Net income fell 6.4 per cent year-on-year for the fourth quarter at LPL Financial, to $36.9 million, on net revenues that were 13.9 per cent higher at $944.2 million.

For the full year, net income fell 10.8 per cent to $151.9 million on revenues that were 5.2 per cent higher, at $3.66 billion.

Revenues were up on both a quarterly and yearly basis across segments, with gains in commission, advisory, asset-based and transaction and other revenue. Meanwhile, long-term performance drivers grew throughout the year at the firm.

Business metrics, revenue growing

“I would characterize the quarter as a good one from a financial point of view,” said Dan Arnold, chief financial officer of LPL Financial, adding that all the underlying performance indicators were strong.

The key metrics were all positive: net new advisors were 505 for the year, bringing the firm to a total of 13,352; advisory and brokerage assets rose 13 per cent to $373.3 billion. Within this, advisory assets under custody (a component of the former figure) shot up 20.2 per cent to $122.1 billion. As part of this, LPL Financial’s RIA platform clocked up assets under custody growth of 80.2 per cent, to $40.9 billion at the end of the year, encompassing 191 RIA firms.

These trends were especially good “relative to the environment,” said Arnold.

Meanwhile, advisor productivity, although flat for the year, showed a “marked improvement” in Q4 versus Q3 as investors thought long-term about financial planning and taxes, prompted by the elections and looming tax changes. As such, there was an uptick in account opening and financial planning sessions. Advisory revenue improved 9.9 per cent in Q4 year-on-year. “We have seen that momentum continue into January,” said Arnold.

Expenses grew in 2012; savings targeted

The firm saw a number of expense measures increase in 2012. For Q4, general and administrative expenses surged 69.2 per cent year-on-year to $99.1 million; for the year they grew 33 per cent to $350.2 million. Restructuring charges were slashed, however, to just $5.6 million for the year.

Arnold said there had been an upweighting in one-off investments and costs in Q4 2012 relative to 2011, and was sanguine on long-term cost trends.

The firm is implementing a “Service Value Commitment” plan which is targeting annual pre-tax run-rate savings of approximately $30 million to $35 million.

As part of this there will be job cuts and a move toward outsourcing back-office, non-advisor facing functions, which will be protected. Arnold did not specify the number of job cuts, but they will contribute significantly to the savings outlined above.

However, the program will incur total costs of around $70 million to $75 million through 2014 and Arnold stressed that the initiative is not a cost-saving program, but a strategic initiative that will simplify the operating environment for advisors and improve delivery for clients.

Such investment requires commitment and confidence from all stakeholders and Arnold said one of the firm’s priorities throughout the changes made at LPL in recent years was that of making sure such stakeholders were on board with the investment plan.

“It’s the reason why you see us implementing this the way we do,” he said, through a step-by-step process and “disciplined execution plan” that will “reposition our model without disruption” to clients.