LPL Financial Holdings Inc LPLA
Q1 2012 Earnings Call Transcript

Operator: Ken Worthington, JPMorgan.

Kenneth Worthington - JPMorgan: Couple questions. First, your mix continues to evolve and there's a couple of different dynamics going on. It seems like the business is migrating to more advisor-based assets which is good for your gross margins, but you also mentioned this quarter that the higher producing brokers are growing more quickly. They get higher payouts which leads to lower gross margins. So as you look out, which trend do you think dominates or do they just kind of offset each other overtime?

Mark S. Casady - Chairman and CEO: This is Mark Casady. They will tend to have – overtime you will see advisory assets will tend to be the thing that more and more advisors will head to. It just is a relatively low process, short process the way we call it, because you've got so many new advisors who join us in a given year, Ken, who typically are commission-based, we then train to use the advisory platforms and they go from there. So, you remember that that mix shift between advisory and commission, if it moved one point in a year that would be fairly significant in terms of that kind of movement. Large branches are definitely enjoying a faster growth rate right now, but that's right now, and it's kind of hard to tell whether that's going to become a trend that remains for several more quarters or just happens to be a first quarter of this year phenomenon. Our experience is that over time all branches typically grow pretty much at a fairly slated rate. The bigger ones have always grown a bit faster than the smaller ones, partially because they're in typically closer to large urban areas or even in urban areas where these just have a more dynamic growth profile. So, while we will continue to see large branches grow a touch faster, I would certainly say that in the first quarter they grew significantly faster than the smaller branches did which is a newer phenomenon for us, and I don't think it's probably sustainable over several quarters.

Kenneth Worthington - JPMorgan: Than, maybe talk about the nature of production this quarter. If you think about stocks and mutual funds versus the insurance and other protection products, how did that mix look this quarter versus how it's looked maybe last year or in prior years? It seems like the protection products continue to sell really well industry-wide, and I want to see if that dynamic was similar case for you guys?

Mark S. Casady - Chairman and CEO: I think that's a good overall statement. There is no doubt that particularly middle-income consumers are looking for protected investments of a variety of types; variable annuities being the most obvious answer for them in order to get upside opportunities, but willing to pay some cost for downside protection, and we know that we've seen that demand since the 2008, 2009 market break, and it continues on. If I look quarter-on-quarter, fourth quarter to first quarter, annuity sales were up nicely about – just under – right around 6%, excuse me, but mutual funds are also up significantly quarter-over-quarter, which is good to see and that's really the pickup in same-store sales that Robert mentioned in his remarks. And then we've seen the direct business, which is typically where you're finding products that get a better yield for consumers. That's up nicely quarter-over-quarter; that would certainly make sense to us. And good old fixed insurance, life insurance sales are up about 10% quarter-over-quarter, which again is a good sign around financial planning and broader-based activities for consumers. So, to me quarter-over-quarter, it looks like you've got a population that's reengaging nicely as we mentioned in our remarks, and as you say, a little bit more of bend towards protected products in the form of annuities, but I wouldn't say an overly large growth there versus, say, just the reengagement in mutual fund investments. But look, year-over-year you've got a really interesting mix shift where fixed annuities continue to drop pretty significantly, and you see direct investment is up significantly, you see fixed insurance, life insurance up significantly, and (BA) is actually down year-over-year. What that's telling me is you've got a mix shift occurring; not unusual, fixed annuities are really tied to rates, and as rates have gone ever lower, the insurance companies have changed their rates available on fixed annuities and subsequently consumers are buying them. I think why I point that out is just to show you that we do have pretty significant mix shifts within, say, the commission line and really it lets us – our model and the way our grid works allows us to really absorb those mix shifts without any issue to our gross margin or profitability.