LPL Financial will continue “to look for opportunities to invest in the business,” and is particularly keen to develop a model that is resilient across market cycles, Dan Arnold, chief financial officer, told Family Wealth Report.

LPL Financial Holdings, the parent company of LPL Financial, yesterday reported third quarter net income of $34.3 million, which equates to a fall of $2.1 million from the third quarter of 2011. Net revenue was up, however, having increased 2.8 per cent to $907.2 million.

Arnold struck a fairly muted tone on the overall results, saying he was not dissatisfied with them given the financial conditions but “certainly management’s never satisfied.”

What’s noticeable about the firm is the way that is has continued to invest through the dire economic conditions of recent years; it caused a stir in the wealth management industry when it acquired the high-end outsourcing firm Fortigent in April this year.

“Clearly we’ve invested,” said Arnold, adding that this investment has targeted both scale and market reach. “Over the next few years we certainly want to leverage [those acquisitions]… let that drive growth.”

Looking ahead, Arnold said the firm was aiming for “a good healthy balance” between investing and letting the acquisitions that have already taken place bed down into its business model. Particularly, it will continue to invest in the “foundations” of its business – enhancing its core capabilities rather than looking to necessarily expand scope.

If that’s the case, it’s because senior management feels LPL has reached a good place when it comes to scope. In its results statement yesterday, Mark Casady, chairman and chief executive, said the firm has the tools and services necessary to serve 90 per cent of the assets in the retail market.

Fortigent

On the Fortigent integration, Arnold said: “We’re excited about that opportunity.” He cited the addition of Fortigent alternative investment portfolios to LPL’s Model Wealth Portfolios platform earlier this year as an indicator of how it will leverage Fortigent’s capabilities and create revenue synergies.

“Belt tightening”

In the third quarter compared to the prior year third quarter, acquisition and integration expenses rose significantly – from $1.2 million to $10.5 million. Equity issuance and related costs ($4.0 million), and “other” costs ($2.3 million) – including a one-off payment for consulting services to enhance performance – both also rose. Arnold said that when you “look inside the numbers” there was a distinction between these costs and standard operating costs.

On standard operating costs, some “belt tightening” is planned at the firm in discretionary areas like travel as part of a program to keep cost growth down. With this program, LPL Financial is “really challenging” itself to serve its clients at lower cost, Arnold said.

During Q3, the firm spent $54.6 million buying back 1.9 million shares at a weighted-average price of $28.67 per share, reducing its diluted weighted-average share count to 111.9 million. The board also approved future repurchases of up to $150 million. Arnold said the company was “always evaluating” how to deliver value to shareholders, and accelerated the buyback because it believes the share price does not reflect its long-term value.