LPL Financial Holdings Stock

Good afternoon, and thank you for joining the Second Quarter 2026 Earnings Conference Call for LPL Financial Holdings Inc. Joining the call today are Chief Executive Officer, Rich Steinmeier; President and Chief Financial Officer, Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions.

[Operator Instructions]

The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com.

Today's call will include looking statements, including statements about LPL Financials' future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties, the company refers listeners to disclosures set forth under the caption Forward-looking Statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission.

During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com.

With that, I'll now turn the call over to Mr. Rich Steinmeier.

Thanks, operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again. After a strong start to the year, we continued our momentum in Q2. We delivered improved organic growth during the quarter while driving recruiting pipelines to record levels. We made meaningful progress in preparing to onboard Commonwealth Financial Network, and we drove material improvements in our operating leverage. We achieved this in a rapidly evolving environment as elevated macroeconomic uncertainty and market volatility at the start of the quarter gave way to a sharp market recovery during the quarter, serving as the latest reminder of the value of professional advice and the resilience of our business model.

Underlying this consistent performance was the exceptional work and dedication of our teams including the talented colleagues who joined us from Commonwealth. In recognition of these efforts, J.D. Power ranked Commonwealth and LTL #1 and #2 for Independent Adviser Satisfaction. Commonwealth Award is its 13th straight #1 ranking. This is a remarkable achievement and a meaningful validation of the complementary nature of our organization and the culture we are building together.

Now to highlight some of our Q2 results. In the quarter, total client assets were $2.6 trillion, up 10% from Q1 as organic growth was complemented by higher equity markets. We attracted organic net new assets of $23 billion, representing a 4% annualized growth rate. Our second quarter business results translated into another quarter of strong financial performance with record adjusted EPS of $5.84.

Turning to our strategic plan. We remain unwavering in our strategy and our aspiration to be the best firm in wealth management. To that end, we remain focused on 3 key priorities: one, preserving the client centricity the firm was built on; two, empowering our employees to deliver exceptional outcomes for our advisers and institutions and their clients; and three, delivering improved operating leverage. Continued execution across these priorities will help us sustain our industry-leading growth while advancing the effectiveness and efficiency of our model.

With that as context, let's review a few business highlights from the quarter. In Q2, recruited assets improved to $25 billion. Prior to large institutional wins, this was our strongest quarter of recruiting in nearly 2 years. During Q2, we continued to advance opportunities into the later stages of our recruiting pipeline. And despite the strong pull-through, the overall pipeline reached a new record. This positions us well for improved organic growth in the second half of the year. In our traditional markets, we added approximately $23 billion in assets during Q2, maintaining our industry-leading capture of advisers in motion while continuing to expand the depth and breadth of our recruiting pipeline. With respect to our expanded affiliation models, we delivered another solid quarter, recruiting roughly $2 billion in assets.

Turning to overall asset retention. It was 97% for both the second quarter and over the last 12 months. This is a testament to our continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the ongoing evolution of our service and operations functions.

Now let's turn to Commonwealth. The integration is progressing well, and we remain on track to onboard Commonwealth Advisors in the fourth quarter. In terms of asset retention, we are in the mid-80s today, and we continue to work towards our target of 90% retention of client assets. From an operational standpoint, we are nearing the completion of the technology and capability builds needed to help facilitate a seamless conversion. Key initiatives include advancing our householding capabilities and modernizing our case management platform to support a more connected end-to-end service experience for existing Commonwealth Advisers. When combined with the introduction of a single relationship agreement, this creates a more flexible relationship-centric model that improves the client experience and enhances adviser productivity. These capabilities not only enable the Commonwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisers and institutions.

In parallel, we are ramping up our training efforts to ensure that our Commonwealth teammates are positioned to continue delivering exceptional service to existing Commonwealth advisers, and that Commonwealth advisers and their support staff are ready to hit the ground running following the conversion to the LPL platform.

In closing, the second quarter was another strong quarter for LPL. I want to take a moment to thank our entire team, both at LPL and Commonwealth for the dedication and hard work that drove these results and contributed to the recognition from J.D. Power. We are building something special, and I am incredibly proud of the passion and dedication our teams bring to supporting our advisers. As we look ahead, we remain well positioned to serve as a critical partner to our advisers and institutions to continue delivering industry-leading organic growth and to maximize long-term value for shareholders.

With that, I'll turn the call over to Matt.

Thanks, Rich. I couldn't agree more. It was a tremendous quarter as the team continues to deliver remarkable results. To reiterate some of these highlights, we delivered solid improvement in organic growth, continue to advance our adviser experience, drove improved operating leverage through ongoing efficiency gains and better monetization of the value we deliver to clients, progressed our preparation to onboard Commonwealth and executed on our capital allocation strategy, we closed the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability. And given the dislocation in our stock price, accelerated share repurchases.

These efforts resulted in strong second quarter business and financial performance and position us well for the second half of the year.

Now turning to a few highlights from our Q2 business results. Total client assets were $2.6 trillion, up 10% from Q1 as continued organic growth was complemented by higher equity models. Total organic net new assets were $23 billion and approximately 4% annualized growth rate. As for our Q2 financial results, the combination of organic growth and expense discipline led to an adjusted pretax margin of approximately 39.3% and record adjusted EPS of $5.84.

Gross profit was $1.618 billion, up $26 million sequentially. As for the key drivers, commission and advisory fees net of payout were $486 million, down $1 million from Q1. Our payout rate was 87.4%, up 22 basis points from Q1, largely due to the typical seasonal build in the production. Looking ahead, we expect our payout rate will increase by approximately 80 basis points in Q3, driven by typical seasonality as well as the previously announced reductions to our corporate advisory pricing that went into effect on July 1.

With respect to client cash revenue, it was $457 million, down $3 million from Q1, primarily reflecting lower average cash balances. Overall client cash balances ended the quarter at $56.9 billion, down $2.2 billion.

Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 60% and within our target range of 50% to 75%. Looking more closely at our ICA yield, it was 336 basis points in Q2, unchanged sequentially. One item of note is that we are shifting our client suite rate methodology from an asset-based tiering structure to a cash balance based tiering structure. As a result, as we look ahead to Q3, we expect our ICA yield to increase by 10 basis points.

As for service and fee revenue, it was $209 million in Q2, down $2 million from Q1. Looking ahead to Q3, we expect service and fee revenue to increase by approximately $5 million, driven by revenues from our annual focus comes.

Moving on to Q2 transaction revenue. It was $83 million, up $2 million from Q1, driven by record trading volumes and 1 additional trading day during the quarter. As we look ahead to Q3, we expect transaction revenue to decline by roughly $5 million.

Now turning to our acquisition of Commonwealth. As Rich mentioned, the transaction continues to progress well, and we remain on track to onboard Commonwealth Advisers in the fourth quarter. As for the financials, accounting for current market level, we now estimate run rate EBITDA of approximately $435 million once fully integrated.

Now let's move on to expenses, starting with core G&A. It was $519 million in Q2, down $13 million sequentially and below the low end of our outlook range, reflecting our continued progress in driving greater efficiency and reducing our cost to serve. For the full year, given our progress to date, we are lowering our core G&A outlook range. We now anticipate 2026 for G&A to be in a range of $2.114 billion to $2.165 billion. To give you a sense of the near-term timing of the spend, we expect Q3 core G&A to be in the range of $540 million to $560 million.

Turning to TA loan amortization. It was $142 million in Q2, up $6 million from Q1. As we look ahead to the third quarter, we expect TA loan amortization to increase to approximately $150 million, reflecting strengthening adviser recruiting. As for promotional expense, it totaled $79 million in the second quarter, up $3 million from Q1, driven by increased conference spending. Looking ahead to Q3, we expect promotional expense to increase to approximately $95 million, driven by conference spend.

Turning to depreciation and amortization. It was $110 million in Q2, up $4 million sequentially. Looking ahead, we continue to invest in technology and expect depreciation and amortization to increase by roughly $8 million in Q3.

Moving to our tax rate. It was approximately 26.4% in Q2, and we expect a similar level in Q3. Regarding capital management. We ended Q2 with corporate cash of $430 million, down $137 million from Q1. As for our leverage ratio, it was 1.9x at the end of Q2, near the midpoint of our target range.

Moving on to capital deployment. Our framework remains the same, focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate and returning excess capital to shareholders. In Q2, we deployed capital across our entire framework as we continue to invest to drive and support organic growth, close the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability and returned capital to shareholders.

Specific to share repurchases, while our initial plan was to repurchase $125 million of our stock in Q2, the dislocation in our share price presented an attractive opportunity to deploy additional capital. So we accelerated repurchases to $309 million. Additionally, in July, our Board approved a new $2.5 billion repurchase authorization with $300 million planned for the third quarter.

In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage and create long-term shareholder value.

With that, operator, we are finally ready to open the call for questions.

[Operator Instructions] Our first question comes from the line of Alexander from Goldman Sachs.

So I was hoping to start with the outlook on organic growth. Obviously, June saw a nice pickup, and you talked about recruiting pipeline looking pretty robust. So maybe spend a minute on how you view organic growth for the second half of the year, whether or not NNA can sustain above 5%. And also coupled with that, we continue to hear a pretty competitive landscape for recruiting? Curious how that squares away with your -- with the outlook you've seen for the back half of the year?

Yes. Alex, it's Rich. Thanks for the question, and nice to hear from you. So -- maybe let's talk about the recruiting -- well, let's talk about organic growth through the balance of the year. I think we saw that we've got a rebound this quarter up to the 4%. Look, there's a couple of things that drove that. First is that we saw adviser movement move back in line with historical norms. That's important for us. As we capture a disproportionate share of the advisers in motion, any movement to that overall adviser movement, we're going to be 1 of the winners who benefit in that movement. And so I'd say there's a macro movement improvement that helped us aligned with our long-term share capture of Advisors in Motion.

Second, and this continues, and you heard in prepared remarks, Commonwealth is largely coming towards the end of the recruiting and education event. We still have advisers out to continue to progress with them to problem solve with them, get to solutioning with them. And so it's not completely over. But as we have continued on that journey, we've seen more and more of our capacity to go back into the marketplace engaged directly with advisers.

And so when you think about that second half of the year, we should be able to return to more normalized levels, not only of recruiting but continuing to build pipeline. And so that makes us confident in our ability to deliver mid- to high single-digit growth over time. If you extend even further out and look at our long-term outlook, I think this is where we've strengthened our conviction even further.

We continue to be the disproportionate winner in our traditional markets. We have an unmatched value proposition and actually continues to strengthen. When we look at the wirehouse and regional adviser movement, largely, we have been continuing to gain consideration, which is really important for us because as we speak to those advisers, we more often than not are 1 of the winners in those conversations, but we have to get into more conversations -- so we do that by closing our capability gap, which we continue to do in quarter and throughout the balance of the year.

I alluded to some of those even in prepared remarks, and continuing more importantly, to actually position our brand actively in the marketplace. So you saw us do that a year ago with our brand campaign. Additionally, we've announced a partnership with the PGA of America that we think will continue to progress our representation not only to advisers, but to their high net worth and investors, which is critically important as they consider firms they're going to consider moving to.

And maybe lastly, in the institutional channel, this is 1 where we had to pause a little bit in our consideration of large opportunities to bring on to the platform because of the Commonwealth transition was so expensive and the build was so comprehensive. And now as we move towards being on the other side of that and finishing our capability builds, it opens up our ability to continue to progress pipeline in the institutional channel with opportunities to onboard them. You marry that with low attrition and steady contribution from same-store sales. And again, I look at that longer outlook and say, okay, I think we have a strong ability to sustain mid- to high single-digit growth.

Maybe lastly to that competitive environment, I think it's a completely fair representation. It remains spirited. We saw -- about a year ago, we saw a move in market TA levels. They have continued to persist at higher elevated levels. And from our perspective, we stay disciplined on returns. TA is part of our conversation with advisers, but it's not the driver and to repeat this pretty regularly, but Advisers who are changing firms think first about capabilities, technology and service. They then think about ongoing economics. And third, they think about upfront economics. So you put that all together, we feel incredibly strong in our ability to not only sustain our performance to improve it over the latter half of the year.

And our next question comes from the line of Steven Chubak from Wolfe Research.

I was hoping to get an update on the pricing -- I was hoping to get an update on the pricing review. Just now that you're further along with the diligence process, what has been some of the early feedback from advisers as you've explored potential pricing changes -- and what are some of the key milestones that need to be met as part of the review to get you and the Board comfortable with adopting or implementing any such pricing changes to minimize the reliance on cash economics.

Thanks, Stephen. So like we said last quarter, we're actually doing that work. And I think -- we need to make sure we take that time as you have used probe properly to think and ensure that any potential solutions that we come up with, 1 that they're well considered that we are looking at it from all angles but it's aligned with our long-term strategy and that it creates value for our advisers, for our institutions and for the clients that they serve. And so I'll give you a little bit of color why this may take us a little more time.

We've exploded the types of advisers and institutions that we serve. If you think about the 2 business models that we have. In our adviser business, we've grown our affiliation models pretty dramatically, and that looks like different profiles of advisers who have different compositions of their book. And similarly, on the institution side, we no longer just serve banks and credit unions. We serve large regional banks, national banks, these are product manufacturers. And so the complexity of the type of clients that we serve is comprehensive, maybe extensive. We've got to make sure, and we're engaged with those clients to ensure as we build any solution and evaluate those solutions across 32,000 advisers 1000-plus institutions and 8 million end investors that they work the solutions work across those clients and their operating models.

The levers are very clear to us. But as we go through the work, we have to make sure that it works for those constituents, and that's the update that we have on the work. We're doing that work. We don't have any precise updates on the completed work to date, but we'll make sure to update you when there's more to share.

Our next question comes from the line of Daniel Fannon from Jefferies.

Matt, I was hoping you could expand upon the G&A outlook and the numbers continue to come in better than you have forecast as you think about the back half of the year? Are there -- are you still implementing some of these efficiencies to think about the ongoing benefits? Or is obviously what you're putting in the numbers today is that realistic based upon what you guys have done so far?

Yes, Dan. I mean, I think if you look at the trends, like I think the headline answer is this is, I think, an evergreen thing. I mean the continued investments whether it be automation, efficiency, AI-driven things that do 2 things. They not only improve our efficiency and drive down our costs. They also improve our value proposition with our advisers. So I think that's something we're going to consistently do.

And I think what you're seeing so far this year is some outperformance on the pace at which we're able to do this thing. So I think it's been a couple of quarters in a row, we've been able to deliver more efficiencies than we expected and we're able to lower the guidance for the year. So to underscore the guidance for the year includes everything that we have worked on and everything that we expect to work on -- and I think you've seen us, there's been periods where we've met that. There's been periods we've done better than we expected. So I think that now core G&A growth of 4% to 5.5% prior to Commonwealth is our best estimate right now.

But I think if you broaden that out, I think there is -- each and every year, I think we're going to be able to continue to drive investments. And again, underscore, it's not only about efficiencies, but it's improving the value proposition in our experience with our clients.

And our next question comes from the line of Devin Ryan from Citizens Bank.

Matt, a lot of good stuff in here. I want to ask about Rich a point you made, advisers care about capabilities in tech when they're thinking about moving firms? And so with that said, it would be good to get some color on this AI platform latitude. I saw you just launched that or announced it a couple of days ago. And so just be good to hear about kind of functionally what are the capabilities for advisers? Are there ways you can think about framing? How it can help the productivity? And then how differentiated is it versus just table stakes that I know that may connect back to your recruiting pitch or just making the firm more attractive for institutions to think about partnering with you?

Yes. Thanks, Devin. So I think one, technology has always been important for advisers who are considering moving firms -- it's usually 1 of the first things we go through. In fact, recently, we continue to accelerate in our home office visits, our tech demos earlier in the sales process. The reason being that what feedback we get from advisers is that there is a material differentiation in our capabilities and technology than the competitors that they're looking at. And I would tell you, as we get through a tech demo, what we see is we win in head-to-head more often than we did even a year ago because through the last couple of years, you've seen us continue to enhance our investments made in technology. And I think the Latitude announcement is a reflection of that. We reflected that we've invested nearly $2 billion over the last few years in building the core foundational capabilities in our data, security, adviser technology and AI.

Latitude is the reflection of our unified tech experience that ties all of that together. It's a CRISPR way to reflect the integrated nature of our technology ecosystem that we think is a really good reflection to advisers. And as they get in, they see the connectivity across all of that. It's no longer a separation of the adviser workstation and the end investor capabilities and the workflows and the cyber environment. And now the introduction for us of Sian, our AI agent, it helps us actually operate across all of the adviser workflows and deliver contextual real-time intelligence.

And so specific to your question, when we look at just Scion and we look at how does that improve the operational effectiveness of an adviser's practice, well, a couple of our high-impact use cases that we're launching with include the ability to identify growth opportunities for advisers in their practice, as they probe into it, natural language processing to identify ways that they can grow, actions they can take. And actually, 1 of the things that's really impressive is a button that simplifies the next actions they should take to prioritize, improving their growth against the verticals that they choose to grow.

Second, there's other things that we've done there to make them more efficient in their practice. We introduced jump as a way to record and then get actions coming out of meetings. But now we're introducing through Siene, the ability to take financial plans that they've already developed to synthesize those plans for insights to the end investor as well as ways to deliver that to the adviser that are much more efficient than they're doing today.

And 1 other high-value use case is automatic -- sorry, automating routine maintenance tasks. So instead of having to go into the system to make address changes, you actually just go into the agent, say you're making an address change. You indicate the change of address. And then it's automatically propagated across the entire ecosystem of Latitude. I think these are good examples of a firm that is positioning itself to lead in technology, making investments, enabling -- being enabled through AI that further differentiate us from our competitive set. And as we've not only shown our capabilities, Devin, but as actually we've demonstrated our road map for AI to advisers who are considering the firm, it usually is a significant point of differentiation between us and the other firms they're evaluating.

And our next question comes from the line of Michael Cho from JPMorgan.

I just wanted to touch on pricing as well, not so much the work that you're doing now, Rich. But the pricing adjustments that you announced last year and you implemented some earlier this year. And Matt, you called out the other parts starting in July as well. So just given some time is passed, have you seen any adjustments in an adviser behavior since announcement and implementation. And any key takeaways here from an LPL perspective? And do you see other opportunities to potentially mark-to-market maybe some of LPL's more enhanced offerings, maybe in light of Latitude and Cienas well.

Yes, Michael, I'll just start resummarizing for you. I think the headline is things have played out as we expected. So I think when we announced this, we walked through the 3, I'll take you through the components. But we had expected net improvement in margins kind of incorporating everything that you had just walked through of about 1 percentage point. And that's largely what's played out. So just as a reminder, there was 1 in each of the -- in Q1, Q2 and Q3. So Q1 was the new fees on brokerage accounts. In Q2, it was fees on the direct mutual fund business. And those 2 things together led to an increase in service and fee revenue by about $40 million per quarter.

And then the last change coming, what I talked about in prepared remarks that's coming with reductions on pricing in our advisory platforms, really to make them even though they're already competitive, even more competitive. And that -- those pricing reductions will show up as an increase in payout of about $20 million a quarter. So the net of all of that is around $20 million a quarter, $80 million annualized, right in line with where we thought. And so the broad point, I think it just positions as we talked about when we announced them, the first 2 fee increases were really to bring fees in those 2 areas in line with market. And then the third area in advisory, I think, is making a platform that was already competitive, competitively and value prop lives even more competitive. So I think it's really played out how we thought.

Our next question comes from the line of Craig from Bank of America.

So similar question, but I want to see if you could potentially change your revenue share arrangements with asset managers. And I wonder if you view this as a future earnings lever given that your size increase and your scale retail distribution partner. So -- and what I'm getting at is could LPL increase its underlying economics on ETFs, mutual funds and SMAs.

Craig, this is Matt. I'll just underscore kind of what Rich went through in detail as far as what we're looking at on economics and things we have changed. That's where our energy is. I think that there is other things that once we're done with concluding is there something to do there or not if there was other things to look at, we take that up. But I think when you look at our overall economics, the thing that we're staring at is cash sweep that I just underscore everything that Rich said.

And our next question comes from the line of Mike Brown from UBS.

You've observed that your advisers when they adopt your business solutions, they tend to grow 2x faster than advisers that do not. As you think about the commonwealth cohort and the transition there, what are your expectations for the adoption of your subscription-based services like your CFO and Marketing Solutions? And -- do you think that there's kind of a similar opportunity set for the Commonwealth Advisors?

Mike, it's Rich. Thanks. So First, you're right. We observed that as advisers actually begin to outsource more of the work that they do themselves, they put themselves in a position to go to the core advice delivery and you see that not only through marketing and CFO, you see it also through OCIO solutions, paraplanning solutions. And so any time when an adviser is thoughtfully reorganizing the structure of their office to drive productivity and drive deeper engagement with clients, we see accelerated growth. We also see that inside of our managed models that have a lot of those offerings embedded inside of that. So when you look at our strategic wealth services as well as our Linsco offering, we see faster growth there as well because of the support system that's provided and the solutions that are embedded in those offerings.

Commonwealth actually has a subset of the business solutions capabilities and services. In fact, they have some that are differentiated from us around practice management, and some growth support as well. And so there are elements already. We see that Commonwealth advisers are faster-growing advisers, more productive advisers -- and so they have been embedding those capabilities and driven outsized same-store sales growth. We would anticipate as we get into conversations, further conversations with Commonwealth advisers, there's a lot of our solutions that are attractive to them. I think the CFO and marketing solutions are attractive.

I think 1 to maybe put on your radar screen is liquidity and succession solution, which we find also accelerates growth in advisers' practices as they go through liquidity and succession -- we find that there's a pretty strong demand from Commonwealth advisers, as Commonwealth was building a solution that was similar, but wasn't as robust and wasn't as far along in its deployment as our liquidity and succession solutions are. So I'd say across a cadre of solutions, there is an appetite from Commonwealth advisers, I would say it skews more heavily towards liquidity and succession -- because had some of the solutions that we have already available inside of Commonwealth Financial amount.

And our next question comes from the line of Brennan Hawken from BMO.

This is a little bit more of an abstract question, but among some investors, there's some debate about whether or not AI tools could eventually lead to some hybrid solutions, which Mary AI with advisers and potentially come at a lower price point. You talked to a lot of advisers. What's the adviser view on that? Is that considered a real risk? And is there anything that could be done to insulate from this risk if it does end up emerging?

Brian, it's Rich. Thanks for the question. I think when you look into AI solutions, what you see is kind of either look at it as a glass half full or glass half empty. Let me give you the glass half full case. What you're going to see is a pretty significant enhancement in the workflows that exist. Certainly, first inside of our ecosystem, our ability to process work, our ability to drive straight through processing our ability to make it just easier to do business.

And when you look at the workflows that exist inside of an adviser's practice scheduling, preparing for meetings, running alternative investment solutions, actually running the solution set you see there is material opportunity to improve the efficiency of an adviser's practice. When you take those 2 things together, we stare into what we think will be a pretty significant enhancement in the availability of capacity at an adviser's practice level.

In fact, many of the folks that sit inside of an adviser's practice, think of the CSAs, we think there's a potential for them to get much more productive and move to much more interesting and challenging work of beginning themselves to deliver advice.

And so -- as we look at the automation of an adviser's practice of the workflows inside of the practice, we think that there's going to be capacity to serve more end investors. And so we haven't seen a material reduction over the last several decades in spite of many new innovations that the advisory fee is driven down in any material way. But I would tell you the offset to that would be, we think, even if were that to occur, the advisers inside of their practice would have the ability to grow the practice and grow the number of clients and the assets they serve and serve them in ways that they serve their best clients today.

And so we view delivering the automation and AI as enhancing the adviser's practice, we think it will strengthen their ability to go to market and it will actually allow them to spend more time in advice delivery in context setting and helping take decisions with end investors. So that's the theory to our case. I think we believe strongly in it. And that is largely what we hear from our advisers. They are more excited about the adoption of AI than they are scared of the impact of AI, and we support that perspective as well.

Comes from the line of Michael Cyprys from Morgan Stanley.

Just wanted to ask about expense growth. Just curious how you would characterize that underlying pace of 4% to 5.5% core G&A growth that you referenced relative to a multiyear profile. And then when you layer in AI initiatives, I guess how meaningful could that be on a multiyear profile when you look out? And as you think about AI, I guess, where do you see some of the biggest opportunities to change processes and workflows -- that could be the most meaningful and really drive the needle on the bottom line as you look out over the next couple of years.

Yes, Michael, I think I mean the opportunity is huge. I mean, I think like most folks, I think you're going to be balanced in how much you're investing to improve and experience, give you more capacity to invest and drive your value proposition versus expand your op margin. And I think you see us balancing that. I think just looking at just this year, I think you're starting to see a good taste of what we can do and deliver I think, relatively reasonable expense growth, especially when you look at the last few years, while at the same time, delivering an increased capability set, starting to reinvigorate organic growth. In doing that all, I think, at that 4% to 5.5%, where we estimate now to be is quite a good balance.

When you think about like AI, so just kind of the end of your question there on the areas. I think for us, I'd put it in 3 broad categories where first is directly serving the adviser, and Rich hit on this a little bit and talking about Latitude, talking about Sien, but those are things where I'm just underscoring what he said, like the benefits of that are not only on the value proposition for advisers, but they lead directly to efficiencies on our side, things that would typically have been a phone call or an e-mail. And multiple steps and processes in both sides can just be completely processed through by that agent.

I think the second 1 is just pointing all of that were right at our internal infrastructure or back office, meaning service and operations that can just -- that's where it can materially improve the cost structure and the efficiency.

And then the last 1 would just be in our technology development, right? The coding and the tech builds itself where we're already seeing the ability to not only build things much cheaper than they were historically, but build them at a faster pace.

And I think you put those things together, and I think it goes back to a little bit of my headline point in the answer that not only can we drive efficiencies in the cost side, but we're going to be in a position to be able to improve and deliver a value prop I think, better and faster than most. So I think it's an exciting view over the next several years of being able to do that. But hopefully that helps with color on how we think about it.

Our next question comes from the line of Benjamin from Barclays.

In the prepared remarks, you talked about a pricing change in the ICA that's going to benefit a little bit in Q3. I wonder if you could explain the mechanics of that change a little bit more? How does it work? What's the rationale for doing it? Is there any particular behavior that you're looking to incent? How should we be thinking about that going forward?

Yes, you bet, Ben. I mean, I think it's primarily driven by the Commonwealth integration. So when you look at as we prepare to onboard Commonwealth. How we, LTL have priced cash-based tiering has been based on the level of AUM that the household has with us. Commonwealth prices are based on the actual level of cash balances that they have. So what we're doing going forward is just shifting to an integrated approach that is cash-based balanced hearing. And that also aligns us with our independent peers. So it's got a benefit there.

Now as to why that leads to an increase in returns -- when you look at the price tiering, right, to perhaps state the obvious, you pay less on smaller balances and more on the larger balances. And as we've talked a bit about, I think, for a long time, our advisers have their clients in cash and relatively small levels. We're probably at about 2 years now where the average amount of cash per account at LPL has been around $5,000. It really hasn't moved below that for 2 years. So the net result of that is more cash at those lower tiers. And that will lead to an increase in the ICA yield on a run rate basis of about 20 basis points. And those changes that are referred to are going to go effect in August, so kind of in the middle of the quarter. So you can view that as half of it coming in Q3 and then the second half coming in Q4.

And our next question comes from the line of Jeff Schmitt from William Blair.

Question on the institutional channel. You've sort of taken a pause, it sounds like due to the Commonwealth deal, how would you characterize your pipeline today? Has that been building? And are you seeing demand for outsourcing increase versus a year ago? Or has it been fairly stable?

Jeff, thanks for the question. So first, you're right. I mean we had to take an intentional pause not necessarily in our engagement in the marketplace but around our ability to onboard. We just first and foremost, making sure that we got the Commonwealth onboarding capability build ahead of everything else. And so it did put a pause on how we progressed opportunities in the pipeline.

If I reflect on maybe just for a second, kind of our positioning in the marketplace. So first, in that institutional market, we are the absolute leader in the institutional space and have been as such for years. And the institutions we serve support $590 billion of client assets in their wealth businesses, and that's multiples greater than those of our next closest competitor as we position in our conversations and actually with folks who have onboarded with us we have a really compelling value proposition. We accelerate the growth of the firm as they come on. We actually improved their margins, and we reduced regulatory and compliance risk.

And maybe most importantly, across that, especially when you think about us relative to competitors, we've proven our ability time and again to actually transition very complex, large-scale organizations in their wealth businesses seamlessly.

And so maybe lastly in that, we, also have signature clients. And two, I would say most -- 2 of our more recent joins in Prudential and First Horizon, 2 clients that I think are driving on our platform. And reflect the ability that have demonstrated that improves efficiency as well as accelerated growth.

So you put that all together, I think what we have is a building of our reputation in the marketplace to serve large institutions we're more engaged now certainly than we were a year ago with large institutions, not only with the number of institutions, but actually, the size and complexity of some of those institutions continues to grow. That's probably emphasized more even on the product manufacturer side. The bank market is a tried and true market as we can -- you'll see us continuing to talk to larger and larger banks.

And maybe let's talk just about banks for a second. So much of the focus on banks is on efficiency, and driving greater efficiency. And in the wealth business, that's no exception. So the conversations we're in are with larger institutions on the bank side who are looking at efficiencies and looking at ways for which they can compete and be competitive across the board and largely, that includes outsourcing well.

So we continue to see a building in the pipeline there, and we actually now have cleared the decks for us to have the ability to have more material conversations. So feeling better about where we are there than we were certainly a year ago.

And our next question comes from the line of Bill Katz from TD Cowen.

Just maybe a 2-part, if I could squeeze it in. On CFN, can you let me know what the cash is as a percentage of client AUA -- and then, Matt, I'd be curious if you could give us an update on how things have been trending into July on both flows and client cash.

All right. Very aggressive, Bill, operator said, one, I'll do 2. Don't worry about it. Look, on Commonwealth, their cash balances have -- the whole time they've been with us are a little bit below ours. So we've been -- we're at a little above -- they're a little bit above 1%. So they just have much, much lower cash balances, and it's always been that way.

With respect to how the third quarter is going so far. So for July. On the cash side, A couple of days remaining, but it's shaping up as you would expect in the first month of the quarter, which is primarily the impact of advisory fees. So those hit in the first month, that reduced cash by $2.8 billion. Outside of that, cash balances have been flat. So if you put those 2 things together, July cash has decreased by only the impact of fees, and that puts cash at around $54.1 billion.

On the organic growth side, similar impact. Month 1 is usually the lowest month of the quarter because advisory fees hit that in the first month. Outside of that, we are seeing organic growth continuing to pull through, as we've noted on the recruiting picking up -- and you put those 2 things together, that would put July organic growth in the zone of around 3%.

And our next question comes from the line of Mike Brown from UBS.

I wanted to just follow up on Stephen's question at the beginning. And I guess as you evaluate the potential transition towards platform fees, can you clarify, should investors view that work you're doing today as primarily developing a playbook that would only be implemented as the competitive dynamics or client behavior created meaningful pressure on cash sweep economics? Or is management increasingly inclined to make that shift proactively kind of regardless of whether those pressures materialize?

And then if it's the latter, what gives you confidence that moving first creates value rather than a disadvantage, particularly if competitors are slower to follow or really choose not to make a similar change at all?

Yes, Mike, thanks a lot. And I think, Bill, look at what Mike did. You actually reentered the queue and got a second question is so learning events to for all of us. So look, the question is whether we are going to be a leader or a follower, I think the most important thing is we actually need to get the right answer. And that's actually the work that we're doing. It's why the evaluation is so comprehensive in nature. As I mentioned before, well, with 32,000 advisers with 1,000 institutions, we are a market leader. We're already in that position and we're comfortable making decisions that lead the market if that's where things land.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Rich for any further remarks.

Thank you, operator, and thank you all for joining. We look forward to speaking to you again in October and have a great night.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

So good morning, everyone. Why don't we start off here? My name is Jeff Schmitt. I cover wealth management and capital market stocks here at William Blair. And I'd like to introduce to you LPL Financial. They're the largest independent broker-dealer in the U.S. They have one of the best growth profiles in the wealth management industry, just a great track record of growth. So we're really excited to have them here.

We have with us here the CEO, Rich Steinmeier, to discuss the business in a fireside chat format. So -- but before we get started, please go to williamblair.com for a complete list of disclosures.

So why don't we go ahead and get started, Rich. Maybe just as a starting point for the audience, you can kind of walk through at a high level who LPL is and what you guys do?

Yes. Thanks, Jeff. It's great to be here. So nice to see you all. So who is LPL? Well, we are one of the leading full-service wealth management firms in the industry. We provide middle-, front- and back-office support of advisers and institutions in the delivery of advice. And in that, we're largely a platform company. Think about us supporting the delivery of advice through those institutions or through largely independent financial advisers.

We serve over 32,000 financial advisers and over 1,100 institutions in the delivery of advice, supporting -- they support clients with more than $2.5 trillion in assets under management. And that split is largely kind of 75% of the assets are through the independent channel and then 25% of the assets are through our institutional channel.

How we win in the marketplace? We largely are the leader in the markets that we serve. And so when you think about that independent broker-dealer segment or the independent market itself more broadly, we are the leading firm in that segment. We have leading market share, and we capture more advisers in motion than any other firm in the marketplace.

In addition, on the institutional segment, serving banks, product manufacturers, credit unions, insurance firms for outsourcing their wealth management there again, where there's a full-service outsource, we are the leading player in that market segment as well.

We have strong tailwinds. There is a strong movement to independents in the marketplace. So advisers are moving out of captive channels and to independents. In addition, institutions find it increasingly difficult to be able to deliver a wealth management experience as the requirements of scale continue to grow higher and higher. And so we are the beneficiaries of leading in markets for which there are strong tailwinds. We have differentiated offerings in those marketplaces. We have the strongest value exchange in those markets.

We do that through capabilities, which we've invested in over decades that are differentiated to serve both of those markets as well, we have a client centricity around oriented towards advice. And that means in the independent market that advisers own their own clients and they're free to serve with us or change firms at any given notice, which I think actually puts the impetus on us to be the best firm possible in delivering that experience. You take that together, that independent ethos, that history of capabilities, leadership in the markets. And recently, that has led to us being on balance, the highest growing firm in wealth management over a sustained period of time.

Okay. That's very helpful. And then on your organic growth, it has been a little weaker than normal over the last 6 months just because of some of your focus on Commonwealth. But what gives you confidence that, that can return to that sort of mid- to high single-digit level over the coming quarters?

Yes. And I think if you look over the last several years, what we've demonstrated is a consistent ability to be in that mid- to high single-digit organic growth range. And I'd reiterate that that's where we think this firm systemically lives over time.

I will acknowledge, Jeff, to your point, we made an acquisition of Commonwealth. And at that point, the most important thing for us was to make sure that we solidified the advisers at Commonwealth, made sure that we redirected a lot of our sales and recruiting team to working with the 3,000 Commonwealth advisers and helping them understand the value proposition.

And so you can look and see over a 9-month period, we largely redirected our recruiting team and feel very good about that decision that we made, but it had implications to our organic growth. And so as we look at -- we've now been increasingly moving that team back into an external focus. I spent last week with the recruiting team, they had a national sales conference, huge energy in getting that team back into the external marketplace, working directly to helping advisers move to LPL.

And hopefully, you guys have seen over the last month or so, maybe even 2 months, we've picked up the number of announcements that we've made externally of advisers in motion that are joining LPL. And so I think you'll see as we brought more and more of those folks that were ring-fenced into the Commonwealth retention, brought them back into the field, I see growing pipelines. We see growing joins.

And I think it reiterates we've never been anything other than the top capture of advisers, even as we took those recruiters off and move them into the Commonwealth retention, we still captured more advisers in motion than any other firm in the marketplace in spite of the fact that we have moved a large proportion of our recruiting team into Commonwealth retention.

I think that reiterates the point that we should be able to systemically deliver mid- to high single-digit growth organic growth, married with strong retention, which persists. Our adviser retention is incredibly strong and same-store sales growth for and supporting our existing advisers. So I feel like that center of gravity where we've been over the last 6 or 7 years, minus this kind of movement over to support Commonwealth is likely for us to return over the second half of this year.

So it sounds like, yes, a lot of them have transitioned back to the external opportunities. It's in pipeline building mode. That will translate to recruit assets and ultimately organic. So yes, that's good to hear. And then just on -- you've highlighted the wirehouse channel as a target for organic growth. Could you maybe talk about how the platform has evolved and what additional enhancements are needed to improve recruiting success in that channel?

Yes. I mean I think historically, we have been the dominant capture of movement inside of the independent channel and recognized several years ago that there was an opportunity to expand our TAM. We went about that primarily first by expanding our affiliation models so that we had other different types of affiliation that wirehouse advisers may want to come into. And so we introduced an independent employee channel, supported independent channel in addition to our already existing support of independent RIAs and then corporate RIAs in the 1099 model.

As you build out that plethora of affiliation models, we started to get higher consideration of wirehouse advisers because sometimes they don't want to take all of that work on their own as they move into independents.

We then marry that with building increasing capabilities around taking out friction to move to LPL from other firms, building our core foundational capabilities across our operating platform, introducing integrated lending capabilities that is increasingly critical to wirehouse advisers, an incredibly robust alternative investment platform as well as selling agreements that I think are second to none in terms of the availability of product inside and then also built high net worth capabilities in support of sophisticated planning for advisers who serve high-net-worth and ultra-high-net-worth clients.

You take that together with our pre-existing value proposition of unmatched economic sharing, flexibility in the way that you can run your business and then expansive product availability, you marry that with those enhanced capabilities. And I think all of a sudden, you run into an opportunity where we are an incredibly relevant firm across any adviser who's looking to actually execute the business and want to be with an at-scale partner who have an integrated set of capabilities, a leading value proposition. And in fact, I think we have the leading value exchange in the marketplace. And what we see is the beginnings of heightened consideration for us.

Now in addition, last year, we began to move our brand consideration up. So we made an investment in brand. And in fact, just this morning, we announced a partnership with PGA of America. And so we will continue to extend our brand and make it more relevant in those places where wirehouse advisers, regional advisers are looking. So we've become the official wealth management and investment advisory firm of the PGA of America, and we'll be in support of many of their tournaments as well. And this marks the first sports brand investment we've made as a firm.

You take that brand relevance plus the capabilities, plus our orientation to having the advisers still own the clients. I think increasingly, that positions us as the leading player across the entire wealth spectrum. You add to that the Commonwealth level of service that we will integrate with the onboarding of Commonwealth to improve our overall ways that we support advisers. And I think we continue to strengthen our value proposition as a relevant value proposition across the entire wealth segment and feel good about that.

I did see that this morning. That's great news. So LPL is the leader in the institutional channel, and there really aren't many competitors, certainly for large deals in that or large partnerships there. So what differentiates you in the institutional channel? And what does your pipeline look like for those partnerships?

Yes. I mean I think, first, we've been in the institutional segment for 30 years, right? We have been serving -- we started with credit unions. We moved to community banks. We now serve regional and national banks and then move that into product manufacturers, insurance firms. And so our capability set is without peer. And in fact, when you look at it, we serve of our $2.5 trillion in AUM, $550 billion of that is in the institutional segment. That is multiples more than our next closest competitor that serves in the marketplace.

Look, we have -- as firms are looking to their wealth business to think about who the best partner would be for their wealth business, they're looking to drive increased growth. We do that through leading platforms, not only for advisers, but for end investors. They're looking to drive down their expenses to drive margin. And so we do that through the outsourcing of the brokerage operations, service, supervision, compliance, et cetera. And we're looking to derisk the business, both regulatory and just inside business risk itself.

And so what you see there is we have an incredibly strong value proposition as an at-scale player who actually does do this business as a matter of course, we demote our brand. And over time, we go to market behind the institution or behind the adviser. That gives us an incredible advantage relative to some of our peers who actually go to market with their brand first.

We've been able to invest in capabilities that are distinct to this segment. So you think about reporting and performance reporting back to the institution at a hierarchical level. So they've got to roll up either offices or regions or the business reporting itself. You think about our ability to help them recruit advisers. And so we're the #1 capture of advisers in motion in the marketplace as we direct that in support of institutions, we help them fill their adviser needs. We also have the ability to provide them business solutions as well. So some of the services that we provide.

Keep in mind, their wealth management business is often riding sidecar to a core business. And so the support services that we offer around advisory consulting, growth consultants, practice management consultants, all of that wealth management expertise and specialization accrues to their businesses as we get in together and make growth plans collectively to drive the growth in that business.

And so for us, you take that with that tailwind, which is that the size and scale required to be -- drive and lead a competitive broker-dealer or wealth management business increases to raise. And so we've got those tailwinds that more and more institutional firms are going to be looking to outsource that business. And we are without peer in this segment. We are the best firm as demonstrated in our market share in that segment.

So the Commonwealth conversion, we're getting closer to this, you're targeting the end of this year. How confident are you that in addition to hitting your retention targets, I think you've said you're already at 85% of AUM. But in addition to hitting your retention targets, how confident are you that this will be kind of a smooth conversion with little to no client disruption?

Jeff, I was thinking about it, since 2021, we've actually done 9 major conversion events, 3 M&A events and then 6 large institutional onboardings. And so that is -- every time we do an institutional onboarding, we are learning more and more. We're building more and more capabilities to seamlessly transition the advisers to drive the [ data to data ], to do the bulk uploads and do the transfers that occur across the direct business as well.

And so every time we continue to refine our capabilities to onboard large swaths of advisers. And so as we look into it, we feel good about our continued engagement with the Commonwealth advisers. They are seeing our value proposition resonate. We're keeping Commonwealth intact. We're keeping their service experience. Their communities is staying in place. Their conferences are staying in place.

And so I think they're growing increasingly comfortable that what we said almost over a year ago that we were keeping Commonwealth as Commonwealth is, in fact, the case. That's been demonstrated through our efforts. And so that's why I think we've been able to continue to make progress in those advisers and choosing to stay with Commonwealth.

On that integration, we've already begun the builds, building capabilities so that we have a super set of capabilities across Commonwealth and the LPL capabilities. And we feel really good about that we will be in order through Q4 to deliver the onboarding of Commonwealth in a way that is differentiated and seamless. And a lot of times, that's what an adviser is looking for. They want continuity with their clients. They don't want a disruption event. Obviously, they're going to learn new systems, but those systems are going to be more robust with more capabilities. And we feel really well armed to have a very good transition event with Commonwealth.

So -- and then maybe moving to M&A, I mean, once Commonwealth is onboarded, what is your appetite for the next large M&A transaction? Or could you accelerate your liquidity and succession planning? Or could you even just do maybe some larger institutional channel deals?

Yes. Think it's a good question because Commonwealth is kind of our center of gravity, and it has been our focus now for over a year, which is make sure that we get it right, make sure that we don't put too much into the pipeline or even too much into our consideration set that will blur the lines around what is the most important thing. And the most important thing is to make sure we onboard that exceedingly well. And so we -- as I said just a minute ago, we're feeling increasingly good about our ability to do that.

Maybe if I take a step back, our M&A has always been a complementary approach. What has always come first is driving organic growth. And so you see us coming back into the marketplace in a material way, both across the adviser recruiting as well as the institutional recruiting to reinvigorate our organic growth. But M&A plays a complementary role where we see fits that are opportunistic in nature and fit kind of our long-term objectives.

I'd say the exception to that is probably liquidity and succession. We view liquidity and succession as a core part of our offering in the marketplace to help advisers who have a need to sell their business to get that to the next generation. We have a distinctive offering in the marketplace that no one else seems to have followed where we actually provide the funding, buy the business, then transition that business to the next-generation entrepreneur. It really resonates well. And so for us, we have stayed kind of foot on the gas to make sure that we have liquidity and succession available that we're supporting the advisers' transitions. And I would call that kind of the centerpiece of our go-forward M&A program.

Now that -- as you look more broadly, you kind of asked about larger M&A opportunities. I would say we don't feel a burning need or desire to move on to another major M&A event. That will always be part of how we think about opportunistically where there are things that fit our needs. But at this moment in time, we feel good about completing Commonwealth, doubling down on some of our liquidity and succession opportunities and then opportunistically looking at M&A, but it is not a critical need for us as we move forward.

Okay. And then moving on to AI. Can you maybe talk about how LPL is incorporating AI into the business, both either to make advisers' lives easier or to just increase efficiencies across the organization?

Yes. I think we come out very firmly on the side of that there are huge enhancements to the way that we deliver our business and the way that advisers deliver advice and run their practices that will be enabled through the application of AI and transformative technology. And so we view this as a very strong positive in support of the business and in support of the actual underlying business metrics.

Where we kind of go is we've categorized this into 3 different buckets. The first is supporting advisers, their practice, the efficiency of their practice and their ability to drive growth and deliver advice. And so there's a whole cadre of things from meeting preparation, plan design, financial plan implementation, capturing notes after a meeting to ultimately identifying the fulfillment of simple tasks and maybe even more complex tasks that come out of those meetings. We see that as driving the efficiency of an adviser's practice and facilitating their growth.

Second is in building our operations, leaning our workflows, enhancing our ability to go to market. So think of in support of service associates, having the ability to deliver outstanding service experience into our clients, but more likely automating our workflows to take work out of the system, make it a more seamless experience, more straight-through processing at a lower cost while enhancing the client experience.

And then the third bucket for us because we are a fully integrated firm, so we own our own tech stack across the board, actually using automation to modernize our tech capabilities, deliver increasing capabilities at lower cost. And so think about that as AI through largely writing code, redesigning code, modernizing code to deliver capabilities, enhance capabilities faster and more cheaply. Across all of that, we view this as a huge opportunity and don't think advisers will be intermediated by AI, but in fact, will be made and positioned more actively to deliver more holistic advice to more of their clients.

So maybe we can talk about the AI cash optimization tools kind of specifically. And stocks have certainly kind of pulled back in recent months across the industry. So because of this? How do you assess both the potential opportunities and the risks to your business model that, that type of tool may create?

Yes. So we don't see an imminent risk that cash is going to be disintermediated through the application of AI tools. Look, there's a couple of reasons that we would think about that. The first is that advisers have been cash sorting over the last couple of years and as an active component of how they think about supporting their clients. We have given them an abundance of offerings and cash vehicles to manage cash inside the marketplace.

But having said that, we can't ignore the realities of what you've identified, which is there are market dynamics that cause us to look into the viability of cash going forward. And so we're looking at that. We're taking a look at what are the opportunities and risks associated with transitioning from cash yield into a more fee-like structure.

Having said that, I mentioned at the beginning, we've got over 32,000 financial advisers. We serve over 1,100 institutions who serve 8 million end investors in the U.S. And so we have to make sure that whatever solution we might work through would work for our clients as well. And so we said it on earnings, but I would reiterate, we're actually doing that active evaluation of how to assess those risks and the opportunities associated with minimizing the role of cash.

Okay. And then maybe talking about efficiencies here. You've increased your focus on operating leverage. It's one of your key priorities, really starting when you took over -- how should we be thinking about incremental efficiencies in the business?

Yes. I think I'd expand it just a little bit. It's operating margin. We look at operating margin, and we feel great about the progress we've made. It's been maybe 18 months since a reiterated focus. So we've been working for years on the delivery of efficiency.

But when you think about op margin improvement, I think you think about the revenue side as well. So you think about pricing our offering appropriate to the value delivered in the marketplace and constantly looking at that value exchange between ourselves and our clients. And as we continue to add value and deliver for them, the ability to price appropriately in the marketplace. You look at product shift mix as well.

Obviously, for years, we've been talking about brokerage to advisory. I think you can look at and talk about the inclusion of both sides of the balance sheet and banking becoming a more component -- a broader component of the offering that we think about in support of advisers. And as we grow scale, and we've grown tremendously, you look at that leverage that we have as we look at product manufacturers who really value that distribution on our platform and how do we make sure there's a fair value exchange with them as well. And as we continue to grow, add scale, we get leverage into that as well. So that's on the revenue side.

Then of course, right, there's a huge focus on the cost side, which is how do we drive efficiencies as much as possible. We just talked about AI. We talked about leaning the service experience, leaning the operations, building more straight-through processing, even thinking about the GCC, so for us a Global Capability Center and how do we think about the most efficient delivery of code as well as where we can access talent more broadly across the globe.

You add that together, and that should -- we've made great strides. And I think we believe we've made the investments. We planted the seeds for a sustained continued improvement in our operating leverage over the next couple of years. And as we continue to do that, we'll make a choice as to some of that's going to accrue to the bottom line, but also that's going to allow us to out-invest in capabilities. It will give us more capacity to continue to strengthen our value proposition.

We already think it's the strongest value proposition in the marketplace. I think that's a little bit of thumb on the neck against the competitive set to say, okay, try to keep up with us. And I think we think that this is a critical role. Operating margin improvement plays a critical role in the proper construction of our P&L so that we position ourselves systemically to outperform in the marketplace.

So we've covered a lot of ground today about your current positioning, the various growth initiatives that you have. So if you're successful in executing on your strategy, where do you see the company 5 years from today?

I think you have to look at companies and companies have to make choices. And we have made a choice to be a leader in this marketplace. That is an active choice. It is sometimes harder, you sometimes take greater risk. But the truth is you'd much rather be the firm that is driving the boat and changing the industry versus the firms that are surfing in the wake and trying to figure out how to navigate in the exhaust side. And that is a choice that we actively made. We demonstrated that through our position and our acquisition of Commonwealth.

And so for us, we think that we are moving to become the leader in the wealth management business, an unparalleled value proposition that continues to be strengthened with financial discipline that demonstrates leading organic growth across not only the adviser segment, but the institutional segment, where we continue to strengthen our offering in 2 markets, as we said earlier, that have tailwinds to them.

You take that together, -- as we've expanded our participation more broadly just from originally that independent adviser and RIA segment into the wire and regional segment, as we've kind of raised our eyes and challenged who our competitors are, what we see is we have the unparalleled value proposition in the marketplace. But if I'm frank, what you would say is, historically, you would choose to join a firm like LPL with the best economics, the best flexibility, client ownership and maybe or the best capabilities in the marketplace. We didn't always have the capabilities that were at par with the leading wirehouses in the marketplace.

I think as you look 5 years forward or a couple of years forward even into this firm, what you will see is that we will move from having the best economics, the greatest flexibility, greatest product choice, and we will have the best capabilities in the marketplace that will be better than the firms that advisers are at today. And so that or turns to an and. And I think that means we will ascend to a value proposition that will be unparalleled and really will be hard to catch.

And so I think in that scenario, you will see an acceleration of our share capture and not only in the institutional segment, but most probably in the adviser segment that should drive us into that sustained high levels of organic growth that we've demonstrated over the last 6 to 7 years.

Okay. We're coming up on time. We have a breakout in the Adler room shortly, but this has been really great, and I want to thank you, Rich, for joining us.

Thanks, Jeff. Appreciate it.

Good afternoon, and thank you for joining the First Quarter 2026 Earnings Conference Call for LPL Financial Holdings Inc. Joining the call today are Chief Executive Officer, Rich Steinmeier and President and Chief Financial Officer, Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions. [Operator Instructions] The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com.

Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements.

For more information about such risks and uncertainties, the company refers listeners to the disclosures under the caption forward-looking Statements in the earnings press release as well as risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission.

During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com.

With that, I will turn the call over to Mr. Steinmeier.

Thanks, operator, and thank you to everyone for joining our call. It is a pleasure to speak with you again. It's been a strong start to the year for LPL. We delivered solid organic asset growth and continued to progress our build and build our recruiting pipeline. .

We advanced the operational work in preparation to onboard Commonwealth Financial Network, and we made meaningful progress driving improved operating leverage.

We accomplished all this against the backdrop of rising macroeconomic and geopolitical uncertainty and an increasingly loud and often speculative narrative around the role of artificial intelligence and wealth management, whether enabler or disruptor.

It's periods like this that serve as a reminder of the value of professional advice, the importance of our responsibility to support our advisers and institutions and the strength and resiliency of our business model.

Okay. Now let's turn to our Q1 results. In the quarter, total assets decreased to $2.3 trillion as organic growth was more than offset by lower equity markets. We attracted organic net new assets of $21 billion, representing a 4% annualized growth rate.

Our first quarter business results led to strong financial performance with record adjusted EPS of $5.60 and an increase of 9% from a year ago. Next, let's turn to our strategic plan and how we are progressing against our organic and inorganic initiatives. Our vision is clear. We aspire to be the best firm in Wealth Management.

To do that, we remain focused on 3 key priorities: one, maintaining the client centricity the firm was built upon. Two, empowering our employees to deliver exceptionally for our advisers and their clients and three, delivering improved operating leverage.

Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model. With that as context, let's review a few highlights of our business growth.

In Q1, recruited assets improved to $17 billion, a solid outcome in what is typically our slowest quarter of the year. Throughout Q1, we advanced opportunities into the later stages of our recruiting pipeline while pushing the overall pipeline to record levels.

We continue to expect the pull-through to improve over the course of the year, supporting improved organic growth. In our traditional markets, we added approximately $15 billion in assets during Q1 as we improved on our already industry-leading capture of rates of advisers in motion.

With respect to our expanded affiliation models, strategic wealth, independent employee and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $2 billion in assets. Turning to overall asset retention. It was 98% for Q1 and 97% over the last 12 months.

This is a testament to our continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As for Commonwealth, the integration is progressing well. Advisers are completing their diligence.

And as they do, we are pleased that many are deciding to stay with Commonwealth. In terms of asset retention, we are in the mid-80s today, and we continue to track towards our target of 90% retention. At the same time, we are working closely with our common web partners to jointly map the path forward to ensure we are bringing together the best of Commonwealth and LPL.

With several foundational elements we are looking to embrace, for example, Commonwealth's indispensable approach to adviser satisfaction and their commitment to responsiveness is woven into the fabric of their culture and something that must be preserved.

As a key step to enable this, we are developing a comprehensive case management solution to serve as a foundation for an evolved approach to how we route work and communicate progress to our advisers. Modernized platform will connect Advisors offices to critical systems from relationship management to service, the operations, to product experience functions helping ensure greater continuity, consistency and follow-through across every step of the adviser experience.

Beyond the work we're doing to prepare for the onboarding of Commonwealth advisors in Q4, we've continued to advance our capabilities to better meet the needs of high net worth individuals. We've expanded the inventory of alternative investment products available on the platform and are delivering more personalized investment solutions through enhanced direct indexing and tax loss harvesting capabilities.

In closing, the first quarter was a strong start to the year, and we feel great about our position as a critical partner to advisers and institutions. As we continue to improve the efficiency of our operations, we are creating capacity to reinvest in growth while driving stronger operating leverage.

We believe this positions us to deliver sustained value for both our advisers and our shareholders. With that, I'll turn the call over to Matt.

Thanks Rich, I'm glad to speak with everyone on today's call. As we move into 2026, we continue to advance our key priorities, which include driving solid organic growth, driving improved operating leverage by enhancing efficiencies and better monetizing the value we deliver, providing a market-leading adviser experience through ongoing investments in our platform, and advancing our M&A initiatives as we continue our preparation to onboard Commonwealth.

Announced the acquisition of Mariner Advisor Network and continue to execute on our liquidity and succession strategy. These efforts resulted in strong first quarter business and financial performance and position us well for the year ahead. Now turning to a few highlights from our Q1 business results.

Total client assets were 2.3 [ truck ] and approximately 4% annualized growth rate. As for our Q1 financial results, the combination of organic growth and expense discipline led to adjusted pretax margin of approximately 38% and record adjusted EPS of $5.60.

Gross profit was $1.593 billion, up $51 million sequentially. As for the key drivers, commission advisory fees net of payout were $487 million, up $33 million from Q4. Our payout rate was 87.2%, down 80 basis points from Q4 and largely due to the seasonal reset of the production bonus at the beginning of the year.

Looking ahead, we expect our payout rate will increase approximately 50 basis points in Q2, driven by the typical seasonal build. With respect to client cash revenue, it was $460 million, up $4 million as the growth in average cash balances more than offset the full quarter impact of short-term rates.

Overall client cash balances ended the quarter at $59 billion, down $2 billion, primarily driven by record net buying in Q1. Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 60% within our target range of 50% to 75%. Looking more closely at ICA yield, it was 336 basis points in Q1, down 5 basis points sequentially and driven by the full quarter impact from the Q4 rate cuts.

As we look ahead to Q2, based on our client cash balances and interest rates are today, we expect our ICA yield to be roughly flat. As for service and fee revenue, it was $211 million in Q1, up $30 million from Q4 as the benefits from our previously announced fee changes more than offset the seasonal decline in conference rep.

Looking ahead to Q2, we expect service and fee revenue to increase by approximately $5 million as the previously announced direct mutual fund fees go into effect. Moving on to Q1 transaction revenue was $81 million, up $6 million from Q4 driven by record trading volumes.

As we look ahead to Q2, we expect trading activity to normalize and transaction revenue to decline by roughly $5 million. With respect to other revenue, it was $4 million in Q1. Going forward, we expect this to be roughly $6 million per quarter. Now turning to our acquisition of Commonwealth. As Rich mentioned, the transaction continues to progress well. and we remain on track to onboard in the fourth quarter.

As for the financials, accounting for the market-driven decline in Q1 assets, we now estimate run rate EBITDA of approximately $410 million once fully integrated. Next, let's move on to expenses, starting with core G&A. It was $532 million in Q1, below the low end of our outlook range, reflecting our continued progress in driving greater efficiency and reducing our cost to serve.

For the full year, given our progress to date, we are lowering the upper end of our outlook range by $20 million. We now anticipate 2026 core G&A to be in a range of $2.15 billion to $2.19 billion. To give you a sense of the near-term timing of the spend, we expect Q2 core G&A to be in a range of $540 million to $560 million.

Turning to TA loan amortization, it was $136 million in Q1, up $3 million from Q4. As we look ahead to the second quarter, we expect TA loan amortization to increase by roughly $10 million, driven by the strengthening of our recruiting activity. As for promotional expense, it totaled $76 million in the first quarter, roughly flat with Q4.

Looking ahead to Q2, we expect promotional expense to increase $5 million driven by conference spend. Moving on to share-based compensation expense. It was $22 million in Q1, and we expect this to increase a few million sequentially as we head into Q2. Turning to our tax rate. It was approximately 26.5% in Q1, and we expect a similar tax rate in Q2. Regarding capital management.

We ended Q1 with corporate cash of $567 million, up $98 million from Q4. As for our leverage ratio, it was 1.86x at the end of Q1, just under the midpoint of our target range. Moving on to capital deployment. Our framework remains the same. Focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate and returning excess capital to shareholders.

In Q1, we continued to deploy capital in line with our priorities, investing primarily in organic growth and M&A, where we advanced the Commonwealth integration and continue to allocate capital to our liquidity and succession solution.

Regarding share repurchases, a reminder that we paused buybacks following the announcement of the Commonwealth acquisition with a plan to revisit following the onboard. Given our progress to date with leverage slightly below the midpoint of our target range, the operational work to onboard Commonwealth on track and the dislocation in the price of our stock, we opportunistically resume buybacks earlier this month with roughly $125 million planned for Q2.

We will continue to remain flexible and dynamic with our capital deployment as we advance through the year. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage and create long-term shareholder value.

With that, operator, please open the call for questions.

Certainly. And our first question for today comes from the line of Steven Chubak from Wolfe Research.

Rich and Matt.

Absolutely good to hear from you.

So there's been much focus on the structural headwinds to cash flow with anticipated adoption of Agentic AI tools. And given the value prop you offer your advisers, both in terms of technology and enhanced service. Can you speak to the flexibility on the pricing side if cash balances do remain in structural decline and have you done any external research or engage with advisers on a potential pivot to a more fee-based model that reduces your reliance on cash monetization?

Yes. Thanks, Steven. So first off, we don't see an imminent risk to further adviser-led cash sorting from AI. But with respect to cash, while the AI and tokenization angle is new, we've heard variations of this question over time. We are well attuned to the recent developments in the sector and understand the focus on this subject.

So you should know we're doing the work to properly assess the opportunities and risks of reducing our reliance on cash fleet economics over time. And as with everything we do, we must ensure we're delivering a fair value exchange with our advisers and their end investors and understand how any change may impact them or position us with prospective advisers.

While being cognizant of how our shareholders value predictable recurring earnings rates. However, while the levers are clear, this is grounded in a lot of complex work. On the one hand, we're a monoline business. So theoretically, it should be straightforward to affect change especially since we don't have to contend with the constraints of operating a bank and all that, that entails.

But on the other hand, we only exist to serve the over 30,000 advisers and over 1,000 institutions that have trusted us with their business in the 8 million American families they serve. We must ensure that any potential changes would work for them and also how it might intersect with other services we are delivering in the broader value exchange.

So maybe to summarize, we're doing the work, which we know is extremely important However, I would note, it's going to take some time as we work closely with our clients to ensure any potential changes would work for them. We appreciate the question, deeply understand the setup and know that this is top of mind for many of you.

And our next question comes from the line of Alexander Blostein from Goldman Sachs.

I was hoping you could speak to your appetite for incremental M&A vis-a-vis the updated share repurchase outlook over the coming several quarters. as you're getting kind of deeper into the Commonwealth integration. Obviously, very nice to get a deal announced here recently. So maybe speak to the pipeline, the engagement you see in the channel now for additional M&A? And again, how to think about that versus share repurchases?

Yes, Alex, I think maybe I'll speak to the near term and then Rich definitely jump in with anything to add on the longer term. I think more in the near term, Alex, like when you look at our focus on integrating Commonwealth, that's where we're spending our time and energy. .

So I think from a capital allocation standpoint, what is right in front of us is the opportunities to drive organic growth, which we covered a bit in the prepared remarks on those pipelines building. And then I think they're really clear and compelling returns on buying back our stock. I think that's more of a near-term dynamic.

I think the longer-term dynamic, maybe I'll turn it over to you, Rich, to touch on this. I think the longer-term dynamic is still quite compelling.

Yes, I think -- thanks, Matt. So I think longer term, look, our core strategy is to drive organic growth, and M&A is an important component of thinking about that holistic growth story. Historically and continually, we would look at a couple of different categories for M&A. So one would be growing our markets.

So broker-dealers and RIAs at different sizes. I think you could look at Mariner as a good example of that, the Mariner Advisor Network. And for us, we've demonstrated that ability to integrate large and complex opportunities and deals better than anyone else.

So second would be our liquidity and succession solution, which we've talked extensively about with the ability to help existing and external advisers solve succession needs in ways other firms don't. We'll point that this is a very unique offering in the marketplace for us, and we feel very good about its continued progress in supporting our advisers and opportunistically looking externally.

And then third, where appropriate, we'll look at capability transactions and evaluate whether we should allocate capital to build, buy or partner. So in general, our M&A criteria remain, whether a transaction is a good fit strategically, financially, culturally and operationally, but we'll remain disciplined around this framework as we go forward.

And our next question comes from the line of Craig Siegenthaler from Bank of America.

So AUM retention rebounded to 98.2% in the quarter, but the adviser count declined by 34%. Now that's a rounding area, but a little curious on what drove that dynamic and also, how do you expect the financial adviser headcount to trend into year-end?

Yes, Craig, I'll take that. I think you've got the -- on the Q1 results. That's just a near-term dynamic with respect to Commonwealth. So as we track towards that 90% retention, and we're at in the mid-80s right now, as those folks actually leave, you'll see those come out of head count. So they're still in our headcount until they actually leave.

So it's just a little bit of a dynamic there. That was about a net 90 reduction in the quarter from that. So headcount was positive from that. I think to your question on head count going forward, I think it'd be pretty typically tied to our recruiting efforts as those ramp up.

And then just always, I think you asked as we went into the end of the year, just always keeping in mind as you get towards the end of the year, especially November and December, so for Q4, that's a lot of times where you see smaller advisers not kind of get out of the business to not renew their licenses.

So that would be something where you could have some headcount noise that really has little to no AUM or NNA impact but that would be typical pretty much every year towards the end of the year.

And our next question comes from the line of Devin Ryan from Citizens Bank.

I want to come back to the topic of artificial intelligence and maybe just a broader question. Can you talk about how you're just thinking about implications right now on LPL's model across areas like adviser productivity.

How do you see it impacting demand for advice over time? And then even potentially consolidation towards scale firms or even adviser movement towards scale firms? Just some more color there would be helpful.

Devin, it's Rich. Thanks for the question. A lot of questions out there around AI. I think if you look to historically how we've driven the enhanced value exchange and value proposition at the firm, we have consistently invested in tools and technology and services to support advisers throughout the life cycle of their practice. .

And so not surprisingly, we view transformative technology and specifically AI is an incredibly powerful tool to help our advisers not as a replacement. We put it into 3 broad buckets. First will be directly serving the adviser. And so this is where we help them deliver their value to clients and usually helping them accelerate their growth as well.

So I think about that like note-taking tools, proposal generation tools, enhancements to wealth planning and portfolio construction I think we're really bullish there that there is ways to build solutions and integrate them into our core workstation, I think will be very valuable and enhance their value delivery to their clients.

Second bucket would be processing of transactions and tasks to drive straight-through processing. We alluded to these before. This is the automation and made more efficient of actual workflows, transaction types, et cetera, a follow-up. This will lead to more efficient workflows, fewer errors, less manual intervention, while dramatically reducing our cost to serve and improving the adviser experience.

And I think Examples in this area, Devon, would be reducing the time and cost of clients, supervision, marketing reviews, et cetera, things that really sometimes fall to the adviser and oftentimes follow to their staff. And then maybe our last bucket that we think about are the foundational improvements in coding and development.

This for us is the ability to materially advance the development and deployment of code inside of our system to modernize our code base and to deliver capabilities more quickly and more robustly.

And so and there, we're leaning on tools like GitHub CoPilot, cursor, Quad code, et cetera and are seeing early results that are very encouraging. I think taken together, maybe specifically to address your question, we feel really good about the ability for us to integrate those experiences into our value delivery.

I think that's why you've seen an increasing move of advisers choosing to join this firm for that scale firm in the independent segment supporting advisers and institutions with a differentiated set of capabilities that are fully integrated. And I think the integration of those capabilities are incredibly important in driving efficiency through the adviser's practice.

You marry that with our ability and responsibility to protect our cyber environment through the deployment of AI and enhancement of our controls and governance systems and strengthening our own defenses through AI like reducing the time required to identify and address emerging risks in an increasingly AI-driven threat environment.

When you take that together, we feel like this is an extension and continuation of our strategy and not a marked change, we are incredibly excited about how AI will help our advisers as well as our bottom line.

And our next question comes from the line of Michael Cho from JPMorgan.

I just want to touch on M&A and recruiting. I think you mentioned in your prepared remarks about record pipeline exiting Q1 and the expectation of improvement throughout 2016. I'm just kind of curious how you think the pace of improvement progresses from here for your recruiting pipeline? And any comments in terms of April since we're at the end of the month anyway.

So first, I will tell you, I think we feel really good about, as you're aware, adviser movement has returned to historical norms. And so we feel good about the environment that we're in, stabilizing with more advisers beginning to move again.

Second, maybe specific to us, given our strong progress with Commonwealth, we're increasingly focusing our recruiting efforts on external opportunities my interpretation for us was that as we've gotten more and more resources back and available to talk to advisers, I see an increasing responsiveness to the value proposition that we're putting forward in the marketplace.

And so I think as you look throughout the year, and it takes time, and we referenced this before, it takes time to build those pipelines, to progress those pipelines, but now sitting at record levels we feel really good about the progression and about the absolute level of engagement we're having with advisers in the marketplace in a marketplace for which more advisers are moving.

So you take that together, with the strength of our value proposition. I think it leads us to feel very confident in our ability to deliver those mid- to high single-digit growth over time. And if you look at that, not just in the near term, but maybe over the longer term, it also supports a long-term systemic leading in organic growth through, one, increasing our win rates in traditional markets.

Two, further penetration of a wirehouse and regional employee adviser space, for which we continue to see progression and we're up to capturing now 11% of the advisers in that segment in motion, up from 9% just a couple of years ago.

And then L&S, I'll tell you as we're in conversations, L&S is a critically important component, not necessarily always just at the time of transition, but as us having a unique and differentiated solution in the marketplace for advisers as they think about their options to transition their business.

So you pair that with low attrition and steady contribution from same-store sales, and it sets up collectively to hit a high -- sorry, a mid- to high single-digit growth over the long term as well as the short term.

Yes. Thanks, Rich. I'll take -- Michael, I think you slipped in 2 questions there, but we'll do it. I'll do the second question. And I'll cover client cash, too, because I think everybody would also be interested in how April is shaping up there, too. So we'll say if someone else asked done. .

So overall, I think everybody knows, but like April, the seasonality in April, it's typically the -- from an organic growth standpoint, one of the lowest months of the year, if not the lowest month of the year. And then on cash balances, you'll typically see one of the larger declines of the year. because of 2 seasonal factors.

So starting with client cash. And in addition to advisory fees hitting in the first month of the quarter, which is around $2.5 billion now, given our size, you also have the impact of people paying their annual taxes.

That reduced client cash by about $3 billion this year. So those 2 seasonal factors together are a decline of around $5.5 billion. And then from a cash standpoint outside of that, we continue to see the build that we saw in March. We continue to see the build into April, going up by about $1 billion. So the net of all that would be client cash down by around $4.5 billion.

Now on the organic growth side, and those seasonal factors hit organic growth as well and get annualized into that single month. So both taxes, the impact of tax payments and the impact of advisory fees reduced April organic growth by around 3 percentage points.

And then we had a little bit of attrition that was earlier in the quarter from a large practice that left in April that impacted as well. Now outside of those factors to what Rich was just highlighting, organic growth has continued to improve as recruiting has continued to pick up.

That said, when you put all those factors together for April, we'll probably be in the zone of around 1.5%. But as we move into May and June, as the seasonal factors abate, and to the recruiting point, as the pipelines build and the recruiting starts to come on board, we would expect to see organic growth pick up in May and in June.

Our next question comes from the line of Chris Allen from KBW.

I wanted to ask about the Commonwealth EBITDA run rate being lowered. I realized you talked about mark-to-market dynamics. Just trying to reconcile that versus -- with the current market levels, the improvement we've seen so far in April. I would imagine the EBITDA was as of the quarter end. So would we expect a positive inflection next quarter?

Yes, Chris, you got it right. So I think the reduction from 425 to 410 was all market-driven, meaning no changes to expected synergies or things like that. So to your point, if we were to snap the chalk with the market having come back, and that's where it stays until the end of the quarter, I would expect us to be back at 425.

And our next question comes from the line of Benjamin Budish from Barclays

Maybe just following up on Chris' question there. So the $10 million run rate down sequentially based on the market moves, but that is still below the starting point that you disclosed in Q1, Q2 of '25, but the asset level was still higher than that.

So I'm just curious, is there anything else going on under the surface anything mix related or anything like that, that might be impacting the EBITDA run rate today?

No, not at all. I mean I think I mean we've given updates each quarter on some things that have moved around, but I think the -- the 2 things that have moved from a market standpoint are going to be the equity market levels and the market levels overall.

And maybe the other item just to highlight is cash sweep, which that also has moved around. But that's the only update. No changes to expected synergies as simply market movements and just reiterating what I just said to Chris.

As we sit here today, those things have recovered. So if we were giving an instant update, which we're not, we would be back at 425.

And our next question comes from the line of Michael Cyprys from Morgan Stanley.

I wanted to follow up on AI and cash monetization. I was hoping you could help unpack why you don't see more risk or risk of more adviser sorting from an curious what informs your viewpoint there.

And then I think you mentioned you're doing some work around reducing reliance on cash economics. So I was hoping you could elaborate on what exactly this work entails? How you're going about your analysis? What factors are you considering and also not considering?

Yes. Let me -- it's Rich. Let me take the first part of that, and maybe I'll take both I hear. So why don't we think it's a risk? I think first, in many ways, the behavior alluding to has already happened. We've seen sustained deal seeking over time and cash allocation today are already at historical low levels.

And cash is around $5,000 per account, which has been hovering there for nearly 2 years, consistently barring a slight seasonal movements. So the system has been adjusting and what we tend to see is incremental evolution, not step function change, first.

Second, we've always provided advisers with an abundance of options for managing yields on the cash on behalf of their clients. And so we think that this set of offerings, most advisers have adopted that into their practices themselves. And so we don't see behavioral change necessarily occurring, whether it will be available or not available. In terms of the work do you want to take the work?

Yes. Sure. Mike, I just have to unmute myself before I answer. It was a really good answer to start there. Look, I think on -- in just kind of building on or reiterating what Richard said, I think when you look at what the changes could be, like we have a straightforward fee-based levers that we can use to manage and sustain our economics.

And we've got flexibility in how we price, how we package, how we deliver value across the platform. But I think the core item and just to reiterate, what Richard said. It's like we exist to serve our 30,000 advisers and over 1,000 institutions that have trusted us with their business and the 8 million clients that they have, right?

So I think the work that we're describing is all about ensuring any potential changes would work for that and how that would intersect with other services that we're delivering. So that's what I would just underscore. We've got the levers. It's more about what could work for our clients, and that's the work that we have in front of us.

And our next question comes from the line of Jeff Schmitt from William Blair.

So one more question on the run rate EBITDA for Ama Wealth. What are you assuming for synergies in that estimate that would materialize, I guess, mostly next year? And just what are a few of the biggest drivers of those synergies?

Yes, Jeff. There's no change there. And I think they are the ones that we had covered in the beginning. So they're pretty common from a revenue side when you get things onto our custody and our clearing platform, whether it be cash sweep as well as the sponsor related revenues and then you get your typical expense synergies of being on our platform in our self-clearing platform on that side, too. So they're the -- I think the synergies that you would expect and no change there.

And our next question comes from the line of Mike Brown from UBS.

I just wanted to ask another one on AI and AI disruption risk, but maybe more from the risk to the adviser and not from the cash angle, but I think over time, advisers have continued to really prove the value to their customers.

But the transformative potential of AI is tough to ignore here. So could you maybe speak to the risk of AI impacting that traditional adviser model with some of these AI-centric platforms and capabilities that are kind of rolling out in real time? Could we see client behaviors shift to prefer models like this, especially if the economics are more favorable and how are you kind of thinking about defending the turf of the traditional adviser model.

Thanks, Mike. It's Rich. I think first, what we see historically is that the pie is the bind in a relationship or between the adviser and their clients. And those aren't necessarily because of efficiency of the delivery of the experience.

More often than not, it's because of a trust and extended relationship that for many has extended over years and oftentimes decades. So when we look at the potential for the enhancements to the technology, we see things that actually may commoditize everyday low value experiences make them more efficient for the adviser, we see things that allow the personalization of the experience between the adviser and the client to enhance.

And more often, what I would say is we'll see more time available to actually serve clients more insights available to work with those clients. The ability to deliver them where I think you're going to see more of advisers' time spent with clients, but also more of their staff and their team time in support of those and oftentimes their teams moving away from mundane task delivery into higher value added.

I think you see the opportunity there for a significant enhance in the delivery of the EQ element of the adviser experience while you see a commoditization of some of the IQ elements that being portfolio construction, risk remediation, et cetera.

But with a personalization opportunity that is dramatically enhanced and so we are running headlong into those enhancements through AI that propped the adviser up. And I think we see cases even in the services industry. When you look at radiologists, I think there was a belief that radiologists were going to be minimized with the application of AI and the reading of scans.

But in fact, what you see is there are more radiologists today than there were 10 years ago because there are more high value-added services being provided in that experience as well as more folks getting scans I think you might see an opportunity for advisers to more broadly serve more clients with deeper personalized advice through tools who help them be more productive.

And in that regard, those are the applications that we're running at with advisers in partnership with them. And so we don't see the risk exposure nearly as much as we see the opportunity side of that equation.

[Operator Instructions] Our next question comes from the line of Wilma Burdis with Raymond James.

Just a quick one on the payout ratio. It was 87.2% in 1Q, up about 40 bps from just year-over-year and then compared to also you go into some of the drivers? And is it related to recent acquisitions or Commonwealth or anything along those lines? Or what else could be driving it?

Yes, Wilma that was the primary driver. It was Commonwealth. So a couple of things were related to Commonwealth. One, on average, they have advisers with larger AUM. So the payout is higher. And then there's a little bit of noise that's unique to Q1 and the way that our payout works for the production bonus that builds throughout the year, they don't have that.

So the mix impact of their payout being higher is most notable in Q1. And now that we've closed on the acquisition, you see that noise in Q1. And then a secondary item, I'd say relatively a minor driver of it. Just keep in mind the payout was driven off of advisory fees that were snapped if we will, at the end of the year when asset levels are much higher.

So for those larger advisers where there's a tiered pricing impact where they get discounts, the larger they are, you had a little bit of that happen as well. But the primary driver is the Commonwealth noise as you suspect.

And our next question is a follow-up from the line of Michael Cho from JPMorgan.

I just had a quick follow-up on G&A. You talked through G&A and efficiencies and you pulled down the top end of the guide. I was wondering if you could just back a little bit more on where the efficiency gains, I guess, were maybe in the quarter?

And how we should think about those efficiency gains as you progress through the year in terms of areas for more potential there versus maybe other areas of more organic investment that you're considering?

Yes. I mean I think broadly on where we're investing is continues to be at the highest level investments to drive adviser capabilities, our technology, drive organic growth overall, combined with investments to drive efficiency.

And I think maybe just to give you a little bit of examples on the efficiency side and building on what Rich talked about a little bit earlier on AI. That's been a big driver of it, and it's a big component of our plans for the year.

So if we take those kind of 3 areas that we're talking about for AI, for adviser capability for our own internal operations and efficiency. And then third, our ability to develop technology faster. I'll just focus in on that second area the opportunities internally in areas like service and operations.

And that's where it's really exciting because not only does it drive the cost story that you're asking about, it also drives an improvement materially better adviser experience that I think ultimately puts us in a better place to drug growth as well.

But just to give you some examples on the expense savings and what we're doing, Rich touched on it in the annuities area. We're the largest distributor of annuities in our space. And it is a very manually intensive process, and that's where we've been able to deploy AI to not only streamline the costs associated with it but also increase the pace at which we can improve annuities as an example.

Within service, and these are probably some of the more expected examples, but being able to provide tools to our advisers to do natural language search build out AI enabled chat.

So rather than having to call us, they can ask questions to get those answers themselves. And then for the service team themselves. So our team is delivering tools to them so they can answer questions more quickly, more accurately with AI on their side.

And then maybe last and one that I think has a big opportunity is just on the operations side. And this is where the Agentic AI that everyone loves to talk about becomes real where you can do things like non-ACA transfers, which are intensely manual and you can deliver a genic AI that can cut cycle times there by significant amounts. And talking 90% of the time can be reduced.

So not only are you lowering the cost, you're actually improving the experience to move those in, especially when they're transfers in. So those are just some examples. I think the broad point a little bit to your question is we're still in the early innings of this. So not only do we have a nice road map that we're building out this year.

This is an ongoing opportunity in 2017 and beyond as well. So we're excited about it.

Our next question is a follow-up from the line of Steven Chubak from Wolfe Research.

Coming the follow-up. So wanted to ask about the long-term NNA outlook beyond the Commonwealth integration. Across Multiple questions, you spoke about low adviser attrition, record pipelines, steady contribution from same-store sales?

And how does that inform what you believe is an achievable organic growth rate? And separately, if you can just provide an update on the enterprise opportunity and how that pipeline is tracking. To follow up with a double dip in it, and I'll take that.

So on the first one, Steven, I think that when you take all of that together, I alluded to it a little bit earlier, we do believe that we should be able to sustain mid- to high single-digit growth rate over the long term. I mean we have what we believe is the strongest value proposition in the marketplace.

And I think as we get into recruiting more actively back into the recruiting market. What I see in the pipeline, what I see in HOVs, what I see in directly engaging with advisers is that, that value proposition resonates significantly in the marketplace.

And you can hear it even from third-party recruiters, as we're back engaged. I think they feel bullish about our ability to really move back into the position we have historically been, which is the leader in capturing adviser movement and extending that share capture over time.

I actually think as you think through even the application of AI and the enhancements that we're going to make in an integrated system that allows all of that not to be in a swivel chair environment, but the AI largely to be integrated into our core operating systems.

I think you're going to see that value proposition for extend relative to our historical competitors, I think you're going to see us strengthen even more. So when you put that all together, I think we feel like we have a value proposition that is strong, we see it resonating in the marketplace, and we see it strengthening in time, that reiterates our belief in that sustained mid- to high single-digit growth rate.

Now you asked about the institutional segment as well. And I think on the institutional segment, we are the leader in that partnership in the institutional market. We have demonstrated it over decades of delivering experiences to help firms who want to advance their wealth management business.

We have done that first in the financial institution segment, where we have asserted and sustained leadership in supporting banks and credit unions in support of their wealth management businesses.

And then we've extended that into adjacent opportunities in the marketplace, most notably recently with insurance and product manufacturers and I would point out Prudential, who converted a little over a year ago, who by their measures, their business is stronger. We see it in terms of them thriving.

We see it in terms of financial performance as well as their attractiveness in the marketplace, and then recruiting advisers into their platform. That has a ton to do with them, maybe less so to do with us, but we feel great about how the prudential delivery allows us to be more active in the marketplace in conversations on the institutional segment.

And so across banks, look, some of that's going to be opportunistic. And as we mentioned maybe last quarter, there's a little bit of overhang in some of those discussions just because of the movement in M&A that exists inside of financial institutions at this moment.

We see increasing conversations with long lead times in the institutional segment -- but I think we feel good about the ability for that to be a meaningful contributor that adds on to that organic growth is pretty consistent inside of the adviser movement segment.

So having those 2 different killer growth strategies to drive the movement of advisers to the strongest value proposition in the market, plus the ability to be strong partners to institutions as they look to outsource and partner I think we feel good about having 2 anchors to drive that growth and reinforces our belief in that mid- to high single-digit growth over the long term.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Rich for any further remarks.

Thank you, operator, and thank you all for joining us. We look forward to speaking to you again in July. Have a good night.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good afternoon, and thank you for joining the Fourth Quarter 2025 Earnings Conference Call for LPL Financial Holdings Inc.

Joining the call today are Chief Executive Officer, Rich Steinmeier; and President and Chief Financial Officer, Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions. [Operator Instructions] The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com.

Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements.

For more information about such risks and uncertainties, the company refers listeners to the disclosures set forth under the caption Forward-Looking Statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com.

With that, I'll turn the call over to Mr. Steinmeier.

Thanks, operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again. Before touching on our fourth quarter results, it was a milestone year for LPL as we significantly advanced our key strategic priorities. To reflect on a few of our key accomplishments, we delivered industry-leading organic asset growth of 8%, including the onboarding of the retail wealth management businesses of Wintrust Financial and First Horizon, which collectively support over 200 financial advisers managing roughly $34 billion in client assets.

We completed the onboarding and integration of Atria Wealth Solutions, converting 7 distinct broker-dealers to the LPL platform. We signed and closed our acquisition of Commonwealth Financial Network, marking the largest deal in LPL history, welcoming their home office staff and approximately 3,000 advisers to the LPL family. We launched a national marketing campaign to elevate our brand with advisers and their clients. We significantly advanced our employee experience, resulting in our highest employee engagement scores in nearly a decade. We made meaningful progress driving improved operating leverage. And finally, our collective efforts resulted in record adjusted earnings per share of $20.09.

Okay. Now let's turn to our Q4 results. In the quarter, total assets increased to a record $2.4 trillion, driven by organic growth and higher equity markets. We attracted organic net new assets of $23 billion, representing a 4% annualized growth rate. Our fourth quarter business results led to strong financial performance with record adjusted EPS of $5.23, an increase of 23% from a year ago.

Next, let's turn to our strategic plan and progress across our organic and inorganic initiatives. Our vision is clear. We aspire to be the best firm in wealth management. To do that, we are focused on 3 key priorities: One, maintaining the client centricity the firm was built on; two, empowering our employees to deliver exceptionally for our advisers and their clients; and three, delivering improved operating leverage. Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model.

With that as context, let's review a few highlights of our business growth. In Q4, recruited assets were $14 billion, bringing our total for the year to $104 billion. Throughout the quarter, our pipelines continued to build and are near record levels. Recognizing that many opportunities are in the early and mid-stages, we expect the pull-through to improve over the course of the year as we reignite our industry-leading growth engine. In our traditional markets, we added approximately $13 billion in assets during Q4 as we maintained our industry-leading capture rates of advisers in motion. With respect to our expanded affiliation models, strategic wealth, independent employee and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $1 billion in assets.

Turning to overall asset retention. It was 97% for Q4 and over the last 12 months. This is a testament to the continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As for Commonwealth, we are thrilled to be working closely with our new colleagues to develop the target operating model and positioning for the Commonwealth value proposition within our suite of offerings. The work is well underway, and we remain on track to onboard the Commonwealth advisers in Q4.

In parallel, in partnership with our Commonwealth colleagues, we remain focused on helping their advisers understand the benefits of staying with Commonwealth, ensuring each adviser has everything needed to complete their diligence and make an informed decision. We continue to expect roughly 90% retention of client assets. As we get closer to onboarding later this year, our estimate will continue to firm up.

In closing, the fourth quarter was a capstone on an outstanding year. This is a result of the dedication of our team and their unwavering commitment to our advisers. So I want to thank everyone at LPL for their efforts. As we look ahead, we remain well positioned to serve as a critical partner to our advisers and institutions to continue delivering industry-leading organic growth and to maximize long-term value for shareholders.

With that, I'll turn the call over to Matt.

Thanks, Rich, and I'm glad to speak with everyone on today's call. As we reflect on 2025, it's been a year of meaningful progress for LPL as we continue to execute against some of our key strategic priorities, which include advancing our efforts to drive improved operating leverage through a combination of increased efficiency in our business and refinements to pricing to ensure it is aligned with the value we deliver and driving further improvements to the adviser experience by removing friction through investments in automation across our service, operations and supervision. As we look ahead, we're encouraged by the opportunities in front of us to better serve our advisers and continue strengthening our industry-leading value proposition.

Now turning to a few highlights from our Q4 business results. Total advisory and brokerage assets were $2.4 trillion, up 2% from Q3 as continued organic growth was complemented by higher equity markets. Total organic net new assets were $23 billion, an approximately 4% annualized growth rate. For the full year, total organic net new assets were $147 billion or an approximately 8% growth rate. As for our Q4 financial results, the combination of organic growth and expense discipline led to adjusted pretax margin of approximately 36% and record adjusted EPS of $5.23.

Gross profit was $1.542 billion, up $62 million sequentially. As for the key drivers, commission and advisory fees net of payout were $453 million, up $27 million from Q3. Our payout rate was 88%, up 53 basis points from Q3 due to the seasonal build in the production bonus. With respect to client cash revenue, it was $456 million, up $14 million from Q3 as the sequential growth in balances more than offset the impact of lower short-term interest rates. Overall client cash balances ended the quarter at $61 billion, up $5 billion sequentially, a strong outcome even when considering the typical Q4 seasonal build. Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 55%, within our target range of 50% to 75%.

Looking more closely at our ICA yield, it was 341 basis points in Q4, down 10 basis points from Q3, driven by the impact of the October and December rate cuts. As we look ahead to Q1, we expect the full quarter impact of the Q4 rate cuts to lower our ICA yield by roughly 10 basis points. As for service and fee revenue, it was $181 million in Q4, up $6 million from Q3 as the full quarter of Commonwealth was partially offset by lower conference revenue and IRA fees.

Looking ahead to Q1, we expect first quarter service and fee revenue to increase by approximately $25 million sequentially. This is driven by 2 factors: first, a seasonal decline in conference revenue of approximately $10 million. This is more than offset by the impact of the fee changes we announced last quarter, which will provide an ongoing quarterly benefit to service and fee revenue of roughly $35 million or $140 million annually.

Moving on to Q4 transaction revenue. It was $75 million, up $8 million from Q3, driven by increased trading volumes. As we look ahead to Q1, trading activity levels remain roughly in line with Q4. However, I would note there are 3 fewer trading days in Q1, so we expect transaction revenue to decline by a few million sequentially.

Now let's turn to our acquisition of Commonwealth. As Rich mentioned, the transaction is progressing well, and we remain on track to onboard in the fourth quarter. As for the financials, accounting for current client assets and cash balances as well as interest rates, we continue to estimate run rate EBITDA of approximately $425 million once fully integrated.

Next, let's move on to expenses, starting with core G&A. It was $536 million in Q4, bringing our full year core G&A to $1.852 billion, below the low end of our outlook range, reflecting progress we've made driving greater efficiency and lowering our cost to serve. For the full year, prior to the impact of Prudential, Atria and Commonwealth, 2025 core G&A increased by approximately 4%, our lowest level of growth in several years.

In 2026, we plan to continue to invest in the business to deliver greater efficiencies and drive operating leverage as we scale. Prior to Commonwealth, we expect core G&A growth of 4.5% to 7% or $1.775 billion to $1.820 billion. In addition, we'll have the full year impact of expenses related to Commonwealth, which adds roughly $380 million to $390 million. This brings our overall expectation for 2026 core G&A to be in a range of $2.155 billion to $2.210 billion. And to give you a sense of the near-term timing of the spend, as we look ahead to Q1, we expect core G&A to be in a range of $540 million to $560 million.

Next, I want to highlight a minor update to our management P&L this quarter, where we separated TA loan amortization from promotional expense. While this is not a new disclosure, we hope the updated placement allows you to more easily analyze our results. So looking at TA loan amortization, it was $133 million in Q4, up $28 million sequentially, driven by Commonwealth-related transition assistance as well as our ongoing recruiting. As we look ahead to Q1, we expect TA loan amortization to increase by roughly $5 million, primarily driven by Commonwealth.

Turning to promotional expense. It totaled $76 million in the fourth quarter, down $21 million sequentially, primarily driven by lower conference spend. Looking ahead to Q1, we expect promotional expense to be roughly flat sequentially.

Turning to depreciation and amortization. It was $105 million in Q4, up $5 million sequentially. Looking ahead to Q1, we expect depreciation and amortization to increase by $5 million. As for interest expense, it was $106 million in Q4, roughly flat sequentially as increased usage of the revolver was offset by lower short-term interest rates. Regarding capital management, we ended Q4 with corporate cash of $470 million, down $99 million from Q3. As for our leverage ratio, it was 1.95x at the end of Q4, near the midpoint of our target range.

Moving on to capital deployment. Our framework remains focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate and returning excess capital to shareholders. In Q4, we continued to deploy capital in line with our priorities, investing primarily in organic growth and M&A, where we advanced the Commonwealth integration and continue to allocate capital to our Liquidity & Succession solution. Specific to share repurchases, a reminder that we paused buybacks following the announcement of the Commonwealth acquisition with a plan to revisit following the onboarding.

As we look ahead, we are ahead of schedule with leverage already at the midpoint of our target range and the operational work to onboard Commonwealth well underway, there may be an opportunity to refine the timing of resuming share buybacks later this year.

In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage and create long-term shareholder value.

With that, operator, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Steven Chubak from Wolfe Research.

Rich and Matt, thanks for taking my questions or one question. So I did want to ask on Commonwealth retention. There's been a fair amount of press coverage in recent weeks, suggesting the retention was running well below that 90% target. So certainly pleased to see the 90% target reaffirmed. I was hoping you could speak to what gives you confidence that you could still achieve that 90% asset retention figure. And just given the near record recruiting pipeline that you cited, just speak to some of the actions that you're planning on taking to get core recruiting ex Commonwealth back on track.

I'll start or do you want to start?

Yes, I'll start with the retention, Steven. I think when you look at retention, right, and it's based on assets, right? The assets we expect to land on our platform after the onboarding in Q4. And that's our methodology. We consistently do that on our acquisitions. So I think when you and others that are speaking here that are reading headlines about headcount departures, just to give you a little color on that, when you look at the advisers who have signed to stay with LPL so far, we're now just over 80%. And you look at those, on average, they are larger, they are faster growing, and they are higher producers than those that have decided to go elsewhere.

So I think when you get some noise when you look at those headcount departures. But when you look at the advisers that have committed to stay with LPL, with Commonwealth, it is an impressive group, and we are really excited to welcome them on the platform as we onboard in the fourth quarter.

So maybe just to augment that just briefly, as Matt, I think, made it very clear on the asset retention and that we're retaining the larger advisers. I think there are still advisers who are making their decisions over the course of the balance of the next couple of months and maybe even through the next couple of quarters. And we are deeply connected between Commonwealth and LPL to help educate them on the continuing of value proposition of Commonwealth. And we are very confident that by keeping the community intact, safeguarding their experience, their culture, their capabilities and their leadership, that will ultimately win the day. And quite honestly, those are the conversations that we're having as folks have gone through a very elongated due diligence process, they're coming back to having much more productive conversations now than we were even having at the beginning. And so maybe parting shot on that, Steven. Overall, we are thrilled with this transaction. We love the way the teams are coming together. We are excited about the prospects for our go-to-market strategy and the integrated firm.

Now you mentioned -- and maybe one last thing, I will mention that, as Matt said, last quarter, we updated you that we had advisers representing nearly 80% of assets have signed their agreements to stay with Commonwealth. And as of today, that has improved to the low 80% range of advisers representing low 80% range of assets have signed agreements to stay with Commonwealth.

As for achieving -- getting back on track in recruiting, I think it needs to be noted that many of our top recruiters have been focused on Commonwealth retention efforts. And as we approach the conversion, with more Commonwealth advisers completing their diligence signed, our recruiters are getting back to their organic recruiting efforts. So looking ahead, we should gradually return to more normalized recruiting outcomes driven by increased in -- increased win rates in traditional markets with our unmatched value proposition, further penetrating the wire and regional employee adviser space where there is growing awareness of our solution, and we continue to narrow the gap on capabilities.

And of note there, over the last couple of years, we have grown our capture of wirehouse and regional employee advisers from 9% of all advisers in motion to now up above 11% of all advisers in motion. And augmenting that, our Liquidity & Succession solutions create an important part of the value proposition for new advisers to join, so they'll have an option when they're ready to transition their business. If you couple that with low attrition and steady contribution from same-store sales, it sets us up really well to sustain mid- to high single-digit growth over the long term.

And our next question comes from the line of Alexander Blostein from Goldman Sachs.

Maybe building on that a little bit, Matt, I heard you reaffirm your EBITDA contribution of $425 million once everything is onboarded. Maybe help unpack that a little bit because given just the assets have grown due to market largely and you're still on track to $90 million, and you highlighted you're running, I guess, in the low $80s million now. Why isn't the $425 million higher? Are there other puts and takes we need to consider? Or you guys are just looking to revisit that once the -- once the assets are fully onboarded? I just want to kind of better understand the mark-to-market impact on all of that.

Yes. There's just -- yes, you've got assets have gone up a bit, Alex, but you've also got another interest rate cut. And when you look at the cash sweep bet at Commonwealth that built up in December, that's already gone back into the marketplace. So those things kind of net offset each other, and that's why we're still at roughly $425 million.

And our next question comes from the line of Dan Fannon from Jefferies.

So I wanted to follow up just on the growth outlook. And Rich, you had mentioned reigniting the growth engine at LPL. So is it just time and the timing of this in terms of getting back to regular recruiting? Or can you talk to the industry dynamics and advisers in motion and kind of the recruiting backlog today versus where it maybe was a year ago? And just kind of thinking more about the acceleration, whether that could be more of a first half dynamic or you think it's really closer towards that onboarding of the Commonwealth assets?

Yes. I appreciate it, Dan. There's a lot in there. So maybe let's start with the recruiting environment first. I will tell you, we pay very close attention to the advisers in motion. And relative to historic norms, we still see that adviser movement remains tempered relative to historic levels. Now look, truth there is that there are events in the marketplace that can drive that churn to higher levels. And that one right now is probably the acquisition of Commonwealth. And so we're participating there, obviously, dedicating recruiters. A recruiting event where you're trying to educate 3,000 advisers is a very large event for us. And so we dedicated and ring-fenced a set of our most sophisticated and most senior recruiters and working against that.

And as I alluded to and as you referenced, as we get more signs and you mentioned where we're at, those recruiters get the chance to pivot back to their organic recruiting pipeline. But as I noted earlier, when you start building those pipelines, you're going to build into the earlier stages as you think about a stage progression pipeline. And so while our pipelines continue to build through Q4 and they are near record levels, they're loaded towards that early and mid-stages. And so that takes time, and we've alluded to on calls in the past, you get different durations of how long a cycle time is for a recruiting event, and they vary from independent adviser 1099 direct to our supported models in strategic wealth and Linsco have longer lead times. And so when that will pull through is a function of the mix of those advisers and how they get through their diligence and decision-making.

But we expect that pull-through to continue to improve over the course of the year. And maybe if we think about the environment that we're in, I think you've heard it on some of the other calls as well, it's a competitive environment right now. Competitors remain aggressive. We've seen TA levels spike up, most notably right after the Commonwealth announcement. And we see those TA levels staying elevated in the marketplace. And so typically, in the wake of several interest cuts, we would have expected some moderation in TA, and that really hasn't happened. Rates have remained high in absolute terms. And so from our perspective, nothing about our approach has changed. We stayed disciplined on returns with TA being a part of the conversation but really not the driver of decisions.

And as a reminder, advisers in motion's priorities continue to be: One, capabilities, technology, service, culture; two, ongoing economics; and then third, upfront economics. So as you put that all together, I think as recruiting activity normalizes, we'd expect organic growth to pick up as those pipelines convert, positioning us to reignite and sustain industry-leading organic growth over time.

And our next question comes from the line of Craig Siegenthaler from Bank of America.

My question is on footnote 15 from the historical file. You disclosed purchase money market funds there, and it looks like they might be finally at a ceiling. So I'm wondering, do you expect liquidity to start to run there with a few more Fed cuts? And where does that go? Is there an opportunity to generate more ROA on that, maybe in alts, insurance and probably eventually back in the cash sweep?

Kudos, Craig, on the detailed historical file there.

I thought he would have called on historical footnote 14, 15.

Yes. We'll cover that. We'll cover that. But I think -- yes, there you go. I think -- so what you're hitting on is the kind of the cash equivalents and how much money they're in either purchase money markets or short-term bond funds and treasuries. And I think we saw those build throughout this cycle. Those balances collectively are in excess, so purchase money market plus those other categories, treasuries, short-term bond funds in excess of cash sweep balances overall. And I think as the rate environment comes down, as you see those things advisers get their clients back into the marketplace. I think it's very natural that those are the types of funds that will go back into play.

So there's more than just purchase money markets in that category, but I think it gives you a good sentiment on where advisers are putting their clients as cash yields come down and the equity markets and other opportunities even on the brokerage side, like annuities and things are opportunistic. So I think that's what you see driving the movements there.

And our next question comes from the line of Michael Cho from JPMorgan.

I just want to touch on Commonwealth as well, just more from an, I guess, an integration perspective. I mean you closed the deal maybe 4 or 5 months ago. I was just wondering, can you just talk through the progress of the integration and preparing for the onboarding ahead? Any key takeaways you'd highlight or anything that might influence priorities for the broader LTL organization looking ahead?

Thanks, Michael. It's good to have you. So integration is going really well. And I would note here, one of the things that over the last 5 to 7 years, we have done a lot is major integration events. If you think through M&T, BMO, TruStage, Waddell & Reed, Atria. There is a number of large events that we have gone through and Prudential that have critical builds across in many of those instances, above $100 million in dev, sometimes above $200 million in dev. And so as we look into Commonwealth, we have scoped -- before we went into this transaction, we had scoped all of the capabilities that we needed to build that would benefit not only Commonwealth advisers as they come on to the platform, but all of our advisers and institutions. The scoping of that work is completed. We have our model build. We've begun dev already. And some of the complexity of the dev there is what actually drove an elongated time frame for the conversion. We're feeling really good about our ability to deliver against that capability development and for our advisers to experience it.

And I think we've referenced some of this before but Commonwealth is exceptional in the delivery of their service experience. And some of that is -- a large part of that is informed by the way they receive feedback. That is a difference from the way our construction of our workstation was set up. And so we're building an incredibly robust feedback ingestion engine that allows us to actually get feedback from advisers, prioritize that, disposition it to folks to work on that, and then execute against that, making it a frictionless environment kind of one day at a time.

One of the other things they have is a fantastic single relationship agreement across multiple account structures that we've had to go through a pretty significant build, and we're in the middle of that build to build that, which will be benefited by all of our advisers. And so there is a list, and that includes householding, repricing -- restructuring the pricing construct of some of our advisory platforms as well. So we have a good understanding of the build that's there. We have a great understanding of the capabilities that will be delivered. And now part of that is now moving into the definition of that target state operating model, which I alluded to earlier, we are in the middle of the articulation of that target state operating model, working deeply with Wayne Bloom and his team to make sure that we are keeping Commonwealth commonwealth, that we are keeping the folks who serve the Commonwealth advisers the same people and giving them the tools and capabilities to deliver the exceptional service that has resulted in 12 consecutive J.D. Power Awards for independent adviser satisfaction, a record in the industry.

Thought is that we build those capabilities so that they can keep going to #13 and #14 and 15. And while they do that, we increase our ability to serve with distinction just like Commonwealth does today. So all of that taken together, we feel really good about our understanding of what needs to be done. We feel good about our ability to execute and deliver, and we feel great about the combined value proposition that will result from the 2 firms.

And our next question comes from the line of Ben Budish from Barclays.

I think earlier in the Q&A, Rich, you were talking about an increased win rate of advisers in motion coming from the wires. Just curious if you could unpack a little bit more what's going on there. It seems like some of the -- both the media coverage and commentary from some of the bigger banks is that they're looking to get more aggressive, whether it's on recruiting TA packages, whatever it may be. So what do you attribute to sort of the recent success? How important do you see some of the pieces that are being built out, securities-backed lending and the alts platform, things like that, that are expected to be in place by the end of the year is improving that position? And again, you talked about competition broadly, but how would you describe the state of competition with that group of competitors specifically?

Yes. Thanks, Ben. So if we go back, what underpins that movement of us improving our capture rates in that wire and regional employee channel. The first is that on balance, you've got a macro tailwind there for you. We have seen a crossover that as advisers move out of wires and W-2 channels more broadly, historically, had been that they move from W-2 channel to -- one W-2 firm to another W-2 firm. What you have seen is increasingly year in and year out, the percentage of advisers that are in a W-2 channel when they're making a move that has crossed the threshold of more than 50% of advisers that are in W-2 channels making a move actually move to an independent construct. For us, we are the leading player for folks who want to run their own independent business because we have multiple affiliation models.

The second stage in our journey was that we introduced affiliation models several years ago that made it more attractive for folks who are in a W-2 construct to move to independents with support on their side. So that was the theory to the case in the construction of our strategic wealth offering that helps 1099 advisers set up, move and have a support mechanism around them with incredible support as well as our W-2 channel introduction Linsco.

Now beyond that, what we had was, and we referenced this kind of pretty consistently in the quarters, is we still had some capability gaps relative to product set, lending and some high net worth capabilities. And we are steadily knocking those down one at a time, and our consideration rate continues to go up. So what we find is that advisers are increasingly willing to get into conversations with us. And they may be getting there because of the Linsco channel, they may be getting there because of Strategic Wealth. And ultimately, they'll land across the gamut of either establishing their own RIA, which we support in our own independent employee W-2 channel and a supported independence channel or in a direct 1099 affiliation on our corporate RIA. So we have more affiliation landing spots than any other firm.

And maybe lastly, to leg into that, we have added a national brand campaign that highlights and makes more clear to end investors, and we've seen an improvement of aided and unaided brand awareness, both of our firm for both end investors as well as advisers.

Lastly, Commonwealth is a very validating event to our position in the marketplace. They are a premium brand. They have premium capabilities, and they have the best advisers in the industry. The leadership of that firm chose us as the best firm to support those advisers, and that made more W-2 advisers stand up and take notice of this firm as a leading firm in wealth management.

And our next question comes from the line of Brennan Hawken from BMO Capital Markets.

I had sort of a 2-parter here. So I know that Commonwealth is in focus. You've got -- you spoke to allocating your best recruiters to task. And of course, it takes time for net new asset pipelines to rebuild. So how long do you think it would take to start to see regular way net new assets revert to the rates that are more in line with your strong track record of growth? And then do you think it's possible we could get maybe a mark-to-market on how net new assets are progressing here to start out the year and maybe an update on cash balances.

Yes. I'll start -- Brennan, I'll start with how January has gone so far. When you look at -- maybe start with organic growth. And I think as I mentioned in the prepared remarks, and I think you know well, January is usually one of the slowest months of organic growth for the year for 2 factors or 2 reasons. The year-end slowdown that you see in December -- second half of December, there's really no recruiting that could come on board. And then it takes a couple of weeks into January to ramp up both recruiting, same-store, et cetera. So January is usually pretty low. And then you get -- as you move into February and March, it builds. And then you also have advisory fees that hit primarily in the first month of the quarter. And as we're getting bigger and bigger on the advisory side, 58%, 59-ish percent advisory now, that's a bigger number that hits in the first quarter. You put all that together, and we're around 2.5% organic growth in January, again, with the expectation that then February and March builds.

On the cash sweep side, I'd say there's a couple of days remaining, but I'd give you the headline that January is shaping up a bit better than you would typically see. You do have that same seasonal on advisory fees, which are around $2.5 billion. So that comes out of cash directly during the month. But outside of that, the Q4 buildup that we saw largely in December largely remains. So cash balances beyond fees are down roughly $1 billion. So you put all that together and balances are down around $3.5 billion, which would put overall cash sweep at roughly $57.5 billion.

And just to give context, if you look at that Q4 build that largely happened or almost entirely happened in December, we're sitting right now $3 billion above November levels. So hopefully, that gives you a sense as to kind of how sticky the cash has been this year as opposed to prior years.

Maybe, Rich, I'll give it back to you on the timing of organic growth question.

Yes. So I think, Brennan, the way to think about this is, as we alluded to, we sit in the low 80s in terms of AUM assets that are committed to join. And that's not a complete proxy, as Matt had alluded to, for the actual number of advisers based on the fact that we have larger advisers joining. But what you'd see there is as we started in April, we had a real shift of our recruiters into that event. And we are now moving towards the tail end of that event. The issue that you have at hand is that the lead times for recruiting for an independent adviser going from one firm to the next usually sit between 3 to 6 months. And so once you enter pipeline, you can think about that as the time frame for most center of gravity decisions to make to move from firm to firm.

But as you get into larger advisers, especially as they're considering supported models like Linsco, if they're establishing their own RIA as well or our strategic wealth, you're oftentimes with those larger teams looking at pipeline decision-making to conversion that sits center of gravity between 6 months to a year. So it really does depend on the mix makeup of what we have in pipeline. As we alluded, we've seen really nice pipeline build, especially into the first couple of stages of our pipeline. And what it takes is a little bit of time, especially with those seasoned recruiters to progress those through the pipeline.

So as we alluded to, it's going to occur during the course of this year, and I'm probably giving an answer that is more precise than that at this moment in time, I probably can't do that.

And our next question comes from the line of Devin Ryan from Citizens Bank.

I want to shift to the enterprise channel and Prudential specifically now that we're a little bit over a year past that integration. And just would love to dig in a little bit more around some of the learnings. I'm sure you have a lot more data today on how that's going. So it would just be great if you could give any proof points to us on how it's going? What type of acceleration in growth are you are they seeing? And then just how it sets you up for maybe more in the insurance channel. I'm curious if you're seeing interest from other parties as these maybe positive anecdotes start to make their way to the market.

Thanks, Devin. So just as a reminder, we brought on Pru 2024 in November, where they added about $67 billion in assets. And we knew as we were in discussions, Pru has a fantastic wealth franchise, and they were always bullish on their outlook for the wealth management business, and they were looking for ways to further advance the business. We got into that partnership, and we had quite a bit of build to build in terms of the capability sets. And as we built those capability sets, it positions us well to be able to work with other insurance firms and/or product manufacturers. But I actually do have the ability to be a little bit outspoken here, mostly because we would never break news for our partners.

But in the fourth quarter, Prudential announced that their adviser headcount growth had accelerated 9% year-to-date, and they had roughly $3 billion in NNA. And that was in the fourth quarter and not the completion of the fourth quarter. And I can tell you, I was with them over the holidays. They are incredibly bullish on their franchise. They have a fantastic sales infrastructure. Their leadership structure is very strong. They develop new advisers really well and their backlog of other insurance-based advisers looking at Prudential continues to grow. We have had really great results as we partner with them in recruiting to their franchise.

In terms of our pipeline, I think this is where you get -- I mentioned this a couple of times before, a signature event and a signature partnership, I would call this very akin to our M&T Bank, where M&T plowed and took a leap of faith with us to plow into new territory of a larger bank wealth outsourcing that really moved from why are you doing that to why aren't you doing that? And I think those are the discussions we're beginning to get into. But I think there just needs to be a recognition. We have a recognition that other firms, there's some trepidation to get into those conversations because Prudential really broke the mold in how they partnered with us.

I think I can speak pretty clearly for them when we both are incredibly happy about the results and think that their franchise is very strong and positions them incredibly externally. I'm so proud of being able to be a partner of Pru. And we're looking forward to having further conversations with -- I think a number of firms have begun exploratory conversations but more progressed conversations.

And our next question comes from the line of Bill Katz from TD Cowen.

And happy anniversary since no one else has said that. Just a couple of maybe interconnected questions. Matt, you alluded to possibility of accelerating the sort of capital deployment that you're running a little bit ahead in terms of operationally and your leverage ratios. Can you give us a sense of what mileposts we should be looking at to potentially think about maybe starting to reincorporate capital return?

And then just on the interest rate management side of the equation, you're sort of running at the lower end of your fixed to float. How are you thinking about that shape as you look into the new year given the forward curves are relatively stable from here?

Yes. What anniversary, Bill?

I know what he's talking about. So first off, he's super generous. Like that's a very thoughtful person. We always knew that about Bill but I appreciate it, Bill. He's -- he thinks that this is 1-year anniversary of my first earnings call, I think but it was actually Q3, a couple of weeks after.

Was that it, Bill?

It was.

Look at you. Super thoughtful.

My anniversary was in August. So my wife would...

Well, very good, Bill. All right. So on your 2-part question. So I think on share repurchases, I think in -- just to level set on our expectations initially when we announced the acquisition of Commonwealth, it was about making sure that we got our leverage down -- back down to 2x. And at that point, we would revisit capital returns. And given the timing of Commonwealth onboarding in Q4 that implied we'd look at it in Q4. And I think as we've talked about today, being ahead of plans on the deleveraging side, which is good. And the Commonwealth onboarding, while the time line hasn't changed, the prep is going well. I think I would take this as we're looking at whether we can start those share repurchases earlier. I would range that and say maybe a quarter earlier is what we're thinking. But I would just underscore, we've still got some work to do to really refine that. And we'll give an update in a future quarter. But I think just given where leverage is, I wanted to at least give an indication as to where our thinking was.

With respect to the second part of your question on fixed rate sweep, no change in plan and approach there. It really is about that year-end build that you see in Q4. That's really what drove that down. As the stability of those cash balances really lands in this quarter and as I talked about for January so far, it's being a little bit stickier than it has in prior years, then we'll kind of move into the fixed rate market, typically landing in that low to mid-60% where we typically are. So that would be the plans for Q1. That being in that 55% zone or mid- to upper 50% zone was really about just the year-end buildup in December.

And our next question comes from the line of Michael Cyprys from Morgan Stanley.

Just wanted to ask around core G&A. I think that your guide implies underlying core G&A growth of 4.5% to 7%, which is a bit of an acceleration from the underlying 4% you put up in '25. So I was just hoping you could elaborate on what's driving that acceleration into '26. Maybe speak to some of the areas you're investing in across '26 here. And maybe if you could also just update us on some of the initiatives that you have across expanding technology capabilities, broadening out the platform for advisers. Just what are your priorities here in '26 around that?

Yes, you bet. I mean I think just to build a little bit of context on -- or reflect a little bit on 2025 because our initial outlook for 2025 was 6% to 8%. And even that range would -- if you look back at the last 4, 5 years, would have been the lowest growth rate. And to the premise or the point of your question, we ended up landing much lower than that at 4%, which has that next year's guide, 4.5% to 7% be a little bit of an increase. But I'd underscore that, that is about what we're able to deliver in 2025. That is the lowest growth rate in quite some time. And it really was driven by the cost efficiency work that we were able to deploy and things that are recurring savings and structural improvements to how we operate.

And I think getting to your question on 2026 and that 4.5% to 7%, I think we're focused on doing a lot of the same but I would say balancing making sure we're continuing to drive investments or make investments that really improve our offering and drive growth and at the same time, continuing to make additional investments that can really drive efficiency and scale in the business. I think we are in the early stages of the opportunity set we have to make investments that not only allow us to scale better but also improve the client experience.

And I think what you see in that range, even if you look at the midpoint of the range, that still would be one of our lowest growth rates in quite some time. And I think what it reflects is the opportunities that we have to really drive that growth. And I think even when you look at the range, it is a little bit wider than we typically do, 4.5% to 7%, so 2.5 points versus 2. And that's also just reflective of the number of initiatives that we have from an automation standpoint, from an AI standpoint and the precision with which you can predict when those hit, right? Those things could shift out something that's going to come in Q2, maybe it comes in Q3. That could impact the current year a little bit.

But I would just underscore our confidence from a run rate standpoint of the opportunity set we have in front of us to continue to drive efficiencies that improve the bottom line, but also improve our client experience. It's a long list. We're excited about it. And I think that's what you see reflected in that guide.

And our next question comes from the line of Jeff Schmitt from William Blair.

For the Liquidity & Succession solution, and I think you spent a little over $50 million in the quarter. How do the returns on that look compared to traditional M&A and recruiting? I mean, are the multiples a lot lower in M&A? I know recruiting, you've kind of pointed to that being maybe 3, maybe 4x in this environment. So where does that sort of shake out?

Yes. Jeff, on L&S, like from our target M&A range that we typically operate in is that 6 to 8x. And L&S operates right in that range. But I think a couple of things that I think are a little bit different. When you think about L&S, not only the quality of earnings, right, the economics that you're acquiring for 6 to 8x in L&S is 100% recurring noncash sweep earnings. So there's a higher quality there. And then I think the strategic benefits of just really when you think about the life cycle of something that goes through L&S from acquiring it to helping transition to the next generation, helping them get to a place where they've grown and earn back the ability to buy back that practice, and during that entire time, working with them in our Linsco model to really position them to really use us as a leverage point on nearly everything except for focusing on their clients and being able to grow them.

When you just think about the practice in any L&S opportunity, the practice we acquired versus once it is now fully in the hands of the next generation, they're set up to be more efficient, faster growing and a higher-quality adviser practice as well. So there's a lot of benefits that just go beyond the pure economics. But to underscore the economics, it's the same range, 6 to 8x but it's a higher quality earnings because there's -- that's 100% noncash sweep economics that you're acquiring.

And our next question comes from the line of Wilma Burdis from Raymond James.

Do you think there's some level of short-term interest rates where we'll start to see more cash build? And if so, are we starting to approach that level? And maybe you could just talk a little bit about the rate cuts in 4Q '25 and how that may or may not have contributed to build in the quarter.

Yes. I think when you look at cash balances, and I think we have been -- when you think about the operational nature of them, and we're just looking at the fourth quarter in that build that you typically see and you saw in December, kind of putting those dynamics aside, like when you look at the average balances per account, they've been quite stable for quite some time and rounding to about $5,000, which I think when you think about the cash necessary to manage an account, we've really reached those levels. And I think that's why you saw that bigger than typical build in the month of December. So to get to your point, I think when we look ahead, as rates come down and kind of where do we think cash sweep is going, I think there is a bias to being stable to up just given it's at the levels that are really necessary to manage the account. We've seen that stability for a few quarters. Last couple of quarters, that average balance per account has actually grown.

So I think that's the dynamic there. The individual rate cut or 2 in the quarter, Wil, I don't think that typically would really drive that. I think what moved cash balances in the quarter is that seasonal build for rebalancing and tasks, loss harvesting and things like that.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Rich Steinmeier for any further remarks.

Thank you all for joining us. We look forward to speaking with you again in April. Have a good night.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Okay. Good morning, everyone, and welcome to the 36th Annual Goldman Sachs Financial Services Conference. I'm Alex Blostein, and I lead our capital markets research here at the firm. With no shortage of topics to discuss this year, we're privileged to host over 100 companies and nearly 1,000 investors over the next 2 days. We hope everyone will find this time both informative and productive. And to kick things off, it's my pleasure to introduce Rich Steinmeier, CEO of LPL. With over $2.3 trillion in client assets and 32,000 financial advisers, LPL is one of the largest wealth managers in the U.S. Over the course of the first year with Rich at the helm, LPL acquired Commonwealth Financial Network, the largest transaction in the wealth space in quite some time, continue to deliver healthy organic growth and drove innovation to their financial advisers.

We'll spend the next half an hour or so with Rich discussing his vision for LPL as well as his perspectives on the wealth management landscape broadly, welcome. Happy to have you here. Thanks for helping us kick off the day.

Glad to be here.

So Rich, since you became CEO a little bit over a year ago, there's been a lot. It's been quite an active year for LPL between several transactions, obviously, including the largest deal LPL has done in quite some time, a bunch of strategic initiatives as well. What are some of the key lessons learned so far? And what are the key strategic priorities as you look out into next year.

Yes. Well, I think maybe the first lesson learned was I was hopeful that I would like this job, and I do. So good start. I was thrusted into the CEO role and came out and I joined the firm 8 years ago to reinvigorate growth at the firm. And I thought we were reasonably successful. We had begun to evolve even how we approach the market. We expanded the TAM. We expanded our affiliation models. And one of the things as you move -- as I moved into a new role was to think about, okay, what's the ambition of the firm? And we elevated the ambition of the firm. We moved from participating in a more narrowly defined market, which is that IBD market into aspiring to be the best firm in wealth management. It's an aspiration that I think set a clear marker for our employees, made it clear for our clients the threshold that we wanted to be held to.

And as you moved into that and thought about, and I thought the firm was capable of, there are times when you have to make sure that your articulation is harmonious with where you actually kind of pour cold water on yourself and identify where your strategic positioning is. And it felt like making that assertion was the appropriate assertion to make for the firm. And so the learnings throughout the year were one, the strategy has been right. The strategy of building new capabilities, expanding on our leading position in the independent market, addressing a broader market set, both through advisers and institutions, felt like the right strategy. And so I think when you sit there and say, okay, our anchor point is right. I think the second thing was I give huge credit to Dan and the team that Dan preceding me, the team in place was the right team to take this firm on that journey.

And so that gives a lot of leverage as I sit in this position to say there is a fantastic leadership team at this firm. You don't have to recast the leadership team, and there's huge leverage just even in the way that we've structured it. Matt Audette is a tremendous leader who has taken on the President as well as the CFO role. And I think that provided us the ability to begin to move towards doing ambitious things. But maybe one of the things I learned was you can't be too ambitious. And so we needed to and we learned really quickly that we needed to focus on the important things. And for us, think about largely as we got the opportunity to get into a Commonwealth conversation and ultimately, a Commonwealth transaction, the focus of the firm being, okay, this is incredibly important. It's the largest transaction in the history of the firm. It is very complex, building new capabilities, recruiting 3,000 advisers or retaining 3,000 advisers.

And so you do also need to release your agenda and focus on those things that are core to the business. Maybe one of the other things that I had learned, and it's a new learning for me was we need to look outside of wealth management to identify where there are some of the leading companies employing hospitality principles or thinking about ways that decisions are effectively made. And so we've had an external focus beyond wealth management and certainly beyond financial services to look at leading companies and even leading consulting firms giving us insights. All that to be said, Alex, I came in a year ago, and we had a pretty basic formula for what we thought success was. We thought it was make sure we continue to amplify our client centricity. We have done that in spades, make sure we are empowering our employees and elevating the role that employees play in achieving our success because we have to invigorate 9,000 employees to deliver for our clients.

And then lastly, which was new at the time, and hopefully, you guys are seeing that we've stuck to this, which is improve the operating margin in the business because we thought there were some material opportunities there. So if you take that all together, I'm proud of what we've accomplished over the last year. I feel like we've positioned ourselves for success in '26. But I would say, take those principles of simplification. We need to make sure that we continue to deliver against Commonwealth, and we continue to expand our capabilities to ensure that we are more attractive for a broader set of advisers in the marketplace.

Great. Well, that's a great setup to talk about Commonwealth. Obviously, you guys are early in the integration, but so far, it sounds like things have been done quite well. Retention has been strong. You highlighted already about 80%. So you're definitely on your way to that 90% target. As you get deeper into integration, what are some of the lessons learned there and maybe other key observations for us to focus on?

Yes. I think one of the things that we learned, and I think it took us a couple of weeks to learn, but only a couple of weeks. There's -- I don't know if you've got young kids, at least you said there's 1,000 people here, somebody will have had a young kid. There's a Virginia Lee Burton book called The Little House. And in that house, there's a small house that's built in the countryside. And the folks that built the house say this house will never be sold for silver or gold and our grandchildren, grandchildren's, grandchildren will live in this house. And I would tell you, Commonwealth, the advisers thought they lived in the little house, right? It was a house -- it was a firm that was never going to be sold.

And so what the implication there was, and I think we were unaware that this would be how the advisers would think. They hadn't done diligence, so often when we get into M&A conversations, there's a process being run, the firms, many of the advisers, if not most of the advisers are under the understanding that there is going to be a transaction at some point or maybe feel inevitable. And I don't think that was the case with Commonwealth. And so we had a pretty significant learning there, which was these advisers needed to put their heads up and do due diligence. And so the pace of conversations that we anticipated we would be in and the pace of decision-making elongated probably further, certainly further than we would have anticipated because they just believed that they were going to sustain their independence. And so there was -- that was a shock to their system. And it also truncated their ability to hear us for a little while because you got to think about that. That's an emotional event.

And you feel like, okay -- and not only did they not think they were going to be sold. And in truth, they certainly didn't think they were going to be sold to LPL. And so we had more work to do to educate them. And that's been -- that was a good learning for us. It was a good learning to understand that we needed to listen more than we talked. We needed to actually understand that state, and they weren't ready to have commitments. And as so, I do feel good about where we stand. And we've gone through a really robust recruiting process, a really robust education process. And we thought that the competitive set was going to move forward in a pretty aggressive fashion. And so that didn't surprise us. But I think we feel we are building towards something that the sum of the parts are going to be greater than what the whole is greater than sum of the parts.

And so we're excited for the integrating the capabilities that we see at Commonwealth for bringing those capabilities back to all of our advisers. And so it's been a learning. Maybe the one other thing that I would say that we learned was, man, that firm isn't just solid gold because of the advisers they serve, the communities they've built. They're solid gold because their home office employees are fantastic. Their commitment to their advisers to the client success, to being responsive intraday to making sure that they are wrestling to the ground any service issues that are identified that it's hard to put in words what a special culture is. And they have achieved that special culture over 4.5 decades of being committed to being excellent at serving clients. And so it's been good, but it's been work.

Yes. No, it's a lot. I get that. Maybe just building on that a little bit. So you're into the integration. You're now more in the process of actually onboarding some of these advisers to do that work. As you go through that process, what are some of the incremental opportunities you sort of finding underneath the surface that could further enhance either strategic or financial merits of the deal relative to what you expected? And then what are some of the risks you're still most mindful of?

Yes. I'd say when we think about the opportunities, the one that has resonated is our liquidity and succession solution. And maybe for the unindoctrinated there, that is that opportunity. That is for us to actually provide the ability to move from one generation of an independent practice to the next generation. We step in the middle, provide capital. We ultimately buy the practice. And then over time, we work with the successors to come into the practice, there is a ton of receptivity inside of the Commonwealth Financial Network because they had a nascent offering in the space, and it was still being developed.

And ours is very mature. We've done it for dozens and dozens and dozens of advisers. We have a very robust successor development program, and we have structure in how we actually work through that transition. And so I think both financially and strategically, as we look at that, we say, okay, liquidity and succession has a real significant opportunity to be a meaningful part of the solutions that we provide as we bring the 2 firms together. I think as we look at some of the risks I think the -- well, the opportunity for outperformance is probably retention. How do we continue to progress those conversations. I think you look at the macro as well. And so I think we've got some other opportunities for us to outperform against what we had expected. And then on the risk side, it's probably the flip side of that retention -- or sorry, of the risk, which is that of retention, which, again, as I said, we knew that the competitors were going to come hard.

Look, we dot a lot of eyes in the industry, and I wouldn't -- I'm not -- I don't grudge any competitor when they see an opportunity to try to dot our eye. And so we came into that with our eyes open. We knew it was going to be aggressive. We have a very competent recruiting and retention team. We know how to do this. We've done it repeatedly. We know how to come out front-footed. And like I said, one of the things that probably was a little bit more of a variable was the duration of time, but we dedicated -- we ring-fenced the set of recruiters, very sophisticated recruiters into conversations and that marriage of the Commonwealth team with the LPL team to get into those conversations allows us to not only have here's what the capability set at LPL is, but here's those cultural retention that you're going to see through Commonwealth.

So we're now focused on, I think, that opportunity to make sure that we can demonstrate to them, I think, material enhancements in the operating environment, material enhancements in the way that they do their business, our platform and then building into kind of that super set of capabilities. So now we're focused on building capabilities around both changing our ClientWorks core workstation from an account-based system into a relationship-based system. It's like a transposition of the way you think about the data orientation, which we've really wanted to move towards for a couple of years.

I think in addition to that, building a mobile client work solution. And then I think probably one of the things that will show up in spades across the board, Commonwealth is fantastic at ingesting feedback from advisers, dispositioning that feedback. They got 5,600 points of feedback from advisers that they then disposition, prioritize and then put that into the build cycle for capabilities. We're building a more robust version of that for -- that all of our advisers will take advantage of. And so we're deep in the throes of the capabilities build and feeling good about where we are.

So cross-pollinating some -- that makes sense. Okay. Let's pivot a bit away from Commonwealth and talk about the rest of the business. I wanted to start with a couple of questions around just institutional pipeline and future deals. As you progress through onboarding, obviously, you highlighted it's a lot of work. It obviously makes sense that you guys would push some of the larger transactions further down, but they don't disappear.

Presumably, they're still kind of out there. So as you go through this integration process, how do you envision activity in institutional channel rebuilding? And I guess, more importantly, because you've added so many different capabilities over the last couple of years, like the Pru deal in particular comes to mind, how should investors think about financial implications of future transactions from just like an incremental margin perspective?

Yes, totally fair. Maybe there's a little bit in there, so let me kind of take that at a time. The first is we are the leading player in terms of partnering with banks, community banks, credit unions, regional banks, super-regional banks in terms of being their partner around an outsourced wealth solution. Maybe the interesting thing about this timing is you've seen a lot of ambiguity around the construction and potentially M&A inside of those banks. And so at the same time that we've had to pause with intentionality to make sure it's a pretty significant build for Commonwealth that we have the build in place.

At the same time, those -- that market in terms of thinking about outsourced wealth for banks has had a bit of -- a little bit of a slowdown in itself because of the ambiguity in the construction of the actual market. And so I'm not upset that, that's kind of -- that at the same time, just kind of opportunistically as we've had to put focus and swing focus into the integration of Commonwealth, there hasn't been as much movement in those financial institutions. And just as a reminder, that's a $1.5 trillion market opportunity where we already have $120 billion in outsourced wealth partnership relationships there across credit unions, community banks and then regionals and super regionals. And so there's a bit of a slowdown.

It doesn't mean that it's slowed down forever, but I think that is an interesting time for us. And so it has presented us that opportunity as we integrated Prudential, and now we've got a full year under our belt, and we feel really great about our Prudential solution. That's another $1.5 trillion market opportunity as we think about product manufacturers and insurance providers to do the outsourced wealth solutions. And -- as a matter of kind of reference point, when you move into a new segment like that, we moved in with a material partnership with M&T Bank in 2020. And folks waited a little bit to see how that partnership worked out. And I think M&T has been a full throated outspoken partner of an advocate for the LPL partnership. And in the same way, as we sit 1 year post the integration of Prudential, I think you've seen some tremendous results occur inside of Prudential.

And so they've just talked about 9% census improvement of their wealth advisers year-over-year. You've seen them talk about nearly $3 billion in NNA into that business over the course of the first 3 quarters of the year. And so I feel good about them being outspoken. We don't speak for our clients in that regard. But I think they're reflecting externally that they are really hitting on all cylinders. And we're not surprised about that, but that is a really tangible proof point as we begin conversations with other product manufacturers to think about the potential of a partnership with us. So those 2 together give us 2 robust markets that we can think about. Now again, long lead times in terms of those conversations and how we get into those conversations. But I think both of them progressing reasonably well and feeling good about the progress that gives the opportunity there.

How far down the Commonwealth integration do you guys feel like you need to be for some of these institutional transactions to start the material. Is it late '26, is it into '27? Do you think it could be a little bit earlier? Kind of what do you think?

Alex, it depends just a little bit in terms of the complexity of what we need to do if we have devs that we have to do. And so I think our dev dance card, by and large, for incremental dev is filled up for the first half of the year, I think is the way to think about it, then we'll be in testing for the Commonwealth implementation. But I think -- but there are -- there can be opportunities that don't have a ton of complexity, and then there would be others. I mean, Prudential is a material development opportunity for us.

And so it would depend on the complexity. But maybe get back, I think I missed one part of your question. I think we sit and feel really good about those core investments that we made in Prudential being extensible to a next set of opportunities in that product manufacturer space. And so because we've invested over the years, those core capabilities in terms of serving financial institutions and banks, now we've made this incremental investment in terms of product manufacturers and insurance providers. I think we do look into what are the ongoing economics as we think there, and it sits somewhere in terms of return characteristics, it's a little more expensive than regular way recruiting, but less expensive than M&A. And it kind of slots really nicely in between regular way recruiting in terms of return characteristics. I think we talked about Prudential being that investment being 4x EBITDA.

Yes. Great. All right. Well, let's talk about the regular way recruiting and the net new asset trajectory for the business. Historically, you guys have been the leader in the space, best-in-class kind of high single-digit organic growth, excluding some of the larger deals. Over the past year or so, we've seen deceleration in organic growth at LPL, but really also across the industry, we obviously cover all your peers. Everyone had a bit of a step back in the pace of net investor growth. Two-part question there for you as well. I guess, one, how would you characterize the drivers of industry deceleration? And I guess, more importantly, how would you frame your expectations for LPL's net new investor growth into next year, especially as you kind of start to shift some of the resources from integration back into the recruiting pipeline.

Yes. In terms of recruiting, I think the reason you may have seen a slowdown is that there's actually been a slowdown in the movement of advisers. And we've seen that kind of sequentially across quarters. We're hopeful that we've hit the trough there now. But I think that's why you see that pretty consistently across most of the competitors who are talking about the movement and their participation in the movement.

Now for us, we still see that we're retaining our share of movement in the marketplace. And so we feel like we feel good about our position, the investments that we've made over the years. We've expanded our recruiting team, the size and scope of the team. We've also built capabilities and really enhanced our value proposition in the market. So we continue over the last -- I've been here 8 years. We've seen pretty steady improvement in share capture of advisers in motion year in and year out. And especially as we kind of close some of our gaps related to advisers in wirehouses, I think we have that as a point of emphasis to continue to grow share capture inside of wirehouse advisers. But I think you identified right, and I said it a little bit earlier, we did ring-fence a set of recruiters as well.

So for us, kind of probably had a double whammy. You had lower adviser movement in the marketplace, and we took some of our most sophisticated recruiters and ring-fenced them into the Commonwealth opportunity because that was priority #1. We needed to make sure we delivered against it. And as I mentioned, some of those recruiting conversations have taken longer than -- certainly than we had anticipated for the reasons that I stated earlier. And so we still have a subset of our recruiters that are maybe not entirely ring-fenced anymore into the Commonwealth opportunity, but are still have a principal set of their kind of capacity aligned against having good conversations to help Commonwealth advisers understand what it might look like at LPL.

So for us, I think you see -- I think we see towards a trough in terms of recruiting in the year. I think we see the ability over the next couple of quarters for us to move back to full capacity in terms of our recruiting in regular way recruiting. And I think we are as convicted as we have ever been about our ability to continue to drive and lead organic growth inside of the wealth management marketplace. We see our value proposition enhanced. I think we will deliver more capabilities in 2026 through the Commonwealth acquisition plus our regular dev than we've ever delivered before. And I think that continues to narrow and narrow and narrow any gaps you might see to the wires. And so we are building more and more credible opportunities to bring advisers from the wires and from the regionals.

We're already in our traditional markets in that independent broker-dealer market, we are still the firm that is the quality firm. We are the no-compromise independent firm. And I think you see an increasing rush to quality with us. And so we will continue to succeed inside of our traditional markets. I think increasingly looking at penetration inside of the wires and regionals. I think that will culminate and we see and we report this and so you guys are all aware of this. We have incredible stickiness with our advisers, high NPS scores with our advisers and an improving environment for same-store sales. And so you take that all together, it says we should be able to continue to sustain our industry-leading organic growth.

That's great. Look, one of the things you mentioned is sort of the source of some of your organic growth has been sort of this continued innovation, expansion in new markets, et cetera. So maybe we can talk a little bit about some of these more nascent channels and some of the nascent capabilities. You launched liquidity and succession capability. That one definite stands out. But you're also on your way to building out a bunch of other offerings, the alternatives platform, securities-based lending, relaunch of that as well is quite important. I guess when you put it all together, what opportunities do you see this innovation unlocking? And what do you think is ultimately going to be the most needle moving from an investor perspective.

Yes. I mean I think when you think about kind of -- there's an overarching story to this firm, and it is building capabilities to be uncompromised relative to anyone in the industry. And I think that is a movement out of serving just mass and mass affluent and having advisers that are oriented there. And so you saw us make investments in an alt platform that now by the middle of next year, will be uncompromised our alt platform relative to anybody in segment. And I think part of that is, in addition to that, is having an integrated set of banking capabilities that we're not just using third parties for those banking capabilities, but the experience is integrated inside of the core workstation.

So when you think about a securities-based line of credit, you can initiate a line, you can fund that line, you can draw that line, you can pay off that line, you can close that line, all integrated. And today, for us, very infrequently are you swivel chairing as an adviser inside of our environment. But sometimes right now inside of our banking capabilities, you are having to swivel chair into a third party's experience, and that won't be the case by next year as well. And so as you stack that together plus a set of capabilities to serve high net worth investors with complex planning capabilities, needs, estate planning capabilities, tax planning capabilities, tax optimization, that's a set of capabilities that we build. You stack those 3 together, what we're talking about is materially going after that $5 trillion high net worth ultra-high net worth segment that has been outside of our reach historically because of our -- we had a lack of capabilities.

And as you look at that, you see the more sophisticated players in our space running into high net worth and ultra-high net worth. And I would tell you, you can run, but you can't hide. I mean we are coming there solidly. We are moving step by step, day by day stacking capabilities every single day. We out-invest every other firm in capability development and wealth management. And so as we do that, we have closed gaps. We are distancing gaps relative to those competitors that we have historically been oriented with, and we are closing material gaps relative to the firms that are perceived as more sophisticated, and we are driving what we think will be high net worth oriented advisers to be incredibly attractive to this firm. And it's not just capabilities because you marry those capabilities with an independent ethos, which means you have the flexibility to run your business exactly how you want to run it.

You have differentiated economics that are materially higher than you would have at your existing firm. You own your own business. So as you think about that monetization of your business, and so many of these folks are moving towards passing that their largest asset on, you're thinking about you own that business to sell and you don't have restrictions on who you serve. And so if you move into a channel like ours and you're serving high net worth investors, that doesn't mean you can't serve someone below $250,000, you can't serve someone below $500,000. Look at it. Those are the restrictive policies that continue to come out. We don't have those restrictive policies.

So this is truly a best of all possible worlds. And I think increasingly, we are getting into conversations with billion-plus sophisticated high net worth teams who realize that we are the firm with the strongest value proposition now. But I would say this, admittedly, our brand has not been as present in the marketplace, right? And so the investments we have made over the last year to bring our brand forward has begun to change aided and unaided brand awareness for end investors. And that's what those high net worth and ultra-high net worth oriented advisers need is often there's a hiccup when it comes to their largest clients saying, I'm not sure who LPL is.

It's why we chose Anna Kendrick. She's fantastic. And we will continue. We just spent yesterday, we were in Times Square and unveiled more of that campaign that is coming forward. And I'm really proud of the material enhancements we made in aided and unaided awareness of end investors and consumers. You marry all of that with Commonwealth's exceptional service as we bring that special sauce that Commonwealth has delivered into our service experience, I don't know who's going to compete with us, but I feel really good about going toe-to-toe with any firm.

That makes a lot of sense. Let's spend a couple of minutes on pricing. You guys announced several pricing changes across the platform. I guess, first, maybe help level set for us why that was the case and what was the rationale behind it? And I guess, more importantly, what are some of the other potential levers do you see in the business to drive incremental monetization within the existing customer base? And you talked about some of them already. So whether it's alts or securities-based lending, that is probably part of that. But maybe you could expand on the kind of pricing and monetization opportunity.

Yes. I think, Alex, you hit it right. This for us was about operating margin improvement. And as you think about it, you're going to look at enhanced monetization as well as you're going to look at efficiencies. And so we've talked about some of the things, and you can think about it in terms of banking even driving improved monetization. And so you think about product sponsor conversations as we move from -- 15 years ago, we went public and we had $300 billion in AUM, and now we have $2.3 trillion in AUM. We're having much more meaningful dialogue with our product sponsor partners around, okay, we're a critical partner of theirs. And so I think we continue to push on monetization there as well. But you mentioned we have felt like over the last several years, and hopefully, if you're tracking to this and you believe me, we have built capabilities that are very differentiated from where this firm had been before.

And we've always had a value proposition that I think was best-in-class in terms of those elements I just spoke of, but also the economic exchange for financial advisers. And so when you see -- when you talk about value exchange and we continue to make material investments in capabilities, there is an opportunity to just look at how that value exchange is positioned in the marketplace. And so last year, we made some moves around our production bonus. We made some other changes around our business solutions, pricing to make sure that they were priced appropriately to our advisers. And then we took feedback, and we understood how the advisers received that, and we went into a next leg on our journey. And the first part of that was looking where the puck is headed, and that is movement from brokerage to advisory and increasing to press our advantage in terms of reducing pricing and advisory platform fees, simplifying those pricing fees.

And I think our advisers saw and received that incredibly well. At the same time, as we scanned and look at opportunity sets, we saw that in terms of brokerage, we saw that we were out of market relative to competitive set and said, okay, we're going to make some moves in terms of brokerage account fees. And we took that. And net-net, you take those 2 together and you still saw operating margin improvement there, you'll marry that for us with a continued focus on that op margin improvement from an expense standpoint. And I think what you get out of this is this isn't kind of a onetime 2025 focus, what can we achieve. This is a material commitment across the entire leadership team that extends to the firm to make sure we're running a firm with great intentionality that is client-centric, that elevates our employees, but also focuses on operating margin with great intentionality.

Yes. You mentioned operating margin a number of times. So maybe we can head for a quick turn on that as well. So clearly, lots of progress. You made some changes. That obviously got elevated into a broader role and sort of some of those efficiencies cascaded throughout the organization. As you think about the G&A expense growth over kind of a multiyear basis, what does that look like? I mean I know you said this is not an anomaly, 2025 is not a one-off. But how do you think about just kind of the normalized pace of G&A growth?

Yes. I mean I think it was a pivot for us. I mean we've made investments over the years, and we knew they were going to pay off. But I think the intentionality that we looked at every single dollar that was spent and invested and made sure it was the highest and best usage. And those investments that were made in the past, are they still paying off in the way that we would want them to pay off? Those are decisions that you have to make to say, we're going to discontinue doing things that we had done in the past. And if that isn't making the contribution that we had thought, it doesn't always have to be that to do new things, you have to have incremental investments. And so we -- I think we came through and that was a pivot. We've always been a high-growth firm. We've always been building towards capabilities. And now we want to be a high-growth firm with an incredibly strong value proposition to advisers that is really focused on running an efficient business.

And so you've seen that, I think, pay off with guidance continuing to come down on core G&A quarter in and quarter out. I'm not here, I'm not the one that does it. I'm not here to set guidance for 2026. But I think that is an anomalous. That is a change in the perspective of the way we run the business and the choices that we have in front of us. And I think there are more investments that we've actually been making over the course of '25 that will pay off in '26, '27, '28. And so we're looking at a multiyear journey around continuing to improve op margin. But yes, it's weird because I don't think a year ago, I set up here and probably there were very few words I said more than op margin on that stage, which would be odd for me because I think I was the guy that was meant to be the growth cowboy.

You're a growth...

I know. There is a great linkage between operating margin and your ability to continue to drive growth. Because as we continue to be as efficient as possible, it gives us greater flexibility to invest in capabilities. It gives us greater flexibility to make sure we're making investments in pricing, right? And so -- but we've just got to be maniacally focused on driving an efficient business. And that is kind of across the board. I can tell you that the management committee has that mantra. We are aligned together against the common goal of continuing to improve that op margin. And I'm really proud, and you go back to it, that is like if you look where the marriage of having a CFO who is also the President, it fits together really nicely because he runs nearly half of the employees of the entire firm.

And so much of the opportunities for us to improve our experience and drive efficiencies sit inside of his mandate. And so there's a great harmony in that construct with Matt, and he delivers and his teams deliver. And so as we think about objectives, those aren't pie in the sky objectives, we achieve them. So I'm proud of the progress we've made. I think what we see is there is -- this is a journey for us. And '25 was a good year, and I think we said it. And then hopefully, you guys have seen that when we say some things, we'll deliver against them. And this is the beginning of that journey.

I think we're out of time. I think this is a great note to end on. So thank you so much for doing this. Great to see you.

Yes, you too.

Good afternoon, and thank you for joining the Third Quarter 2025 Earnings Conference Call for LPL Financial Holdings Inc.

Joining the call today are Chief Executive Officer, Rich Steinmeier; and President and Chief Financial Officer, Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions. [Operator Instructions] The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com.

Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements.

For more information about such risks and uncertainties, the company refers listeners to the disclosures set forth under the caption Forward-Looking Statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com.

With that, I will now turn the call over to Mr. Steinmeier.

Thanks, operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again. It is hard to believe, but it's been a little over a year since I became the CEO of LPL Financial. In that time, we've advanced the firm, extending our privileged competitive position in the adviser-mediated marketplace while driving efficiency in the business. So I'd like to spend some time today sharing an update on the progress against the key initiatives I outlined on my first earnings call. But first, let's hit our Q3 results.

In the quarter, total assets increased to a record $2.3 trillion, driven by our acquisition of Commonwealth and complemented by solid organic growth and higher equity markets. We attracted organic net new assets of $33 billion, representing a 7% annualized growth rate. Our third quarter business results led to strong financial performance with record adjusted EPS of $5.20, an increase of 25% from a year ago.

With that as context, let's review a few highlights of our business growth. In the third quarter, recruited assets were $33 billion, bringing our total for the trailing 12 months to a record $168 billion. In our traditional independent market, we added approximately $12 billion in assets during Q3, where despite depressed industry-wide adviser movement, we maintained our industry-leading capture rates of advisers in motion while also expanding the breadth and depth of our pipeline.

With respect to our expanded affiliation models, strategic wealth, independent employee and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $3 billion in assets. Our third quarter adviser recruiting underscores the evolution of our business and the appeal of our flexible affiliation models. During the quarter, we attracted 4 separate $1 billion-plus practices, which joined us from a range of firms, including regional broker-dealers, insurance companies and wirehouses. Our recruiting results this quarter underscore the extensibility of our offering across the entire adviser-mediated marketplace, where we have created the flexibility to serve any adviser where they are in the evolution of their practice. This breadth of affiliation models is key to the sustainability of our growth as we look ahead.

We also continue to make progress with large institutions, onboarding the wealth management business of First Horizon. It's only been a couple of months, but there are already signs that the integrated experience and enhanced capabilities we are delivering are improving the efficiency of their adviser practices.

Turning to overall asset retention. Prior to previously disclosed misaligned OSJ assets that offboarded during the quarter, it was 98% for Q3 and over the last 12 months. This is a testament to our continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As a complement to our organic growth, we closed our acquisition of Commonwealth Financial Network, welcoming their approximately 3,000 advisers and home office staff to the LPL family. The transaction is progressing well, and we continue to track towards our 90% retention target. Thus far, advisers representing nearly 80% of assets have signed to stay with Commonwealth and LPL.

From an operational standpoint, following the close, we commenced work on the capability build and onboarding planning. To give you a sense of the scope of this work, we are ushering in a foundational shift in our adviser workstation ClientWorks, establishing a householding-based architecture compared to our historically account-based orientation further bolstering this relationship-based logic with a single relationship agreement to vastly improve the client onboarding experience and simplify ease of movement between account types and launching a mobile version of our ClientWorks workstation for ease of access for advisers on the go. These are key capabilities that not only enable commonwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisers.

Next, let's turn to our strategic plan. Our vision is clear. We aspire to be the best firm in wealth management. To connect this back to my first earnings call a year ago, in service of this goal, we've amplified our focus in 3 key areas: one, maintaining the client centricity the firm was built on; two, empowering our employees to deliver exceptionally for our advisers and their clients; and three, delivering improved operating leverage. Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model.

In terms of our clients, we have been laser-focused on preparing for a seamless onboarding of Commonwealth, including the delivery of capabilities and implementation of systems and practices, which will benefit all LPL advisers, new and existing. Separately, we continue to look for opportunities to strengthen our value proposition in the market while ensuring that we are pricing our services aligned with the value that we deliver. Earlier this year, we made adjustments to our production bonus as well as within our Business Solutions group. And looking ahead, we plan to make additional adjustments as we evolve our offering streamlining our services portfolio to focus on high-demand, high-impact services that deliver the greatest value to advisers while simplifying pricing across our advisory platforms. And to ensure we maintain our competitive position, we're making a few targeted offsetting fee adjustments where we've been priced below the market.

As for our employees, we've been focused on elevating our benefits and better distributing decision-making authority to the teammates closest to our advisers. During the quarter, we also welcomed Emily Field, our new Chief People Officer, to help guide this critical work. And just last week, she kicked off our revamped manager learning program aimed at giving managers the necessary skills to build empowered teams and deliver exceptional employee and client experiences. Finally, regarding our efforts to drive improved operating leverage, we've made meaningful progress reducing our cost to serve, and Matt will share some additional detail on that in a moment.

To summarize, we are pleased with the third quarter results, and we feel great about our position as a critical partner to our advisers and institutions while we continue to create long-term value for our shareholders.

With that, I'll turn the call over to Matt. But before I do, I just wanted to preempt that first question that we're hearing from so many of you. You wanted an update on our favorite Halloween candy. Well, mine is 100 Grand Bar and Matt's is actually Muscle Milk. So with that, Matt, take it away.

It's not on the script, Rich, you're very funny. I do like me a good protein shake. That's not my favorite candy like I do have a favorite candy. And I didn't want to tell you, I figured it would be too triggering given your high school football nickname, butter fingers. I loved it. Now, I can eat them.

All right. Well, thank you for that intro. And I'm glad to speak with everyone on today's call. It was another productive quarter as we advanced several strategic priorities, including another quarter of industry-leading organic growth, the onboarding of the wealth management business of First Horizon, closing of our acquisition of Commonwealth and the continued advancement of our cost efficiency work, which is driving sustainable improvement in our margin.

Now turning to a few highlights from our Q3 business results. Total advisory and brokerage assets were $2.3 trillion, up 21% from Q2 as continued organic growth and higher equity markets were complemented by our acquisition of Commonwealth, which added $275 billion of assets in Q3. Total organic net new assets were $33 billion, an approximately 7% annualized growth rate, a strong result both on an absolute and relative basis. On the recruiting front, Q3 recruited assets were $33 billion, contributing to a record $168 billion over the trailing 12 months. With respect to large institutions, we successfully onboarded First Horizon with $18 billion of AUM, of which $17 billion transitioned onto our platform in Q3.

Looking at Q3 financial results. The combination of organic growth and expense discipline led to an adjusted pretax margin of approximately 38% and record adjusted EPS of $5.20. Gross profit was $1.479 billion, up $175 million sequentially. As for the key drivers, commission and advisory fees net of payout were $426 million, up $77 million from Q2. Our payout rate was 87.5%, up approximately 14 basis points from Q2, driven by the typical seasonal build in the production as well as our acquisition of Commonwealth.

With respect to client cash revenue, it was $442 million, up $28 million from Q2. Overall client cash balances ended the quarter at $56 billion, up $5 billion, which included approximately $4 billion from Commonwealth. The remaining $1 billion of cash balance growth was a result of the organic growth of our business. Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 60%, near the midpoint of our target range of 50% to 75%. Looking more closely at our ICA yield was 351 basis points in Q3, up 9 basis points from Q2, driven by benefits from the Atria conversion and our acquisition of Commonwealth. As we look ahead to Q4, based on where client cash balances and interest rates are today, we expect our ICA yield to decrease to roughly 345 basis points, driven by the impact of recent rate cuts. As for service and fee revenue, it was $175 million in Q3, up $23 million from Q2, primarily driven by revenues from our annual focus comps as well as our acquisition of Commonwealth.

Looking ahead to Q4, we expect service and fee revenue to be roughly flat sequentially as a full quarter of revenue from Commonwealth is offset by lower conference revenue and seasonally lower IRA fees. Moving on to Q3 transaction revenue. It was $67 million, up $7 million sequentially, primarily driven by Commonwealth. As we look ahead to Q4, based on activity levels to date, we expect transaction revenue to be roughly $70 million. With respect to the monetization initiatives Rich mentioned earlier, we regularly evaluate how effectively we're delivering services, pricing and an overall experience that aligns with adviser needs.

Starting next year, we will streamline our business solutions portfolio to focus on those that deliver the greatest value to advisers, further reduce pricing across our advisory platforms and make targeted offsetting fee increases where we've been priced below the market. These actions are designed to strengthen our competitive position while ensuring we have the resources to continue investing in platforms, tools and services that enable advisers to grow and succeed. To help frame the financial impact to our 2026 results, we estimate that these changes would increase our trailing 12-month adjusted pretax margin by approximately 1 percentage point.

Now let's move on to our recent acquisitions, starting with Commonwealth. Overall, the transaction is progressing well, and we are on track to onboard Commonwealth in the fourth quarter of 2026. We continue to track towards our 90% retention target with advisers representing nearly 80% of assets already signed. In addition, factoring in current asset levels, our run rate EBITDA expectation has increased to approximately $425 million once fully integrated. As for Atria, the onboarding is complete. And considering current assets, we are increasing our expected run rate EBITDA to approximately $155 million.

Now let's turn to expenses, starting with core G&A. It was $477 million in Q3, below our outlook range for the quarter as we continue to make progress driving incremental operating leverage in the business. To give you a sense of the work, we're automating manual processes in our operations and services, increasing straight-through processing and reducing friction in our services. In addition, these initiatives have the added benefit of improving the client experience. With that as context, looking at the full year 2025, given our cost initiatives are tracking ahead of schedule, we are lowering our 2025 outlook to a range of $1.86 billion to $1.88 billion.

Moving on to Q3 promotional expense. It was $202 million, up $38 million from Q2, primarily driven by conference spend as we hosted our annual Focus conference in August as well as transition assistance related to comp. Turning to depreciation and amortization. It was $100 million in Q3, up $3 million sequentially. Looking ahead to Q4, we expect depreciation and amortization to increase by roughly $5 million. As for interest expense, it was $106 million in Q3, up $4 million sequentially, driven by increased usage of our revolver following the close of the Commonwealth transaction. Looking ahead to Q4, given current debt balances and interest rates, we expect interest expense to increase by approximately $5 million from Q3.

Turning to capital management. We ended Q3 with corporate cash of $568 million, down $3 billion from Q2 as we deployed the proceeds from our capital raises to fund the acquisition of Commonwealth. While the majority of transition assistance was deployed in Q3, we expect a couple of hundred million of additional payments in the fourth quarter, which will return corporate cash to more normalized levels. As a result, we anticipate Q4 interest income to decline to approximately $30 million. As for our leverage ratio, it was 2.04x at the end of Q3, below our initial expectations for roughly 2.25x following the close of Commonwealth.

Moving on to capital deployment. Our framework remains focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate and returning excess capital to shareholders. In Q3, the majority of our capital deployment was focused on supporting organic growth and M&A, where we closed Commonwealth and continue to allocate capital to our liquidity and succession solution. To uphold our commitment to maintaining a strong and flexible capital position, share repurchases remain paused, which we will revisit once we onboard Commonwealth.

In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage and create long-term shareholder value.

With that, operator, please open the call for questions.

[Operator Instructions] Our first question coming from the line of Alex Blostein with Goldman Sachs.

Thank you for all the detail, including the snack preferences. Just maybe starting with Commonwealth. Obviously, it's a big topic, helpful update with the 80%. Maybe help us frame how that's tracking at this point of integration relative to your original plan? And given that 80% is already quite sizable number, at what point do you find that your recruiting teams could start to focus more externally again to reaccelerate the pace of net organic growth?

Good question, Alex. I appreciate you asking. So let me start out. So it's been around 6 months since we signed the deal and 3 months since we closed. And as we mentioned, the transaction continues to progress as planned. It's really been an ongoing engagement with Commonwealth Advisers and home office staff, and it is incredibly productive as we jointly chart this course ahead together. And as we've said previously, the Commonwealth advisers are really thoughtful, and they are a very diligent community, which really doesn't surprise us given that they include many of the best advisers in the industry.

And so it stands for reason that they have been extremely thorough in their diligence. And we have been dedicated to making sure that we can give them all the information they need to make their very best decision. And that includes thousands of interactions since the announcement to ensure the advisers understand the benefits of the combination. Most recently, last week, there were over 1,000 CFN advisers at their national conference in Washington, D.C. We had sessions from main stage breakouts as well as a number of individual sessions across both the Commonwealth leadership as well as the LPL leadership. And as well, we know that we have scheduled many more in-person home office visits and virtual meetings for the next coming months.

And so as we said earlier, we're at that kind of nearly percent -- nearly 80% of assets having signed their agreements to stay with Commonwealth on track for the 90% and putting all of that retention aside, we feel over the moon with this transaction. The cultural alignment and complementary capabilities are creating a combined firm that is far stronger than the sum of the parts. We feel great about the value that this will deliver to Commonwealth advisers, existing LPL advisers and shareholders. And the work that we're doing here significantly advances our progress on creating the best firm in wealth management.

One last thing you did mention, as we begin to continue to progress towards higher and higher percentages of the advisers who have decisioned to stay with Commonwealth, that does present us the opportunity to bring back some of the recruiting and retention specialists that we had ring-fenced and allocated into educating Commonwealth advisers. And that's beginning throughout the second half of this year and will continue.

But Matt, is there more you'd like to add?

Sure. I mean I think maybe just to underscore what you said, I mean, I think we feel great about the transaction. We feel great about Commonwealth as a firm, high-quality advisers they have, high-quality leadership team, home office team, culture. So just all around from an acquisition standpoint before we even get to the economics, which I'll give a little more color on, we feel really great about. I think since there's been, let's just say, a little bit of focus on the retention targets and how those have been progressing, I think, Alex, to your question, it's always hard to predict exactly how things will trend. But I think as a general point, we are on track to where we thought we would be.

But if you just look at where we are right now at nearly 80% retention and the economics that come with that where we are right now, I mean, you're just under a 9x multiple, right? So I think for a property of the quality that Commonwealth is, I think we'd be very happy with that. And to Rich's point, as we progress to 90% retention, just to give a little bit of the sensitivities. Every incremental percentage of retention that we have is about a reduction of 1/10 of a turn on the multiple or an increase of $5 million in run rate EBITDA. Just so you have kind of the sensitivities on how that would work. But I think as you pull back up, I mean, we're incredibly excited to have the opportunity to engage with them, sign the transaction, to close the transaction. And now that we're much, much closer and involved with the teams, as Rich said, we're over the moon. We're really, really happy.

Our next question coming from the line of Steven Chubak with Wolfe Research.

Rich and Matt, so maybe to start, I was hoping to dive a bit deeper into the pricing changes you mentioned in the prepared remarks. It's certainly encouraging to hear the net impact will be 100 bps benefit to the margin. But I wanted to clarify whether the 100 bps net benefit contemplates both efficiency in addition to pricing changes and how these pricing adjustments could enhance the value prop, maybe drive some better organic growth outcomes going forward?

Sure, Steven. So I think the 100 bps improvement was solely from the pricing changes. So any additional improvements on the cost side would be in addition to that. I think to your second part of your question, I think when you look at the areas where the pricing changes are being made in the core area where our advisers are bringing in assets on the advisory side. And I think our pricing there has been competitive, and we're lowering the pricing there as to make it even more competitive.

So if you think about where advice is being delivered and where the flows are, I think that helps enhance our opportunity to grow. And on the other side, on the brokerage side, as we looked at the market, we were priced below the market. So I think what you see us doing on the brokerage side is bringing fees up into line where the market is currently. So broadly, brokerage in line, and I think we positioned advisory to be a place that can grow even further.

Our next question coming from the line of Craig Siegenthaler with Bank of America.

So I have another follow-up on Commonwealth, and congrats on getting to the 80% retention. That fell faster than expected. But on the 90% target, is the time line there the 4Q '26 onboarding target? Or could that actually be sooner?

Well, I'd say, Craig, I mean maybe it's -- the answer could be yes to both. I think when you look at when we will finalize where -- what the retention is, is when they're onboarded. So that's when you snap the chalk. But whether we get from 80% to 90% before that certainly can occur. But ultimately, it's when they are onboarded is when we'll measure that. And our estimate is that, that's the estimate of $425 million when we'll start to begin to recognize synergies and building up to that $425 million is when onboarding happens as well. So all a little bit over a year from now.

Our next question coming from the line of Brennan Hawken with BMO Capital Markets.

Rich and Matt, so I know Commonwealth brings new capabilities to you. You've also been steadily investing in building out the service offering, particularly for high net worth investors, really with the goal of pursuing larger teams and targeting some more wirehouse advisers. Could you speak to how that's progressing and what your updated expectations are on that front?

Yes. Thanks, Brennan. And I would thank you for painting within the lines on that question. So I appreciate your sticking to the knitting there. So let me try to hit it. So first off, you're right. I mean we have been pursuing a multiyear journey to become increasingly more relevant to wirehouse advisers. I think Commonwealth adds a tremendous amount, not only of capabilities, of brand credibility, capabilities and a service orientation that is second to none in the independent channel that is very attractive to wirehouse breakaways as well.

But when you take a couple of steps back and think about the way we've built towards methodically serving this market more expansively, it started with expanding our affiliation models several years ago, specifically as you think about our independent adviser channel around our W-2 channel we call Linsco, as well as our strategic wealth supported independent channel and progress with our introduction of a private wealth channel. The 3 of those offerings plus a continued investment in capabilities around degrading the difference between ourselves and the wires, certainly now on alternative investments, high net worth capabilities, specifically advanced tax planning, long-term planning, investment solutions as well and our ability to upgrade our service experience with the introduction of our field management organization oriented towards the success of those larger advisers.

Taken together with our pool of existing high net worth oriented advisers, you have a community that is building in capabilities. And kind of the capstone to those investments for us over the last year has been the introduction of an enhancement of the LPL brand in the marketplace. All of those things taken together have expanded consideration for us in that wirehouse W-2 market. And I believe now have begun to expand our consideration for those high net worth wirehouse advisers that represent an additional $5 trillion market opportunity.

So we continue to run into that space. We continue to build capabilities. We continue to build credible capabilities, and we've enhanced consideration. Taken together, I would expect that, that would continue to advance our capture of flow and movement out of the wires and the regionals across our affiliation models in a way that we have methodically seen, I would expect it to continue at pace.

Our next question coming from the line of Devin Ryan with Citizens Bank.

I want to ask a question just on expenses. Obviously, good to see the improvement on the 2025 G&A guide. So just trying to think about bigger picture, there's been a lot of moving parts on expenses just with a couple of big acquisitions coming into the system here in recent quarters. At the same time, you guys are taking actions to become more efficient. So I love to just think about, I guess, first off, some of the drivers that improved the guidance for the year. How much of that is structural carries into 2026? And then just more broadly, how you're feeling about the expense trajectory of the firm as you're probably finding more efficiencies with these transactions at the same time, still plenty of growth investment to do and some business inflation. So just trying to think about the guidance, but then also the trajectory.

Yes, Devin. So I think when you look at the things that we're doing that are driving the savings, I mean, they are -- to the point of your question, there are things that are ongoing, right? There are things where we're making investments to automate things in our service areas and our operations groups. There are process improvements, capability deployments. We're starting to use AI in a way that is practical and delivering. And you think about where and how that shows up as you're able to improve those things, you start to have lower NIGO rates, which are things that have to be reworked back and forth between us and our clients, which is a frustration from a client standpoint and it also incurs costs on our side.

Our advisers and their staff have to call us less, right, because there's less to call about. And we have less folks that spend time answering those calls. We have increased use of our digital tools, right? It just -- it goes on and on. And I think those are the things that really led to the improvements this year. And those are the things that I think we're going to continue to focus on from here going forward.

Now I think we do get into some things, even if you just look at next year, we'll give some -- we'll give our guidance for next year on the next call like we normally do. But to your point on some of the other deals coming on board, I just -- maybe there are 2 things I would highlight that are in addition to the efficiencies that we are driving. One is maybe obvious, but just keeping in mind, you're going to have a full year impact of Commonwealth's expenses next year. And as they onboard towards the end of the year, the synergies on the expense side largely won't show up until 2027. So I just want to keep that in mind. And then second is a little bit building on what Rich was talking about earlier with respect to recruiting capacity.

Another big driver of our expenses is the level of organic growth, right? So as recruiting frees up from Commonwealth, pivots back to the marketplace in general, to the extent that drives up organic growth, you would naturally have some incremental expenses coming on the core G&A side. Now at a more efficient level, given all the automation that we've done, but that's something that could drive it as well, which I think we'd all put in the category of a high-class problem on an expense side. So I hope that helps frame it.

But I think I just -- the headline I'd hit is I think we feel really good about what we're able to drive on the automation side, how that's dropping to the bottom line, but also how it improves our client experience and improves our employee experience. I mean the things that we are removing are rote monotonous things that allow people to focus on things that are more interesting. So I think it's exciting. The entire management team is aligned on it. And hopefully, the results show that we're able to deliver here.

Our next question coming from the line of Jeff Schmitt with William Blair.

You had talked about how adviser movements are still depressed for the industry, I believe. And I was curious, how is your share of those movements trending? And do you still expect that to be kind of a temporary phenomenon and ultimately lead to higher organic growth in future quarters?

Yes. Thanks for the question. We have seen that, that movement continues to stay a little bit artificially low. The truth is that when you look at movement in the industry, you see overall movement, but then you often see times where there are events in the marketplace that drive adviser churn. And those two events that we're seeing right now in the marketplace that would drive churn are: one, the adviser compensation changes at the wirehouse. They just continue to get further and further away from market competitive. And so you see more and more advisers in increasing numbers picking up their heads to consider their alternatives. And so I think that actually is a good trend for the independent segment where you could see continued movement and may move us back towards historical norms.

The other side of that is actually our Commonwealth acquisition as well, which drove activity in the marketplace, certainly from competitors and drove more, I would say, even elevated TA rates that have extended more broadly, not only just at Commonwealth opportunities, but I think more broadly across the industry. How do we think about that extending in time, I think we would be hopeful that we would return to historical norms as well as for how our capture has been trending, our capture has stayed consistent. We are the #1 capturer of advisers in movement and in motion in the marketplace. That has persisted at historical levels. And in time, over the last 5 years, we have seen that we have continued to grow share capture of advisers in motion, and we would hope to believe that, that would continue in time as well.

So as we head back towards more stable times, I think we would expect to see ourselves continue to participate in the way that we have in the marketplace. We feel as convicted, if not more convicted that our relative value proposition is absolutely the strongest in the marketplace in support of advisers. And so I think we feel good at the forward-looking outlook.

Our next question coming from the line of Michael Cyprys with Morgan Stanley.

I wanted to ask about alternatives. I was hoping you could update us on the progress in building out your alternative investment capabilities, how that stands today, steps you're looking to take over the next 12, 24 months? And if you could also touch upon digital assets, speaking of alts generally, what sort of access do your customers have today? How is that evolving? What sort of demand are you seeing? And how might both of these enhance your appeal to advisers in the marketplace as you build this out? And how might it also support revenue ROCA monetization?

Yes. I'll hit the developments of the -- that's like a quadruple embedded question, which is pretty awesome. Thanks, Michael. So on alternative investments, we have -- and we've shared a couple of times on earnings, we've been on a multiyear journey to delivering a very compelling alternative investment offering. And I would tell you, by the end of this calendar year, I think we're on par with any player in the marketplace around the breadth and quality of our offerings.

And so that journey was for us, one, building a core technology platform, which we have largely implemented. Two was expanding the offering. And so those selling agreements across a broad set of alts that we've done diligence on, and we're making really good progress there and expect to be -- our alternatives improved for sale have more than doubled to 80 by the end of -- that was from the end of 2024, and we're moving towards 120 alts available for sale by the end of this year, which I think puts us toe to toe with anybody in the industry. And then the third thing for us is beginning to educate advisers and assisting them in how alternatives can help the needs of their clients.

And so we've done a couple of things there, not only introduced an alts Connect last year, which is our e-signature and digital sign and simplifying the subscription process, but we also launched the Learning Hub in Q1, which is a one-stop shopping for educational resources designed to empower advisers with the knowledge and tools necessary to incorporate alts into their investment -- into their practices. And so I think on alts, I think I can reflect and say we have made tremendous progress over the last 18 months. I'm incredibly proud of the team and the work that they've done. And I think we feel really good about not only the technology platform because in addition to those for which we have selling agreements, we've actually enhanced our custodial and operational capabilities so that we can actually convert over 2,500 products that are held away to be brought onto our custodial platform.

And so the ability to move advisers, move those holdings, sell forward, give them a really good operating environment with technology, I think we feel strong about our position to compete in the marketplace. You asked about digital assets. As for crypto, we'll always prioritize solutions that align with our advisers' needs. Today, we have 5 cryptocurrency ETFs on the platform, and we're hearing from advisers and making available the products they need to manage their business in a control environment that is responsible, not only for the advisers and the risk, but also for end investors.

And so while we don't currently facilitate crypto trading, we are closely monitoring the competitive landscape, and so we'll keep you updated on that continued progress. All in all, I think we feel good about continuing to extend those offerings. They make us more competitive in the marketplace. They make us an available landing spot for more sophisticated advisers, and they allow our advisers to have a range of offerings that are second to none in the industry.

Our next question coming from the line of Ben Budish with Barclays.

Matt, a few questions ago, you were talking about how the slowdown in advisers in Motion has resulted in some elevated TA rates, not just that are impacting Commonwealth but across the industry more broadly. I'm curious, you guys have talked in the past about these sort of slowdowns being temporary. Given where rates are, I think you've explained in the past that TA rates rose as this is somewhat reflecting a reinvestment of higher rates on cash balances. What would your expectation be? Or how do you think about the progression of TA rates from here as rates come down? Would it be natural to expect that if advisers in motion or the turnover picks up that rates come back down? Or what would your expectation be there? How should we be thinking about that over, say, the next 12 months?

Yes. I mean I think if history is a guide, right, the overall returns are going to guide where TA rates go, right? So as interest rates have gone up, you saw TA rates go up. And as it comes down, you would expect them to come down. I think the other dynamic you have or a couple of dynamics to your point of less advisers moving, so there's more demand for that. And when you have transactions in the marketplace like we are currently engaging with Commonwealth, folks will bring more money to the table from a TA standpoint. And I think that's what we're seeing right now.

I think for us, which you've heard us talk about before, I mean, we always underwrite to returns with a consistent framework and return hurdle, which for us is usually deploying capital in the 3 to 4x EBITDA range. And I think when you have an environment like this, we'll just hedge towards the upper end of that, right? So being closer to 4x than 3x, but still going back to what really, really matters, which is really the environment that an adviser is going to land on, meaning the capabilities, technology, service and their ongoing economics.

So that's really what's going to carry the day. TA, of course, is important. I think where it trends over time it's hard to predict, but it's going to be driven by the factors that you highlighted, the number of advisers moving, what's happening in the marketplace and where rates are going. But I think from our standpoint, we've operated in all those environments. And ultimately, what matters is the value that we're bringing to the table is going to carry the day. And I think that's why to what Rich was just talking about, when advisers do decide to change firms, we're the #1 place they come.

And we have a follow-up question from Steven Chubak from Wolfe Research.

Given the NNA trajectory has been impacted by the repurposing of resources to support better or higher Commonwealth retention, has anything changed about your long-term NNA expectations? And I was also hoping you can give an update, Matt, on October cash and NNA trends as well.

Sure. I'll start with October, and then I think Richard can jump in on the NNA. So I think October has been a good month, similar to September. So if you look at client cash balances, reminders that you know well, Steven, but I'll hit in many ways, advisory fees primarily hit in the first month of the quarter. And now just given our size, right, including with Commonwealth at $2.3 trillion of AUM, those fees get bigger and bigger. So for October, they were at $2.4 billion. Outside of that, though, client cash balances continue to grow. And they're up so far $700 million in the month. So you kind of net that out, down at $1.7 billion or just over $54 billion of cash. So I think a good month on the cash.

On the organic growth side, those advisory fees hit there as well. So the first month of the quarter is typically lower. And then factoring in that adviser movement still remains low. When you factor in those two factors, I think October has looked good. We're -- where we sit today, we're around 4% organic growth for the month. Keeping in mind that's prior to the around $1 billion of AUM left to go on those large OSAs that are offboarding that we would expect to come out sometime in the fourth quarter. So overall, I think it's a good start to the quarter.

Steven, it's Rich. So on that NNA trajectory, I think what we've seen would say that you should not think that our NNA trajectory is changing because of this. This is a temporary really ring-fencing of many of our most sophisticated recruiting and/or retention resources to move them over to help educate Commonwealth advisers, some of which they've already been in discussions with. And as such, our feeling has been quite good. It's the progression in the pipeline that was going to be most impacted as that team only has so many hours in the day. So as they begin to move back in to having -- enhancing the share of their time that's spent on external advisers to this firm, I think you would expect to see that we would continue to have the successes we've had in the past.

Our next question coming from the line of Bill Katz with TD Cowen.

Congrats on the 1 year, Rich, can't believe how quick it's been. Maybe a 2-part question, just embedded, a little bit disparate in nature, so I apologize for that. Can you give us a sense of where you might stand on the enterprise side now that you're getting -- working your way through CFN and how you might be able to sort of multitask maybe some larger platforms to the extent that, that pipeline is building? And then on the net new money that's coming in the door, can you tell us what kind of cash allocation that is relative to roughly 2.5% that's the legacy book right now?

Do you want to take institutional first?

Well, I was going to say thank you to Bill first because he said something really nice to me. Why don't you hit the last part and then I'll come back on institutional.

Yes, sure. So Bill, make sure I just jump in. When you say the cash sweep that's coming in, when you say allocation, are you talking about the percent per account on the incremental versus the overall? I want to make sure about the question.

Yes. I apologize for coughing on the call. Yes, like the cash allocation as a percentage of net new assets compared to roughly a 2.5% that's the average for the quarter or at the end of the quarter.

Yes, I think the cash that's coming in, it's around -- it's not a material difference than where things are overall, if that's where you're getting. So pretty similar.

Okay. So then on that institutional side, Bill, maybe I should acknowledge for us, getting Commonwealth right is the singular #1 job right now. And so we're focusing a lot of our resources on delivering a seamless experience for the new advisers joining the platform while ensuring to continue -- we deliver a great experience for our existing advisers. So we framed this a couple of times, but I'd just reiterate, I wouldn't expect too much by the way of other large announcements for the time being. But that being said, maybe in some broader context, we have been targeting historically large banks. And I think especially as you think about this market environment for large banks, we see the ability for the banks that we work with to be winners and net consolidators in the consolidation of that retail banking industry. And so feel really good about our ability to be a counterparty to large banks as they acquire in that market.

And historically, we've had some fantastic partners like M&T, BMO and where we've seen them be net acquirers and us help them with their wealth management business on some of those transactions. As well, we continue to be in conversations around insurance broker-dealers and product manufacturers and as an aside, those markets are similar size, bank outsourced model opportunity sits around $1.5 trillion in the market. And in that insurance broker-dealers and product manufacturers, there's another $1.5 trillion in market opportunity. And post that onboarding of Prudential that we feel really good about, and we've seen great successes with -- in partnership with them.

I think that is a very validating event in the marketplace. But as we've said before, those are some long lead time conversations. And just to reiterate, at this moment in time, we are focusing all of our resources on ensuring that we get Commonwealth right and landed and still progressing conversations, but I would expect less in the way of announcements to come in that large institutional segment.

I'm showing there are no further questions in the queue at this time. I will now turn the call back over to Mr. Steinmeier for any closing remarks.

Well, thank you, operator, and thank you to everyone for joining us tonight. We look forward to speaking -- we look forward to speaking with you all again in January. Have a great evening. Thanks.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.