LPL Financial Holdings Inc (LPLA) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LPL Financial fourth-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator instructions) As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Mr. Mark Barnett, Executive Vice President of Investor Relations. Please go ahead.

Thank you, Allie. Good morning, and welcome to the LPL fourth-quarter earnings conference call. Joining me on the call today is Mark Casaday, our Chairman and Chief Executive Officer, who will provide his perspective on our performance during the fourth quarter, the full year, and discuss our outlook. Following his remarks, Robert Moore, our Chief Financial Officer, will highlight drivers of our financial results. Then we'll open the call for questions.

I bring to your attention that we have posted supplemental slides on the Events and Presentations section of the Investor Relations page on lpl.com. We will specifically refer to a few of these slides during the call.

Before turning the call over to Mark, I'd like to remind everyone that we are committed to transparency, including an open and candid dialogue about our current operations and future prospects. Comments made during this conference call may incorporate certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This may include statements concerning such topics as earnings growth targets, operational plans, and other opportunities we foresee.

Underpinning these forward-looking statements are certain risks and uncertainties. We refer our listeners to the Safe Harbor disclosures contained in the fourth quarter earnings release and our latest SEC filings, to appreciate those factors that may cause actual results to differ from those contemplated in such forward-looking statements. In addition, comments during this call will include certain non-GAAP financial measures governed by SEC regulation G. For a reconciliation of these measures, please refer to our fourth-quarter earnings press release.

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

Thank you, Mark. Good morning. I'm pleased to be able to share with you that LPL Financial is reporting a very solid fourth quarter. This capped off an outstanding year for our firm in both terms financial and operating performance. This strong performance has enabled us to deliver record profitability for shareholders and puts us on a positive trajectory for 2011.

The commitment of our customers to help their clients meet their financial goals, coupled with the strength of our business model and the support we provide, enabled our advisors to meet the increasing demand for unbiased and conflict-free financial advice, resulting in strong performance for our firm, despite an operating environment in 2010 that remained challenging by most measures.

At the same time, LPL Financial achieved many milestones during 2010, providing our advisors and institutions with even greater value through our unique integrative technology platform, practice management, programs and training, independent research, and our clearing and compliance services. We do not believe there is any other firm that can provide an independent advisor or financial institution the breadth and depth of resources offered by LPL Financial.

As Robert Moore, our CFO, will discuss, these resources are delivered with an unrelenting focus on execution and expense discipline, and that has enabled us to achieve a 40 basis point improvement in our full-year operating margin.

Let's turn to the numbers for the full year. Adjusted net income rose to a record $173 million or $1.71 per diluted share. Adjusted EBITDA for the year increased 16% to a record $413 million versus $356 million in 2009. Net revenue for 2010 was $3.1 billion, a 13% increase over the prior year. Revenue growth was led by strong net flows into our fee-based platforms, which reflected positive momentum from our advisors in serving their clients.

The strong growth in advisory fees, asset-based revenues, as well as trial-based commissions was also aided by more favorable equity markets, particularly in the fourth quarter. Another area of strength for LPL Financial was in new business development. During 2010, we added 494 net new advisors, 288 from organic growth, and 206 related to the acquisition of National Retirement Partners.

One significant difference in the types of advisors moving to LPL Financial in 2010 versus prior years is the increased number of large offices and higher average production for the top producing advisors. The majority of these new customer relationships were established in the second half of the year, as advisors and institutions who may have been waiting out concerns about a double-dip recession or who had been incented by wire houses to stay early in the year, became interested in changing broker-dealers once again, as the markets regained strength in the fourth quarter.

Factors such as these are why we discuss that new advisor growth on a trailing 12-month basis rather than quarterly, as the 12-month view helps to smooth out some of the inherent variation related to our new business development efforts. Based on the reported numbers that we have seen by other firms, which indicate generally weak results across the industry, we believe our recurring success highlights the attractiveness of LPL Financial to advisors seeking independence, and the ability to help their clients prepare for and achieve their financial objectives in an unbiased and conflict-free environment.

During 2010, we also achieved very strong asset growth. Total advisory and brokerage assets reached $316 billion as of the end of 2010, up 13% over the year-ago period and a record for our firm. Importantly, advisory assets in our fee-based platforms rose 21% to $93 billion. This significantly outpaced S&P growth over the same period. This was also a record. This was led by net new advisory asset flows of $8.5 billion.

Advisory asset flows were primarily driven by a continued shift towards a higher percentage of advisory business within our existing advisor base, as well as by assets from advisors who joined the firm in 2009 and whose business begin to ramp up on our platform in 2010. We also continued to see strong growth in our hybrid RAA platform, which provides integrated fee and commission-based capabilities for independent advisors with their own registered investment advisor or RAA.

Assets under custody grew to $13.5 billion as of December 31 of 2010, and encompassed 114 RAA firms compared to $7.3 billion in assets and 92 RAA firms at the end of 2009. The strong growth in our hybrid RAA business since its launch in October 2008 makes LPL Financial one of the largest RAA custodians in the industry.

In summary, 2010 was a very good year for LPL Financial. We achieved healthy growth across all the key performance metrics that we monitor closely, including advisors, assets, revenues and profitability. As we look ahead, we believe we are on track to achieve our target of long-term growth of 20% annual adjusted EPS growth.

And for those of you that were not able to meet with us on the road show, you should be aware that it is our policy not to provide revenue or earnings guidance. Rather, we will focus on our expectations for adjusted EPS growth on average over the long-term -- meaning the next three to five years, absent any significant change in either our business or the markets that we serve.

With that in mind, I will spend a few minutes discussing the drivers of our growth in the future. One of the most compelling aspects of our business model is that there are multiple drivers of growth. We are not overly dependent on any one variable to achieve our targets.

I'd like you to refer to slide seven in the materials. You'll see these growth drivers highlighted as a stairstep chart. This will be familiar to some of you who saw it on the road show. LPL Financial's growth is built on the five key drivers to the left of the 20% target. Importantly, the performance characteristics of these drivers tends to be fairly predictable over time. You will note that the two drivers to the right of the target, Rise in Interest Rates and Acquisitions, are not necessary for us to achieve 20% growth. Rather, these two items will contribute to access performance.

Slide eight shows our advisor growth and the economic advantage we provide to advisors that join our firm. Since 2000, 80% of our growth in net and new advisors has been organic, and we supplemented this growth with acquisitions that have been part of our strategy to build scale, particularly in the years 2006 and 2007, as you see on the chart on the left-hand side of page 8.

We have a dedicated staff of around 50 people who drive our new business development efforts, and we believe this team is the largest in the industry. We attract new advisors from over 200 broker-dealers and custodians in any given year. We reach across all different types of business models, including registered reps, insurance producers, dual registered and RAA's -- sometimes called hybrid RAA's -- to be able to appeal to our platform.

We are assuming an organic growth of 400 net new advisors annually, on average. We do not expect to experience that level of advisor growth in every year, but rather as an average over time. In 2010, organic net new advisor growth was 288, which is short of the appointed assumption, due to the weakness in new business development during the first three quarters of the year. Importantly, this shortfall obviously did not affect our ability to hit our earnings target for growth rates in 2010, nor should it jeopardize it going forward. The pipeline for new business development remains healthy and it appears conditions are normalizing.

Let's turn to slide nine. A second driver of our growth is the ramp-up of each year's class of new advisors. It is our practice to bring in experienced advisors with their own book of business. For a variety of reasons, it takes about three years for them to rebuild the production volume they had in our last 12 months prior to joining LPL Financial. The ramp-up shown on slide nine is supported by years of data, and over time, tends to be predictable.

That said, in a given year, we can and do see some deviation, and 2010 is a great example where the ramp-up for the 2008 and 2009 recruiting classes were below the levels shown here, due to the impact of the market dislocation. However, the strength of the business model is that the conditions that drive weakness in one driver often create positive variances in other drivers, as illustrated on the next slide -- that's slide 10.

The third driver is revenue growth of those -- of advisors who have been with us for over three years. Within this driver, there are actually multiple opportunities for growth, the first and foremost being these mature advisors increase the number of clients they serve and deepen their existing relationships.

But there are also significant opportunities for movement towards advisory-based solutions, which has a higher margin, and expansion of services to monetize more of the advisors' activities. Retention is also a key metric found within this driver. The greater the retention, the greater the overall performance of our existing advisor base. This year, we retained over 96% of our existing advisor revenue, which we believe is one of the best retention rates in the industry.

On average, mature advisor sales growth runs about 3%, excluding market impact. However, during 2010, growth was above this trend as the economic and market environments improved. This drove increased advisor activity, which more than offset the weaker ramp rates I noted earlier for newer advisors, and the smaller class of 2010 for business development.

Slide 11 shows a fourth driver of growth, which is scale-driven operating leverage. As the only independent broker-dealer that is self-clearing, we have a significant advantage in terms of quality, control and ability to manage costs. Additionally, over the last decade, we have invested over $600 million to develop a highly scalable technology platform. This allows us to double the number of advisors we currently serve, and we would have very little incremental technology cost to do that.

We have a disciplined process to drive productivity and create efficiencies for our customers and our employees. Accordingly, we target a 35 to 50 basis point annual improvement in adjusted EBITDA margin as a percent of net revenue. Consistent with that target, we achieved a 40 basis point margin expansion during 2010.

The fifth driver, on slide 12, is long-term market appreciation. We use [a defining] assumption of 5%, reflecting the conservative nature of client assets and our own modest expectations for rising equity values going forward. For 2010, the market grew at an above-trend rate, with the S&P 500 index rising 13%. However, it should be noted that while we benefited from equity market growth, there's not a 100% correlation, due to our payout grid, which is designed to dampen the impact of market volatility.

In rising markets, the payout percentage to advisors tends to be higher, and in falling markets, it's lower. In other words, we're giving up some upside opportunity in order to diminish the downside impact of falling markets. This is reflected in our 2010 average payout ratio, which is about 50 basis points higher than 2009.

The right side of slide 12 shows the growth, over 20%, in EPS that can be achieved from rising interest rates, which at some point is likely to occur. The important point to reiterate is that we do not need rates to rise in order to achieve our 20% growth target. I would note that we are not planning for any significant interest rate movement during 2011.

Likewise, slide 13 shows the upside we experienced from acquisition. With respect to our acquisition strategy, we made a number of broker-dealer acquisitions a couple of years ago, as we were building scale. The National Retirement Partners acquisition, which I previously mentioned, is a great example of adding scale while extending our capabilities for our advisors.

Through the NRP transaction, we are now the largest 401(k) consulting firm in the US, serving over 25,000 plans. This position enables us to participate more fully in a tremendous market for retirement plan asset capture, rollovers, and participant referrals. We are very excited about this opportunity and look forward to growing this aspect of our business.

There are also two non-operating items that impact adjusted EPS -- interest rates on our debt and share count. That will be discussed in more detail during Robert's remarks.

In conclusion, 2010 was a very good year for LPL Financial, and we like what we are seeing so far in 2011. Our new business development pipeline continues to be positive, and the economic outlook is improving, which is driving more advisor and client activity.

With that, I'll turn the call over to our CFO, Robert Moore, who will review in greater detail our performance results.

Thank you, Mark. Our strong fourth-quarter financial and operating performance contributed to an already solid year, and provides a fundamentally sound and positive trajectory as we enter 2011.

Our record results for both the quarter and full-year were achieved through a combination of factors that include diverse sources of revenues, the majority of which are recurring in nature; growth and advisory and brokerage assets; and a continued focus on disciplined expense management and instituting operational efficiencies across our organization. These factors, combined with our significant scale, enabled operating margin expansion.

Net revenue for the fourth quarter increased 12% from the fourth quarter of 2009. The strong revenue growth in the quarter was primarily driven by double-digit growth in advisory fees, trail-based commissions and asset-based revenues, combined with modest growth in our transaction-based fees.

Revenues for the full year were driven by strong growth in the Company's advisory fee and asset-based revenues, as well as trail-based commissions, resulting from a combination of advisor-generated growth in assets as well as improved equity market performance relative to 2009. Nearly 61% of total 2010 net revenues were recurring in nature.

Total operating expenses for the fourth quarter and full year were significantly higher than the prior year, primarily due to significant growth in advisor production, resulting in higher production expenses. Additionally, you should note that the production expense line includes $222 million of IPO-related compensation expense that we had previously announced. This charge resulted from the conversion of restricted shares to common stock issued to certain advisors upon the closing of the IPO.

Excluding the $222 million charge, the payout ratio to advisors for the fourth quarter and full year were 87.6% and 86.3%, respectively. As expected, the payout ratio in the fourth quarter was the highest of the year, as advisors met their production targets, resulting in higher payouts.

Other factors driving full-year operating expense growth included higher compensation and benefit expenses resulting from volume-based hiring and restoration of incentive compensation, merit raises and promotions, all of which had been reduced in 2009, due to the economic environment, as well as $6 million in taxes on stock option exercises that occurred in connection with the IPO. An increase in G&A expenses, due to a restoration of our first-quarter advisor conferences and technology spend that we also reduced in 2009, and a rise in other expenses, driven by $8 million in costs associated with the IPO, and other miscellaneous nonrecurring expense items totaling $11 million.

The increase in these expense items was partially offset by a decline in depreciation and amortization, as capitalized software from the 2005 management buy-out became fully amortized during the second quarter of 2010. Restructuring charges also declined significantly. 2010 restructuring charges are primarily attributable to carryover expenses related to the integration of the affiliated entities that was announced and completed during 2009.

In terms of overall profitability, we achieved a 40 basis point improvement in the full-year adjusted EBITDA margin as a percent of net revenue. This margin improvement is a result of several factors, including our highly scalable technology platform and our disciplined approach to process improvements, targeted annually to drive down incremental costs. Our 2010 capital expenditures were $23 million, and the fourth quarter run rate was approaching $12 million. This is a good run rate going forward, and reflects our expected $50 million in annual expenditures for 2011.

Generally speaking, we typically spend 25% on maintenance-related projects, 25% on compliance-mandated items, and the remaining 50% is devoted to new revenue-generating opportunities and advisor-facing enhancements. Interest expense in the fourth quarter of 2010 declined by $5 million compared to the fourth quarter of 2009, largely as a result of the debt refinancing we undertook in the second quarter of 2010. At current interest rate levels, we expect interest expense savings of about $18 million in 2011 relative to 2010.

You should also note that on January 31 of this year, we utilized $40 million in cash to pay down debt on a pro rata basis. We estimate this debt reduction will lower our annual interest costs by an additional $1.5 million to $2 million. At the end of 2010, our leverage ratio was at 2.6 times, which we would expect to continue to decline throughout 2011. With the recent upgrade by Standard & Poor's, a favorable outlook with Moody's, and strong fundamentals in the credit markets, we will continue to assess opportunities to refinance our debt and further lower our interest expense, and thus contribute to adjusted earnings per share.

The last topic I will cover before we open up the call for questions is the impact of the IPO on our financial statements and reporting.

First, as you know, we utilize adjusted EBITDA and adjusted earnings per share in assessing LPL's operating performance that excludes certain items that we believe are not representative of our core business. In connection with the IPO, we incurred approximately $241 million in one-time costs that we are including as part of our adjustments.

As we have previously disclosed, we will realize a cash income tax benefit resulting from the IPO of about $237 million. We expect to realize approximately $145 million of these tax savings as a result of pursuing refunds of state and federal taxes paid in 2008, 2009, and 2010. While we expect to receive the majority of refunds in 2011, the exact timing is unknown, and some of the refunds associated with state income tax filings could extend into 2012.

With respect to the remaining $92 million, it should be realized over the next 18 to 24 months, based on our level of profitability. Importantly, it should be noted that, going forward, GAAP net income and adjusted net income are not impacted. The tax benefits are a cash item only and do not impact future-period income statements. Our expected tax rate should be between 40% to 42% in 2011.

Utilizing our strong cash flow and the cash generated from these tax benefits, we expect to further delever our balance sheet. We have indicated that we are targeting achievement of an investment grade credit rating over time, which is a function of our overall financial leverage, among other criteria. We will assess on an ongoing basis the best use for our cash to maximize returns for our shareholders.

You should also note that the increase in the number of shares outstanding does impact the comparability of our results, both historically and, importantly, the 2011 period versus 2010. As noted on slide six, our financial statements and EPS calculations are based on the average number of shares outstanding for the period. However, because of the way weighted average diluted shares are calculated, the full impact of the increase in shares is not reflected in the 2010 weighted average diluted share count. However, that full impact will be reflected in 2011 and will show an increase in the share count of approximately 13%.

With that, Allie, would you please open up the call for questions?

(Operator instructions). Suzi Stein, Morgan Stanley.

Could you talk about yields? They were lower on advisory assets this quarter. Was that a function of timing of NNA and when you brought the NRP assets on? Or what else would drive down yield?

Hi, Suzi. It's Mark. Let me have Robert answer that question for you.

Hi, Suzi. Good morning. So, what happens is essentially, our revenues are driven by the valuation as of the previous quarter. So you take September quarter in this case is the reference point for the vast majority of fees that are charged during the course of the fourth quarter, and call that somewhere around 60% to 70%. So we do have some resetting that occurs throughout the quarter, but the vast bulk is off of the prior reference point.

And so what happens, whereas the asset calculation, of course, is the point in time at the end of the quarter; so when markets lift, you have a decline in that computation of revenues relative to the asset base that shows average fees looks like appearances declining, but actually it's a function of the timing difference between when the revenue stream is essentially set and when the denominator is calculated. Does that answer your question?

Yes. No, that makes sense. Thanks for clarifying that. Also can you just talk about the market for acquisitions? Has there been any change since you did the NRP deal?

Well, there's been no change. We see fairly constant activity in M&A opportunities and we have a team that's dedicated to looking at them. I don't know that we've seen anything materially different from a few months ago in that particular area.

Okay. Great. Thank you.

Kenneth Worthington, JPMorgan.

This is Funda Akarsu for Ken Worthington. Our first question is on the retail investor re-engagement. Can you compare the re-engagement of the retail investor and how this recovery compares with the others you have seen?

Yes, great question. So, sort of what's on the mind of the retail consumer today versus other recovery cycles? Is that a fair way to summarize it?

Yes, it is.

Yes. I would say that the retail consumer is probably a touch more cautious in this recovery cycle than what we saw in the early 2000's -- I mean, given the trauma of what occurred and so quickly occurred in late 2008 and early 2009.

Now, it is important to remember that, for us, that consumer is really driven by the advice and wise counsel of their advisor. That hasn't changed since the early 2000's. And I think it's important to note that advisors are quite optimistic; in fact, they're at record levels of optimism, and have been since July of last year, for LPL advisors. We measure it every year as part of our national conference. And I talk to advisors nearly every day, and you get a really good sense that they're quite positive about outlooks for markets and outlooks for their business, and outlooks with their clients.

So I think the retail consumers in that sort of normal way of recovery, post a difficult market transition, but slightly more cautious than what we've seen before. I think the advisor, at least somewhat ironically, is more optimistic than what we've seen before in this stage of recovery versus, say, the early 2000 market break. Is that helpful?

Yes, thank you for the color. The second question we have is, given the market conditions today, how do you expect to prioritize the use of the cash flow? How quickly do you want to pay that down?

Yes, great question. What a lovely problem to have. What should we do with the cash? I love these problems. And, essentially, we have stated that we want to get ourselves to investment grade debt levels, which would imply that we are going to pay down some debt.

We have paid down the first $40 million of debt at the end of January, as we announced, but we haven't yet decided when we're going to pay down other tranches of debt or by the amount. But some debt repayment has already occurred, and I think you can see us doing a bit more.

Even with that, it won't be sufficient to overcome both the tax benefit that Robert mentioned and, of course, our ongoing free cash flow generation, which is quite significant, for the business. So we're going to have the other nice problem, which is even with some debt repayment, we'll still have a fair amount of cash. And for that, as we've said before, we are already committed to shareholders that we would do some repurchase of shares -- again, a bit ironic for a Company that just went public in November 18. But that would be to make sure that we are neutralizing any issuance of options to advisors and to employees in our normal options program.

So, it will be small, and it's a small use of cash. But that we will do over time. Whether we do that soon --like, in the body of 2011, or whether we decide to do this in 2012, again, we're still evaluating.

And then the third and fourth areas of cash are acquisitions and dividends. Dividends are off the table for the moment; no reason for us to contemplate that, based on everything we see at the moment in the operating business, as we've said before on the road show. And so that leaves us with acquisitions, and, apropos to Suzy's question, we continue to see interesting things in the marketplace that we want to explore. And I think that has proven, for us, to be a good use of cash, so we'll continue to explore that.

So if we sum all that up, what that means is, again, some debt repayment, some of which has already occurred -- not too much debt repayment, though, because we don't -- no reason for us to delever too much or too rapidly. And at the same time, probably the best use of cash for us beyond the simple neutralization of option issuance would be for acquisitions for the business.

Any other questions?

That's very helpful. Thank you for taking our questions.

Absolutely.

Joel Jeffrey, KBW.

In the slide deck, it looks like the sensitivity to interest rates increased slightly. Is that just a function of a steeper yield curve?

No. It's a function of balances being at a higher level.

Okay. So, the cash balances have picked up a little bit?

Yes. Yes, we generate a fair amount of new cash every year because we're a net adder of new accounts, meaning that we are positive in terms of flow -- we get more accounts in than we lose in any given year. And when accounts open -- and they open, usually, with cash and some securities or sometimes, often, just with cash. So in any given year, we can generate a nice amount of new balances as a result of that account activity.

The other contributing factor is that we have been continuously optimizing the mix of where cash balances are placed amongst our participating banks. And so some of that is a year-on-year effect. In terms of coming into 2011, we are in a slightly better or more optimal mix than we were during parts of 2010.

Okay, great. And then thanks for the color on the pickup of financial advisors, but can you just talk a little bit more about the organic growth? And I know you said it's lumpy and we should look at it on a sort of a year-on-year basis. But thinking about the first half of next year, are we expecting to see a sort of similar pattern? Where do you think the growth is going to come from? Are you seeing one, I guess, pipeline bigger than the other? Any additional color would be great.

Yes, and I understand this is important to shareholders and to potential shareholders to understand, and I really would point you back to the idea that we're going to, over time, have net new 400 advisors per year. It is very difficult to predict the mood and the movement of an advisor at any given time.

Again, I speak to them pretty regularly, prospective advisors, and I speak to a lot of prospective institutions. Even institutions are somewhat mercurial, given market conditions. So let me just -- so we feel perfectly comfortable that we're on track to achieve our net 400 new per-year over time. I feel comfortable with the pipeline, as we said in our prepared remarks, for us. And we feel comfortable first quarter looks the way we talked about it on the road show, which is net 100 to 150 new for the quarter.

But we're not going to provide guidance beyond that. And frankly, after the first quarter, I don't intend to be quite that precise quarter by quarter; it's just very hard to do.

So I understand the desire to know it; that completely makes sense to me that everyone would want to view it. But I can promise you it will be lumpy (laughter) because that's been my experience of it for nine years or so.

And the other -- yes, the other component part here is around whether there's any major mix shift in terms of where advisors are moving from. And we really don't see any particular noteworthy item there. Again, we don't go into specifics for competitive reasons; that's a wise choice on our part.

But as we said, in 2009, wire house movement was at a higher level through the first nine months of 2010. Certainly, independent movement was slightly more robust than it had been in the past. And then the fourth quarter was a very, very strong quarter where we had good movement across the board. And as we noted in our prepared remarks, the level of production and the movement up the value chain, if you will, to higher-producing advisors was definitely noteworthy during the fourth quarter.

And again, just to build a little more color for you -- because this is, I know, a very important topic for all listeners -- is that when markets are moving up quite dramatically or when they're moving down -- so when they're extremes, that's actually a moment where advisors are too busy with their current business or institutions are too busy to make a decision to move. So we always like it when markets are sort of in the middle, doing nicely but not dramatically up nor dramatically down for movement of advisors.

So it can affect it. You can literally have someone who is in the pipeline, has done all the paperwork, has a fantastic month in terms of new business in their existing practice, and just decides to put off moving for a month or two; that's very normal. So I would watch for extreme market movements as an indicator -- and we see a little bit of that in January; nothing that's concerning nor that represents more than delay measured in days and months as opposed to years, but that is an important characteristic.

That's why the number is lumpy and a bit volatile, is because of some of those market extremes. So we always say we like it when the market is just humming as opposed to steaming along or dropping dramatically in terms of business development.

The other color I would add on the institutional side is that banks, of course, had their horns pulled in, if could use a Texas term from my CFO (laughter) -- is that basically, they were very appropriately focused on their commercial lending business and their residential mortgage businesses, and not so focused on their investment platforms.

So those who were in the pipeline to make changes ended up deciding to defer those changes for a period of time. We are actually seeing them start to come to market again and seeing a nice pickup in the pipeline, and some nice activity in terms of new business there. So that's a change from it really affecting us today, and really the negative effect is what hit us in 2010 on the institutional side.

And the last item, the note on organic growth, is around retention. That's a big factor for us, and of course, our retention levels are very, very strong. So advisors in motion is obviously a new source of revenue and opportunity for us but, importantly, retention of our existing advisors is a competitive advantage.

Great. Thanks for the additional color.

Devin Ryan, Sandler O'Neill.

Understanding that the production ratio increases over the course of the year as advisors hit targets, and higher ratio means that revenues are obviously improving, the ratio did jump a bit more than we were looking for. And so, just trying to think about the production ratio going forward and if there's anything outside of, say, subpar production levels that could cause the ratio to come down from the level that we saw this year, in future years?

I'll just give you color and Robert can give you more detail. But basically, it's a new year, so the production bonus starts all over again. That's one of its beautiful features. And as we've indicated in the road show and in other material, the fourth quarter always has a true-up process, where the highest level of payout will always be in the fourth quarter, and you saw exactly that characteristic.

So from my perspective, there's no fundamental change in what the payout ratio has been; it's risen appropriately, given a strong market backdrop and given strong revenue growth from the advisors. It feels normal to me.

Yes, and the only two things I would add to that is that we do mark to market the advisory stock option program. So in the fourth quarter, that attributed $2.5 million of additional expenses -- that's something that you may not have factored in or thought about. And the other is a sort of one-time change that we had of what we refer to as managed reps, to 1099 relationships, which created a geography change for them from below production expense line up to production expense line. And so that was an additional two-tenths of a percent in terms of additional uplift in that payout ratio, relative to maybe what you're accustomed to seeing.

So just to add color to that, we had a managed account program where they were employees of LPL, and for a variety of reasons, we ended those programs -- do you have the date?

August.

August of 2010. It was sometime in the summer. And basically, that -- as Robert just gives you the mathematical affect to it -- that's now in the run rate, of course, from September forward. So that helps you see that -- that change in there.

And on the stock composition, because I think it's important to understand that it's a function of the price going up. Right? So it's a lovely problem to have. And that as, hopefully, we produce more earnings and price changes as a result, that will cause that number to move a bit. But it's, in my mind, sort of a nice problem to have, as issues go, as it represents the advisor getting more value, which is a good thing, helps with retention and their continued production, so it's a good incentive for them. And, of course, it helps all of us as shareholders to have our customers be incented in that way.

Great. Thanks for that color. And then just to follow-up on the interest rate sensitivity. I guess I'm just trying to think about this from another angle. If rates rise and investors potentially start looking for higher yielding assets, would you expect to see assets maybe move out of the money markets and cash balances into maybe some higher-fee products, which would actually, I guess, change that sensitivity for the Company?

No. The simple answer is no. The level of cash we see today is right at average and even slightly below average what we normally see, based on a bunch of different measures that would be hard to go into over the phone. But effectively, we look at ratio of cash to overall assets; that's the easiest one to look at. Now, that gets driven by markets going up, so don't get too fooled by that, right? But we also have another way of looking at it, which are average balances, which we can, of course, look at quite significantly across the base, and so forth.

And if you look at that, we're not seeing any activity that would tell us that people are hoarding cash beyond the norm in their accounts. Remember, these are small amounts of balances per account, like the average size about $5,000 per account, so it's a lot of them (laughter) you add together.

What you're actually seeing is the provision of new accounts opening. And when those new assets show up, you saw a nice asset rise in the business. Remember, part of that is cash. As an advisor wins a new piece of business and moves that new client onto their books, they bring cash with them. And then that cash and securities then gets reallocated, as you're suggesting. But again, the average cash balance to us looks normal, so we don't see a major change.

Typically, when you see a mix shift, what you're actually seeing is going from one category to another, meaning from, say, fixed income to equities or from REITs to something or two REITs; it's actually within product categories outside of cash, in most cases, in our system.

Great. Okay. Thank you.

Patrick Davitt, Bank of America.

So is it fair to say that, I guess because of what appeared to be somewhat of a recruiting log jam in the first three quarters of the year, that to some extent, the large organic growth number we saw in the fourth quarter was some of that clearing, and you should see a more normalized number going forward?

Yes, I think that's a fair characterization.

Okay. Okay, cool. Could you give us a little bit more color on, I guess, the makeup of the new advisors between purely commission-based, RIA or hybrid, in terms of what kind of business model they're targeting?

Yes. We don't want to go into too much detail, not because we don't respect your question but because we don't respect our competitors. (laughter) [I mean that] just that I'd rather not help my competitors figure out where to go fishing. (multiple speakers)

I think I can give you two characteristics that are helpful, which are from the prepared remarks. One is that the average production for those who are hybrid RAA's, it's significantly higher -- like 50% higher than where we were a year ago in that same type of class, which is interesting to us, and I think tells us that the model we have on offer is quite appealing to multi-million dollar practices or practices that have over $100 million of advisory assets; that's good news for all of us that's there.

And the other thing that's interesting about the fourth-quarter mix is there's more offices or OSJs, meaning that you're seeing whole teams move and setting up their own practices, and that's another good sign. Sometimes, in quarters and over the course of the year, what you see is a lot of activity at the existing branch level. But what this indicates is you're seeing teams move from place to place, and that's a good sign for us in terms of new office formation. (multiple speakers) And of course, it doesn't take too much to move these numbers, right, in terms of business development. You know, a handful of offices can make a big difference.

Okay. All right. In the vein of Devon's question about the production payout, is it fair to say that there's a similar 4Q tick-up in just the compensation expense ratio as well? It looks like that came up as well.

Yes, absolutely. You mean for employees, particularly, or for --?

Yes, in terms of 4Q (multiple speakers) would always be highest in the fourth quarter.

(multiple speakers) Yes, it will. And again, for two good reasons -- one is that we restored 401(k) match to 4%, which is a goal because we are in the retirement planning business and the financial planning business, we'd [love] people to save money for their retirement. So that accrual really hit in the fourth quarter, for the majority of the payment for the year. And secondly, of course, we uptick bonuses because our performance was moving along. And so that also hit heavily in the fourth quarter.

So those aren't really run rate differences, to my mind. Right? Those are just the timing differences for the quarter. Is there any other color you'd [like to add]?

Yes, the only other one was the nearly $6 million in employer taxes that we paid on the option -- stock option exercised. (multiple speakers) So that's truly a one-time (multiple speakers) --

That was [high] peer-related, yes.

Yes.

So, conversely, if you -- would you anticipate a bonus year through the first three quarters, or you just wait till the fourth quarter? And I guess my point there is that if you're having a very good year but then all of a sudden things fall apart in the fourth quarter, would you have a much lower comp ratio if you had been expecting to be paying those bonuses?

Yes, we can adjust bonuses post the fourth quarter, absolutely. And we have done that before. All of us painfully recall 2008. (laughter) So we definitely have done that. We generally try to accrue as close to what we think we're going to pay as possible, and that -- so normally, you wouldn't see quite as much of an adjustment.

Of course, you had a pretty extraordinary year. You can see it in the new business development that hit so heavily in fourth quarter of 2010. And of course, we had -- through the summer was not exactly good times in the markets. Right? And despite our advisors' optimism, I'm not sure I shared that optimism. So we were pretty conservative about accruals through even the third quarter, appropriately.

So I'm not sure -- it's certainly not the dynamic we see for 2011. Right? You've got a very robust market right now, and therefore, the accruals will probably be a bit closer. Is that a fair characterization?

Yes, yes.

Okay. Great. Thanks. And then just finally, when you do get the actual cash from the benefit sometime this year, would we expect a much larger slug of that paydown when you get that? Or are you going to kind of stay at this $40 million to $50 million a quarter range? Or do you just have no idea?

Well, we have an idea, but we're not giving (multiple speakers) --

(laughter) We're not giving (multiple speakers) --

-- we're not giving specific information about that.

I think there may be a way for us to help you with this. We have a Board meeting next week, and we need to lay out for the Board those range of choices. And we want to be smart between getting some debt paid down; we're committed to that. We want to get to the right place in terms of rating; but at the same time, we want to keep a little cash on hand in case we see something interesting in the acquisition front or other business development type opportunities. And so, it's like always in life, right, it's a balancing act to make sure you've got enough cash on hand.

I think you're going to -- the way I would generally think about it is we're probably going to hold a little more cash, at least in this first year than you might normally imagine us to do, because we're still trying to get our sea legs in the public company, the trades, now. And we want to be thoughtful about the way that we use cash, because we have new shareholders to educate on the value of that use. So I think you'd tend to see us holding a bit more cash than we might in 2012 as we get used to that.

And I think, frankly, we're trying -- we just met with the rating agencies on Friday. We're trying to understand their dynamic and understand how to get that all to land right in terms of refinancing opportunities for the Company's long-term debt.

Okay, great. Thanks a lot.

Daniel Harris, Goldman Sachs.

I wanted to stay on the expense line. Other than compensation, there's a little bit of a tick-up there, and I'm wondering, can you help us think about seasonality in 4Q, and then what we should expect in 1Q on an average basis? And then maybe specifically talk to what that other line should be going forward, within reason?

Daniel, it's Robert here. So, to me, the other expense line was $19.3 million higher from Q4 '10 to Q4 '09. And $8 million of that was related to the equity offering. We had some smaller one-time items, and then we had essentially a one-time item related to the way we look at our overall legal settlements that we put through during the fourth quarter, in terms of just a geography issue.

So, that's my way of saying that, as we mentioned in the commentary, really about $15 million to $18 million of that variance is one-time in nature and you shouldn't have to adjust for that in your expectations going forward. It's now kind of taken care of. So we would look for that level to normalize back down to the run rates you saw during the first three quarters of 2010.

Okay. That's very helpful, appreciate the color. And anything else that the fourth quarter generally has? I know you've got your conference earlier in the year, but that the fourth quarter would have it, the first quarter would not?

Well, yes, nothing other than the bonus. I mean, everything we've mentioned so far is what's there; there's not anything unusual about that.

Okay. So maybe shifting over to the success you guys are having in the RAA platform and the hybrid RAA platform. You know, very, very good numbers there. You guys had some pretty tough competitors that occupy the top three slots. So what do you think you attribute your success to, given that you're all in the trenches slugging it out for those same guys?

Well, we have a very unique service on offer, and that is -- and I think the market is starting to understand that -- is that we are the only custodian and broker dealer that can combine all the business activities of that advisors' practice, both their registered activities under their federal license, and their activities under their SEC license as an RAA.

We can pull together all their statement, all the performance reporting, all their website activities, and the custodians don't offer that. What they offer is a wonderful set of services, no doubt, and some really great technology solutions. But the advisor is left with all those tools on, essentially, a self-help basis -- not unlike the direct brokerage model is, any way, right? It's got a lot of great tools, but as long as you know how to use the tools, you're okay. If you don't know how to use the tools, you're in trouble.

In our world, you can outsource all that as an advisor to LPL at essentially the same price. That's a good deal. Right? That allows you to run a much more efficient practice. That allows you to spend more time with your clients. That allows you to grow your business. And that's, I believe, what the market is starting to hear. And we're seeing the results that I'm really proud of the development team for getting in what was a tough year in 2010.

So do you guys have -- we know what your average payout is, but is the payout higher for the RAA's, materially, given that they're generally close to 100% of the custodians'?

Yes, so our price is exactly the same as the custodians. We repriced back in 2007. So, new shareholders didn't get through the pain that us old shareholders went through to make the pricing equal. And it cost us a good $20 million of EBITDA to do that back in 2007. That's obviously in our run rate. We re-affixed expenses to make sure that that run rate worked from there.

So our pricing is spot-on where the custodians' are. Now, do remember that we do something different than the custodians -- we do not negotiate by person. Our deal is the same for everyone. We think that's a very important aspect, that transparency of our relationship and our customer commitment to give our customers the best deal they can get.

So, if I point to Robert, who's in the room with me here, and I said Robert was a new advisor, I will not negotiate a better deal for Robert than I got as an existing advisor. It's a fundamental principle for how we work. And it's exactly the same way we see our advisors work with their clients -- they don't give their clients a better deal because they're new. Right? They try to provide value to their existing clients first.

So I think it's important to understand we've already repriced. We're at the same price as the custodians, but we do more for that. And we're very efficient at what it is that we do. And that shows up in that margin improvement that we talked about in our prepared remarks, that not only do we do a bit more work for the same fee, we can do that work quite efficiently and at scale. And that's really the wonderful place we find ourselves in today, that we're able to focus on the RAA business.

Okay. That's a great answer. And then one last question -- coming back to the cash sweep, so you're at 6.1% of total AUM. It looks like, historically, that troughed around 5.5% or so.

Yes.

I mean, is that just generally a good number for us to get to and think that it shouldn't go much lower than that, despite what might happen with the overall market?

Yes. As Mark said, I think we believe that we are at normalized cash balance levels. And particularly, there is nuances between the difference between money market fund assets and ICA assets. ICA assets are remaining very sticky, for all the right reasons, and form the core cash balance. We've seen a little more variation in the money market fund balances, but that's because that is the place people put cash on a temporary basis, as they're awaiting trade settlements or some other type of activity. So that's not a new dynamic at all. So, when you look at the combination of those two, we feel good that they're tracking pretty well to their stated averages.

Perfect. Thanks a lot, Robert.

Bill Katz, Citigroup.

Just a couple questions, just a couple fine-tune ones and some broad picture ones. Your discussion on compensation -- if you strip out the roughly $6 million of charges related to the IPO, and so you get sort of $79 million, $80 million -- I'm just trying to reconcile what you guys are saying. Is the $79 million, $80 million a good run rate? Or is there some further fine-tuning that -- just [through] the year-end bonus accruals?

No, that's a reasonably good run rate.

Okay, that's helpful. And then similarly, on your production discussion, with the mark to market of equity, is that a quarterly phenomenon or an annual phenomenon?

Every quarter.

Okay, that's what I thought. Okay. So just sort of stepping back a little bit, you mentioned that the pipeline for maybe some bank embedded FA platforms might be out there. I think you mentioned in prior public discussion that the margin in that business varied a little bit relative to the attritional manager FA. Can you sort of talk a little bit about the dynamics on the impact of margins, if that pipeline were to pick up on a relative basis?

It would be a material, to be honest. There's a slight difference in the relative profitability of that business because it uses less advisory than our independent business. That's the comment I've made as we talk about it. I don't think that will be true five years from now, because that part of the market is waking up to the value of advice for a fee to their client base, and their clients are waking up to it.

And we're seeing a number of bank programs -- we had some really great breakout successes in 2010 for banks that focused on advisory. So if we were to see a big uptick in that business, and it would have to be huge, right, it would have a hard time moving our overall margin negatively, even though there's a slight negative spread on its relative profitability versus the independent side.

Okay. That's very helpful. (multiple speakers)

And it's only about 20% of our revenue, so you could have a phenomenal year in new business and you can have a hard time moving the overall margin.

Okay, understood. That's helpful. (multiple speakers)

And the only thing I'd -- sorry, just -- I can't help myself. (laughter) But saying the other benefit for having that is the balanced effect that it has. So what we've tried to fine-tune to model this model for 28 years now is to make sure that it balances certain things off. So you've heard us talk about it in terms of the way market moves -- we'd give up upside of the market to protect ourselves on the downside; that's an obvious one. The way we pay out on the grid allows for mix shift to occur by product, and we're indifferent to it at the gross margin level. We have the offset of slower recruiting periods, like we had in 2010, are offset by higher same-store sales.

So it's a lovely, balanced model. And one of the reasons why I know we were really excited to acquire UVest in 2007 and to really build that business from 2% of revenues seven years ago to now 20%, is because of this offsetting effect in different market cycles. So during this horrible period in 2009, that business had phenomenal same-store sales is if there's a lot of fixed annuities that go through that type of system. And that offset the drop in same-store sales on the independent side.

Likewise, some fixed annuities are dropping in terms of their sales impact, but the good news is the banks are selling other products instead. So it's a really nice, balanced effect.

Okay. That's helpful. Next question just is, just in terms of maybe upside to FA productivity levels, sort of curious -- given the ongoing push toward advisory, which you mentioned is higher-margin business, is it possible mathematically to get back to where you were in '07 in headier markets? Or structurally, is sort of a lower average FA production level more likely?

Yes, I don't think structurally, you're going to see an average FA production level lower. I get how you might get to that math, because you're talking about a commission versus an ongoing fee-for-service. And the commission could be worth, say, 4% in year one and then a trail, 25 basis points, in year two, whereas the fee is 1% every year.

So that's the math -- I get your math, that if people switch to advisory, you might have some effect on average production. You would, on an individual basis, right, but you wouldn't in aggregate because the system is so big. And remember that in our recruiting classes in core recruiting, we bring in people who are mainly commission-based and we help them learn advisory over time.

So, in other words, there's a lot of counter forces in the business that I think will let us have a fairly normal return to higher production levels, as we see the market and the activity of consumers that continue to improve.

Okay. And my last one -- and thank you for taking all my questions; I appreciate your patience. I certainly appreciate your multiple earnings drivers. However, if I look at your last five quarters of adjusted EPS, and I recognize the share count has changed over this period of time, but your adjusted earnings have been basically flat despite very good growth in FA's, productivity gains, total system asset growth, et cetera.

From here, what do you think is really the one or two main catalysts to get you back on sort of that 20% type of average long-term EPS CAGR?

Well, I want to think about the first part of your question, because I'm not sure I agree with the premise, to be very honest. There's -- I think what you're going to find is share count growth, which has to be taken into account for all of the shareholders, but maybe the factor that perhaps is overweighted in the analysis you're doing. I wouldn't characterize our last five quarters as being flat in earnings growth. So I'm not sure I agree with that premise, but I can't do the math that fast, speaking on the phone with you.

(technical difficulty) I'm just looking on page 9 of your press release, where your adjusted net income for the trailing five quarters is basically [been $0.40] and $46 million. We can take that off-line, if you like.

Oh, yes. Thank you for taking all my questions.

Yes. So, let me get your second question, because that's the one [it's worth spokes] out anyway, is the -- from our perspective, we feel very comfortable that we're going to get to 20% EPS growth over time. We'll never be perfect in any period, a quarter or a year, because you can't be that precise. But all the fundamentals, to my mind, look good. These are -- you know, it depends on your point of view.

My point of view is that we're in recovery years in 2011, in terms of market activity, consumer behavior and advisor change-over, if you will. And those are years like we had in '05, '06, '07 -- maybe not quite as robust as '07 -- and that's usually a pretty good backdrop for the business as we look at it.

I guess what I would just say also in terms of I see the schedule you're looking at -- I mean, I do believe it's kind of coincidental, if you will, that the last five quarters are sitting in those $0.40 plus type of earnings per share, because usually we have seasonality in the first and third quarter. And so hitting above $0.40 a share in 2010 in the first and third quarters, in particular, was extremely good. So it took -- those years were well below $0.40 in 2009, and so that's what constitutes what has been about a 30% adjusted earnings per share growth rate in 2010 versus 2009. So I think you do have to recalibrate for -- it's just ironic that we would land in (multiple speakers) --

And even if you were to take this year's share count for 2011 and normalize '10 to the higher share count because of the IPO, you're still at a 20% growth rate, roughly, year-over-year.

Okay. Thank you very much.

[Pete Sullivan], Lazard Capital Markets.

Maybe this is the wrong metric to look at, too, but I'm looking at AUM per advisor, and it went up again this quarter. Can you just give some color on the mix of the book of businesses across your advisor base that could affect this metric? I think you might have mentioned earlier that the advisors that you brought onboard may have had higher AUM per advisors?

Yes, but it won't -- a class can't move a whole unit. Right? You've got 16,000 advisors versus the class of 288 organically, and nearly 500 adding NRP to it. They're good, but they're not that good (laughter) in terms of moving that number.

What that is, is a combination of several things. One is, of course, market movement. Right? As you can see, our market movement is significantly higher than market growth rate, so our asset movement is better. And you're seeing a bit more mix shift towards advisory. And then what you're seeing are new accounts opening, with either existing advisors getting more assets from existing clients, or existing advisors getting new clients, is really where that will move the needle. And that's what moved the needle in 2010, particularly in the fourth quarter.

Okay. Thanks. And then just a quick one on the National Retirement Partners acquisition. Historically, when you take these acquisitions and the integration of acquisitions, and adding the 200-odd advisors, is there a rate of attrition to those advisors? Or has that already happened with them?

It already happened, so the number 206 is net. We'll lose a handful, probably; on a going-forward basis, you always do. But if you look at the 206, that's post the acquisition. They're all integrated. They were integrated in December. All their assets have moved. We did not buy the broker-dealer, importantly, here. What we purchased were the assets of the business, which included technology and people. And we essentially bought the right to recruit out of that advisor base, of which 206 took up our offer and moved over with their clients and with their assets. So they're all in and rock-and-rolling.

Thank you very much.

Ed Ditmire, Macquarie.

I have a question. First, I hate to beat the dead horse, but one more time on the payout ratio. I guess I'm coming to a ratio of 87.7% for 2010, and I just -- to the extent that that's a little higher than what we had in 2009, if my math is correct, is that simply because brokers were more productive this year? Or is it a function of IPO type changes in terms of the stock option programs and things that make it likely that we've just moved up a little bit to a slightly higher level?

It's more the former than the latter, so the advisory stock option program is not a huge swing factor. It's really down to, in 2009, because, particularly the first part of 2009 were very, very difficult market conditions. The number of advisors who hit their full production bonuses, et cetera, was at a lower level than we would ordinarily see. And in 2010, that was restored. So, that's by far the bigger explanatory variable for why that has ticked up by 50-odd basis points year-on-year.

And then a follow-up question -- is there anything about the current market conditions, which I think are relatively bullish, that is unfavorable in terms of point-in-sale commission generation? And I guess I'm thinking, is there perhaps a higher appetite towards lower-margin products, like simple stock ownership versus, say, variable annuities or anything like that going on?

No, there's not. It's a great question. Remember, our business is packaged goods reselling. So 85% of our activity is based around mutual funds or annuities or other REITs and so forth. They're all part of a complete, comprehensive financial plan, so the advisor starts with, what are we trying to accomplish? And what do you need in terms of assets to accomplish that? And then let's put you on a regular program for savings, and then let's move your rollover IRAs here and so forth, so that we can essentially provide an aggregate asset allocation.

And our advisors have good penetration. They are, in the vast majority of cases, the primary advisor to their client, and they have about 65% to 70% of their assets, their financial assets, under management, based on a study we did with our ad agency. So they're really in a very good position to see that.

So you don't really see -- remember that the end client really doesn't drive the asset allocations much. What they drive is the pacing. So they might have felt very cautious a year ago -- which is understandable, given the market backdrop -- and therefore, would not agree to some of the relocation of assets that might be called for under the plan. But the one that they did do is they've saved a lot of money, which is nice.

And now what you're seeing is they're starting to agree with what their advisor is suggesting to them, in terms of relocation. And that relocation is going to be an additional payment into an advisory account, or it's going to be reallocating some assets to a VA to protect them in retirement around their income. So it's, again, part of a longer-term financial plan and so not quite so transactional.

Okay. Thank you very much.

At this point, we have time for one more question from the line of Alex Cram of UBS. Please go ahead.

Late in the day already, I guess. Well, I just have a couple follow-ups. Just real quick, coming back one more time to the production expense -- obviously, thank you very much for all the color. And just in terms of Ed's -- obviously, it seems like -- Ed's question seems like some of the success, I guess, with the larger producers, obviously, the market benefits and so forth, have helped that tick higher a little bit here. Now, if we look out (multiple speakers) -- I'm sorry?

Yes, just to be clear as day, the class that got recruited in the fourth quarter could not possibly have moved production numbers.

No, no, no. I mean, what we've seen over the course of the year, obviously, is seasonality. But just wondering, as you have been in this [80% -- 87.5%] plus/minus 30 basis point range, given what's going on and what you've talked about, the success you've been having, I mean, is 88% maybe the new norm here, if we look out for the year without any sort of seasonality? Or are you not willing to give any sort of guidance on that, that [end] here?

Well, no, again, for the year, we were at 86.3% versus 85.8% in 2009. So what we are saying is that that 50 basis point differential that you see year-on-year was a function of more normalized market conditions, and the more normalized pattern we see of advisors who are having a good year, in terms of working through their overall book of businesses, et cetera, and hitting those higher targeted production bonuses. And that leads to a higher average payout year-on-year.

So I do think of 2010 as a more normalized picture than 2009, which was more the aberrant period because of, particularly, how depressed the first half of 2009 actually was. And it's a cumulative production level that ultimately drives the fourth quarter level of incremental payouts that occur. So what you just saw was a normalization relative to a year where it was somewhat subdued or depressed, and that causes a bigger lift.

So, I wouldn't say there's a new normal at all, and I certainly wouldn't say there's a new normal at 88%. I think that's a much too high a number. Happy to work through with you any discrepancy that may exist there, because there's brokerage clearing and exchange expenses that run through there too, that you may be including in your calculation of payout that's inflating it somewhat.

No, no, very fair. And it's not really about the exact numbers; I'm just curious, given that the success that you're describing is certainly at the higher end of your advisors or clients. So I guess, from that standpoint, I would suggest that we could even see an uptick on a year-over-year basis in 2011.

Yes, and it's a great question -- don't -- it's a very good question -- but remember, don't forget how large these classes are, right, in terms of a core advisor whose average [fresh] is more like $200,000 versus these larger classes that are within the hybrid RAA piece of it. So we haven't given you that mix, but remember we've always said, which is our business was founded on the individual advisor who's out in the field doing a great job for their client in Des Moines. And they're doing a couple hundred thousand dollars a year, and that's a great life in Des Moines. And we do a lot of what we call core recruiting in that space.

And so even though you can have a nice mix shift like we saw in the fourth quarter, to a hybrid advisor who has a $100 million practice of assets or a multi-million dollar practice in terms of GEC, there's such an existing book of advisors, and each year's class still has a larger core group, it would be very tough to move that average payout number up, certainly at the rate you're talking about or above what we booked here.

As Robert said, this is just a known tier, which we've had in place for six years now, basically paying out in a world in which their businesses are recovering -- God bless them -- and in which the markets are better, another good thing. And so, again, it's characteristic from our perspective, looks normal. And the odd year, just to reiterate what Robert said, was 2009, where everything was so depressed.

Good. And then just shifting gears a little bit to a little bit bigger picture, obviously, you talk a little bit about your RAA business and how that's growing nicely. Your biggest competitor, Schwab, obviously, on the custodian side, made some comments last week that outside of their strong recruitment from the wire house, they are seeing increasingly strong success on the recruiting from the independent side.

Now, obviously, you're on the independent side as well. So just wondering, do you see that increased competition? Or is it coming more from your independent competitors that are not having a strong RAA offering themselves? I mean, net-net, are you losing a lot of clients to them? Or are you -- you've got a good offering there?

We have lost no clients voluntarily to them in the last year or the last year before that, or the year before that or the year before that. (laughter) Let me be clear. We won three clients from them in 2010, and we've won three in 2009 from them.

And so we are a different independent. Remember, we're the only independent who's self-clearing. Raymond James has a self-clearing platform, and they have an independent arm. And then there's no one else in the independent space who has -- and no one has an offer for a hybrid RAA outside of Raymond James and LPL. And Raymond James is not integrated; they have a great firm, and they do a lot of pretty good things, but their RAA platform is not integrated in the way I described ours earlier.

So we really are a unique offer among the custodians, and we're certainly a unique offer among the independents. And I would characterize 2010 as a year in which we saw a lot of flow from the independent channel to us in the same way that Schwab is describing it. So I completely agree with their characterization that the independent channel is moving advisors to a variety of business models, and we're a net beneficiary of that trend, being the largest in the space, and obviously, having a much better platform than anybody else in that space.

That's actually a pretty nice way to answer the question. Thanks. Just lastly, real quick (multiple speakers) --

[It's] not competitive, though, that's [for sure]. (laughter)

Just lastly, now that you are a public company, any sort of feedback that you can give us, anything that has changed for you guys, in terms of maybe anything that has changed in terms of the advisors that are coming to you? Or approaches from other advisory firms that want to link up with you? Anything you're seeing in the couple months here?

You know, what we have seen is a nice tick-up in awareness of the Company. It's kind of fun to read about yourself in the press in terms of the Company. And what that does, which is a wonderful thing, is it helps our existing advisors explain their partnership with us a little bit easier.

I mean, how much easier is it to say, yes, I clear through LPL. And by the way, they went public, which means they're Sarbanes-Oxley-compliant; they trade on the NASDAQ; they're a [$3.6 billion] market cap company. That's a lovely thing for an existing advisor to be able to say, which they couldn't say prior to going public.

So we're seeing lots of positive comments come from our existing clients, the advisors, about the ability to explain our role and who we are a bit easier because we're public. Secondly, we're seeing it in new business recruiting. Again, we have a little bit higher profile and, again, a bit easier to know about us because of the public nature of this process.

So we see it all as having been very positive thus far, and, again, part of the process we've been through for a number of years of moving the Company to its natural place as a very interesting public company, because of the financial characteristics that we've described to you in our prepared remarks, and on the road show of having this lovely ability of being able to produce nice earnings in a variety of market conditions -- kind of an all-weather growth stock is a nice way I always think about it, in terms of the Company. So we've seen it as a very net positive action and very helpful to us thus far.

All right. I think it's enough for today. Thank you.

And I'd now like to turn the call back over to Mark Barnett for any closing remarks.

All right. Thank you. And as always, if any of you have any additional questions, feel free to call me in Investor Relations. And with that, thank you for joining us. And Allie, that will conclude our call.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.