discussed in detail within Part I, “Item 1. Business” 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 observed 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 “Risks Related to Our Regulatory Environment” and
the “Risks Related to Our Business and Industry” sections within Part I, “Item 1A. Risk Factors” for more information about the risks
associated with operating within our regulatory environment, pending regulatory matters and the potential related effects on our operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We consider the
following 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.
Revenue Recognition
Revenue is recognized when control of the promised service is transferred to customers in an amount that reflects the consideration that we
expect to be entitled to in exchange for those services. 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
therefore requires management to estimate accrued amounts based on revenue received in prior periods, market performance and payment
frequency of each product type or sponsor. See Note 2 - Summary of Significant Accounting Policies and Note 3 - Revenue, within the notes
to the consolidated financial statements for further detail.
Commitments and Contingencies
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 for those legal proceedings and regulatory matters for which a loss is
both probable and the amount can be reasonably estimated.
We also accrue for losses at our captive insurance subsidiary for those matters covered by self-insurance. Our captive insurance subsidiary
records losses and loss reserve liabilities based on actuarially determined estimates of losses incurred, as well as specific reserves for
proceedings and matters that are probable and 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 difficult and requires management to make significant judgments. For
additional information, see Note 2 - Summary of Significant Accounting Policies and Note 14 - Commitments and Contingencies - “Legal and
Regulatory Matters,” within the notes to the consolidated financial statements.
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Acquisitions
Acquisitions, including those accounted for under the acquisition method of accounting for business combinations or as asset acquisitions,
require management to allocate purchase consideration, including contingent consideration, to the fair value of assets acquired or liabilities
assumed, as applicable. This allocation requires management to apply judgment and make assumptions about future earnings and
performance and may be based on preliminary valuations. Estimates and assumptions used in the acquisition method of accounting for
business combinations are subject to change during the respective measurement period, which is not to exceed one year from the
acquisition date, as valuations are finalized. Any changes in estimates or assumptions will change the purchase price allocations, including
any amounts allocated to other intangible assets, liabilities for contingent consideration, other assets acquired or liabilities assumed, or
goodwill, as applicable. Goodwill is recognized as the excess of the purchase consideration over the fair value of net assets acquired.
Certain of the Company’s acquisitions include contingent consideration, which may result in the transfer of additional cash consideration to
the sellers if certain asset or revenue growth is achieved in the years following an acquisition. For acquisitions accounted for under the
acquisition method of accounting for business combinations, any such contingent consideration is recognized at its estimated fair value on
the date of acquisition within other liabilities in the consolidated statements of financial condition. This contingent consideration is
remeasured at its fair value at each subsequent reporting date until the contingency is resolved. Any changes in fair value are recognized in
other expense in the consolidated statements of operations. The Company does not recognize a liability for contingent payments in
acquisitions that are accounted for as asset acquisitions as the amounts to be paid will be uncertain until a future measurement date. For
additional information, see Note 4 - Acquisitions and Note 9 - Goodwill and Other Intangibles, Net within the notes to the consolidated
financial statements.
Goodwill and Other Intangibles, Net
Management also applies judgment when testing for impairment of goodwill and other indefinite-lived intangible assets, including estimating
fair values. Goodwill and other indefinite-lived intangible assets are evaluated annually for impairment in the fourth 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 for impairment when there is evidence that events or changes in
circumstances indicate that the carrying amount may not be recoverable. For additional information, see Note 2 - Summary of Significant
Accounting Policies and Note 9 - Goodwill and Other Intangibles, Net within the notes to the consolidated financial statements.
Income Taxes
In preparing the consolidated financial statements, we estimate the provision for income taxes based on various jurisdictions where we
conduct business. This requires management to estimate current tax obligations and to assess temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. These temporary differences 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 information, see Note 2 - Summary of Significant Accounting Policies and Note 13 - Income Taxes, within the notes to
the consolidated financial statements.
Recently Issued Accounting Pronouncements
Refer to Note 2 - Summary of Significant Accounting Policies, within the notes to the consolidated financial statements for a discussion of
recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
We maintain trading securities 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 performance 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 for 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. 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 trading securities 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 portfolios that are used by advisors in developing client portfolios. We maintain securities owned
in internal accounts based on these model portfolios to track the performance of our Research department. At the time a portfolio is
developed, we purchase the securities in that model portfolio in an amount equal to the account minimum, which varies by product.
In addition, we are subject 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 for sponsor payments.
As of December 31, 2023, the fair value of our trading securities was $76.1 million, and securities sold, but not yet purchased were not
material. The fair value of market risk sensitive instruments entered into for other than trading purposes included within other assets was
$858.6 million as of December 31, 2023. See Note 5 - Fair Value Measurements within the notes to the consolidated financial statements for
information 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, 2023, $1.3 billion of our outstanding debt was subject
to floating interest rate risk. While our senior secured term loan is subject to increases in interest rates, we do not believe that a short-term
change in interest rates would have a material impact on our net income given revenue generated by our client cash balances, which is
generally subject to the same, but off-setting, interest rate risk.
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The following table summarizes the impact of increasing interest rates on our interest expense from the variable portion of our debt
outstanding, calculated using the projected average outstanding balance over the subsequent twelve-month period (in thousands):
Annual Impact of an Interest Rate
(†)
Increase of
Corporate Debt and Other Borrowings
Term Loan B
Revolving Credit Facility
Variable-Rate Debt Outstanding
____________________
Outstanding Balance at
December 31, 2023
10 Basis
25 Basis
50 Basis
100 Basis
Points
Points
Points
Points
$
$
1,027,200 $
280,000
1,307,200 $
1,023 $
280
1,303 $
2,558 $
700
3,258 $
5,116 $
1,400
6,516 $
10,232
2,800
13,032
(†)
Our interest rate for our Term Loan B is locked in for 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 effect of these interest rate locks are not included in the table above.
See Note 11 - Corporate Debt and Other Borrowings, Net, within the notes to the consolidated financial statements for additional information.
We offer 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 for 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”) for
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, and are therefore subject to
interest rate risk. 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, subject to a cap.
The Company places ICA sweep overflow 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 for 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 for 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 subject 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 platform or to fund business development activities. We
are also subject to credit risk when a forgivable 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 insufficient 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 insufficient to fully cover losses from such investments and our advisors fail to reimburse us for such
losses. Our losses on margin accounts were not material during the years ended December 31, 2023 and 2022. We monitor exposure to
industry sectors and individual securities and perform analyses on a regular basis in connection with our margin lending activities. We adjust
our margin requirements if we believe our risk exposure is not appropriate based on market conditions.
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We are subject to concentration risk if we extend large loans to or have large commitments with a single counterparty, borrower or group of
similar counterparties or borrowers, or if we accept a concentrated position as collateral for a margin loan. Receivables from and payables to
clients and stock borrowing and lending activities are conducted with a large number of clients and counterparties and potential concentration
is 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.
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)
Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Financial Condition as of December 31, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
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
62
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67
68
70
70
70
77
81
83
88
88
89
89
91
92
94
95
97
99
100
102
102
103
104
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
LPL Financial Holdings Inc.
San Diego, California
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of LPL Financial Holdings Inc. and subsidiaries (the
"Company") as of December 31, 2023 and 2022, the related consolidated statements of income, stockholders' equity, and cash flows, for
each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023
and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21,
2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial 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
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition of Financial Resources Group Investment Services, LLC — Valuation of acquired definite-lived intangible assets and
contingent consideration — Refer to Notes 4 and 5 to the financial statements
Critical Audit Matter Description
On January 31, 2023, the Company acquired the equity of Financial Resources Group Investment Services, LLC, a broker-dealer and
independent branch office. Total consideration for the transaction was $189.2 million, which included an initial cash payment of $143.8 million
and a liability of $45.4 million for contingent consideration, which represents the acquisition date fair value of the additional cash
consideration that may be transferred to the sellers if certain asset growth is achieved in the three years following the closing. During the
three months ended December 31, 2023, the Company recorded a $26.7 million fair value adjustment in other expense to increase the fair
value of the contingent consideration liability as a result of asset and market growth during the quarter.
63
The Company accounted for the acquisition under the acquisition method of accounting for business combinations. The purchase price is
allocated across the estimated fair value of the definite-lived intangible and tangible assets acquired and liabilities assumed, with the excess
purchase price allocated to goodwill.
The Company used the income approach to estimate the fair value of the intangible assets, which are comprised of $34.7 million of bank
relationships and $18.8 million of advisor relationships. The fair value of the intangible assets required management to make significant
estimates and assumptions related to future net cash flows and discount rates.
The Company determines the fair value for its contingent consideration obligations using a Monte-Carlo simulation model. Contingent
payments are estimated by applying significant unobservable inputs, including forecasted growth rates applied to project future revenue or
asset growth and discount rates which are based on the cost of debt and equity.
Given the fair value determination of intangible assets and contingent consideration requires management to make significant estimates and
assumptions related to the forecasts of future net cash flows and asset growth and the selection of the discount rates, performing audit
procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an
increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of intangible assets and contingent consideration included the following, among others:
• We tested the design, implementation and operating effectiveness of internal controls over the valuation of the intangible assets and
contingent consideration, including understanding management’s processes and controls over forecasts of future net cash flows and
asset growth and the selection of the discount rates.
• We evaluated management’s policies and methodology for establishing the fair value of intangible assets, and contingent
consideration used in the purchase price allocation and remeasured at December 31, 2023.
• We assessed the knowledge, skill, ability, and objectivity of management’s valuation specialist and evaluated the work performed.
• We evaluated the reasonableness of business assumptions related to future net cash flows for the intangible assets and projected
future revenue or asset growth over the earnout periods for the contingent consideration, considering the past performance of the
acquired company, the Company’s strategic plan going forward, previous acquisitions by the Company, and evidence obtained in
other areas of the audit, and obtained audit support to substantiate the material assumptions therein.
• With the assistance of our fair value specialists, we tested:
– the reasonableness of the income approach valuation methodology by challenging key valuation assumptions related to
future net cash flows and discount rates and comparing them to industry benchmarks and data, and testing the mathematical
accuracy of the valuation of intangible assets by performing a recalculation.
– the reasonableness of the Monte-Carlo simulation model by independently running Monte-Carlo simulations to calculate
independent estimates of the fair value of contingent consideration. We compared the results of our estimates of fair value of
the contingent consideration to the Company’s fair value estimates.
– the reasonableness of the discount rates by developing a range of independent estimates and comparing those to the
discount rates selected by management.
/s/ Deloitte & Touche LLP
San Diego, California
February 21, 2024
We have served as the Company's auditor since 2001.
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)
REVENUE
Advisory
Commission:
Trailing
Sales-based
Total commission
Asset-based:
Client cash
Other asset-based
Total asset-based
Service and fee
Transaction
Interest income, net
Other
Total 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
Communications and data processing
Professional services
Loss on extinguishment of debt
Other
Total expense
INCOME BEFORE PROVISION FOR INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
EARNINGS PER SHARE
Earnings per share, basic
Earnings per share, diluted
Weighted-average shares outstanding, basic
Weighted-average shares outstanding, diluted
2023
Years Ended December 31,
2022
2021
$
4,135,681 $
3,875,154 $
3,525,430
1,299,840
1,252,783
2,552,623
1,509,869
867,860
2,377,729
508,437
199,939
159,415
119,024
10,052,848
5,915,807
979,681
459,233
248,620
246,994
186,804
107,211
105,984
75,717
72,583
—
209,439
8,608,073
1,444,775
378,525
1,066,250 $
13.88 $
13.69 $
76,807
77,861
$
$
$
1,292,358
1,033,806
2,326,164
953,624
806,649
1,760,273
467,381
181,260
77,126
(86,533)
8,600,825
5,324,827
820,736
339,994
219,798
199,817
126,234
87,560
86,063
67,687
72,519
—
143,937
7,489,172
1,111,653
265,951
845,702 $
10.60 $
10.40 $
79,801
81,285
1,404,628
974,055
2,378,683
360,847
787,220
1,148,067
411,761
156,336
28,577
71,976
7,720,830
5,180,090
741,003
302,285
185,531
151,428
104,414
79,260
86,023
60,296
73,231
24,400
131,540
7,119,501
601,329
141,463
459,866
5.75
5.63
80,002
81,742
See notes to consolidated financial statements.
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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
Total 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
Total liabilities
Commitments and contingencies (Note 14)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value; 600,000,000 shares authorized; 130,233,328 shares and 129,655,843
shares issued at December 31, 2023 and 2022, respectively
Additional paid-in capital
Treasury stock, at cost — 55,576,970 shares and 50,407,844 shares at December 31, 2023 and 2022,
respectively
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
66
December 31,
2023
2022
$
$
$
$
465,671 $
2,007,312
108,180
588,585
50,069
1,479,690
743,317
91,311
933,091
1,856,648
671,585
1,390,021
10,385,480 $
2,266,176 $
163,337
216,541
3,734,111
485,963
1,440,373
8,306,501
130
1,987,684
(3,993,949)
4,085,114
2,078,979
10,385,480 $
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
130
1,912,886
(2,846,536)
3,101,072
2,167,552
9,482,226
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Treasury Stock
Shares
Amount
Retained
Earnings
Total
Stockholders’
Equity
BALANCE — December 31, 2020
127,586 $
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
Stock option exercises and other
Share-based compensation
BALANCE — December 31, 2022
Net income
Issuance of common stock to settle restricted stock units
Treasury stock purchases
Cash dividends on common stock - $1.20 per share
Stock option exercises and other
Share-based compensation
BALANCE — December 31, 2023
—
406
—
—
766
—
128,758 $
—
368
—
—
530
—
129,656 $
—
448
—
—
129
—
130,233 $
127 $
—
—
—
—
2
—
129 $
—
—
—
—
1
—
130 $
—
—
—
—
—
—
130 $
1,762,770
—
—
—
—
34,457
44,175
1,841,402
—
—
—
—
18,876
52,608
1,912,886
—
—
—
—
6,129
68,669
48,115 $
(2,391,062) $
—
147
580
—
(74)
—
—
(20,230)
(90,011)
—
2,703
—
48,768 $
(2,498,600) $
—
136
1,566
—
(62)
—
—
165
5,076
—
(72)
—
—
(25,157)
(325,031)
—
2,252
—
(40,005)
(1,109,962)
—
2,554
1,943,019 $
459,866
—
—
(80,095)
4,812
—
2,327,602 $
845,702
—
—
(79,833)
7,601
3,101,072 $
1,066,250
—
—
(92,190)
9,982
50,408 $
(2,846,536) $
—
—
1,314,854
459,866
(20,230)
(90,011)
(80,095)
41,974
44,175
1,670,533
845,702
(25,157)
(325,031)
(79,833)
28,730
52,608
2,167,552
1,066,250
(40,005)
(1,109,962)
(92,190)
18,665
68,669
1,987,684
55,577 $
(3,993,949) $
4,085,114 $
2,078,979
—
—
See notes to consolidated financial statements.
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31,
2022
2021
2023
$
1,066,250 $
845,702 $
459,866
Depreciation and amortization
Amortization of other intangibles
Amortization of debt issuance costs
Share-based compensation
Provision for credit losses
Deferred (benefit) provision for income taxes
Loss on extinguishment of debt
Loan forgiveness
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 following page
246,994
107,211
8,731
68,669
15,947
(68,454)
—
223,517
39,172
(28,070)
6,207
(594,438)
(71,328)
(38,956)
(213,043)
(428,753)
15,585
11,421
31,256
117,805
(3,112)
512,611
(403,286)
(453,475)
(4,725)
5,500
(4,200)
(860,186)
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)
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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
Tax 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
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS, CASH AND EQUIVALENTS
SEGREGATED UNDER FEDERAL OR OTHER REGULATIONS AND RESTRICTED CASH
CASH AND EQUIVALENTS, CASH AND EQUIVALENTS SEGREGATED UNDER FEDERAL OR
OTHER REGULATIONS AND RESTRICTED CASH — Beginning of year
CASH AND EQUIVALENTS, CASH AND EQUIVALENTS SEGREGATED UNDER FEDERAL OR
OTHER REGULATIONS AND RESTRICTED CASH — End of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid
Income taxes paid
Cash paid for amounts included in the measurement of operating lease liabilities
Cash paid for amounts included in the measurement of finance lease liabilities
NONCASH DISCLOSURES:
Capital expenditures included in accounts payable and accrued liabilities
Lease assets obtained in exchange for operating lease liabilities
Contingent consideration liabilities recognized at acquisition date
Cash and equivalents
Cash and equivalents segregated under federal or other regulations
Restricted cash
Total cash and equivalents, cash and equivalents segregated under federal or other regulations
and restricted cash shown in the statements of cash flows
`
Years Ended December 31,
2022
2021
2023
1,718,000
(1,438,000)
(10,700)
—
749,468
(13,474)
—
—
(40,005)
(1,100,101)
(92,190)
18,665
(195)
(208,532)
815,000
(905,000)
(10,700)
—
—
(1,872)
—
—
(25,157)
(325,031)
(79,833)
28,730
(408)
(504,271)
1,585,000
(1,495,000)
(10,700)
(900,000)
1,300,000
(15,929)
(25,875)
(8,941)
(20,230)
(90,011)
(80,095)
41,974
(1,356)
278,837
(556,107)
1,064,906
273,330
3,137,270
2,072,364
1,799,034
2,581,163 $
3,137,270 $
2,072,364
191,350 $
535,959 $
27,714 $
8,577 $
26,021 $
17,517 $
88,132 $
118,824 $
238,155 $
24,657 $
8,825 $
33,957 $
10,785 $
— $
103,689
144,556
22,355
9,716
21,373
3,602
—
2023
December 31,
2022
465,671 $
847,519 $
2,007,312
108,180
2,199,362
90,389
2021
495,246
1,496,463
80,655
2,581,163 $
3,137,270 $
2,072,364
$
$
$
$
$
$
$
$
$
$
See notes to consolidated financial statements.
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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 platform of brokerage and investment advisory services to independent financial advisors and financial
advisors at enterprises (collectively, “advisors”) in the United States. Through its custody and clearing platform, using both proprietary and
third-party technology, the Company provides access to diversified financial products and services, enabling its advisors to offer personalized
financial advice and brokerage services to retail investors (their “clients”). The Company’s most significant, wholly owned subsidiaries are
described below:
•
•
•
•
•
•
LPL Holdings, Inc. (“LPLH” or “Parent”) is an intermediate holding company and directly or indirectly owns 100% of the issued and
outstanding common equity interests of all of LPLFH’s indirect subsidiaries, including a captive insurance subsidiary that underwrites
insurance for various legal and regulatory risks of the Company.
LPL Financial LLC (“LPL Financial”), with primary offices in San Diego, California; Fort Mill, South Carolina; Boston, Massachusetts;
and Austin, Texas, is a clearing broker-dealer and an investment advisor that principally transacts business for its advisors and
enterprises on behalf of their clients in a broad array of financial products and services. LPL Financial is licensed to operate in all
50 states, Washington D.C., Puerto Rico and the U.S. Virgin Islands.
LPL Insurance Associates, Inc. operates as an insurance brokerage general agency that offers life and disability insurance products
and services for LPL Financial advisors.
AW Subsidiary, Inc. is a holding company for AdvisoryWorld and Blaze Portfolio Systems LLC (“Blaze”). AdvisoryWorld offers
technology products, including proposal generation, investment analytics and portfolio modeling, to both the Company’s advisors and
external clients in the wealth management industry. Blaze provides an advisor-facing trading and portfolio rebalancing platform.
PTC Holdings, Inc. (“PTCH”) is a holding company for The Private Trust Company, N.A. (“PTC”). PTC is chartered as a non-
depository limited purpose national bank, providing a wide range of trust, investment management oversight, and custodial services
for estates and families. PTC, together with its affiliate Fiduciary Trust Company of New Hampshire, also provides Individual
Retirement Account (“IRA”) custodial services for LPL Financial.
LPL Employee Services, LLC and its subsidiary, Allen & Company of Florida, LLC, along with their affiliate Financial Resources
Group Investment Services, LLC (“FRGIS”), provide primary support for the Company’s employee advisor affiliation model.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”), which require the Company to make estimates and assumptions regarding the valuation of certain financial instruments,
acquisitions, goodwill and other intangibles, allowance for credit losses on receivables, share-based compensation, accruals for liabilities,
income taxes, revenue and expense accruals and other matters that affect the consolidated financial statements and related disclosures.
Actual results could differ from those estimates under different assumptions or conditions and the differences may be material to the
consolidated financial statements.
Consolidated Financial Statement Presentation Changes
Certain financial statement line items have been reclassified in the consolidated statement of financial
condition to better align with industry practice and the Company’s business. The Company reclassified liabilities for contingent consideration,
which were previously included in accounts payable and accrued liabilities, to other liabilities in the consolidated statement of financial
condition as of December 31, 2023. This reclassification has not been applied retroactively as the impact on the prior year was not material.
This change did not impact total
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
liabilities for the periods presented; however, the consolidated statement of cash flows for the year ended December 31, 2023 has been
updated to conform to the current presentation on the consolidated statement of financial condition.
Consolidation
These consolidated financial statements include the accounts of LPLFH and its subsidiaries. Intercompany transactions and balances have
been eliminated.
Related Party Transactions
In the ordinary course of business, the Company enters into related party transactions with beneficial owners of more than five percent of the
Company’s outstanding common stock. Additionally, through its subsidiary LPL Financial, the Company provides services 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 for services provided to these related parties of $19.7 million, $5.7 million and $6.1 million during the
years ended December 31, 2023, 2022 and 2021, respectively. The Company incurred expense for services provided by these related
parties of $3.6 million, $3.4 million and $2.2 million during the years ended December 31, 2023, 2022 and 2021, respectively. As of
December 31, 2023, receivables from and payables to related parties were $5.0 million and $0.4 million, respectively. As of December 31,
2022, receivables from and payables to related parties were not material.
Reportable 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 services, production and distribution process and regulatory environment.
Revenue Recognition
Revenue is recognized when control of the promised service is transferred to customers in an amount that reflects the consideration the
Company expects to be entitled to in exchange for those services. For additional information, see Note 3 - Revenue.
Compensation and Benefits
The Company records compensation and benefits expense for all cash and deferred compensation, benefits and related taxes as earned by
its employees. Compensation and benefits expense also includes fees earned by temporary employees and contractors who perform similar
services to those performed by the Company’s employees.
Share-Based Compensation
Certain employees, officers, directors, advisors and enterprises participate in the Company’s various long-term incentive plans that provide
for granting stock options, warrants, restricted stock awards, restricted stock units, deferred stock units and performance 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
following the date of grant. Restricted stock awards and deferred stock units generally vest over a one-year period, and performance stock
units generally vest in full at the end of a three-year performance period.
The Company recognizes share-based compensation for equity awards granted to employees, officers and directors as compensation and
benefits expense on the consolidated statements of income. The fair value of stock options is estimated using a Black-Scholes valuation
model on the date of grant. The fair value of restricted stock awards, 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 performance stock units is estimated using a Monte-Carlo simulation
model on the date of grant. Share-based compensation is recognized over the requisite service period of the individual awards, which
generally equals the vesting period.
The Company recognizes share-based compensation for equity awards granted to advisors and enterprises as advisory and commission
expense on the consolidated statements of income. The fair value of restricted stock units
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
is equal to the closing price of the Company’s stock on the date of grant. Share-based compensation is recognized over the requisite service
period of the individual awards, which generally equals the vesting period.
The Company makes assumptions regarding the number of restricted stock awards, restricted stock units, deferred stock units and
performance stock units that will be forfeited. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. As a result,
changes in the forfeiture assumptions do not impact the total amount of expense ultimately recognized over the service period. Rather,
different forfeiture assumptions would only impact the timing of expense recognition over the service period. See Note 16 - Share-Based
Compensation, Employee Incentives and Benefit Plans, for additional information regarding share-based compensation for equity awards
granted.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common 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.
Income Taxes
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 differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. These temporary differences 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 for 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 effect on the Company’s consolidated statements of income, financial
condition or cash flows in the period or periods in which they occur.
The Company recognizes the tax effects of a position in the consolidated financial statements only if it is more likely than not to be sustained
based solely on its technical merits; otherwise, no benefits of the position are to be recognized. The more-likely-than-not threshold must
continue to be met in each reporting period to support continued recognition of a benefit. Moreover, each tax position meeting the recognition
threshold is required to be measured as the largest amount that is greater than 50 percent likely to be realized upon ultimate settlement with
a taxing authority that has full knowledge of all relevant information.
Cash and Equivalents
Cash equivalents are highly liquid investments with an original maturity of 90 days or less that are not required to be segregated under
federal or other regulations. The Company’s cash equivalents are composed of U.S. government obligations.
Cash and Equivalents Segregated Under Federal or Other Regulations
The Company’s broker-dealer subsidiary, LPL Financial, is required to maintain cash or qualified securities in a segregated reserve account
for the exclusive benefit of its customers in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and other regulations. At December 31, 2023, this line item included interest bearing deposits, U.S. treasury bills with
original maturities of 90 days or less and approximately $0.3 million of cash for the proprietary accounts of broker-dealers. The U.S. treasury
bills accrue income as earned. Discounts are accreted using a method that approximates the effective yield method over the term of the bill
and are recorded to interest income, net as an adjustment to the investment yield.
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Restricted Cash
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Restricted cash primarily represents cash held and for use by the captive insurance subsidiary and is primarily comprised of money market
funds.
Receivables from Clients, Net and Client Payables
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. To the extent that margin loans and other
receivables from clients are not fully collateralized by client securities, the Company establishes an allowance for credit losses that it believes
is sufficient to cover expected credit losses. When establishing this allowance for 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 following table reflects a roll-forward of the allowance for credit losses on receivables from clients (in thousands):
Beginning balance — January 1
Provision for credit losses
(Charge-offs) recoveries, net
Ending balance — December 31
Advisor Loans, Net
December 31,
2022
2023
2021
$
$
909 $
1,054
(373)
1,590 $
987 $
66
(144)
909 $
520
424
43
987
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 platform 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 forgivable over terms generally up
to ten years 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 for 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 $341.0 million and
$280.0 million as of December 31, 2023 and 2022.
The following table reflects a roll-forward of the allowance for credit losses on advisor loans (in thousands):
Beginning balance — January 1
Provision for credit losses
(Charge-offs) recoveries, net
Other
Ending balance — December 31
73
December 31,
2022
2023
2021
$
15,144 $
8,393
(10,560)
—
$
12,977 $
11,575 $
4,790
361
(1,582)
15,144 $
8,797
7,074
(4,296)
—
11,575
Table of Contents
Other Receivables, Net
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other receivables, net primarily consist of receivables due from product sponsors and others and miscellaneous receivables. An allowance
for 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 following table reflects a roll-forward of the allowance for credit losses on other receivables (in thousands):
Beginning balance — January 1
Provision for credit losses
Charge-offs, net of recoveries
Other
Ending balance — December 31
Investment Securities
December 31,
2022
2023
2021
$
$
2,788 $
6,500
(7,840)
—
1,448 $
1,083 $
8,811
(8,688)
1,582
2,788 $
1,068
1,670
(1,655)
—
1,083
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 for U.S. government notes held by its wholly owned subsidiary PTC,
which are held to satisfy 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-for-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 services to measure the fair value of its trading securities. Prices
received from the pricing services are validated using various methods including comparison to prices received from additional pricing
services, comparison to available quoted market prices and review of other relevant market data including implied yields of major categories
of securities. In general, these quoted prices are derived from active markets for identical assets or liabilities. When quoted prices in active
markets for identical assets and liabilities are not available, the quoted prices are based on similar assets and liabilities or inputs other than
the quoted prices that are observable, either directly or indirectly. For certificates of deposit and treasury securities, the Company utilizes
market-based inputs, including observable market interest rates that correspond to the remaining maturities or the next interest reset dates.
Interest income is accrued as earned. Premiums and discounts are amortized using a method that approximates the effective yield method
over the term of the security and are recorded as an adjustment to the investment yield. The Company makes estimates about the fair value
of investments and the timing for recognizing losses based on market conditions and other factors. If these estimates change, the Company
may recognize additional losses. Realized and unrealized gains and losses on trading securities are recognized in other revenue on a net
basis in the consolidated statements of income.
Property and Equipment, Net
Internally developed software, leasehold improvements, computers and software and furniture and equipment are recorded at historical cost,
net of accumulated depreciation and amortization. Depreciation is recognized using the straight-line method over the estimated useful lives of
the assets. The Company expenses software development costs as incurred during the preliminary project and post-implementation stages.
The Company capitalizes software development costs for projects during the application development phase, in which management has
authorized and committed to funding the project and it is probable that the project will be completed and utilized as intended. The costs of
internally developed software that qualify for capitalization are included in property and equipment and subsequently amortized over the
estimated useful life of the software, which is generally 3 to 5 years. The Company does not capitalize pilot projects or projects for which it
believes that the future economic benefits are less than probable. Leasehold improvements are amortized over the lesser of their useful lives
or the terms of the underlying
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
leases. Computers and software 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 for impairment whenever events or changes in circumstances indicate the carrying amount of
the assets may not be recoverable. No impairment occurred for the years ended December 31, 2023, 2022 or 2021.
Acquisitions
Accounting for business combinations requires the Company to make significant estimates and assumptions with respect to intangible
assets, liabilities assumed, pre-acquisition contingencies, useful lives and liabilities for contingent consideration, as applicable. These
assumptions include, but are not limited to, future expected cash flows, asset or revenue growth, discount rates, and market conditions and
are based in part on historical experience, market data and information obtained from the management of the acquired companies.
When acquiring companies in business combinations, the Company recognizes separately from goodwill the assets acquired, liabilities
assumed and any liabilities for contingent consideration, as applicable, at their acquisition date fair values. Goodwill is recognized for
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 or recorded. Certain of the Company’s acquisitions include contingent
consideration, which may result in the transfer of additional cash consideration to the sellers if certain asset or revenue growth is achieved in
the years following an acquisition. For acquisitions accounted for under the acquisition method of accounting for business combinations, any
such contingent consideration is recognized at its estimated fair value on the date of acquisition. This contingent consideration is remeasured
at its fair value at each subsequent reporting date until the contingency is resolved. Any changes in fair value are recognized in other
expense in the consolidated statements of operations.
While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets
acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result,
during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets
acquired, liabilities assumed or liabilities for contingent consideration with the corresponding offset to goodwill. Upon the conclusion of the
measurement period or final determination of the values of assets acquired or liabilities assumed or recorded, whichever comes first, any
subsequent adjustments are recognized in the consolidated statements of income.
The Company also enters into asset acquisitions for single identifiable intangible assets which are accounted for under a cost accumulation
model in which cash consideration and transaction costs are allocated to the intangible assets acquired. Accounting for 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. The Company does not recognize a liability for contingent payments
in acquisitions that are accounted for as asset acquisitions as the amounts to be paid will be uncertain until a future measurement date.
Goodwill and Other Intangibles, Net
Goodwill and other indefinite-lived intangibles are evaluated annually for impairment in the fourth fiscal quarter and between annual tests if
certain events occur indicating that the carrying amounts may be impaired. If a qualitative assessment is used and the Company determines
that the fair value of a reporting unit or indefinite-lived intangible is more likely than not (i.e., a likelihood of more than 50%) less than its
carrying amount, a quantitative impairment analysis will be performed. 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 for the years ended December 31, 2023, 2022 or 2021.
Intangibles that are deemed to have definite lives are amortized over their useful lives generally ranging from 5 to 20 years. They are
reviewed for 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 for the amount by which the carrying amount of the asset exceeds the estimated fair value. There was no impairment of
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
definite-lived intangibles recognized for the years ended December 31, 2023, 2022 or 2021. See Note 9 - Goodwill and Other Intangibles,
Net, for additional information.
Securities Borrowed
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 for as collateralized borrowings and
are recorded at the contract value, which represents the amount of cash provided for securities borrowed transactions (generally in excess of
market values). The adequacy of the collateral deposited, which is determined by comparing the market value of the securities borrowed to
the cash loaned, is continuously monitored and is adjusted when considered necessary to minimize the risk associated with this activity.
As of December 31, 2023, the contract and collateral market values of borrowed securities were $4.3 million and $4.1 million, respectively.
As of December 31, 2022, the contract and collateral market values of borrowed securities were $9.6 million and $9.3 million, respectively.
Fractional Shares
The Company acts in a principal capacity in respect of fractional shares resulting from the dividend reinvestment program (“DRIP”) that is
offered 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 after 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 for
sale accounting in Accounting Standards Codification 860, Transfers and Servicing, and are accounted for 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 Issuance Costs
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 information available at the commencement date in determining the present
value of future payments. For additional information, see Note 12 - Leases.
Commitments and Contingencies
The Company recognizes a liability for 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 for those legal proceedings and regulatory matters for
which a loss is both probable and the amount can be reasonably estimated.
The Company also accrues for losses at its captive insurance subsidiary for those matters covered by self-insurance. The captive insurance
subsidiary records losses and loss reserve liabilities based on actuarially
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Notes to Consolidated Financial Statements
determined estimates of losses incurred, but not yet reported to the Company as well as specific reserves for proceedings and matters that
are probable and estimable. The captive insurance subsidiary is funded by payments from LPL Financial and has cash reserves to cover
losses, including $103.4 million in restricted cash. 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 difficult and requires management to make significant judgments. For additional
information, see Note 14 - Commitments and Contingencies - “Legal and Regulatory Matters.”
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income
Taxes (Topic 740): Improvements to Income Tax Disclosures to enhance the transparency of income tax disclosures relating to the rate
reconciliation, disclosure of income taxes paid, and certain other disclosures. The ASU should be applied prospectively and is effective for
annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact on the
related disclosures; however, it does not expect this update to have an impact on its financial condition or results of operations.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to
improve the disclosures about reportable segments and include more detailed information about a reportable segment’s expenses. This ASU
also requires that a public entity with a single reportable segment, like the Company, provide all of the disclosures required as part of the
amendments and all existing disclosures required by Topic 280. The ASU should be applied retrospectively to all prior periods presented in
the financial statements and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning
after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact on the related disclosures; however, it
does not expect this update to have an impact on its financial condition or results of operations.
Recently Adopted Accounting Pronouncements
There were no new accounting pronouncements adopted during the year ended December 31, 2023 that materially impacted the Company’s
consolidated financial statements and related disclosures.
NOTE 3 - REVENUE
Revenue is recognized when control of the promised services is transferred to customers in an amount that reflects the consideration the
Company expects to be entitled to in exchange for those services. 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 service before control is transferred to a customer. The indicators of which party
exercises control include primary responsibility over performance obligations, inventory risk before the good or service is transferred and
discretion in establishing the price.
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Advisory
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Advisory revenue represents fees charged to advisors’ clients’ advisory accounts on the Company’s corporate RIA advisory platform 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 services on transactions, and performs administrative
services for 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 performance obligation for advisory fees is considered a series of distinct services 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 majority 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 for estimates of contributions and withdrawals to determine the amount billed, and
accordingly, the revenue earned in the following three-month period. Advisory revenue collected on the Company’s corporate advisory
platform is proposed by the advisor and agreed to by the client and was approximately 1% of the underlying assets for the year ended
December 31, 2023.
The Company also supports independent RIA firms that conduct their business through separate registered investment advisor firms
(“Independent RIAs”) through its Independent RIA advisory platform, which allows advisors to engage the Company for technology, clearing
and custody services, as well as access the capabilities of the Company’s investment platforms. The assets held under an Independent RIA’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 for technology, clearing, administrative, oversight and custody services, which may vary and are included in service and
fee revenue in the consolidated statements of income.
Commission
The Company earns commission revenue from sales commissions generated by advisors for their clients’ purchases and sales of securities
or other investment products and from product sponsors for the selling, distribution and marketing, or any combination thereof, of investment
products to such clients both of which are viewed as a single performance obligation.
The Company is generally the principal for commission revenue, as it is responsible for the execution of the clients’ purchases and sales, and
maintains relationships with the product sponsors. Advisors assist the Company in performing its obligations. Accordingly, total commission
revenue is reported on a gross basis.
The following table presents total commission revenue disaggregated by product category (in thousands):
Commission revenue
Annuities
Mutual funds
Fixed income
Equities
Other
Total commission revenue
Years Ended December 31,
2022
2021
2023
$
$
1,482,690 $
666,942
154,177
110,698
138,116
2,552,623 $
1,269,634 $
679,912
119,196
114,446
142,976
2,326,164 $
1,210,899
768,168
126,543
131,975
141,098
2,378,683
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Notes to Consolidated Financial Statements
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 following table presents sales-based and trailing commission revenue disaggregated by product category (in thousands):
Commission revenue
Trailing
Annuities
Mutual funds
Other
Total trailing revenue
Sales-based
Annuities
Fixed income
Mutual funds
Equities
Other
Total sales-based revenue
Total commission revenue
Asset-Based
Years Ended December 31,
2022
2021
2023
$
$
$
$
$
742,930 $
521,300
35,610
727,324 $
525,170
39,864
785,735
576,719
42,174
1,299,840 $
1,292,358 $
1,404,628
739,760 $
154,177
145,642
110,698
102,506
542,310 $
119,196
154,742
114,446
103,112
425,164
126,543
191,449
131,975
98,924
1,252,783 $
2,552,623 $
1,033,806 $
2,326,164 $
974,055
2,378,683
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 services (collectively referred to as “recordkeeping”).
Client 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 for 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 performance obligation with the financial institutions that participate in the sweep
program is considered a series of distinct services that are substantially the same and are satisfied each day.
Recordkeeping
The Company generates revenue from fees it collects for providing recordkeeping, account maintenance, reporting and other related
services to product sponsors. This includes revenue from omnibus processing in which the Company establishes and maintains sub-account
records for 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 affiliates and are based on the
value of
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
mutual fund assets in accounts for which the Company provides omnibus processing services and the number of accounts in which the
related mutual fund positions are held. Recordkeeping also includes revenue from networking services. 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 performance 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.
Sponsorship Programs
The Company receives fees from certain financial product manufacturers in connection with sponsorship programs that support the
Company’s marketing and sales force education and training efforts. Compensation for these performance 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 performance obligations.
The following table sets forth asset-based revenue disaggregated by product category (in thousands):
Asset-based revenue
Client cash
Sponsorship programs
Recordkeeping
Total asset-based revenue
Service and Fee
Years Ended December 31,
2022
2021
2023
$
$
1,509,869 $
452,753
415,107
2,377,729 $
953,624 $
394,181
412,468
1,760,273 $
360,847
385,791
401,429
1,148,067
Service and fee revenue is generated from advisor and retail investor services, including technology, insurance, conferences, licensing,
business services and planning and advice services, IRA custodian and other client account fees. The Company charges separate fees to
registered investment advisors for technology, clearing, administrative, oversight and custody services, which may vary. The Company also
hosts certain advisor conferences that serve as training, education, sales and marketing events for which the Company collects a fee from
sponsors. Service and fee revenue is recognized when the Company satisfies its performance obligations. Recognition varies from point-in-
time to over time depending on whether the service is provided once at an identifiable point-in-time or if the service is provided continually
over the contract life. Performance obligations for service and fee revenue recognized over time are considered a series of distinct services
that are substantially the same and are satisfied each day over the contract term. The Company is the principal and recognizes service and
fee revenues on a gross basis as it is primarily responsible for delivering the respective services being provided, which is demonstrated by
the Company’s ability to control the fee amounts charged to customers.
The following table sets forth service and fee revenue disaggregated by recognition pattern (in thousands):
Service and fee revenue
Over time
(1)
Point-in-time
(2)
Total service and fee revenue
____________________
Years Ended December 31,
2022
2021
2023
$
$
387,763 $
120,674
508,437 $
351,465 $
115,916
467,381 $
301,302
110,459
411,761
(1)
(2)
Service and fee revenue recognized over time includes revenue such as IRA custodian fees, error and omission insurance fees and technology fees.
Service and fee revenue recognized at a point-in-time includes revenue such as account fees, IRA termination fees and conference fees.
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Transaction
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 performance 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 for delivering the
respective services being provided, which is demonstrated by the Company’s ability to control the fee amounts charged to customers.
Interest Income, 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.
Other
Other revenue primarily includes unrealized gains and losses on assets held by the Company for its advisor non-qualified deferred
compensation plan and model research portfolios and other miscellaneous revenue, which is generally not generated from contracts with
customers.
Unearned Revenue
The Company records unearned revenue when cash payments are received or due in advance of the Company’s performance obligations,
including amounts which are refundable. Unearned revenue increased from $138.1 million as of December 31, 2022 to $156.2 million as of
December 31, 2023. The increase in unearned revenue for the year ended December 31, 2023 is primarily driven by cash payments
received or due in advance of satisfying the Company’s performance obligations, partially offset by $136.9 million of revenue recognized
during the year ended December 31, 2023 that was included in the unearned revenue balance as of December 31, 2022.
The Company receives cash in advance for advisory services to be performed and conferences to be held in future periods. For advisory
services, revenue is recognized as the Company provides the administration, brokerage and execution services over time to satisfy the
performance obligations. For conference revenue, the Company recognizes revenue as the conferences are held.
NOTE 4 - ACQUISITIONS
Acquisition of Financial Resources Group Investment Services, LLC
On January 31, 2023, the Company acquired the equity of Financial Resources Group Investment Services, LLC, a broker-dealer and
independent branch office, in order to expand its addressable markets and complement organic growth. Total consideration for the
transaction was $189.2 million, which included an initial cash payment of $143.8 million and a liability of $45.4 million for contingent
consideration, which represents the acquisition date fair value of the additional cash consideration that may be transferred to the sellers if
certain asset growth is achieved in the three years following the closing. The Company recognized $1.4 million of transaction costs as part of
this acquisition. During the three months ended December 31, 2023, the Company recorded a $26.7 million fair value adjustment in other
expense to increase the fair value of the contingent consideration liability as a result of asset and market growth during the quarter. The
Company estimates that this contingent consideration may be settled for an amount up to $85.0 million in the years following the closing.
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Notes to Consolidated Financial Statements
The Company accounted for the acquisition under the acquisition method of accounting for business combinations. At December 31, 2023,
the Company had allocated $129.7 million of the purchase price to goodwill, $53.5 million to definite-lived intangible assets, $9.0 million to
cash acquired, and the remainder to other assets acquired and liabilities assumed as part of the acquisition. The goodwill primarily includes
synergies expected to result from combining operations and is deductible for tax purposes. The intangible assets are comprised of
$34.7 million of bank relationships and $18.8 million of advisor relationships which were assigned useful lives of 15 years and 6 years
respectively. These intangible assets were valued using the income approach and are included in the Advisor and enterprise relationships
line item in Note 9 - Goodwill and Other Intangibles, Net.
The fair value determination of bank and advisor relationships required the Company to make significant estimates and assumptions related
to future net cash flows and discount rates.
Other Acquisitions
During the year ended December 31, 2023, the Company completed a total of 19 acquisitions under the Liquidity & Succession solution, in
which the Company buys advisor practices. The Company also completed the acquisition of Boenning & Scattergood’s Private Client Group
on January 31, 2023. Certain of these acquisitions have been accounted for as business combinations and certain have been accounted for
as asset acquisitions. The Company recognized $6.0 million of transaction costs as part of these acquisitions.
Business Combinations
The assets and liabilities acquired as part of acquisitions that qualify as business combinations are recognized at fair value as of the
acquisition date. This fair value determination requires the Company to make significant estimates and assumptions about market conditions,
future expected cash flows, asset or revenue growth, discount rates, and market conditions which are inherently uncertain and subject to
refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record
adjustments to assets acquired, liabilities assumed, liabilities for contingent consideration, or goodwill as additional information becomes
available.
The Company accounted for five Liquidity & Succession transactions under the acquisition method of accounting for business combinations.
Total consideration for these transactions was $190.2 million, which included initial consideration of $147.4 million, including $140.3 million of
cash, and a liability of $42.7 million for contingent consideration, which represents the acquisition date fair value of the additional cash
consideration that may be transferred to the sellers if certain asset growth is achieved in the three to five years following the closing. The
Company estimates that this contingent consideration may be settled for amounts up to $107.2 million in the years following the closing.
At December 31, 2023, the Company allocated $84.5 million of the purchase price to goodwill and $105.7 million to the definite-lived
intangible assets acquired as part of these acquisitions. The goodwill primarily includes synergies expected to result from combining
operations and is deductible for tax purposes. The intangible assets are comprised of $59.5 million of client relationships, $31.8 million of
advisor relationships, and $14.4 million of technology which were valued using the income approach and assigned useful lives ranging from
seven to 15 years. See Note 9 – Goodwill and Other Intangibles, Net, for additional information.
The fair value determination of client relationships, advisor relationships and technology required the Company to make significant estimates
and assumptions related to future net cash flows and discount rates. Additionally, certain fair value determinations relate to acquisitions that
were completed during the fourth quarter of 2023. The Company has provisionally allocated $37.5 million to definite-lived intangible assets,
$62.3 million to goodwill, and $22.7 million to liabilities for contingent consideration related to these acquisitions; however, these allocations
may change as the Company completes its purchase accounting analysis.
Asset Acquisitions
The Company accounted for fifteen other acquisitions as asset acquisitions. These transactions included initial consideration of
$180.4 million, including $142.3 million which was allocated to client relationships and $38.1 million which was allocated to advisor
relationships. The client and advisor relationship intangible assets were assigned useful lives of 14 years and 15 years, respectively. These
transactions include potential contingent payments of up to $73.1 million in the three years following the closing if certain asset growth is
achieved. The Company has not recognized a liability for these contingent payments as the amounts to be paid will be uncertain until a future
measurement date. See Note 9 - Goodwill and Other Intangibles, Net, for additional information.
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Notes to Consolidated Financial Statements
Acquisitions Completed in Prior Periods
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 for as asset acquisitions with an assigned useful
life of 9 years. See Note 9 - Goodwill and Other Intangibles, Net, for additional information.
On April 30, 2021, the Company acquired the wealth management business of Waddell & Reed Financial, Inc. for $300.0 million in order to
expand its addressable markets and complement organic growth. The Company accounted for the acquisition under the acquisition method
of accounting for 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 platform and is deductible for tax purposes. See Note 9 - Goodwill and Other Intangibles, Net, for additional information.
NOTE 5 - FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs
used to measure fair value are prioritized within a three-level fair value hierarchy. This hierarchy requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in
active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant
unobservable inputs.
There have been no transfers of assets or liabilities between these fair value measurement classifications during the years ended
December 31, 2023 or 2022.
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, 2023 and 2022, the Company had the following financial assets and liabilities that are
measured at fair value on a recurring basis:
Cash Equivalents — The Company’s cash equivalents include money market funds and U.S. government obligations, which are short
term in nature with readily determinable values derived from active markets.
Cash Equivalents Segregated Under Federal or Other Regulations — 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.
Trading Securities and Securities Sold, But Not Yet Purchased — The Company’s trading securities consist of house account model
portfolios established and managed for the purpose of benchmarking the performance of its fee-based advisory platforms and
temporary positions resulting from the processing of client transactions.
The Company uses prices obtained from independent third-party pricing services to measure the fair value of its trading securities.
Prices received from the pricing services are validated using various methods including comparison to prices received from additional
pricing services, comparison to available quoted market prices and review of other relevant market data including implied yields of
major categories of securities. In general, these quoted prices are derived from active markets for identical assets or liabilities. When
quoted prices in active markets for identical assets and liabilities are not available, the quoted prices are based on similar assets and
liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. For negotiable certificates of deposit
and treasury securities, the Company utilizes market-based inputs, including
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
observable market interest rates that correspond to the remaining maturities or the next interest reset dates. At December 31, 2023
and 2022, the Company did not adjust prices received from the independent third-party pricing services.
Other Assets — 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 for identical or similar securities and other inputs
that are observable or can be corroborated by observable market data.
Fractional Shares — The Company’s investment in fractional shares held by customers is reflected in other assets while the related
purchase obligation for such shares is reflected in other liabilities. The Company uses prices obtained from independent third-party
pricing services to measure the fair value of its investment in fractional shares held by customers and the related repurchase
obligation. Prices received from the pricing services are validated using various methods including comparison to prices received from
additional pricing services, comparison to available quoted market prices and review of other relevant market data including implied
yields of major categories of securities. At December 31, 2023 and 2022, the Company did not adjust prices received from the
independent third-party pricing services.
Contingent Consideration — The Company measures contingent consideration liabilities at fair value at the acquisition date, as
applicable, and thereafter on a recurring basis using unobservable (Level 3) inputs. These contingent consideration liabilities are
reflected in other liabilities at December 31, 2023 and in accounts payable and accrued liabilities at December 31, 2022. See Note 2 -
Summary of Significant Accounting Policies and Note 4 - Acquisitions for additional information.
Level 3 Recurring Fair Value Measurements
The Company determines the fair value for its contingent consideration obligations using Monte-Carlo simulation and discounted cash flows
models. Contingent payments are estimated by applying significant unobservable inputs, including forecasted growth rates applied to project
future revenue or asset growth and discount rates which are based on the cost of debt and equity. These projections are measured against
the performance targets specified in each respective acquisition agreement, which may include growth in assets under management, net
new assets, asset conversion or retention, or revenue growth. Significant increases or decreases in the Company’s forecasted growth rates
over the measurement period or discount rates would result in a higher or lower fair value measurement.
The following table summarizes inputs used in the measurement of contingent consideration using Monte-Carlo simulation models (dollars in
thousands):
December 31,
Quantitative Information About Level 3 Fair Value Measurements
2023
114,844 $
$
2022
Type
— Contingent Consideration
Valuation Techniques
Monte-Carlo Simulation Model
Unobservable Inputs
Forecasted Growth Rates
Discount Rate
Range
12.0% - 29.5%
13.6% - 15.7%
The Company also had contingent consideration of $4.0 million and $3.9 million at December 31, 2023 and 2022, respectively, that was
measured using a discounted cash flow model in which a discount rate is applied to an estimated payment based on an expectation of future
transactions.
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Notes to Consolidated Financial Statements
Recurring Fair Value Measurements
The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (in
thousands):
December 31, 2023
Assets
Level 2
Level 1
Level 3
Total
Cash equivalents
Cash equivalents segregated under federal or other regulations
Restricted cash
Investment securities - trading:
Mutual funds
U.S. treasury obligations
Money market funds
Equity securities
Debt securities
Total investment securities - trading
Other assets:
Deferred compensation plan
Fractional shares - investment
Other investments
(1)
Total other assets
Total assets at fair value
Liabilities
Other liabilities:
Securities sold, but not yet purchased:
Equity securities
Mutual funds
Total securities sold, but not yet purchased
Fractional shares - repurchase obligation
Contingent consideration
(1)
Total other liabilities
Total liabilities at fair value
____________________
$
$
$
$
166 $
720,077
103,226
50,518
25,388
107
43
—
76,056
677,548
177,131
—
854,679
1,754,204 $
487 $
55
542
177,131
—
177,673
177,673 $
— $
—
—
—
—
—
—
32
32
—
—
3,960
3,960
3,992 $
— $
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
—
—
—
118,844
118,844
118,844 $
166
720,077
103,226
50,518
25,388
107
43
32
76,088
677,548
177,131
3,960
858,639
1,758,196
487
55
542
177,131
118,844
296,517
296,517
(1)
Investment in and related repurchase obligation for fractional shares resulting from the Company’s DRIP.
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Notes to Consolidated Financial Statements
The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (in
thousands):
December 31, 2022
Assets
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
Total investment securities — trading
Other assets:
Deferred compensation plan
Fractional shares - investment
Other investments
(1)
Total other assets
Total assets at fair value
Liabilities
Accounts payable and accrued liabilities — contingent consideration
Other liabilities:
Securities sold, but not yet purchased:
Debt securities
Equity securities
Mutual funds
Total securities sold, but not yet purchased
Fractional shares - repurchase obligation
(1)
Total other liabilities
Total liabilities at fair value
____________________
Level 1
Level 2
Level 3
Total
$
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 $
— $
—
13,639
1,131,040
—
—
—
—
—
—
—
—
—
—
— $
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 for fractional shares resulting from the Company’s DRIP.
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Notes to Consolidated Financial Statements
Fair Value of Financial Instruments Not Measured at Fair Value
The following 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):
Carrying Value
Level 1
Level 2
Level 3
Total Fair Value
December 31, 2023
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
Other receivables, net
Investment securities - held-to-maturity securities
Other assets:
(1)
Securities borrowed
Deferred compensation plan
Other investments
(3)
(2)
Total other assets
Liabilities
$
465,505 $
465,505 $
1,287,235
4,954
588,585
50,069
340,985
743,317
15,223
4,334
6,217
4,695
15,246
1,287,235
4,954
—
—
—
—
—
—
6,217
—
6,217
— $
—
—
588,585
50,069
—
743,317
15,079
4,334
—
4,695
9,029
Client payables
Payables to brokers, dealers and clearing organizations
Corporate debt and other borrowings, net
$
2,266,176 $
163,337
3,734,111
— $
—
—
2,266,176 $
163,337
3,680,199
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
Other receivables, net
Investment securities - held-to-maturity securities
Other assets:
(1)
Securities borrowed
Deferred compensation plan
Other investments
(3)
(2)
Total other assets
Liabilities
$
833,880 $
833,880 $
1,068,322
90,389
561,569
56,276
280,040
677,766
15,852
9,626
6,343
4,647
20,616
1,068,322
90,389
—
—
—
—
—
—
6,343
—
6,343
— $
—
—
561,569
56,276
—
677,766
15,471
9,626
—
4,647
14,273
Client payables
Payables to brokers, dealers and clearing organizations
Corporate debt and other borrowings, net
$
2,694,929 $
147,752
2,717,444
— $
—
—
2,694,929 $
147,752
2,530,011
____________________
(1)
(2)
(3)
Includes repayable loans and forgivable 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 Reserve stock.
87
— $
—
—
—
—
236,888
—
—
—
—
—
—
— $
—
—
465,505
1,287,235
4,954
588,585
50,069
236,888
743,317
15,079
4,334
6,217
4,695
15,246
2,266,176
163,337
3,680,199
— $
—
—
—
—
219,062
—
—
—
—
—
—
— $
—
—
833,880
1,068,322
90,389
561,569
56,276
219,062
677,766
15,471
9,626
6,343
4,647
20,616
2,694,929
147,752
2,530,011
Carrying Value
Level 1
Level 2
Level 3
Total Fair Value
Table of Contents
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 satisfy 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 following table summarizes investment securities (in thousands):
Trading securities - at fair value:
Mutual funds
U.S. treasury obligations
Money market funds
Equity securities
Debt securities
Total trading securities
Held-to-maturity securities - at amortized cost:
U.S. government notes
Total held-to-maturity securities
Total investment securities
At December 31, 2023, the held-to-maturity securities were scheduled to mature as follows (in thousands):
December 31,
2023
2022
$
$
$
$
$
50,518 $
25,388
107
43
32
76,088 $
15,223 $
15,223 $
91,311 $
10,679
24,402
112
980
585
36,758
15,852
15,852
52,610
U.S. government notes — at amortized cost
U.S. government notes — at fair value
Within one year
$
4,978 $
After one but
within five years
After five but
within ten years After ten years
— $
— $
10,245 $
$
4,899 $
10,180 $
— $
— $
Total
15,223
15,079
NOTE 7 - RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
Receivables from and payables to brokers, dealers, and clearing organizations were as follows (in thousands):
Receivables:
Receivables from clearing organizations
Securities failed-to-deliver
Receivables from brokers and dealers
Total receivables
Payables:
Payables to brokers and dealers
Payables to clearing organizations
Securities failed-to-receive
Total payables
88
December 31,
2023
2022
$
$
$
$
39,968 $
8,425
1,676
50,069 $
101,052 $
34,879
27,406
163,337 $
46,075
9,083
1,118
56,276
82,685
41,495
23,572
147,752
Table of Contents
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 follows at December 31, 2023 (in thousands):
Internally developed software
Computers and software
Buildings
Leasehold improvements
Furniture and equipment
Land
Work in progress
(1)
Total property and equipment, net
____________________
Historical Cost
Accumulated Depreciation and
Amortization
Net Carrying Value
$
$
1,232,159 $
354,966
107,873
94,938
86,203
4,678
109,765
1,990,582 $
(648,972) $
(262,051)
(19,379)
(49,496)
(77,593)
—
—
(1,057,491) $
583,187
92,915
88,494
45,442
8,610
4,678
109,765
933,091
(1) Work in progress includes $34.6 million of internal software in development and related hardware and software at December 31, 2023.
The components of property and equipment, net were as follows at December 31, 2022 (in thousands):
Internally developed software
Computers and software
Buildings
Leasehold improvements
Furniture and equipment
Land
Work in progress
(1)
Total property and equipment, net
Historical Cost
Accumulated Depreciation and
Amortization
Net Carrying Value
$
$
942,432 $
290,412
107,873
94,959
87,204
4,678
69,794
1,597,352 $
(476,653) $
(208,299)
(15,503)
(43,678)
(72,862)
—
—
(816,995) $
465,779
82,113
92,370
51,281
14,342
4,678
69,794
780,357
(1) Work in progress includes $69.2 million of internal software in development and related hardware and software at December 31, 2022.
Depreciation and amortization was $247.0 million, $199.8 million and $151.4 million for the years ended December 31, 2023, 2022 and 2021,
respectively.
NOTE 9 - GOODWILL AND OTHER INTANGIBLES, NET
During the year ended December 31, 2023, the Company completed various acquisitions, which were accounted for under the acquisition
method of accounting for business combinations and as asset acquisitions. See Note 4 - Acquisitions, for additional information.
A summary of the activity impacting goodwill is presented below (in thousands):
Balance at December 31, 2021
Goodwill acquired
Balance at December 31, 2022
Goodwill acquired
Balance at December 31, 2023
$
$
1,642,443
25
1,642,468
214,180
1,856,648
89
Table of Contents
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of other intangibles, net were as follows at December 31, 2023 (thousands):
Definite-lived intangibles, net
:
(1)
Advisor and enterprise relationships
Product sponsor relationships
Client relationships
Technology
Total definite-lived intangible assets, net
Other indefinite-lived intangibles:
Trademark and trade name
Total other intangibles, net
____________________
Weighted-
Average Life
Remaining
(in years)
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
7.3
2.2
12.6
8.7
$
$
935,478 $
234,086
313,585
33,460
1,516,609 $
(614,277) $
(209,076)
(51,328)
(10,162)
(884,843) $
$
321,201
25,010
262,257
23,298
631,766
39,819
671,585
(1) During the year ended December 31, 2023, the Company completed various acquisitions which were accounted for under the acquisition method of accounting for
business combinations and as asset acquisitions. See Note 4 - Acquisitions, for additional information.
The components of other intangibles, net were as follows at December 31, 2022 (thousands):
Definite-lived intangibles, net:
Advisor and enterprise relationships
Product sponsor relationships
Client relationships
Technology
(1)
Total definite-lived intangibles, net
Other indefinite-lived intangibles:
Trademark and trade name
Total other intangibles, net
Weighted-
Average Life
Remaining
(in years)
Gross
Carrying
Value
Accumulated Amortization
Net
Carrying
Value
5.1
3.2
8.0
5.4
$
$
809,872 $
234,086
102,491
19,040
1,165,489 $
(542,415) $
(197,165)
(30,318)
(7,734)
(777,632) $
$
267,457
36,921
72,173
11,306
387,857
39,819
427,676
(1)
During the year ended December 31, 2022, the Company completed various acquisitions which were accounted for under the acquisition method of accounting for
business combinations and as asset acquisitions. See Note 4 - Acquisitions, for additional information.
Total amortization of other intangibles was $107.2 million, $87.6 million and $79.3 million for the years ended December 31, 2023, 2022 and
2021, respectively.
Future amortization is estimated as follows (in thousands):
2024 - remainder
2025
2026
2027
2028
Thereafter
Total
$
$
111,227
102,908
64,652
59,503
53,711
239,765
631,766
90
Table of Contents
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 follows (dollars in thousands):
Other assets:
Deferred compensation
Prepaid assets
Fractional shares - investment
Deferred tax assets, net
(3)
Operating lease assets
Debt issuance costs, net
Other
(2)
(1)
Total other assets
Other liabilities:
(4)
Deferred compensation
Unearned revenue
Operating lease liabilities
Fractional shares - repurchase obligation
Finance lease liabilities
Taxes payable
Other
(3)
(3)
(1)
Total other liabilities
_______________________________
(1)
(2)
(3)
(4)
See Note 2 - Summary of Significant Accounting Policies for further information.
See Note 13 - Income Taxes for further information.
See Note 12 - Leases for further information.
See Note 3 - Revenue for further information.
91
December 31,
2023
2022
$
$
$
$
683,765 $
173,039
177,131
167,450
93,797
9,065
85,774
1,390,021 $
684,178 $
156,214
123,477
177,131
105,465
24,522
169,386
1,440,373 $
496,319
144,607
122,253
98,997
92,534
6,422
62,098
1,023,230
497,736
138,109
125,280
122,253
105,660
113,503
86
1,102,627
Table of Contents
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 follows (in thousands):
(1)(2)
Corporate Debt
Term Loan B
2027 Senior Notes
2028 Senior Notes
2029 Senior Notes
2031 Senior Notes
(1)
(1)
(1)
(1)
Total Corporate Debt
Less: Unamortized Debt Issuance Cost
Corporate debt, net
Other Borrowings
Revolving Credit Facility
(2)(3)
Total other borrowings
Corporate Debt and Other Borrowings,
Net
_______________________________
Balance
1,027,200
400,000
750,000
900,000
400,000
3,477,200
(23,089)
3,454,111
280,000
280,000
3,734,111
$
$
$
$
December 31, 2023
December 31, 2022
Applicable
Margin
SOFR+185 bps
Fixed Rate
Fixed Rate
Fixed Rate
Fixed Rate
Interest Rate
Balance
7.206 % $
4.625 %
6.750 %
4.000 %
4.375 %
1,037,900
400,000
—
900,000
400,000
2,737,900
(20,456)
Applicable
Margin
LIBOR+175 bps
Fixed Rate
Fixed Rate
Fixed Rate
Fixed Rate
Interest rate
Maturity
5.870 % 11/12/2026
4.625 % 11/15/2027
— % 11/17/2028
3/15/2029
5/15/2031
4.000 %
4.375 %
ABR+37.5 bps /
SOFR+147.5 bps
6.966 %
$
2,717,444
—
—
2,717,444
$
$
LIBOR+125 bps
5.642 %
3/15/2026
(1)
(2)
(3)
No leverage or interest coverage maintenance covenants.
In March 2023, the Company amended its Credit Agreement to transition the Parent Revolving Credit Facility and Term Loan B from London Interbank Offered Rate
(“LIBOR”)-based to Secured Overnight Financing Rate (“SOFR”)-based interest rates, which became effective in March and April 2023, respectively.
The Parent’s outstanding balance at December 31, 2023 was comprised of an alternate base rate (“ABR”)-based balance of $18.0 million with the applicable margin of
ABR + 37.5 bps (8.875%) and a SOFR-based balance of $262.0 million with the applicable margin of SOFR + 147.5 bps (6.835%).
The minimum calendar year payments and maturities of the corporate debt and other borrowings as of December 31, 2023 were as follows
(in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
$
$
10,700
10,700
1,285,800
400,000
750,000
1,300,000
3,757,200
The following table presents amounts outstanding and available under the Company’s external lines of credit at December 31, 2023 (in
millions):
Description
Senior secured, revolving credit facility
Broker-dealer revolving credit facility
Unsecured, uncommitted lines of credit
Unsecured, uncommitted lines of credit
Secured, uncommitted lines of credit
Secured, uncommitted lines of credit
Secured, uncommitted lines of credit
Borrower
LPL Holdings, Inc.
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
LPL Financial LLC
Maturity Date
March 2026
July 2024
None
September 2024
March 2025
None
None
$
$
$
$
$
$
$
Outstanding
Available
280 $
— $
— $
— $
— $
—
—
1,720
1,000
75
50
75
unspecified
unspecified
92
Table of Contents
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Issuance of 2028 Senior Notes
LPLH issued $750.0 million in aggregate principal amount of 6.750% senior notes on November 17, 2023 at 99.929% (“2028 Senior Notes”).
The 2028 Senior Notes are unsecured obligations that will mature on November 17, 2028, and are fully and unconditionally guaranteed on a
senior unsecured basis by the Company. Interest on the 2028 Senior Notes is payable semi-annually. The Company used the proceeds from
the issuance to repay borrowings made under its senior secured revolving credit facility and for general corporate purposes.
The Company may redeem all or part of the 2028 Senior Notes at any time and from time to time prior to October 17, 2028 at a redemption
price equal to the greater of: the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted
to the redemption date (assuming the 2028 Senior Notes matured on October 17, 2028) on a semi-annual basis at the Treasury Rate (as
defined in the First Supplemental Indenture dated November 17, 2023) plus 35 basis points less interest accrued to, but excluding, the
redemption date, or 100% of the principal amount of the 2028 Senior Notes to be redeemed, plus, in either case, accrued and unpaid interest
thereon to, but excluding, the redemption date. Thereafter, the Company may redeem all or part of the 2028 Senior Notes at any time and
from time to time, at a redemption price equal to 100% of the principal amount of the 2028 Senior Notes being redeemed plus accrued and
unpaid interest thereon. In connection with the issuance of the 2028 Senior Notes, the Company incurred $6.3 million in costs, which were
capitalized as debt issuance costs in the consolidated statements of financial condition.
Credit Agreement
On March 13, 2023, LPLFH and LPLH entered into a sixth amendment agreement to the Company’s amended and restated credit agreement
(the “Credit Agreement”), which, among other things, replaced LIBOR with SOFR. The Credit Agreement subjects the Company to certain
financial and non-financial covenants. As of December 31, 2023, the Company was in compliance with such covenants.
Parent Revolving Credit Facility
On July 18, 2023, LPLH amended its revolving credit facility to, among other things, increase the maximum borrowing from $1.0 billion to
$2.0 billion. Borrowings under the revolving credit facility bear interest at a rate per annum ranging from 112.5 to 187.5 basis points over
SOFR plus 10 basis points or 12.5 to 87.5 basis points over the alternate base rate (the greatest of (i) the NYFRB Rate plus 1/2 of 1%, (ii)
the Prime Rate and (iii) the Adjusted Term SOFR Rate for a one month Interest Period plus 1%, each as defined in the Credit Agreement)
depending on the Debt Ratings (as defined in the Credit Agreement). In connection with the amendment of the credit facility, LPLH incurred
$5.5 million in costs, which were capitalized as debt issuance costs in the consolidated statements of financial condition.
Broker-Dealer Revolving Credit Facility
On July 18, 2023, LPL Financial, the Company’s broker-dealer subsidiary, renewed its committed senior unsecured revolving credit facility
that matures on July 16, 2024 and allows for a maximum borrowing of up to $1.0 billion. Borrowings under the credit facility bear interest at a
rate per annum equal to 1.25% per annum plus the greatest of (i) SOFR plus 0.10%, (ii) the effective federal funds rate and (iii) the overnight
bank funding rate, in each case, as such rate is administered or determined by the Federal Reserve Bank of New York from time to time. In
connection with the renewal of the credit facility, LPL Financial incurred $1.7 million in costs, which were capitalized as debt issuance costs in
the consolidated statements of financial condition. The broker-dealer credit agreement subjects LPL Financial to certain financial and non-
financial covenants. LPL Financial was in compliance with such covenants as of December 31, 2023.
Other External Lines of Credit
LPL Financial maintained five uncommitted lines of credit as of December 31, 2023. Two of the lines have unspecified limits, which are
primarily dependent on LPL Financial’s ability to provide sufficient collateral. The other three lines have a total limit of $200.0 million, which
allow for uncollateralized borrowings. There were no balances outstanding under these lines at December 31, 2023 or December 31, 2022.
93
Table of Contents
NOTE 12 - LEASES
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company determines if an arrangement is a lease or contains a lease at inception. The Company has operating and finance leases for
corporate offices and equipment with remaining lease terms of 1 to 13 years, some of which include options to extend the lease for 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 information 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 $88.5 million
and $92.4 million at December 31, 2023 and December 31, 2022, respectively.
The components of lease expense were as follows (in thousands):
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
2023
Years Ended December 31,
2022
2021
$
$
$
19,303 $
3,876 $
8,382
12,258 $
21,862 $
4,753 $
8,417
13,170 $
Supplemental weighted-average information related to leases was as follows:
Weighted-average remaining lease term (years):
Finance leases
Operating leases
Weighted-average discount rate:
Finance leases
Operating leases
December 31,
2023
2022
22.8
5.2
7.94 %
6.80 %
19,712
5,150
8,360
13,510
23.8
6.2
7.94 %
6.77 %
Maturities of lease liabilities as of December 31, 2023 were as follows (in thousands):
Operating Leases
Finance Leases
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less imputed interest
Total
$
$
28,483 $
27,757
26,656
26,146
26,393
12,770
148,205
24,728
123,477 $
8,727
8,879
9,035
9,193
9,354
197,178
242,366
136,901
105,465
94
Table of Contents
LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13 - INCOME TAXES
The components of the provision for income taxes were as follows (in thousands):
Current provision for income taxes:
Federal
State
Total current provision for income taxes
Deferred (benefit) provision for income taxes:
Federal
State
Total deferred (benefit) provision for income taxes
Provision for income taxes
Years Ended December 31,
2022
2021
2023
$
$
355,393 $
91,586
446,979
(56,539)
(11,915)
(68,454)
378,525 $
276,499 $
82,801
359,300
(69,656)
(23,693)
(93,349)
265,951 $
96,389
26,610
122,999
14,446
4,018
18,464
141,463
The following table reflects a reconciliation of the U.S. federal statutory income tax rates to the Company’s effective income tax rates:
Federal statutory income tax rates
State income taxes, net of federal benefit
Non-deductible expenses
Research and development credits
Share-based compensation
Other
Effective income tax rates
Years Ended December 31,
2022
2021
2023
21.0 %
5.0
0.9
(0.6)
(0.2)
0.1
26.2 %
21.0 %
4.2
0.3
(0.4)
(1.8)
0.6
23.9 %
21.0 %
4.1
0.7
(0.4)
(2.7)
0.8
23.5 %
The Company’s effective income tax rate differs from the federal corporate tax rate of 21.0% primarily as a result of state taxes, non-
deductible expenses, tax credits and benefits from the vesting and exercise of share-based compensation.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
95
Table of Contents
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 follows (in
thousands):
Deferred tax assets:
(1)
Deferred compensation
Operating lease liabilities
Tax credit carryforwards
Finance lease liabilities
Forgivable loans
Capitalized research and development expenditures
Accrued liabilities
Share-based compensation
Other
(1)
(2)
Deferred tax assets
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
(2)
Internally developed software
Depreciation of property and equipment
Amortization of other intangibles
Operating lease assets
Other
(2)
Total deferred tax liabilities
Deferred tax assets, net
_______________________________
December 31,
2023
2022
183,054 $
33,319
35,200
28,475
23,864
19,294
18,973
15,254
9,275
366,708
(33,922)
332,786
(58,020)
(48,036)
(31,801)
(25,488)
(1,991)
(165,336)
167,450 $
134,316
33,826
—
28,528
19,688
28,855
15,185
19,246
17,562
297,206
—
297,206
(70,906)
(52,085)
(50,072)
(25,146)
—
(198,209)
98,997
$
$
(1)
(2)
The deferred tax asset for deferred compensation as of December 31, 2022 has been reclassified from the accrued liabilities category, as previously reported for the
period ending December 31, 2022.
The deferred tax asset for capitalized research and development expenditures and the deferred tax liability for internally developed software as of December 31, 2022
has been reclassified from the deferred tax liability for depreciation of property and equipment category, as previously reported for the period ending December 31, 2022.
The increase in deferred tax assets, net as of December 31, 2023 compared to December 31, 2022 was primarily driven by accruals of
deferred compensation that are deductible when paid.
Our $9.3 million of gross capital losses realized during 2023 can be carried back three years and carried forward five years. At December 31,
2023, there were $33.9 million of tax credits that can be carried forward 15 years and will begin to expire during 2032, and $1.3 million of tax
credits that can be carried forward 10 years and will begin to expire during 2032. We believe that it is more likely than not that the tax credit
carryforwards will not be realized and have recorded a valuation allowance of $33.9 million on the deferred tax assets related to these tax
credit carryforwards.
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The following table reflects a reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits (in
thousands):
Balance — beginning of year
Increases for tax positions taken during the current year
Increases for tax positions taken in the prior years
Reductions as a result of a lapse of the applicable statute of limitations and decreases in prior-year
tax positions
Balance — end of year
2023
December 31,
2022
2021
52,270 $
10,433
10,606
(11,717)
61,592 $
57,014 $
8,365
6,412
(19,521)
52,270 $
54,435
3,672
11,965
(13,058)
57,014
$
$
At December 31, 2023 and 2022, there were $54.7 million and $46.6 million, respectively, of unrecognized tax benefits that if recognized,
would favorably affect the effective income tax rate in any future periods.
The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes within the consolidated
statements of financial condition. At December 31, 2023 and 2022, the liability for unrecognized tax benefits included accrued interest of $8.0
million and $4.6 million, respectively, and penalties of $5.5 million and $4.1 million, respectively.
The Company and its subsidiaries file federal and state income tax returns, which are subject to routine examinations by the respective
taxing authorities. The Company has concluded all federal and state income tax matters for years through 2011. The tax years of 2012 to
2016 and 2020 to 2022 remain open to examination in the federal jurisdiction. The tax years of 2012 to 2022 remain open to examination in
the state jurisdictions. In the next 12 months it is reasonably possible that the Company may realize a reduction in unrecognized tax benefits
of $23.0 million related to settlements and the statute of limitations expiration in federal and various state jurisdictions.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Service and Development Contracts
The Company is party to certain long-term contracts for systems and services that enable back office trade processing and clearing for its
product and service offerings.
Future minimum payments under service, development and agency contracts, and other contractual obligations with initial terms greater than
one year were as follows at December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
Guarantees
$
$
135,217
78,430
36,215
24,161
—
—
274,023
The Company occasionally enters into contracts that contingently require it to indemnify certain parties against third-party claims. The terms
of these obligations vary and, because a maximum obligation is not explicitly stated, the Company has determined that it is not possible to
make an estimate of the amount that it could be obligated to pay under such contracts.
LPL Financial provides guarantees to securities clearing houses and exchanges under their standard membership agreements, which require
a member to guarantee the performance of other members. Under these agreements, if a member becomes unable to satisfy its obligations
to the clearing houses and exchanges, all other members would be required to meet any shortfall. The Company’s liability under these
arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, the potential requirement for
the Company to
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Notes to Consolidated Financial Statements
make payments under these agreements is remote. Accordingly, no liability has been recognized for these transactions.
Loan Commitments
From time to time, LPL Financial makes loans to advisors and enterprises, primarily to newly recruited advisors and enterprises to assist in
the transition process, which may be forgivable. Due to timing differences, LPL Financial may make commitments to issue such loans prior to
actually funding them. These commitments are generally contingent upon certain events occurring, including but not limited to the advisor or
enterprise joining LPL Financial. LPL Financial had no significant unfunded loan commitments at December 31, 2023 or 2022.
Legal and Regulatory Matters
The Company is subject to extensive regulation and supervision by U.S. federal and state agencies and various self-regulatory organizations.
The Company and its advisors periodically engage with such agencies and organizations, in the context of examinations or otherwise, to
respond to inquiries, informational requests and investigations. From time to time, such engagements result in regulatory complaints or other
matters, the resolution of which 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 difficult.
While the Company exercises significant and complex judgments to make certain estimates presented in its consolidated financial
statements, there are particular uncertainties and complexities involved when assessing the potential outcomes of legal proceedings and
regulatory matters. The Company’s assessment process considers a variety of factors and assumptions, which may include: the procedural
status of the matter and any recent developments; prior experience and the experience of others in similar matters; the size and nature of
potential exposures; available defenses; the progress of fact discovery; the opinions of counsel and experts; or the potential opportunities for
settlement and the status of any settlement discussions. The Company monitors these factors and assumptions for new developments and
re-assesses the likelihood that a loss will occur and the estimated range or amount of loss, if those amounts can be reasonably determined.
The Company has established an accrual for those legal proceedings and regulatory matters for which a loss is both probable and the
amount can be reasonably estimated.
In October 2022, the Company received a request for information from the SEC in connection with an investigation of the Company’s
compliance with records preservation requirements for business-related electronic communications stored on personal devices or messaging
platforms that have not been approved by the Company.
The staff of the SEC proposed a potential settlement with the Company to resolve its civil investigation. Under the SEC’s proposed
resolution, the Company would pay a $50.0 million civil monetary penalty. As a result of the foregoing, the Company has recorded
$40.0 million in other expense in the consolidated statements of income for the year ended December 31, 2023 to reflect the amount of the
penalty that is not covered by the Company’s captive insurance subsidiary. The Company has not yet reached a settlement in principle with
the SEC, and any settlement agreement remains subject to the negotiation of the civil monetary penalty and definitive documentation.
Third-Party Insurance
The Company maintains third-party insurance coverage for 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-Insurance
The Company has self-insurance for certain potential liabilities through its 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 for these potential liabilities could be significantly affected if future
occurrences and claims differ from such assumptions and historical trends, so there are particular complexities and uncertainties involved
when assessing the adequacy of loss reserves for potential liabilities that are self-insured. Self-insurance liabilities are included in accounts
payable and accrued liabilities in the consolidated statements of financial condition. Self-insurance related charges are included in other
expense in the consolidated statements of income.
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The following table provides a reconciliation of the beginning and ending balances of self-insurance liabilities for the years presented (in
thousands):
Beginning balance — January 1
Losses incurred
Losses paid
Ending balance — December 31
Other Commitments
2023
December 31,
2022
2021
$
$
74,071 $
36,319
(27,507)
82,883 $
67,152 $
36,462
(29,543)
74,071 $
51,501
34,756
(19,105)
67,152
As of December 31, 2023, the Company had approximately $474.7 million of client margin loans that were collateralized with securities
having a fair value of approximately $664.6 million that LPL Financial can repledge, loan or sell. Of these securities, approximately $277.1
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, 2023, there were no restrictions that materially limited the Company’s ability to repledge, loan or sell the
remaining $387.5 million of client collateral.
Investment securities on the consolidated statements of financial condition include $5.5 million and $4.5 million of trading securities pledged
to the Options Clearing Corporation at December 31, 2023 and 2022, respectively, and $19.9 million of trading securities pledged to the
National Securities Clearing Corporation at both December 31, 2023 and 2022.
NOTE 15 - STOCKHOLDERS’ EQUITY
Dividends
The payment, timing, and amount of any dividends are subject to approval by LPLFH’s Board of Directors as well as certain limits under the
Credit Agreement. Cash dividends per share of common stock and total cash dividends paid on a quarterly basis were as follows (in millions,
except per share data):
First quarter
Second quarter
Third quarter
Fourth quarter
Share Repurchases
2023
2022
2021
Dividend per
Share
Total Cash
Dividend
Dividend per
Share
Total Cash
Dividend
Dividend per
Share
Total Cash
Dividend
$
$
$
$
0.30 $
0.30 $
0.30 $
0.30 $
23.6 $
23.1 $
22.8 $
22.7 $
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
The Company engages in a share repurchase program that was approved by the Board, pursuant to which LPLFH 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. On September 21, 2022, the Board authorized a $2.1 billion increase to the amount available for
repurchases of the Company’s issued and outstanding common shares.
During the year ended December 31, 2023 LPLFH repurchased 5,075,900 shares of common stock at a weighted-average price of $216.73
for a total of $1.1 billion. The Company also recognized $9.9 million of excise tax in connection with these repurchases during the year ended
December 31, 2023. As of December 31, 2023, the Company had $900.0 million remaining under the existing share repurchase program.
Future share repurchases may be effected in open market or privately negotiated transactions, including transactions with affiliates, with the
timing of purchases and the amount of stock purchased generally determined at the discretion of the Company within the constraints of the
Credit Agreement and the Company’s general working capital needs.
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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 for the granting of stock
options, warrants, restricted stock awards, restricted stock units, deferred stock units, performance stock units and other equity-based
compensation to the Company’s employees, non-employee directors and other service providers. The 2021 Plan serves as the successor to
the Company’s 2010 Omnibus 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 forfeited, as applicable.
There were 17,754,197 shares authorized for grant under the 2021 Plan and 12,796,123 shares remaining available for future issuance at
December 31, 2023.
Stock Options and Warrants
The Company has not granted stock options or warrants since 2019. The following table summarizes the Company’s stock option and
warrant activity as of and for the year ended December 31, 2023:
Outstanding — December 31, 2022
Granted
Exercised
Forfeited and Expired
Outstanding — December 31, 2023
Exercisable — December 31, 2023
Exercisable and expected to vest — December 31, 2023
Number of
Shares
Weighted-
Average
Exercise Price
673,764 $
— $
(126,944) $
— $
546,820 $
546,820 $
546,820 $
53.45
—
47.60
—
54.81
54.81
54.81
Weighted-
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
(In thousands)
3.61 $
3.61 $
3.61 $
94,494
94,494
94,494
The following table summarizes information about outstanding stock options and warrants as of December 31, 2023:
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
2.11 $
0.00 $
3.15 $
1.06 $
4.04 $
4.92 $
3.61 $
19.85
—
39.48
46.60
65.50
77.53
54.81
63,123 $
— $
157,427 $
36,039 $
139,339 $
150,892 $
546,820 $
19.85
—
39.48
46.60
65.50
77.53
54.81
Total
Number of
Shares
63,123
—
157,427
36,039
139,339
150,892
546,820
The Company recognized no share-based compensation expense related to the vesting of stock options awarded to employees and officers
during the year ended December 31, 2023. The Company recognized $0.2 million and $2.6 million of expense during the years ended
December 31, 2022 and 2021, respectively. As of December 31, 2023, 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.
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Notes to Consolidated Financial Statements
Restricted Stock and Stock Units
The following summarizes the Company’s activity in its restricted stock awards and stock units, which include restricted stock units, deferred
stock units and performance stock units, for the year ended December 31, 2023:
Outstanding — December 31, 2022
Granted
Vested
Forfeited
Outstanding — December 31, 2023
Expected to vest — December 31, 2023
____________________
Restricted Stock Awards
Stock Units
Number of
Shares
Weighted-Average
Grant-Date
Fair Value
Number of
Shares
Weighted-Average
Grant-Date
Fair Value
814 $
2,753 $
(1,999) $
— $
1,568 $
1,568 $
173.78
190.92
186.29
—
187.93
187.93
863,174
412,673
(447,788)
(51,455)
776,604
642,444
(1)
$
$
$
$
$
$
149.34
220.40
109.94
215.45
205.44
219.95
(1) Includes 90,339 vested and undistributed deferred stock units.
The Company grants restricted stock awards and deferred stock units to its directors and restricted stock units and performance stock units
to its employees and officers. Restricted stock awards and stock units must vest or are subject to forfeiture; 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 $57.4 million, $45.4 million and $37.2 million of share-based compensation expense related to the vesting of these
restricted stock awards and stock units during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023,
total unrecognized compensation cost for restricted stock awards and stock units was $74.7 million, which is expected to be recognized over
a weighted-average remaining period of 1.90 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, $2.6 million and $2.3 million related to the vesting of these awards during the years ended December 31, 2023, 2022
and 2021, respectively. As of December 31, 2023, total unrecognized compensation cost for restricted stock units granted to advisors and
enterprises was $5.4 million, which is expected to be recognized over a weighted-average remaining period of 2.13 years.
Employee Incentives and Benefit Plans
The Company sponsors a 401(k) defined contribution plan sponsored for all employees meeting eligibility requirements. The Company
matches eligible employee contributions after completing six months of service. 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
$30.3 million, $24.7 million and $20.9 million for the years ended December 31, 2023, 2022 and 2021, 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, subject to limitations. The ESPP provides for a 15% discount
on the market value of the stock at the lower of the grant date price (first day of the offering period) and the purchase date price (last day of
the offering period). The Company recognized $8.7 million, $4.4 million and $2.0 million of share-based compensation expense related to the
ESPP during the years ended December 31, 2023, 2022 and 2021, respectively. The Company’s 2012 Employee Stock Purchase Plan was
replaced by its 2021 Employee Stock Purchase Plan in May 2021.
The Company sponsors a non-qualified deferred compensation plan for the purpose of attracting and retaining advisors who operate, for tax
purposes, as independent contractors, by providing an opportunity for participating advisors to defer receipt of a portion of their gross
commissions generated primarily from commissions earned on the sale of various products. The deferred compensation plan has been fully
funded to date by participant contributions. Plan assets are invested in mutual funds, which are held by the Company in a Rabbi Trust. The
liability for benefits accrued under the non-qualified deferred compensation plan totaled $652.3 million and $477.0 million at December 31,
2023 and 2022, respectively, which is included in other liabilities in the consolidated statements of financial condition. The cash value of the
related trust assets was $651.1 million and $475.6 million at
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December 31, 2023 and 2022, 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 offered under the plan. Plan assets are held by
the Company in a Rabbi Trust and accounted for in the manner described above. As of December 31, 2023, the Company has recorded
assets of $32.7 million and liabilities of $31.9 million, which are included in other assets and other liabilities, respectively, in the consolidated
statements of financial condition. As of December 31, 2022, the Company had recorded assets of $20.7 million and liabilities of $20.8 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 for the
years noted was as follows (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
2023
1,066,250 $
845,702 $
459,866
76,807
1,054
77,861
79,801
1,484
81,285
13.88 $
13.69 $
10.60 $
10.40 $
80,002
1,740
81,742
5.75
5.63
The computation of diluted earnings per share excludes stock options, warrants and stock units that are anti-dilutive. For the years ended
December 31, 2023, 2022 and 2021, stock options, warrants and stock units representing common share equivalents of 55,298 shares,
9,770 shares and 684 shares, respectively, were anti-dilutive.
NOTE 18 - NET CAPITAL AND REGULATORY REQUIREMENTS
The Company’s broker-dealer subsidiaries are subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 under the Exchange Act of 1934),
which requires the maintenance of minimum net capital. The net capital rules also provide that a 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 the Financial Industry Regulatory Authority 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.
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Notes to Consolidated Financial Statements
The following table presents the net capital position of the Company’s primary broker-dealer subsidiary (in thousands):
LPL Financial LLC
Net capital
Less: required net capital
Excess net capital
December 31, 2023
$
$
205,314
16,678
188,636
The Company’s subsidiary PTC also operates in a highly regulated industry and is subject to various regulatory capital requirements. Failure
to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if
undertaken, could have substantial monetary and non-monetary impacts on PTC’s operations.
As of December 31, 2023 and 2022, LPL Financial and PTC met all capital adequacy requirements to which they were subject.
NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK AND CONCENTRATIONS OF CREDIT RISK
LPL Financial may offer loans to new and existing advisors and enterprises to facilitate their relationship with LPL Financial, transition to LPL
Financial’s platform or fund business development activities. LPL Financial may incur losses if advisors or enterprises do not fulfill their
obligations with respect to these loans. To mitigate this risk, LPL Financial evaluates the performance and creditworthiness of the advisor or
enterprise prior to offering 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, subject 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 sufficient to fully cover losses that clients may incur from these strategies. To
control this risk, LPL Financial monitors margin levels daily and clients are required to deposit additional collateral, or reduce positions, when
necessary.
LPL Financial is obligated to settle transactions with brokers and other financial institutions even if its advisors’ clients fail to meet their
obligation to LPL Financial. Clients are required to complete their transactions on the settlement date, generally two business days after the
trade date. If clients do not fulfill their contractual obligations, LPL Financial may incur losses. In addition, the Company occasionally enters
into certain types of contracts to fulfill its sale of when-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 differ from market prices prevailing at
the time of completion of the transaction. Accordingly, both long and short inventory positions may result in losses or gains to LPL Financial
as market values of securities fluctuate. To mitigate the risk of losses, long and short positions are marked-to-market daily and are
continuously monitored by LPL Financial.
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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 26,
2024 to all stockholders of record on March 12, 2024.
On February 13, 2024, the Company announced that it had entered into a definitive purchase agreement to acquire Atria Wealth Solutions,
Inc. (“Atria”), a wealth management solutions holding company headquartered in New York. As part of the agreement, Atria will transition its
brokerage and advisory assets, currently custodied with its network of broker-dealers, to the Company’s platform. The Company expects to
close the transaction in the second half of 2024 with the conversion expected in mid-2025, subject to receipt of regulatory approval and other
closing conditions.
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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 officer and chief financial officer, evaluated the effectiveness of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this
report. Based on that evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures
as of the end of the period covered by this report were effective.
Change in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2023, that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over
financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under the supervision
of, our chief executive officer and chief financial officer, and effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting process and the preparation of our consolidated financial statements
for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable 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 effect on our consolidated financial statements.
As of December 31, 2023, management conducted an assessment of the effectiveness of our internal control over financial reporting based
on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of
December 31, 2023 was effective.
Deloitte & Touche LLP, our independent registered public accounting firm, has issued an audit report appearing on the following page on the
effectiveness of our internal control over financial reporting as of December 31, 2023.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
LPL Financial Holdings Inc.
San Diego, California
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, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework
(2013) 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 for the year ended December 31, 2023, of the Company and our report dated February 21, 2024,
expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying management's annual report on internal control over
financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We 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 perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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 for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject 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 & Touche LLP
San Diego, California
February 21, 2024
106
Item 9B. Other Information
During the three months ended December 31, 2023, certain of our officers (as defined in Rule 16a-1(f) under the Exchange Act) entered into
contracts, instructions or written plans for the purchase or sale of our common stock that are intended to satisfy the affirmative defense
conditions specified in Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 trading arrangements”). The table below sets forth certain
information regarding such Rule 10b5-1 trading arrangements:
Date of Plan
Adoption
November 20, 2023
Commencement of
Trading Period
February 20, 2024
Termination of Trading
Period
June 7, 2024
(1)
Maximum Number of
Securities to be
Purchased or Sold
Pursuant to the Rule
10b5-1 Trading
Arrangements
88,800
November 20, 2023
February 20, 2024
May 20, 2024
November 20, 2023
February 26, 2024
March 1, 2024
November 2, 2023
February 5, 2024
April 15, 2024
3,781
1,492
39,006
Purchase or
Sale
Sale
Sale
Sale
Sale
Officer
Dan Arnold, President and Chief
Executive Officer
Matthew Enyedi, Managing Director,
Client Success
Kabir Sethi, Managing Director, Chief
Product Officer
Matthew Audette, Chief Financial
Officer and Head of Business
Operations
(1) Represents the outside termination date pursuant to terms of each applicable plan. The agreement governing the applicable plan may terminate earlier pursuant to its
terms in certain circumstances outside of the control of the applicable officer, including if all trades under the plan are completed prior to the termination of the trading
period.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Other than the information relating to our executive officers provided in Part I of this Annual Report on Form 10-K, the information required to
be furnished pursuant to this item is incorporated herein by reference to the Company’s definitive Proxy Statement for the 2024 Annual
Meeting of Stockholders, which the Company intends to file with the SEC within 120 days of the fiscal year ended December 31, 2023.
Items 11, 12, 13 and 14.
The information required by Items 11, 12, 13 and 14 is incorporated herein by reference to the Company’s definitive Proxy Statement for the
2024 Annual Meeting of Stockholders, which the Company intends to file with the SEC within 120 days of the fiscal year ended
December 31, 2023.
Item 15. Exhibits and Financial Statement Schedules
(a) Consolidated Financial Statements and Schedules
PART IV
Our consolidated financial statements are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on
Form 10-K. Other financial statement schedules have been omitted because they are not applicable, not material or the information is
otherwise included.
(b) Exhibits
107
Table of Contents
Exhibit No.
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Description of Exhibit
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).
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).
Seventh Amended and Restated Bylaws of LPL Financial Holdings Inc. (incorporated by reference to the Form 8-K filed on
February 20, 2024, File No. 001-34963).
Indenture, dated as of November 12, 2019, among LPL Holdings, U.S. Bank Trust Company 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 Trust Company 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).
Indenture, dated as of November 17, 2023, among LPL Holdings, U.S. Bank Trust Company, National Association, as
trustee, and certain subsidiaries of LPL Holdings, as guarantors (incorporated by reference to the Form 8-K filed on
November 17, 2023, File No. 001-34963).
First Supplemental Indenture, dated as of November 17, 2023, among LPL Holdings, U.S. Bank Trust Company, National
Association, as trustee, and certain subsidiaries of LPL Holdings, as guarantors (incorporated by reference to the Form 8-K
filed on November 17, 2023, 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).
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).
108
Table of Contents
Exhibit No.
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Description of Exhibit
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 (incorporated by reference to the Form 10-K filed on February 23, 2023, File
No. 001-34963).
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).
Form of Employee Performance Stock Unit Award granted under the LPL Financial Holdings Inc. 2021 Omnibus Equity
Incentive Plan, as amended February 9, 2024.*
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).
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).
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).
109
Table of Contents
Exhibit No.
10.24
10.25
10.26
10.27
21.1
22.1
23.1
31.1
31.2
32.1
32.2
97
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
___________________
Description of Exhibit
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).
Sixth Amendment, dated March 13, 2023, 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 10-Q filed on May 2, 2023,
File No. 001-34963).
Seventh Amendment, dated July 18, 2023, 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 10-Q filed on October 31,
2023, File No. 001-34963).
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).†
List of Subsidiaries of LPL Financial Holdings Inc.*
List of subsidiary guarantors and issuers of guaranteed securities.*
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.**
LPL Financial Holdings Inc. Clawback Policy.*
Inline XBRL Taxonomy Extension Schema*
Inline XBRL Taxonomy Extension Calculation*
Inline XBRL Taxonomy Extension Definition*
Inline XBRL Taxonomy Extension Label*
Inline XBRL Taxonomy Extension Presentation*
Cover Page Interactive Data File (formatted 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 Summary
None.
110
Table of Contents
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 Officer
Dated: February 21, 2024
111
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ Dan H. Arnold
Dan H. Arnold
/s/ Matthew J. Audette
Matthew J. Audette
/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. Schifter
Richard P. Schifter
/s/ Corey E. Thomas
Corey E. Thomas
Title
Date
President, Chief Executive Officer, and Director
(Principal Executive Officer)
February 21, 2024
Chief Financial Officer and Head of Business Operations
(Principal Financial Officer)
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
112
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
Exhibit 4.6
DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
The following description of our common stock is a summary and does not purport to be complete. It is subject to and qualified in its
entirety by reference to our Amended and Restated Certificate of Incorporation (our “Certificate”) and our Seventh Amended and Restated
Bylaws (our “Bylaws”), each of which have been filed with the Securities and Exchange Commission as exhibits to this Annual Report on
Form 10-K. The summary below is also qualified by provisions of applicable law.
General
Under our Certificate, we have authority to issue up to 600,000,000 shares of common stock, par value $0.001 per share. Our
common stock is registered under Section 12 of the Securities Exchange Act of 1934, as amended, and is listed on the Nasdaq Global Select
Market under the symbol “LPLA.”
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do
not have cumulative voting rights. Our Bylaws provide that a nominee for director will be elected if the number of votes properly cast “for”
such nominee’s election exceeds the number of votes properly cast “against” such nominee’s election; however, if the number of persons
properly nominated for election to our board of directors (the “Board of Directors”) exceeds the number of directors to be elected, the
directors will be elected by the plurality of the votes properly cast. Holders of common stock are entitled to receive proportionately any
dividends as may be declared by our Board of Directors, subject to any preferential dividend rights of any series of preferred stock that is
outstanding at the time of the dividend.
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets
available for distribution to stockholders after payment of all debts and other liabilities and subject to the prior rights of any outstanding
preferred stock.
The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of shares of any series of
preferred stock that the company may designate and issue in the future.
Anti-takeover Effects of the Delaware General Corporation Law and Our Certificate of Incorporation and Bylaws
Our Certificate and our Bylaws contain certain provisions that may discourage, delay, or prevent a change in our management or
control over us. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate
takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with the Board of
Directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they
may also discourage acquisitions that some stockholders may favor.
Action by Written Consent
The Delaware General Corporation Law (“DGCL”) provides that, unless otherwise stated in a corporation’s certificate of
incorporation, the stockholders may act by written consent without a meeting. Our Certificate provides that any action required or permitted
to be taken by our stockholders may only be taken at a duly called annual or special meeting of stockholders, and not by written consent
without a meeting.
Special Meeting of Stockholders
Our Certificate and Bylaws provide that, subject to any special rights of the holders of any series of preferred stock and to the
requirements of applicable law, special meetings of our stockholders can only be called by (a) our chairman or vice chairman of the Board of
Directors, (b) our president, or (c) a majority of the Board of Directors through a special resolution.
290866-3
Advance Notice Requirements for Stockholder Proposals
Our Bylaws set forth advance notice procedures for stockholder proposals to be brought before an annual meeting of the
stockholders, including the nomination of directors. Stockholders at an annual meeting may only consider the proposals specified in the
notice of meeting, brought before the meeting by or at the direction of the Board of Directors or brought by a stockholder of record who is
entitled to vote at the meeting and who has delivered a timely written notice in proper form (in accordance with both our Bylaws and
applicable law) to our secretary of the stockholder’s intention to bring such business before the meeting. These provisions could have the
effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or delaying until the next
stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities.
Proxy Access
Our Bylaws provide that a stockholder (or a group of up to 20 stockholders) who has held at least 3% of our common stock for three
years or more may nominate a specified number of directors and have those nominees included in our proxy materials, provided that the
stockholder and nominees satisfy the requirements specified in our Bylaws. The maximum number of stockholder nominees permitted under
these provisions is the greater of two or 20% of the number of directors in office. Any stockholder who intends to use these procedures to
nominate a candidate for election to the Board of Directors for inclusion in our proxy statement must satisfy the requirements specified in our
Bylaws.
Requirements for Removal and Interim Election of Directors
Subject to the special rights of the holders of any series of preferred stock to elect directors, holders of at least two-thirds of the
shares entitled to vote at an election of the directors must approve the removal of directors. Vacancies and newly-created directorships will be
filled only by a vote of a majority of the directors then in office, even though less than a quorum, and not by the stockholders. In addition, the
Certificate provides that any vacancy created by the removal of a director by the stockholders shall only be filled by, in addition to any other
vote otherwise required by law, the affirmative vote of a majority of the outstanding shares of common stock. Our Bylaws allow the presiding
officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding
the conduct of certain business at a meeting if the rules and regulations are not followed.
These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management
of our company.
Amendment to Certificate of Incorporation and Bylaws
The DGCL provides generally that the affirmative vote of a majority of the outstanding stock entitled to vote on amendments to a
corporation’s certificate of incorporation or bylaws is required to approve such amendment, unless a corporation’s certificate of incorporation
or bylaws, as the case may be, requires a greater percentage. Our Bylaws may be amended or repealed by a majority vote of our Board of
Directors or, in addition to any other vote otherwise required by law, the affirmative vote of at least two-thirds of the voting power of our
outstanding shares of common stock. Additionally, the affirmative vote of at least two-thirds of the voting power of the outstanding shares of
common stock is required to alter, amend or repeal, or to adopt any provision inconsistent with, the “Board of Directors,” “No Action by
Written Consent,” “Special Meetings of Stockholders,” “Amendments to the Amended and Restated Certificate of Incorporation and
Bylaws” and “Business Combinations” provisions described in our Certificate. These provisions may have the effect of deferring, delaying or
discouraging the removal of any anti-takeover defenses provided for in our Certificate and our Bylaws.
Exclusive Jurisdiction of Certain Actions
Our Certificate requires, to the fullest extent permitted by law, that derivative actions brought in the name of the company, actions
against directors, officers and employees for breach of fiduciary duty
290866-3
and other similar actions may be brought only in the Court of Chancery of the State of Delaware. Although we believe this provision benefits
the company by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision
may have the effect of discouraging lawsuits against our directors and officers.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder
approval, subject to any limitations imposed by the listing standards of the Nasdaq Global Select Market. Our Board of Directors may issue
shares of preferred stock, in one or more series, from time to time, and with such designations, preferences and relative, participating,
optional or other special rights as the Board of Directors may determine. These additional shares may be used for a variety of corporate
finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued common stock and preferred stock
could make more difficult, or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger, or otherwise.
Business Combinations
We have elected to not be subject to Section 203 of the DGCL, which regulates business combinations with “interested
stockholders.”
290866-3
Name:
Target Number of PSUs:
Date of Grant:
Exhibit 10.15
[●]
[●]
[●]
EMPLOYEE PERFORMANCE STOCK UNIT AWARD
granted under the
LPL FINANCIAL HOLDINGS INC.
2021 OMNIBUS EQUITY INCENTIVE PLAN
This agreement (the “Agreement”) evidences the grant of an award by LPL Financial Holdings Inc., a Delaware corporation (the
“Company”), to the individual named above (the “Participant”) pursuant to and subject to the terms of the Company’s 2021 Omnibus Equity
Incentive Plan (as amended from time to time, the “Plan”). Capitalized terms used and not otherwise defined herein have the meanings
provided in the Plan.
1.
Performance Stock Unit Award.
The Company hereby grants to the Participant on the date of grant set forth above (the “Date of Grant”) an award (the “Award”)
consisting of that target number of performance-based Restricted Stock Units set forth above (the “Target Award” and such Restricted Stock
Units, the “PSUs”), giving the Participant the conditional right to receive, without payment and subject to the conditions and limitations set
forth in this Agreement and in the Plan, one share of Stock per PSU (the “Shares”), subject to adjustment pursuant to the provisions of
Section 7 of the Plan.
2.
Vesting; Termination of Employment.
(a)
Determination of Earned PSUs. The percentage of the Target Award that may be earned by the Participant and the
corresponding number of PSUs that may become Earned PSUs (as defined in Appendix A) following the end of the Performance Period will
be determined in accordance with Appendix A hereto, which Appendix A is incorporated by reference and made part of this Agreement.
(b)
Vesting. Unless earlier terminated, forfeited, relinquished or expired, and subject to the Participant’s continued Employment
through the applicable vesting date, the Earned PSUs (if any) shall vest on the later of (i) the Determination Date (as defined in Appendix A)
and (ii) the third anniversary of the Date of Grant (such later date, the “Vesting Date”).
(c)
Termination of Employment. Automatically and immediately upon the cessation of the Participant’s Employment prior to the
Determination Date, the Award shall terminate and be forfeited for no consideration. Notwithstanding the foregoing, in the event of a
termination of the Participant’s Employment due to his or her death or Disability (as defined in the LPL Financial LLC Executive Severance
Plan (the “Severance Plan”)) or Retirement, in each case, prior to the Determination Date, or as otherwise provided in Section 4.1 or Section
4.2 of the Severance Plan, the Award shall not terminate upon such termination of Employment and instead shall remain outstanding and
eligible to become Earned PSUs in accordance with the terms of Appendix A and to vest on the Determination Date or such earlier date as
otherwise provided for in the Severance Plan; it being understood that, if the Administrator determines on the Determination Date that 0% of
the Target Award has been earned, the entire Award shall terminate automatically and immediately. In such case, other than in the case of a
Designated Retirement (as defined below), the number of Earned PSUs, if any, will be prorated based on the number of days that have
elapsed in the Performance Period from the first day of the Performance Period to the
290240-3
date of such termination of Employment; notwithstanding the foregoing, in the event of a Designated Retirement, the number of Earned
PSUs, if any, will not be subject to proration as described in the immediately preceding sentence. Further, (i) if such termination of
Employment occurs after the Determination Date but prior to the Vesting Date, the Earned PSUs will vest on the date of the termination of
Employment; and (ii) if a Change of Control occurs following such termination of Employment and prior to the Determination Date, the
PSUs shall become Earned PSUs upon the consummation of such Change of Control based on the extent to which the applicable
performance vesting conditions have been achieved as of the consummation of such Change of Control (or the end of the Performance
Period, if earlier), as determined by the Administrator in its sole discretion in accordance with the terms of Section 7(a)(1)(A) of the Plan. For
purposes of this Agreement, “Designated Retirement” means a termination of the Participant’s Employment other than for Cause, including
for the avoidance of doubt due to death or Disability, following (x) attainment of age sixty (60) and (y) completion of ten (10) years of
continuous service with the Company.
3.
Delivery of Shares.
Subject to Section 8 of this Agreement, the Company shall effect delivery of Shares in respect of Earned PSUs to the Participant (or,
in the event of the Participant’s death, to the person to whom the Award has passed by will or the laws of descent and distribution) as soon as
reasonably practicable following the Vesting Date, or such earlier date on which the PSUs become Earned PSUs in accordance with Section
2(c) above, but in no event later than the March 15 of the year following the year in which the Performance Period End Date (as defined in
Appendix A) occurs (or any earlier date, after vesting, as may be required to avoid characterization as non-qualified deferred compensation
under Section 409A).
4.
Dividends; Other Rights.
The Award shall not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any Affiliate
prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the
granting of this Award or to receive or be credited with any dividends declared and payable on any Share prior to the payment date with
respect to such Share. The Participant shall have the rights of a shareholder only as to those Shares, if any, that are actually delivered under
this Award.
5.
Withholding; Certain Tax Matters.
(a)
No Shares will be delivered pursuant to this Award unless and until the Participant shall have remitted to the Company in
cash or by check an amount sufficient to satisfy any federal, state or local withholding tax requirements or tax payments, or shall have made
other arrangements satisfactory to the Administrator with respect to such taxes. The Administrator may, in its sole discretion, hold back
Shares from an award or permit the Participant to tender previously owned shares of Stock in satisfaction of tax withholding or tax payment
requirements (but not in excess of the applicable minimum statutory withholding rate).
(b)
Notwithstanding anything to the contrary in this Award, if at the time of the Participant’s termination of Employment, the
Participant is a “specified employee,” as defined below, any and all amounts payable under this Award on account of such separation from
service that constitute deferred compensation and would (but for this provision) be payable within six (6) months following the date of
termination, shall instead be paid on the next business day following the expiration of such six (6) month period or, if earlier, upon the
Participant’s death; except (A) to the extent of amounts that do not constitute a deferral of compensation within the meaning of Treasury
Regulation Section 1.409A-1(b) or (B) other amounts or benefits that are not subject to the requirements of Section 409A. For purposes of
this Award, all references to “termination of employment” and correlative phrases shall be construed to
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require a “separation from service” (as defined in Section 1.409A-1(h) of the Treasury Regulations after giving effect to the presumptions
contained therein), and the term “specified employee” means an individual determined by the Company to be a specified employee under
Treasury Regulation Section 1.409A-1(i). In no event shall the Company have any liability relating to the failure or alleged failure of any
payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A. To the extent that discretion
may be exercised by the Administrator regarding the treatment of the Award in connection with a Change of Control or Covered Transaction,
it shall not be exercised if it would cause the Award to violate the terms of Section 409A.
6.
7.
Restrictions on Transfer.
No portion of the Award may be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
Effect on Employment.
This Award shall not confer upon the Participant any right to be retained in the employ or service of the Company or any of its
Affiliates and shall not affect in any way the right of the Company or any of its Affiliates to terminate the Participant’s Employment at any
time.
8.
Forfeiture; Recovery of Compensation.
(a)
The Award, and the proceeds from the delivery and/or disposition of the Shares, are subject to forfeiture and disgorgement to
the Company, with interest and other related earnings, if at any time the Participant is not in compliance with all applicable provisions of this
Agreement and the Plan, including, without limitation, if the Participant engages in conduct that would constitute grounds for termination of
the Participant’s Employment for Cause or upon the Participant’s breach of any non-competition, non-solicitation, no-hire, non-
disparagement, confidentiality, invention assignment or other restrictive covenant by which the Participant is bound or if the Participant
engages in Competitive Activity. Without limiting the foregoing, if the Participant no longer holds the Shares, the Administrator may require
the Participant remit or deliver to the Company (i) the amount of any gain realized upon the sale of any Shares under this Award, (ii) any
consideration received upon the exchange of any Shares under this Award (or to the extent that such consideration was not received in the
form of cash, the cash equivalent thereof valued at the time of the exchange) and (iii) to the extent that the Shares were transferred by gift or
without consideration, the value of the Shares determined at the time of gift or transfer.
(b)
By accepting, or being deemed to have accepted, the Award, the Participant expressly acknowledges and agrees that his or
her rights under the Award (and those of any transferee of the Award), including the right to any Stock acquired under the Award or proceeds
from the disposition thereof, are subject to Section 6(a)(5) and Section 6(a)(6) of the Plan (including any successor provision). The
Participant further agrees to be bound by the terms of any clawback or recoupment policy of the Company that applies to incentive
compensation that includes awards such as the Award; provided, however, that the foregoing shall not be construed to limit the general
application of Section 9 of this Agreement.
9.
Provisions of the Plan.
This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference. A copy of the Plan
as in effect on the date of the grant of the Award has been furnished or made available to the Participant. By accepting, or being deemed to
have accepted, all or any part of the Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the
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event of any conflict between the terms of this Agreement and the Plan, the terms of this Agreement shall control.
10.
General.
The Participant acknowledges and agrees that all determinations of the Administrator made with respect to the Plan and the Award
are conclusive and shall be binding upon the Participant and any permitted transferee. This Agreement may be executed in counterparts
(which may be delivered in .pdf format or by other electronic means), each of which shall be an original and all of which together shall
constitute one and the same instrument.
[Signature page follows.]
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed under its corporate seal by its duly authorized
officer. This Agreement shall take effect as a sealed instrument.
LPL FINANCIAL HOLDINGS INC.
By:
Name:
Title:
Acknowledged and Agreed:
Signature:
Print Name:
Date:
[Signature Page to Restricted Stock Unit Award Agreement]
Appendix A
DETERMINATION OF EARNED PSUs
(attached)
Subsidiaries of Registrant
Exhibit 21.1
Subsidiary
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Entity Name
LPL Holdings, Inc.**
PTC Holdings, Inc.**
The Private Trust Company, N.A.
LPL Financial LLC
LPL Insurance Associates, Inc.
AW Subsidiary, Inc.**
AdvisoryWorld
LPL Employee Services, LLC**
Allen & Company of Florida, LLC
Blaze Portfolio Systems LLC
Fiduciary Trust Company of New Hampshire
Jurisdiction of
Incorporation
Massachusetts
Ohio
Ohio
California
Delaware
Delaware
California
Delaware
Delaware
Illinois
New Hampshire
Name Under Which the Subsidiary Does
Business
LPL
PTC
PTC
LPL, LPL Financial
LPL, LPL Financial
AW Subsidiary
AdvisoryWorld
LPL Employee Services
Allen & Company of Florida
Blaze
FTC
* All subsidiaries are wholly owned, directly or indirectly, by the Registrant.
** Holding companies.
List of Subsidiary Guarantors and Issuers of Guaranteed Securities
As of December 31, 2023, LPL Financial Holdings Inc., a Delaware corporation, has fully and unconditionally guaranteed the 6.750% Senior
Notes due 2028 issued by LPL Holdings, Inc., a Massachusetts corporation, pursuant to an offering registered under the Securities Act of
1933, as amended.
Exhibit 22.1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-274631 and 333-274631-02 on Form S-3 and Registration
Statement Nos. 333-151437, 333-172866, 333-183541, 333-209730 and 333-255801 on Form S-8 of our reports dated February 21, 2024,
relating to the consolidated financial statements of LPL Financial Holdings Inc. and the effectiveness of LPL Financial Holdings Inc.’s
internal control over financial reporting, appearing in this Annual Report on Form 10-K for the year ended December 31, 2023.
/s/ Deloitte & Touche LLP
San Diego, California
February 21, 2024
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
Exhibit 31.1
I, Dan H. Arnold, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of LPL Financial Holdings Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 21, 2024
/s/ Dan H. Arnold
Dan H. Arnold
President and Chief Executive Officer
(principal executive officer)
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
Exhibit 31.2
I, Matthew J. Audette, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of LPL Financial Holdings Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 21, 2024
/s/ Matthew J. Audette
Matthew J. Audette
Chief Financial Officer
(principal financial officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of LPL Financial Holdings Inc. (the “Company”) for the period ending December 31,
2023 as filed with the Securities and Exchange Commission (“SEC”) on the date hereof (the “Report”), I, Dan H. Arnold, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the
SEC or its staff upon request.
Date: February 21, 2024
/s/ Dan H. Arnold
Dan H. Arnold
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of LPL Financial Holdings Inc. (the “Company”) for the period ending December 31,
2023 as filed with the Securities and Exchange Commission (“SEC”) on the date hereof (the “Report”), I, Matthew J. Audette, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the
SEC or its staff upon request.
Date: February 21, 2024
/s/ Matthew J. Audette
Matthew J. Audette
Chief Financial Officer
Exhibit 97
LPL FINANCIAL HOLDINGS INC.
Clawback Policy
LPL Financial Holdings Inc. (the “Company”) has adopted this clawback policy (the “Policy”) to serve as the Company’s primary
policy governing the recovery of Incentive-Based Compensation from Executive Officers in the event of a Restatement (as such terms are
defined below). This Policy shall be interpreted to comply with the clawback rules found in 17 C.F.R. §240.10D and the related listing rules
of the national securities exchange or national securities association (the “Exchange”) on which the Company has listed securities. To the
extent this Policy is in any manner deemed inconsistent with such rules, this Policy shall be treated as retroactively amended to be compliant
with such rules.
1. Definitions. 17 C.F.R. §240.10D-1(d) defines the terms “Executive Officer,” “Financial Reporting Measure,” “Incentive-Based
Compensation,” and “Received.” As used herein, these terms shall have the same meaning as in that regulation.
2. Application of the Policy. This Policy shall only apply in the event that the Company is required to prepare an accounting
restatement due to the material noncompliance of the Company with any financial reporting requirement under the federal securities
laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the
previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period
or left uncorrected in the current period (such an accounting restatement, a “Restatement”).
3. Recovery Period. The Incentive-Based Compensation subject to clawback is the Incentive-Based Compensation Received during the
three completed fiscal years immediately preceding the date that the Company is required to prepare a Restatement, provided that the
person served as an Executive Officer at any time during the performance period applicable to the Incentive-Based Compensation in
question. The date that the Company is required to prepare a Restatement shall be determined pursuant to 17 C.F.R. §240.10D-1(b)
(1)(ii).
a. Notwithstanding the foregoing, the Policy shall only apply if the Incentive-Based Compensation is Received (1) while the
Company has a class of securities listed on an Exchange and (2) on or after October 2, 2023.
b. See 17 C.F.R. §240.10D-1(b)(1)(i) for certain circumstances under which the Policy will apply to Incentive-Based
Compensation received during a transition period arising due to a change in the Company’s fiscal year.
4. Erroneously Awarded Compensation. The amount of Incentive-Based Compensation subject to the Policy (“Erroneously Awarded
Compensation”) is the amount of Incentive-Based Compensation Received that exceeds the amount of Incentive Based-
Compensation that otherwise would have been Received had it been determined based on the Restatement and shall be computed
without regard to any taxes paid.
a. For Incentive-Based Compensation based on stock price or total shareholder return, where the amount of Erroneously
Awarded Compensation is not subject to mathematical recalculation directly from the information in a Restatement: (1) the
amount shall be based on a reasonable estimate of the effect of the Restatement on the stock price or total shareholder return
upon which the Incentive-Based Compensation was received; and (2) the Company must maintain documentation of the
determination of that reasonable estimate and provide such documentation to the Exchange.
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5. Recovery of Erroneously Awarded Compensation. The Company shall recover reasonably promptly any Erroneously Awarded
Compensation except to the extent that the conditions of paragraphs (a), (b), or (c) below apply. The Compensation and Human
Resources Committee of the Board of Directors of the Company (the “Committee”) shall determine the repayment schedule for each
amount of Erroneously Awarded Compensation in a manner that complies with this “reasonably promptly” requirement. Such
determination shall be consistent with any applicable legal guidance, by the Securities and Exchange Commission, judicial opinion
or otherwise. The determination of “reasonably promptly” may vary from case to case and the Committee is authorized to adopt
additional rules to further describe what repayment schedules satisfy this requirement.
a. Erroneously Awarded Compensation need not be recovered if the direct expense paid to a third party to assist in enforcing
the Policy would exceed the amount to be recovered and the Committee has made a determination that recovery would be
impracticable. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded
Compensation based on expense of enforcement, the Company shall make a reasonable attempt to recover such Erroneously
Awarded Compensation, document such reasonable attempt(s) to recover, and provide that documentation to the Exchange.
b. Erroneously Awarded Compensation need not be recovered if recovery would violate home country law where that law was
adopted prior to November 28, 2022. Before concluding that it would be impracticable to recover any amount of Erroneously
Awarded Compensation based on violation of home country law, the Company shall obtain an opinion of home country
counsel, acceptable to the Exchange, that recovery would result in such a violation and shall provide such opinion to the
Exchange.
c. Erroneously Awarded Compensation need not be recovered if recovery would likely cause an otherwise tax-qualified
retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of
26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
6. No Impairment of Other Remedies. The remedies under the Policy are in addition to, and not in lieu of, any legal and equitable
claims the Company may have and the Company’s ability to enforce, without duplication, the clawback provisions set forth in any
other policies, provisions or agreements in effect now or in the future at or with the Company, as the case may be (each, a “Separate
Clawback Policy” and collectively, the “Separate Clawback Policies”), or any actions that may be imposed by law enforcement
agencies, regulators or other authorities. Notwithstanding the foregoing, in the event that there is a conflict between the application of
this Policy to an Executive Officer in the event of a Restatement and any additional clawback provisions set forth in a Separate
Clawback Policy to which an Executive Officer is subject, the provisions of this Policy shall control; provided that, if such Separate
Clawback Policy provides that a greater amount of such compensation shall be subject to clawback, such Separate Clawback Policy
shall apply to the amount in excess of the amount subject to clawback under this Policy.
7. Administration. Administration and enforcement of this Policy is delegated to the Committee. All decisions of the Committee with
respect to this Policy, which need not be uniform with respect to any or all Executive Officers, shall be final, conclusive and binding
on all Executive Officers subject to this policy.
8. No Indemnification. Notwithstanding anything to the contrary in any other policy of the Company or any agreement between the
Company and an Executive Officer, no Executive Officer shall be indemnified by the Company against the loss of any Erroneously
Awarded Compensation.
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9. Agreement to Policy by Executive Officers. The Committee shall take reasonable steps to inform Executive Officers of this Policy
and obtain their agreement to this Policy, which steps may constitute the inclusion of this Policy as an attachment to any award that is
accepted by the Executive Officer.
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