Wall Street is loving shares of Schwab, Envestnet, Morningstar and LPL

December 8, 2017 — 12:28 AM UTC by Brooke Southall


Brooke's Note: The RIA business has been white-hot since 2009 when Wall Street mores got exposed and the Labor Dept. began to get busy. Since then, investors heaped assets on firms that could deliver more unconflicted financial advice. LPL is the biggest aggregation of independent advisors. Envestnet is the biggest one-stop source for brokers wanting lean into fee-based business. Schwab is the biggest RIA custodian, etc. Yet as recently as early 2016 you'd hardly have guessed at the trend. The share prices of these public companies that theoretically benefit the most from that trend traveled a rocky road -- until now. You might explain it with the usual mumbo jumbo about interest rate rises and greater clarity about the DOL rule. That's part of it. But these companies' shares are beating out other rate-sensitive financial firms. In addition, it seems to be bookended by another good leading indicator -- all the private equity and venture capital that continues to pour into the RIA business. Valuations on that end can be really quite amazing, like Betterment, which has $12 billion of AUM and an implied valuation of $1 billion.  Here we come, 2018. 

Shares of publicly traded companies in the RIA universe gained altitude in 2017 -- leaving many other sectors and sub-sectors in the dust.

The stock prices of Charles Schwab & Co., Envestnet Inc.Morningstar Inc., and LPL Financial were among those companies enjoying a breakout year.

San Francisco-based Schwab shares rose from $40 to $51, or 27.5%; Chicago-based Morningstar's shares climbed 25% from $74 to $93 since Jan. 1.

Both stocks drubbed the S&P 500 index, which rose about 17% year-to-date, as did ETFs that broadly track U.S. financial companies, like the iShares IYF, which climbed 16% from $102 to $119 during the 11-month period. See: PIMCO's institutionalize-Bill-Gross effort culminates after three years in price hikes tempered by ETF migraines and fee cuts.

Performing even better were Chicago-based Envestnet, up 36% from $36 to $49, and Fort Mill, S.C.-based LPL Financial, which climbed from $35 to $54 for a cool 54% lift.

Very good year

Yet for all their outperformance in 2017, these wirehouse rivals stack up even better when compared to where they traded in early 2016.

Schwab has more than doubled in price from the $25.05 it hit Jan 20, 2016.

Credit Suisse rewarded Dan Arnold's streamlining of LPL with a $68 share target.

LPL shares nearly tripled from their Feb. 8, 2016 misery of $16.50 after the company used up a significant portion of its cash reserves on share buybacks -- and hedge fund wolves circled. See: After stealthily buying up LPL stock, a 'wolf pack' of activist hedge funds has a leg hold.

Credit Suisse, in approving recognition of the streamlining moves of LPL's new CEO, Dan Arnold, just assigned the nation's largest IBD shares a $68 target. See: New LPL CEO Dan Arnold thrills Wall Street in debut by laying out vanilla vision.

Envestnet shares bottomed out at $21 on Feb. 8, 2016 as Wall Street analysts fretted about how its $550 million purchase of Yodlee would pan out. See: With Envestnet shares deeply depressed, analysts cut Jud Bergman little slack on 4Q earnings call. Investors in the outsourcer of software and investments to RIAs and IBD reps who held their shares in that trough have seen their faith rewarded with 150% gains. 

The shares of other publicly traded companies positioning themselves as alternatives to Wall Street brokers also did plenty well. Ameriprise shares leapt from $115 at the beginning of 2017 to $167 today, or 45%.

St. Petersburg, Fla.-based Raymond James Financial Inc. shares closed at $88 today, up from $70 at the start of the year.

Blucora Inc. of Bellvue Wash., essentially a holding company for Irving, Texas-based IBD H.D. Vest Financial Services, saw its shares climb 33% from $15 to $20. Schwab's former retail chief ends garden leave with two new gigs -- as chief of HD Vest holding company, and as Betterment CEO's operations confidante.

The shares of BlackRock, owner of iShares, have done nothing but explode, climbing from $384 at the start of the year and closing at $515.49 on Dec. 8.

Mentioned in this article:

Envestnet Inc
Top Executive: Jud Bergman

Morningstar, Inc.
Top Executive: Joe Mansueto

Raymond James Financial Inc.
Asset Custodian
Top Executive: Bill Van Law

LPL Financial
Asset Custodian
Top Executive: Bill Morrissey

Share your thoughts and opinions with the author or other readers.


Jeff Spears said:

December 8, 2017 — 3:18 PM UTC

Looks like the best investment is in picks and shovels for independent advisors.

Bob said:

December 9, 2017 — 1:55 AM UTC

I would temper the exuberance these businesses are a “levered play on the markets”, it shouldn’t astonish to see this type of share price performance in a year when the S&P 500 is up ~ 20%. To see these type of share gains in a “flat and fat” period (lower stock market returns w/ higher volatility) you have to demonstrate credible growth drivers independent of broader market, and healthy margins / profitability…This is a significant challenge for RIAs, independents, and countless other businesses across financial svcs

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