LPL Financial files S-3 to raise $4 billion after new CEO takes reins with 'bold aspiration' to lead the 'advisor marketplace' across 'all of wealth management'
New CEO Rich Steinmeier needs capital to move upmarket but promises 'organic' emphasis as shares in company hold steady in market downturn.
5 min readLPL Financial filed with federal regulators today to pave the way for a $4 billion capital raise, shortly after its new CEO proclaimed his “bold aspiration” to lead “across all of wealth management.”
The Fort Mill, S.C., company filed an S-3 with the Securities and Exchange Commission (SEC) for a “mixed-shelf” offering. It sets the table to raise capital by selling securities or borrowing. The registration fee is $612,000, according to the filing.
The stock (LPLA) was down sharply on the news, closing at $358.86, off $12.88 or 3.46%, but held steady after hours. That compares to a 52-week high of $384 and low of $187.19.
The Nasdaq, on which it trades, was off 2.64%, and an index of 1,409 financial services stocks closed down 3.4%.
The capital raise filing comes a little more than a month after Rich Steinmeier made his debut as LPL CEO on an earnings call with Wall Street analysts and announced his plans to raise the bar.
LPL is already the No. 1 independent broker-dealer and serves 28,000 advisors. But now its attention is focused on winning “leadership” across advice channels.
“Our long-term vision is to become the leader across the advisor-centered marketplace,” he said on the Jan. 30 call.
Rich Steinmeier power poaches Jeremy Holly, who returns to LPL as EVP to head Dan Arnold-directed 'liquidity' project to buy -- but not hold -- LPL firms
Bold aspiration
The LPL strategic plan is to "invest back into the platform ... to deliver capabilities," he added.
“Doing this well gives us a path to sustainable industry leadership, not just in the independent and institutional markets, but across all of wealth management.
"It's a bold aspiration, but one I'm confident that we can achieve.”
The company is unusually broad spectrum already in that it can offer clearing, broker-dealer affiliation, RIA custody, bank brokerage support and even owns full-service brokerages.
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Still, it is just beginning to address supporting advisors who specialize in high-net-worth and ultra-rich clients. To broaden its reach to those investors, it signed a deal last month with SS&C and iCapital to sell more alternative investments.
Last fall, it began to let some corporate RIA advisors custody assets at Schwab Advisor Services. Perhaps unconnected but it came after Merit Financial, founded in 1998, left LPL's custody last July.
Merit had $8.8 billion in advisory, $2.8 billion in brokerage assets, and $253 million in assets under advisement, as of June 30, 2024. See: LPL CEO calls out big RIAs that flunk 'core principles' and cuts ties with Merit Financial, which revealed fresh disclosures in its June ADV regarding Fidelity as custodian
Dan Arnold is using force and finesse to make LPL a deal machine -- giving Atria and its brokers incentives to come aboard and Fidelity and Pershing a reason to play ball
Going organic
The SEC filing today discloses virtually nothing about LPL's specific capital allocation plan, stating that only fresh capital will be “used for working capital, capital expenditures, possible acquisitions and repayment of debt.”
On its earnings call, LPL stressed it would seek organic growth as its strategic imperative going forward after years of rolling up big broker-dealers. The word “organic” was spoken 28 times on the call.
LPL had $479 million of “corporate cash” on hand at the end of the fourth quarter, Dec. 31, down $229 million from $708 million at the end of the third quarter, Sept. 30. Much of that capital went to the purchase of Atria Wealth Solutions, a broker-dealer network. See: Dan Arnold is using force and finesse to make LPL a deal machine -- giving Atria and its brokers incentives to come aboard and Fidelity and Pershing a reason to play ball
LPL said it would pay $805 million upfront for Atria then as much as $230 million earnout, according to a Feb. 13 investor presentation about the announcement. Onboarding and integration costs were budgeted to be between $300 million and $350 million.
The leverage ratio i.e. debt to equity, at the end of the fourth quarter was 1.9 times, just below the midpoint of LPL's target range. The company is expected to buy back $100 million worth of shares in the coming year.
Power surge
It is also expected to be a major buyer of RIA and IBD practices that it services as custodian and broker-dealer to create successions that stay in the LPL family. See: Rich Steinmeier power poaches Jeremy Holly, who returns to LPL as EVP to head Dan Arnold-directed 'liquidity' project to buy -- but not hold -- LPL firms
LPL did its IPO in 2010 and raised $469.7 million, which put the valuation of the whole company at $3.2 billion. It now has a market cap about nine times higher at $27 billion.
Former LPL President and CEO Dan Arnold was fired suddenly, effective immediately, on Oct. 1, following a mystery directive from its board. Steinmeier was elevated to interim CEO at the time and got the job permanently on Oct. 24. See: Dan Arnold steps down as LPL CEO, under a cloud, effective immediately; Steinmeier steps in as interim CEO
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