LPL Financial Holdings Inc (LPLA) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LPL Financial Holdings fourth quarter earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's call is being recorded. I would now like to introduce your host for today's conference, Mr. Trap Kloman, Head of Investor Relations. Sir, you may begin.

Thank you, Amanda. Good morning and welcome to the LPL Financial fourth quarter and full year 2014 earnings conference call. On the call today is Mark Casady, our Chairman and Chief Executive Officer, who will provide his perspective on our performance.

Following his remarks, Dan Arnold, our Chief Financial Officer, will speak to our financial results and capital deployment. Following the introductory remarks, we will open the call for questions. We would appreciate if each analyst would ask no more than two questions each. Please note that we have posted a financial supplement on the Events section of the Investor Relations page on lpl.com.

Before turning the call over to Mark, I would like to note that comments made during this conference call may include certain forward-looking statements. These may include statements concerning such topics as our future revenue, expenses and other financial and operating results, improvements in our risk management and compliance capabilities, future regulatory matters, industry growth and trends, our business strategies and plans, as well as other opportunities we foresee.

Underpinning these forward-looking states are certain risks and uncertainties. We refer our listeners to the Safe Harbor disclosures contained in the earnings release in our latest SEC filings to appreciate those factors that may cause actual financial or operating results or the timing that matters 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 earnings press release. With that, I'll turn the call over to Mark Casady.

Thank you, Trap, and thank you everyone for joining our call. Today, I look forward to sharing insight into our annual performance including the discussion of our asset, revenue and earnings growth. I will also provide perspective on our operating highlights for 2014 and the goals we have set for 2015 to help grow the business.

Finally, as we continue to highlight areas of our business which will enhance our long-term growth, I'm excited to discuss our progress implementing our strategy in the retirement plan space. In 2014, we had another strong year accumulating assets as advisory and brokerage assets grew 8% to $475 billion, including a record $18 billion in net new advisory assets. Our asset growth was driven by strong recruiting, solid advisor productivity and equity market growth.

Revenue increased 6% in 2014 to a record $4.4 billion. Revenue growth was slightly less than asset growth primarily due to two factors, first, low interest rates continued to create headwinds causing cash sweep revenue to decline by $20 million for the year. Second, in 2014, non-traded REIT activity returned to historical levels, and as expected, relative to the increased sales in the second half of 2013.

Factoring in these two items, our revenue grew 8% year over year, in line with our asset growth. As I evaluate our overall performance in 2014, adjusted earnings per share remained flat at $2.44, which we believe does not fully reflect the success we had in growing the core of our business.

Asset growth, G&A expense management, and ongoing share repurchases helped to generate $0.33 in incremental EPS. This growth was fully offset by three challenges: the decline in cash sweep revenue, charges related to the restitution of regulatory matters, and the comparative impact, a one-time tax benefit in 2013. Dan Arnold will speak to these items in greater detail.

From an operational standpoint, we had a productive year in 2014. We remain focused on transforming our business to enhance our value proposition and grow our market share. Starting with advisory headcount, we reached a significant milestone in the fourth quarter, crossing over the 14,000 mark to end the year with 14,036 advisors.

This growth was driven by the net addition of 363 advisors in 2014 with 126 joining in the fourth quarter. The net growth in our total advisory base also reflects our retention of 97% of advisor production for the year. These metrics are strong indicators of our leadership in the marketplace and the continuing appeal of the independent model.

In 2014, our growth led to LPL's ascent in two important industry rankings: first, advisory assets grew 16% to $176 billion and as a result, we are now the seventh-largest advisory platform in the industry. Second, we moved up two spots in Barron's annual ranking of top high net worth managers, ending the year with $27 billion held in high net worth accounts. Aided by the acquisition of Fortigent in 2012, we have grown our high net worth assets by 40% over the past two years.

In 2014, we also implemented new technology to enhance the client experience, which is intended to lift advisor productivity and satisfaction. Progress included the successful launch of our new resource center, an online advisor information hub. Delivering the new resource center was the first step within our multi-year plan to fully redesign our core operating platform branded client works. This platform is designed to simplify how advisors do business with us and with their clients. In addition, we centralized and upgraded client email services, increased in advisor efficiency and lowering their costs.

Central to our efforts for 2014 was the continued strengthening of our regulatory risks and compliance activities. As previously shared, we have been engaged in a multi-year transformation, assessing our systems and processes and implementing change in several areas in need of further improvement. In 2014, our progress included initiating a multi-year redesign of our surveillance and supervision systems and making significant progress assessing the remaining needs of our compliance and risk management systems and programs.

With respect to our goals for 2015, we seek to continue the transformation of our compliance and risk management capabilities, which reinforces our commitment to protect our advisors and their clients. By doing so, we believe we will enhance our risk profile with the intended benefit of lowering regulatory charges in 2016 and beyond.

In 2015, we also remained focused by continuing to increase our market share by being the leading destination for advisors in the industry. To achieve these goals, we are allocating our resources to areas that drive our ongoing strategy to simplify the business and promote growth in the four segments where we have industry leadership: Independent Advisors, Hybrid RIAs, Financial Institutions and Retirement Plan Specialists.

This includes evolving how we serve our advisors to create a consistent and sustainable firm-wide discipline around the client experience. We are also maintaining a significant level of investment in delivering compelling and competitive technologies solutions as we build our client works. Our strategy positions us well to take advantage of favorable industry conditions heading into 2015.

Turning now to the discussion of the firm's longer-term growth opportunities. I'd like to share our progress expanding our presence in the retirement plan space and how our differentiated solution can drive future growth in our business. We identified the retirement plan market as a natural business plan extension for our platform many years ago. Our first priority was to establish a stronger presence in the marketplace, which we accomplished through the acquisition of National Retirement Partners in 2010.

By combining the knowledge and specialization of the leading boutique retirement broker-dealer, with the scale and investment capabilities of LPL, we quickly established a leadership position. The strength of our offering has led to the continued growth of specialists on our platform from 200 practitioners from in 2010 to over 1,500 at year end.

LPL Retirement Partners Advisors account for nearly one-third of the top 100 retirement-oriented financial advisors as ranked by Plan Advisor Magazine. These retirement plan specialists play a critical role in helping Americans achieve their financial goals, supporting over 40,000 businesses, with approximately $115 billion in plan assets that are in addition to our $475 billion in retail assets.

As plan consultants, our advisors work with employers to select a retirement plan provider, construct the investment portfolio, a system that plans fiduciary obligations and conduct marketing and educational services to plan participants. With the foundation of our model established, we set out next to add capabilities to differentiate our offering and create sustainable value to advisors.

In 2012 and 2013, we made significant investments to build out our Worksite Financial Solutions Platform, which is designed to improve employees' retirement readiness through a combination of education, advice and assistance. Specifically, the platform features two innovative tools that were designed to better address the needs of plan participants at different stages of their financial lives.

First, we developed the Employee Transition Solution to position advisors to better support plan participants when they transition out of 401(k) plans and roll assets into individual retirement accounts. Second, the Employee Advice Solution enables the delivery of custom-tailored participant advice through an online service.

Ultimately, this strategy is intended to create value for underserved plan participants and a system of management of other retirement plan assets. As of year end, we've enrolled retirement plans representing $6.3 billion in assets onto the Worksite Platform.

Based on industry specifics, historically, approximately 10% of those assets generate an opportunity each year for advisors to educate plan participants regarding their investment choices. We have also initiated marketing efforts to sign up retirement plan assets into our Employee Advice Solution. As we drive adoption, we will provide updates on the amount of plan assets enrolled and the number of employees electing in plan advice.

We are excited by the momentum we have established to further penetrate the $6 trillion retirement plan market and believe we have a great opportunity to create a steady stream of growth by unlocking value across our approximately $115 billion of plan assets. With that, I'll turn the call over to our CFO, Dan Arnold, who will review our financial results and outlook in greater detail.

Thanks Mark. This morning, I'll be discussing four main themes. I'll begin by reviewing our performance, including details on advisor productivity, activity in our cash sweep program and G&A expense. Second, I will address our bottom-line results for the quarter in 2014. Third, I'll review the progress made on restructuring efforts that we undertook to simplify our business through our service value commitment. I will then conclude with an update on our capital management activity.

In the fourth quarter, we grew adjusted EBITDA 11% to $138 million. This was primarily driven by a 5% growth in gross profit and a 2% decline in core G&A expense, excluding regulatory charges. To put these results into perspective, I will start with the review of our revenue, which grew 1% year over year despite declines in cash sweep revenues and alternative investment sales. Outside of these two areas, remaining revenues grew at 3% year over year.

In the quarter, investor engagement remained stable and advisors generated $249,000 in annualized production for advisors. Three notable factors influenced this result. First, this metric benefited from our continued success in accumulating net new advisory assets and market appreciation, which led to underlying advisory fees per advisor, growing 7% year over year to a record $97,000.

Second, as expected, alternative investment sales were a headwind in 2014 as they came down from the elevated activity levels seen during the latter half of 2013. Third, annuity product sales were soft as we remained in a low interest rate cycle that reduced the feature richness and yield of these products.

As a result, for the quarter, commissions per advisor declined by 7% year over year to $151,000. Over the long term, we feel well-positioned to drive growth, assets under custody per advisor reached a record $34 million, up 6% year over year and was driven by our advisor success in gathering assets and market appreciation. In addition, the challenging points of comparison from alternative investment sales are primarily behind us.

We also believe there is embedded demand for annuity solutions when product features evolve as we emerge from the cycle of low interest rates. With regard to our cash sweep program, ICA bank fees declined by 7 basis points in 2014, as expected, and led to a 7% decline in cash sweep revenue to $26 million. This decrease in rates offset the benefit from the growth in cash sweep balances of $1.1 billion over the last 12 months.

Revenue growth of 1% translated into an increase of 5% in gross profit which was driven by two factors. First, 1% of this expansion was due to a favorable improvement in the non-GDC portion of our payout rate. Additional benefit was derived from strong attachment revenue growth, in part, related to the success of our Hybrid RIA Solution. As a reminder, the growth rate and gross profit may continue to exceed our net revenue growth rates simply as a result in our Hybrid RIA business growing more rapidly than our broker-dealer business.

Under accounting standards, the Hybrid RIA advisory fee charged by advisors to clients is not reflected as revenue on LPL's income statement, whereas this fee is recorded as revenue for Corporate RIA Platform business. Nonetheless, we are in similar levels of gross profit for Advisory Business regardless of the platform affiliation, in part, through additional attachment revenue we can achieve in our Hybrid RIA Solution.

Turning to expenses, I will provide a breakdown across three separate categories: core G&A, regulatory charges and promotional expense. In the fourth quarter, core G&A, which we now define to exclude any charges related to the resolution of regulatory matters, was $161 million, declining approximately 2% year over year.

For the full year, core G&A was $648 million, which increased 5% and was in line with our long-term goal of mid-single-digit growth. These results were achieved by balancing investment in the business, most notably in areas of compliance, risk management and the client experience, while pursuing expense saving measures, such as our service value commitment.

Focusing on charges related to the resolution of regulatory matters, we incurred $5 million of expense in the fourth quarter and $36 million for the year. To put these expenses into historical context, charges in 2014 were 4 times higher than our average over the prior two years. For 2015, we will continue to report any impact from potential regulatory issues separately from core G&A and we will reconcile final settlement expense against prior accruals as matters are resolved.

Fourth-quarter promotional expense declined $6 million sequentially to $31 million, primarily as a result of two factors, first, conference-related expense declined by $10 million as expected. Second, transition assistance grew by $4 million due to strong volumes in recruiting this quarter, while the cost to recruit remained consistent in the mid-20% range.

As we look ahead, in the first quarter of 2015, conference expenses are expected to grow sequentially by approximately $9 million, as a result of both our Annual Summit and Masters Conferences occurring in the first quarter. By lowering expenses in the quarter, we were able to translate 5% gross profit growth into 11% adjusted EBITDA growth year over year, reaching $138 million in the fourth quarter.

As a result, the adjusted EBITDA margin expanded 112 basis points, despite the ongoing headwinds from cash sweep revenue. Adjusted earnings per share were $0.66 for the quarter, up 5% year over year. Our adjusted earnings growth rate was muted by the $0.05 one-time tax benefit in the fourth quarter of 2013. Exclusive of this tax benefit, adjusted earnings per share grew 14% year over year.

For the year, as Mark indicated, adjusted EPS was flat at $2.44. As we evaluate this performance, we were disappointed by the headwinds that curtailed our growth, but are encouraged by the strength of our revenue drivers, the important strides we made in managing core G&A to 5% annual growth and the repurchase of six million shares last year.

To put our earnings results for 2014 into perspective, adjusted EPS from our core operations grew $0.23 and a reduction in share count contributed another $0.10, which reflects 14% EPS growth. However, these benefits were fully offset by the impact of regulatory charges of $0.21 per share and cash sweep revenues declines of $0.11 per share. We have provided an EPS bridge in our financial supplement posted to our website to illustrate these drivers of our overall earnings results for the year.

Turning to our efforts to simplify the business, as we entered into 2015, we are near the completion of our Service Value Commitment initiatives. We have now recognized over 90% of the expected restructuring charges associated with this program. With $61 million in spend as of the end of the year and approximately $7 million more anticipated in 2015.

This investment has generated $22 million in cumulative run rate savings through to 2014 and is expected to generate approximately $10 million in annualized savings in 2015. These savings would bring our total benefit up to $32 million, which is consistent with our original goal of achieving savings in the $30 million range.

With respect to capital management activity, this quarter demonstrated our continued commitment to leveraging our capital-light model to return capital to shareholders. In the fourth quarter, we took advantage of favorable conditions in the debt markets to add $150 million in capacity to our debt facilities.

We used a portion of this additional capacity to conduct $125 million in share repurchases, buying back 2.9 million shares at a weighted average share price of $42.98. Additionally, we allocated $20 million in capital expenditures and paid $24 million in dividends.

For the year, we deployed $371 million in capital repurchases and dividends equating to $3.65 per share. The Board of Directors has approved a 4% increase to the quarterly cash dividend to $0.25 per share and we ended the year with $93 million in capacity in our Board-approved share repurchase plan.

With that, Mark and I look forward to answering your questions. Operator, please open up the call.

Thank you.

(Operator Instructions)

Chris Harris, Wells Fargo.

Thanks. Good morning, guys.

Morning, Chris.

So quick question on expenses. Just wondering if you guys could clarify how you feel about the expense guidance for 2015. I know you just updated us recently on that but maybe a discussion on that would be helpful. And then as you think about hitting that number, I'm wondering if you comment what could potentially go wrong where you wouldn't be able to achieve the numbers you're looking for and if expense is reflecting high in one area, if they maybe offset, what you could do to kind of managing around getting that guidance.

Chris, it's Dan. Good question. There's several there so if I don't get them all, please just remind me of what I may have missed. So as we think about core G&A expenses for 2015, we remain consistent on our guidance of that 7.5% to 8.5% range in expenses. We do expect those to ramp up in Q1 and be more evenly distributed throughout the year in the range of $172 million to $178 million in a -- on a quarterly basis.

The majority of those expenses are driven on what I would call controllable expenses. They're driven by things like P&E, by compensation, by professional services, and we manage and it put -- the controls and the reporting in place and the accountability in place through our leadership team to ensure that we manage to the targets that we set for the year. And that makes up the predominant amount of the expenses in that area.

To the extent that you have to pivot or shift your strategy or your approach for something unforeseen comes up, well, then we look at the overall macro set of expenses that we have and we try to manage to a neutral outcome at the end of the day.

And so you do have nimbleness of which to make adjustments throughout the year for the unforeseen matters and challenges that may emerge but again, our principal would be managing to a neutral outcome.

Okay, thanks for that and then just a quick follow-up on your ICAC and the guidance there. We're seeing a little bit of evidence that banks are increasing the demand for deposits to some extent. Are you guys seeing any change in the market rates for that and could that potentially lead to a little bit of upside as you think about the rate in 2016?

In 2015 or 2016?

Well, 2016, because I think you're guiding to ICAC rate of, what, Fed funds plus 10 basis points?

Yes. That's correct. Thanks for the query. Yes, so I think that's exactly right is we see growing demand for deposits that is fueled by additional loan growth in financial institutions. That does create some buying power, if you will, with respect to the ultimate rate.

Historically speaking we've seen that rate land at a market average of somewhere around Fed funds plus 20 so our guidance of that Fed funds plus 10 is below the sort of historical average or norm and the growing loan demand which then fuels the demand for deposits we do feel like gives us some opportunity for some pricing power around that ultimate landing point in 2016.

Great. Thank you very much.

Christian Bolu, Credit Suisse.

Good morning, guys. So my question is on regulatory environment. On the one hand, regulators are pushing for fiduciary standards and less than overall commissions but on the other hand, pushing back on so-called reverse churn-in and too much fee-based assets. So I guess my question to you is what controls you have in place to ensure advisors are putting clients in th e right accounts?

Yes, good question and we've got the dichotomy, right? There's a series of things that we do that review activities of advisors, both in the brokerage part of our business and the advisory part of our business, looking for exactly the kind of issues you described, either too much activity or too little activity in each of the different cases.

It's a series of technologies, some of which have been replaced recently, as in last year, particularly on the advisory side, we have a new piece of technology going in this year that updates that whole review process so we have a systems and people that oversee those activities. As we've said on many a call, we've increased the staff in our risk management, compliance, oversight grew significantly over the past few years, up to like 90%. And that has allowed us to also make sure that we have that surveillance and supervision activity well covered.

So we have good processes for reviewing that. I think just to state it, we've obviously had some regulatory challenges that has led to charges that have been there to oversee those. Those relate mainly to historical issues, and are really a part of our review and updating of our risk management systems and capabilities.

So that, that's what we're trying to do is make sure that we have all the right capabilities in place to oversee the activities and advisors. So that we feel comfortable that we're doing the job we need to do in terms of that oversight of those activities in the world that is changing from a regulatory standpoint and we stand ready to change with it.

Okay, thank you and as my follow-up, I'm just curious to get your thoughts on what you're seeing in terms of retail engagements so far this quarter.

Yes. So far in the quarter, it's been positive in terms of investor activity and advisor movement, which are, of course, the two big drivers for our business, getting new advisors to join and having those advisors who are here be more productive. And so nothing particularly different about this quarter.

The low interest rate environment on the long end certainly hurt some product lines like annuities but that was true in fourth quarter and continues here in first quarter. And as we said before, we're returning to the alternative type of investments like REITs are really at normal levels which is just fine by us. They weren't in fourth quarter; they are in first quarter. In then general market activity, saving and investing in fundamental portfolios is going right along as planned, which is good.

So we're seeing what we think is another good your shaping up and then I'll just mention recruiting specifically, bringing on new advisors that's often a question and obviously fourth quarter was strongly and we feel very positive about recruiting here in Q1 and very positive about it in 2015. And that gives us a chance to use some of our capital because it does give us such a fantastic return on investment when we bring those either banks and credit unions or individual advisors or hybrid RIAs onto the platform.

Okay, thank you very much.

Bill Katz, Citi.

Okay, thanks very much. Just the first question is coming back to the comps question versus (inaudible). It looks like it was a bit lower as a percentage of revenues in Q4 versus some of the more recent run rates. So how much of that is maybe some year-end accrual cash out versus mix of the business and a related question beneath that is the guidance you've given the -- from the guidance of 7.5% to 8.5% for G&A range, is that based on actual 2014 results or do we have to normalize for any seasonal balance in comp in Q4?

So the -- let me answer your first question, or your last question first, which is that the 7.5% to 8.5% is meant to deal with the normalization, for example, the bonus pool in 2015 because we would have cut it in 2014, appropriately so given our results. So there's no -- nothing else beyond that, Bill.

The one that I will say about the 7.5% to 8.5%, I just want to make sure we're all clear about, is that -- trying to make sure we understand where regulatory costs are and we are out of the business of predicting regulatory cost so those are lumpy. They show up at different times and different ways that's very hard for us to predict which particular quarter those costs will come and it's also exceedingly difficult to predict the size of those charges.

And so in the fourth quarter, we had a $5 million charge in regulatory that will feel familiar to people. We have a number we've talked about; that's only coincidence. It's not some sort of planned process in terms of how that shows up so I just want make sure that we understand that 7.5% to 8.5% includes, obviously, our expenses but we can easily see lumpiness in terms of the regulatory cost and it could be exceeding what we imagine it to be because that's what happened to us last year as it relates to regulatory. Your first question, Bill, I didn't quite catch it. Did you mean compensation as in production bonus for advisors, or do you mean compensation for employees?

I'm not for not being more specific. On employees, so the $98.6 million, including that as a percentage of revenue, was a little bit less than 9%. So I'm wondering like maybe your peers are sort of a year-end catch-up just given production and just sort of overall revenue dynamics. I'm wondering is that a good run rate to build off of or do we need to go back and look at the full-year average as more of a predictor?

Well, fourth quarter always has true-up to the bonus pool. The bonus pool was cut, I don't know, Dan, whether that -- has different number, different characteristic in fourth quarter versus others coming into it.

Yes, you would catch the normal ramping of the expansion of employees, mainly in the areas of risk management that we had last year, BIll, as that ran through the year. And the only, I think one-time event in fourth quarter that would influence that number was just the adjustment to the bonus pool but to be clear we did that throughout the year as we saw headwinds in the results, mainly around the regulatory charges. And so, there is a component of the bonus adjustment in fourth quarter but it is not the full amount.

That's helpful. And my second question, if I may, is when you step back, I know you have some dispute issues on your own, but just more broadly speaking, there seems to be a lot of back-and-forth about the intensity of the SEC's scrutiny of the industry, whether or not it's getting deeper at the FA level. And then also whether or not there's a renewed focus on commission structures. Just stepping back a little bit, broadly, are you noticing any kind of change and if so, where do you see the greatest focus at this point?

Well, that's a great question, Bill. The simple answer is there's a lot more regulation today than there was a year ago, there was two years ago, there was five years ago and there's going to be more regulation a year from now. I think the good news for us is difficult as last year was for the organization and for our shareholders, so that's -- that is what it is.

The perspective that I do want to bring is the good news in that is that we are replacing systems, we have increased headcount significantly across risk management, compliance and to any number of other areas that give us a much stronger ability to manage and understand our regulatory risks and therefore, work with our regulators on them. So we're building the world that we need for this new environment and I do look at our competitors and think they're, frankly, a bit behind, when I look at our activities, headcount and so forth.

So I think we have to recognize it's quite increased in terms of regulatory scrutiny. Specifically to the SEC, they have 300 people in the division that examines broker-dealers. They have announced publicly that there are at least 300 people and they have announced publicly that they're going to do branch exams, which is typically done by FINRA and we have seen activities where they're coming in to talk about branch exams for us. That's a perfectly normal course of process for us and we look forward to welcoming them into that process.

And as we do so, we know that, that will follow the work we do today with FINRA and similar exams. So we're definitely seeing the SEC increasing its brokerage review activities. It's also asking for additional funding and finding ways to potentially regulate RIAs more aggressively or at least, more frequently. And I'm sure that they will find a way to do that one way or the other so we have to be prepared for that as a commercial matter and as a risk management matter, we are testing a service for RIAs that use us as a custodian to provide oversight activities and compliance activities for their compliance obligation as independent businesses.

And we'll see if that test, how we think about it and decide whether we expand it or not. So that, I think, is kind of a world where also the Department of Labor is stepping in and likely to issue new guidance around what they're doing. So I think in all that, we have think about the fact that we have any number of matters that are historical for us, that are still to be resolved.

So we certainly announced a large charge in Q3 of last year that was meant to give us the accruals and recognize what is recognizable for us at the time but I do want to make sure we all understand as shareholders, that there are additional matters that are still to be resolved, that's the lumpiness and the size issues are very hard to predict for the business.

Okay, thanks for taking all my questions.

Sure.

Chris Shutler, William Blair.

Hi guys. Good morning. On the ICA, first, the sensitivity table that you've given back in the supplement, it looks like the operating income benefit from the various changes in Fed funds, that improved a little bit and it looks like the number of ICA contracts in both 2015 and 2016 also increased. So maybe what are some new bank contracts you entered into and is that what's driving the improvement in the sensitivity?

Yes, there are a couple of things. I think, one, what we did see some improvement, to your point, in the Fed funds rate in the fourth quarter. You've got about 1.5 point increase or sequential benefit that came from Fed funds in the fourth quarter -- sorry, on a year-on-year comparison. So that was helpful in terms of offsetting some of the impact, if you will, of the repricing of the ICA contracts.

With respect to the contracts themselves, as the balance has expanded, so we expanded a little over $1 billion in balances throughout 2015 -- sorry, 2014. We've got to place those new deposits at either new institutions or where we have existing capacity in existing institutions and typically those will come in at a market rate that is more in that Fed funds plus 10 basis points range. And so you see some of that lowering the overall average ICA contract rate that we have and that's what creates some the additional upside, the additional incremental balances, the lower average rate is going to create more upside as Fed funds return.

All right. Thanks Dan and then just one other on a different topic on technology. So Mark, you talked about the resource Center and client works a bit. Just curious as you look at 2015 and out into 2016, what are the main deliverables that Victor and his team are going to be working on, maybe just a little more detail there would be helpful. Thanks.

Yes, happy to do that. Thank you. So over the -- let me do a little history first then we'll go to the future. So over the last two years that -- as Victor has been with us, he's led a very strong effort to essentially take ten identified systems that we did in work with Bain about two years ago, five for employees and five for advisors, that either by their age or by their functionality really needed to be replaced.

Those have all been completed and they're significant systems. An example would be Documentum, which is the document imaging system and document handling system we use across the firm, touches over 3,000 people here, both onshore in the US and our offshore partners in India, so it's an incredibly complex application, incredibly important for productivity of our employee base and just general good hygiene of information and so forth. One of ten projects like that, that are extensive and difficult to put in place.

The other historical piece, which is sort of midway through -- or I don't need to characterize it as midway through, but plenty of work, is, of course, around the infrastructure itself. We built out a new data center in Dallas. We're rebuilding our data center in Charlotte. This year, we'll build a third data center in 2016 and to give us hot-to-hot transfer for liability, and of course, while we're doing that, we're doing a lot of work in protection of data in cyber security which is, of course, a popular area.

So looking forward, and specifically, let's go to client works because a lot of our work continues in terms of systems for risk management and compliance, legal and so forth, as well as our financial group in terms of budgeting systems and such. And then the other area, our productivity systems that will impact both our employees and impact our advisors, cashiering being critical. That's the movement of money that will really transform the experience for advisors and their clients in terms of money movement.

We're in beta now and moving thousands of transactions through that system, and then we'll release somewhere in the first to second quarter this year and that's the second major piece of client works and then the third major piece, let's just say later this year, is account opening and account activities. If you do resource center, cashiering, and account activity change over to client works, you're getting about 65% of the work an advisor's office does in a given day.

So while there's still lots to do in terms of ultimately replacing branch net with client works and that will take us through 2017 to complete, the majority of that will actually be completed from an advisor standpoint by the end of this year. So it's new look and feel, new user experience, much more efficient information flow, much more connectedness across the platform, which just makes life much easier, more productive for an advisor in their office.

All right. Thanks a lot.

Alex Blostein, Goldman Sachs.

Great. Hi, good morning, everybody.

Good morning, Alex.

Just stay on the regulatory bag there for a second, so I guess FINRA came out with a list of priorities earlier this year, maybe late last year, with a particular focus on variable annuities and that's obviously a meaningful product for you guys, so it looks like though specifically, they're try to address marketing else here, I guess like short of surrender period but higher cost. So maybe two questions there, I guess. A, help us understand how are these initiatives impacting your business if it all, and then specifically, any color how might these sale shares comprise of your total TC?

So I'll leave the second question for Dan and let me just talk generally about the regulatory environment. First of all, we come at this process by making sure that we are here to protect and care about investors and the investing public. And so some of the issues that we've had that have cost us a range of money and a lot of headache over the last couple of years do relate to us, either in some cases self-identifying, in other cases, the regulator-identifying activities that are books and records-type of activities but also activities in which there would be some deficiency in the part of what an investor received.

I think, culturally, what's important to understand is that we've taken a stance that when we see that, we fix it. And we make the customer whole and make sure that we have repaired anything that may have happened to them in that process and that's where you've seen our settlement with Massachusetts, in the REIT matter, our settlement with Illinois and Massachusetts related to variable annuities and other activities to come. So we do want to make sure that we're clear about protecting investors and watching out for them.

Secondly, we want to be clear that we're about standing up for independence, that for the advisors who affiliate with LPL, we are here to back them up to make sure that we have the books and records, to make sure we have the clarity about their activity, and to make sure that we know that they're doing a right job for their client and that's well-documented. A number of these issues relate to documentation; that really is our job as the broker-dealer or as the investment advisor.

And when we find we don't have adequate information, we are there to write the check to resolve that on behalf of the advisor in our view of making sure that they get the support they need for their practice. So I think that's important to understand as we think about these regulatory matters. The letter from FINRA is always a good one; it's been out for about, I think, used it for many, many years, maybe a decade even. And that really gives the industry insight into what's being thought about from the regulator's standpoint.

As you know, I'm a Governor of FINRA and so I don't have particular insight into the choices they make to the letter, I know it's an important part of the process from their organization to tell the industry here's the areas we have concerns. Where I feel comfortable in leading LPL is that we have obviously invested a significant amount of money, a significant amount of technology, and a significant amount of intelligence, people, into our processes over the last two years which makes me feel very comfortable with where we are on a future basis.

And the issues that we faced last year and the issues we still need to resolve this year really relate to history more than they do the present. And so a letter from FINRA that tells us areas that are concerned is going to get our attention, as it should in the entire industry. And we're certainly going to make sure we take extra care in understanding what's going on in variable annuities and others.

I don't see that impacting sales activities or I don't see it impacting mix of business, because in my view, there's two other forces that are more powerful than that. One is interest rates so variable annuities suffer when long rates are below 2% on the ten-year. We're well below that, as we look at it today -- sorry 3%. I said 2%. And so we'd -- that's really affects design of products which affects sales and whether they're good for a client. I think the good news is we're seeing a drop in volume in annuities which is an appropriate response for an advisor when the futures and benefits don't pay.

And that's, I think telling you that actually the system and the process works quite well in response to what's happening in the market so that's already in the system. And our activity is to make sure that we're overseeing variable annuity exchanges and things have historically been difficult; that's also in the system last year as well. And so that's the other major impact that I believe is already, if you will, fully in the activities you're seeing, particularly in the fourth quarter.

So just to give you a little context based on your question around how it -- how they contribute to the numbers. If you look at our overall commission revenue, in the second half of last year given the conditions that Mark described with the ten-year treasury under 3% and just the futures not being as appealing, variable annuity revenue was reduced down to about 35% of our overall commission revenue. Now if you take an advisor's overall production base revenue and you add the advisory piece to it, then variable annuities go down to about 20%.

Got you. Thank you. Thank you for the details there. And the second question, Dan, just a couple of quick follow-ups for you. When we look at the $528 million commission for this quarter, is it possible to break down how much is this kind of trailer in the asset-based piece versus the sales-based piece in the quarter.

Usually from a -- just on an average or rule of thumb from the commission's standpoint, your trails-based piece is roughly one-third of that overall number. So of that $528 million, then you could -- you would roughly take about one-third of that and think about that as the recurring trails that occur from both mutual funds and variable annuities.

Okay, got it. Thank you.

Alex Kramm, UBS.

Hi, good morning, everyone. Wanted to just go back to advisor growth and tie it in with regulation a little bit. Obviously, great fourth quarter in terms of net new addition but just curious how some of the regulatory noise that's been out there has impacted discussion. Has it been headwinds or has it not mattered of all.

And then looking forward a little bit, one of the questions I've gotten from people is given that and don't take this the wrong way, but given that it might have been a laxer -- that you have been a laxer firm in the past and now regulation is definitely something that you've been focused on the last couple of years, does that make you less often attractive place to do business. I mean again, just trying to push you a little bit here, if you know what I'm trying to get.

No, don't you worry. We've never been more attractive in my view, but of course, I'm a bit biased. The -- well, I think simply one has to look at the record, Alex, and for the last four years combined, we're the number one net new addition for advisors in the entire industry. It seems to me that sounds like a pretty winning track record. I come from title town, Boston, so I think I know winning track record and I think we'll let the market stand where it stands in terms of its statement about the appeal of LPL's platform and our ability to bring on significant advisors.

So if you look across the charts from banks and credit unions to hybrid RIAs to independent advisors to retirement plan advisors, we really hit on all cylinders and when you look at where we receive advisors from, they come from a very diverse group of organizations, from warehouses to regional firms to independent firms to the others. So we have a multi-sourced model and we have a significant amount of what we believe to be the largest recruiting group in the industry doing this work so we think we've never been, frankly, more appealing than we are now as we are seeing a pick-up in turnover, a slight pick-up in turnover in the industry for advisors in motion.

Let's review why that is. Number one, we are a fantastic platform when it comes to productivity. And we're only going to get better as we invest in client works and other activities so if you think about a study we did a few years ago, it showed that an LPL practice is 18% more profitable than any other of our competitors. If you have a mix of competitive -- of independent business and advisory business and you need someone to help you manage that complexity, we are an excellent partner and our systems and capabilities allow you to invest less than the local level. That's why we win so much business. At the end of the day, it's about creating a more profitable outcome for advisors who affiliate with us as a bank or credit union or as an individual producer or as a producer group.

Second issue is that while the noise of regulation has been difficult and the regulatory issues are quite difficult to deal with, I think what the advisors tell us and what prospective advisors tell us is they see as caring about investors, and making sure we're going to protect investors and they like that because they want investors protected, theirs particularly. Number two, they see us standing up for independence and their ability to choose the best model because let's not forget for the consumer, this is the best choice.

You have thousands of choices of products here in order to be able to accomplish your financial goals as an individual investor; that is a unique value proposition in America. Among the top ten firms that provide financial, retail financial advice, we're the only firm that doesn't have our own products to sell along the way.

So we're here to make sure that we commit the right resources in this regulatory environment and we have done a significant amount of that, as you, as shareholders certainly know and that we'll continue to make those investments in order to create the kind of environment in which advisors prosper and their investors do well. And our advisors who are prospective to the firm and existing to the firm see that quite clearly and that's why they joined.

Sorry -- I was just going to add around the 2014 results, if you look the recruiting class on average, the 363 net new advisors was very much in the range of our average net new advisors over the past four years so that does show the consistent strength of the model in attracting those advisors.

And then from an expense standpoint, what we've also seen is us continuing to maintain that sort of mid-20% range of cost of acquiring new advisors and we have not seen inflation in that overall numbers so again, I think that just reinforces that trend of the appeal of the model and our ability to help enable that independence approach for these advisors.

All right. Great, thank you. And then just I think Dan, this is for you as well. I mean a little more than we feel, but if I look at asset-based fees, clearly, those are impacted by the sweeps but if I back out the sweeps, I think it's around $96 million or so in core asset-based fees. The number has grown pretty nicely, I think, 14% year over year, outpacing asset growth, but I think on a linked quarter basis right up third quarter was kind of flattish despite asset growth growing and advisors growing. So just wondering how I should be thinking about that, that core asset-based number, why it was maybe flat quarter over quarter and if going forward, it should be more tied to asset growth or what the best way to think about it is?

Okay, so with respect to that number, we have seen good growth in the number that reflects some of the expanded programs that we've developed with product sponsors as well as just the general growth or accelerated growth in our advisory platforms relative to our brokerage platforms. So we do expect to see sort of that general trend occurring and I think if you look at the year-over-year comparison, you're going to see that broader, more 10% year-on-year growth. I think from the third quarter to fourth quarter, you're just capturing some timing shifts there that probably just distort or create some noise in that number but we can certainly come back to you with a clearer picture on that.

All right. That's great already. Thank you.

Devin Ryan, JMP Securities.

Great, thanks. Good morning. Just a couple of quick follow-ups. So I guess first on the regulatory front, really appreciate all the detail around some of the recent topics of discussion but thinking about the evolution of regulation, maybe the fiduciary standards, as an example, I know we're focusing on some of maybe more negative items but are there any potential positive scenarios here like if RIAs need better compliance capabilities or oversight, I think as you mentioned, which can be cost prohibitive and that would drive accelerated consolidation into the larger firms like LPL. I'm just trying to think the other side of the coin. Are there actual positives that could come out of this for you guys?

I appreciate the question, Devin. I think though that's exactly right. Firms that have the -- let's step back at the 30,000-foot level. Doing things that are in the best interest of clients is always going to be the best business practice, right? So I think as soon as we get caught up in language like fiduciary and standard of care and all this other stuff, but the reality is, when I talk to advisors, when I talk to their investors at a client event for them, what I know that happens there is that they are really making sure that they care of them because at the end of the day, it's a business. Right?

And if you're well-served by your financial advisor in whatever form that is, you're going to refer people to them and you're going to bring more assets and you're going to grow that business together. I think we can't lose sight of that despite sort of all the noise and the language and the emotion that runs around this issue. We've been believers of the fiduciary standard would be a way to go across the entire industry for retail advice. I actually think there's a way to do that, that would allow you to be a broker but with a standard that works there but we would be supportive of that if it comes and it will show up in some form.

It's surprisingly slow to me given the crisis of 2008 and 2009 but yet, I do think you see movement towards it. I think the Department of Labor work is good work. They've done an excellent job on the plan side of ERISA, and I think there's -- while it's controversial in the industry, what they're trying to do is really make sure that investors are well thought of and taken care of in their activities. And so again, if we think about a standard of care, we think about disclosures, those are all good things, as things go.

I actually think that gives you business opportunity that allows you to be the organization that stands up for successful outcomes for investors and successful outcomes for advisors and that's a great position for us to be in. While we've had our stumbles and our challenges, I don't want to walk away from that, what you've seen us do is what we do well is execute against that new standard that we set and we've put ourselves in a very good position for this change in regulatory environment.

And that's the part that I want to make sure people do hear is I'd rather be at the place that just replaced this technology and grew its capabilities if I were an advisor or I were an investor because I can have state-of-the-art solution and protections for me. We've also demonstrated that we are willing to stand up and make sure and write the check in support the activities of an advisor and the investor and it's been a significant cost. And we appreciate the shareholder support of that as we think that positions us quite well with investors and quite well with advisors, which makes us an appealing place.

The last thing I'd add is that anytime there's more regulation and more activity of this type, frankly, firms of size benefit. It causes consolidation, just as you've describe it. You've already seen it in the banking industry, which has been undergoing a lot longer than the securities industry, we're very well-positioned as a market leader to benefit from that and you describe some of the ways.

One way is offering services to the advisors that we can charge a fee for and make the environment safer and better for investors, also that we can make sure and do it as efficiently as possible and help bear the cost, if you will, for advisors so that they don't have to and know that investors are well taken care of. And we have a very deep model in the independent space as a result of that work that we've been doing over the past two years. I think we're very well-positioned for that growth and we just need to get through whatever -- the last of these issues that will play out here in 2015 to set us up well in terms of fundamental business on a going forward basis.

Great. I really appreciate all that perspective, Mark. Maybe a quick one for Dan, just on the other revenues, it looked like there's been bumped up sequentially in the quarter so just try to think through the moving parts there. Can you give a breakdown maybe of how much was re-allowances and then, if there's anything else one-time there that helped that line item in the quarter?

Yes, most of that other revenue would be tied to the marketing re-allowances for alternative investment sales, more specifically, REITs, and that's going to be driving most of the change both on a year-on-year basis and any sequential change.

Got it. So is that then, if we were to have a breakout of commissions this quarter, would we assume that the non-tradeds, I guess, bumped up commensurate with that increase in marketing real allowances?

You got it. We had a -- there was a liquidity event that occurred in the latter part of the quarter, which we saw some tailwind in the December results because of that. We'll also get some residual benefit in Q1; the quarter will, look very similar, if you relative to AI sales.

Got it. Very helpful. Thanks a lot, guys.

Thank you.

Tom Whitehead, Morgan Stanley.

Hi guys. Just a question on capital return. If we would look at the full year, the total capital return was sort of well above where net income and cash flow were so I'm just -- from a big picture standpoint, trying to think of a good sort of normalized level of capital return as you work through rates increasing and all the things on the expense side and then I guess more specifically, where the stock is, what sort of opportunistic attitudes you take with regards to buybacks currently? Thanks.

Let me just start with an operating perspective and then Dan will chime in on the more specific question. We are seeing opportunity in the business to invest and our best place to invest money is in the business. We all know that as shareholders, it has a wonderful return characteristic. A year ago, two years ago, we didn't see as much opportunity in recruiting and other areas to build out the business and we do now. So that's a little different operating environment going into 2015 that we've had, say, going into 2014 or 2013 and I think that's just an important pivot point to mention from an operating standpoint. And then Dan?

I think the last two years, we've certainly demonstrated that an investment in LPL through share repurchases was the smartest way to use our capital and drive the highest rate of return. We also, in both 2013 and 2014, capitalized on the favorable conditions in the debt market and expand at those facilities of which to upweight that ultimate use of capital for that purpose. And so I think the upweight in the use of that capital was more a driver of the additional leverage that we took on of which to do that.

I think as we go forward, as Mark said, we'll continue to always look to see where there's opportunity in the business to invest strategically and then with respect to the return of capital, I think to the extent that you're not going to extend debt facilities or leverage of which to return that capital, then obviously the amount of capital that you're returning would be more commensurate with free cash flow.

Okay, that's great. Actually, the rest of my questions had already been answered, so thanks for fitting me in.

Thanks, Tom.

Ken Worthington, JPMorgan.

Hi, good morning. So far this quarter, you announced that Wellspring and Ellsworth have joined LPL. If I got this right, it looks like they are joining LPL by affiliating with other LPL affiliates and I'm not sure if I got that right but can you talk about where you're having success in recruiting and how brokering acquisitions by LPL affiliates is part of that recruiting and growth strategy?

Yes, thanks for the question, Ken. So let's just be clear. In those cases are certainly affiliating with larger institutional groups that are here, larger branches, to use the brokerage lingo but they're not acquisitions. They are standard recruiting structures in which they're recruited in partnering with large existing offices and we're seeing more and more of that as a phenomenon.

It's really has happened significantly over the last seven or eight years for LPL as we changed our production bonus payments that created an opportunity for these larger practices to bring together a number of advisors and benefit from synergies at the local level that we couldn't provide. Simple example would be space, training, just camaraderie, marketing and so forth that occurs at that level that is really a local advisor's activity and you're seeing economic and market response to that need.

So these practices are joining because they see a value to that scale and to the activities those branches are providing and we're absolutely here to help everybody grow in doing so. We have certainly used the money for acquisition and we're happy to do that. Just to make sure everyone hears that though one might be thinking about a practice and in that case, we're not so much acquiring as we are essentially helping facilitate a payments right that allows the transfer of advisor. Just really a more sophisticated version of transition assistance, which you don't -- I mean, we see a handful of times in the year as an opportunity but would love to see more.

Okay. That's clear. Secondly, can you talk about the IRA rollover business at LPL. You're top advisor of IRA assets. How do you drive rollovers? How good a business is it and how does LPL retirement partners work with the rest of LPL to kind of promote IRA rollovers?

Well, I think it's important to understand, it is about 50% of accounts here are retirement related. Some will be rollover, some will be annual contributions and so forth, so -- and that comes mainly from the activities of an advisor working with somebody who has a rollover today. So in other words, it's built on their individual retail relationship so Jane Smith is moving from one company to another. She has an advisor who's at LPL. That advisor helps her with that rollover at her request and as part of Comprehensive Financial Plan that they're doing around that. That describes the vast majority of activities in rollovers today.

Then what we spoke about on the call was a specific process that involves both the technology as well as the service to provide to employers a way to make the rollover choices their employees face easier so as you know, it's complex set of choices that an employee faces and what we're trying to do is make sure we interact with the employer and with the employee to show them what the range of choices are. A choice could be that they will go to talk to an LPL advisor, it could be that they speak to someone else, it could be that they decide to rollover on their own to another choice, and we're here to help them.

And we're here to help the plan in that activity and LPL network, basically, can also provide educational advice to a plan so if I'm running a, say, a larger-sized company plan as a LPL retirement partner associate and I have a plant that's in a state far away from where I am, they can actually call on the LPL network to have an advisor go and provide employee education in that site and provide specific on-site rollover advice as well. So there's a number of ways to do it, both technological and human, in order to facilitate that process.

The other part of your question is it good business, is it better or worse or in line with the rest of t he kind of the brokerage and advisory business?

Yes, it's retail business so it's just as -- it's perfectly fine business in and of itself. I think as we think about how the world may change and it goes to more advisory type accounts as opposed to brokerage accounts which may be an outcome of some of the regulatory changes that we're seeing there, that -- remember that our advisory business has a characteristic of being slightly more profitable than brokerage, I think, 1.3 times, if I remember right. That would be the characteristic that's true for retirement account or true for a regular retail taxable account as well so it has the same characteristics as retail accounts.

That's what I was asking. Thank you very much.

Steven Chubak, Nomura.

Hi, good morning.

Good morning Steven.

So first question I have is on the GDC payout. I recognize that there is some seasonality as well as just some noise within the underlying components but I have -- I did notice that the base payout rate actually did decline about 73 basis points year on year and I didn't know if could speak some of the factors driving the reduction in that base level.

Yes, the primary driver of that is just the growth in attachment revenue grew at a faster pace than the overall production-related revenue and that change is primarily being driven by the growth of Hybrid RIAs Solution so that's what we would expect based on how we account for that type of revenue. You would expect to see that dynamic happen and that actual contouring occurring in the income statement.

Okay, so just given the sustained momentum in that business, presumably we should see a continued reduction going forward?

Yes, I think -- well, two things. One, the hybrid RIA growth and just general use of advisory solutions relevant to brokerage will help shift or change the sort of that baseline payout number and so that's the right way to think about that, that general trend would tend to have an ongoing shift, if you will, in that overall base rate

Okay. And one follow-up for me. I did see in your last presentation update that you were giving in December at the one slide that happened to have been in action was the update on the revenue growth target under a low and high growth scenario. I just wanted to clarify and see if you were still confirmed to those long-term targets.

Yes, I think maybe what you're getting at is we think about the model and achieving high single-digit growth and revenue. Is that what you're asking?

Even in a low growth scenario, exactly.

Yes. So again, we always think about growth relative to that which is driven by the expansion of number of advisors that which comes from productivity of our existing offices and then certainly, the any tailwind we might get from the market and so we haven't changed in our overall thinking around that framework.

Okay, that's it for me. Thank you for taking my questions. Sorry --

I just might add one nuance which is right that the dynamic that we saw in 2014 was the dynamic of the regulatory charges that were what they were and I just want to remind the audience and you that, that still is a factor for us, right? So those dynamics that we described, as we talked about on our script show up.

The problem is they're hidden, of course, by the cost of the regulatory structures and we do still see that lumpiness and we still see through that possibility here in 2015 at an elevated level and then we think -- we start to see the world get a bit better from 2016 forward on that front, as our new risk management systems and people really get fully in place and we get these historical issues behind us. So that's just one cautionary footnote I want to put there.

I appreciate the color, Mark, and thank you for taking my questions.

Absolutely.

Joel Jeffrey, Keefe, Bruyette, & Woods.

Good morning, guys.

Good morning, Joel.

Mark, you actually pretty much just answered my last question but I just had -- just to make sure understand it correctly so there's sort of 20 -- I know you guys are not interested in providing guidance on regulatory expenditures due to the lumpiness but kind of as it had been in the $20 million range in this last year, went to $36 million, I think, just want to make sure I'm understanding what you're saying that you could see elevated levels in 2015 but going into 2016, you do think those numbers should decline.

Well, I certainly think -- let's characterize 2015 the way you just said it, let's leave 2016 for a later date. I don't think we will see as elevated as we saw in 2014 and 2015 but how quickly that curve comes off is awfully hard for us to tell and that's why we've really tried to get out of business of predicting it but I do want to make sure and emphasize that we see an elevated in 2015 and when we know it will be lumpy because we will have learned that lesson from 2014 in and of itself.

But what I do want the audience to hear is that we're going to manage our other G&A and manage our growth opportunities in a very strong way. I think you've seen that in the fourth quarter and so I don't want to overly caution you on the regulatory charges but at the same time, make sure we're realistic about what may happen there.

Great, thanks for the question.

Douglas Sipkin, Susquehanna.

Thank you. Good morning guys. Just two questions, first, referencing, I think, one of your earlier questions about the ICA fees and now sort of the balance is shifting back into your favor where there's a little bit more demand for deposits. I know you guys have thrown out sort of the guidance, I mean, would you like officially update that guidance, maybe to the positive if you did get the sense that the market rates in the industry were moving so much higher or you're probably not going to change sort of the guidance and any sort of impact which would just be a pleasant surprise if demand for deposits continue to increase, like some of your competitors have alluded to.

No, I think historically, we've shown, as we've renegotiate these contracts, especially with the big sort of anchor banks that we have relationships with that we've shared with you the outcomes of those and the outlook associated with that spread so we would continue to practice that. I think to the extent that they come in, in small incremental bite sizes with either additional banks that we add to support the growing capacity, we're not going to do that every time we update one of those but we will do it in a disciplined way to help you understand the shifting spread.

Okay, and then second question, just sort of relates to some of like your financial parameters and I know you guys have already talked about cash available for corporate use. Can you update us on sort of the parameters there for that? I'm just trying to think through that with the cash levels and sort of that number into the start of the year, I guess, where cash, I would imagine usually declines -- increases throughout the year so it's -- usually starts at the lowest level in the beginning of the year, or should I say, the first quarter so I'm just looking at the number. It's like $205 million. I just want to maybe give a refresh on the parameters.

So typically speaking, sometimes our balance sheet, it's tough to see it because you'll get at the end of quarters, any money that is -- that we have custody or possession here at LPL that our client monies that are moving through the balance sheet so you've got to net that out to really understand what I call our corporate capital and that, generally, you're going to find is in a range of around $400 million.

What we generally do is have a standard of which we maintain at least a minimum of $205 million as a balance, if you will, for corporate available capital and so -- sorry, of $200 million so that $205 million that you see in the update is just indicative of the fact that we're running to that maintaining that minimum amount of capital available for corporate use. And then cash flows throughout on a quarterly basis will then be added to that, which we'll then obviously we use for strategic purposes, for investment in the business, return of capital, et cetera.

Okay great. So but you guys still feel pretty good that, that's a level you can maintain?

Yes, absolutely.

Okay, thank you. That's all I got.

Thanks.

Bill Katz, Citi.

Sure. Thanks for taking the extra question. Just a big picture question, Mark. I'm sort of curious. There's been a lot of discussion of late on robo-advisors and the implications for the business so I wondered if you could talk a little bit about maybe the pros and cons that you see developing in the early stages of this dynamic?

Yes, it's a great topic and thanks for the question. So I think there's a few things to think about. Number one is that what robo-advice, in my view, is a statement about the cost of getting a return so if we look across the industry, one of the things that we've tried to do is a firm is to lower the investor's cost as much as possible across our various platforms in a number of ways. And so if you compare, say, what a retail investor pays here for investment advice in an advisory account versus what they might pay at a wirehouse, we are going to be lower. When you look at what they pay at another independent, we're going to be lower.

And that's been our goal so robo-advice to me, Bill, is really a statement about what's the right price to pay for a return first, right? I think what they are being successful with is providing very low cost returns. And that's going to be a continued push in our industry in retail advice because return, the cost of returns, of course, matters a great deal so we believe that right strategic approach to that is to lower your cost to retail investors in and of itself.

Now, remember, robo-advisor generally don't, at this stage, provide real counsel in a sense of saying to someone, look, you want a new car but the car you have is perfectly fine and therefore, don't lease the next new car or don't write a check for one. Instead, put that money away for long-term retirement so what I would describe is behavioral work is really the value of an advisor, and particularly one that's face to face. There just is nothing like sitting with somebody and saying, let's talk about your financial goals, what money means to you and how we can help you have better outcomes. That's really what financial advice is.

robo-advisors don't offer that. One may figure out a way to do that, one of them may do that over the phone, we think we have a unique value proposition by our advisors being the local markets, incredibly connected to their communities, offering that kind of financial counseling in which there is value and there's a fee that can be charged for that. So we feel very good about our prospects versus robo-advisors for that reason alone.

Now with that said, there certainly is a generational shift that's occurring. We did have NestWise, which is really our work in trying to figure out how to train advisors new to the industry. That part worked. We also did some what would now be now called robo-advice although we didn't call it that. That part didn't work; it turned out to be enormously expensive to generate leads and enormously expensive to build the kind of staff you had to have and the technologies.

And so we couldn't figure out a way to make it make economic sense so we withdrew and so while I think one or two of these robo-advisors will survive and be quite prosperous because that's the way the world works, I do think we'll want a response to robo-advice where we can empower advisors with some technological capabilities to help them with the next generation, their client's children, if you will, or we have some practices that are focusing on millennials and some of our technologies today already cover what they need.

But we can do some more work the so-called robo-advice as a competitive response but we don't see that as a major threat; we see it as an interesting development in the industry. And one in which, it really drives towards lowering your cost as being the right answer.

Thanks. That's very helpful. Appreciate it.

Absolutely.

Alex Kramm, UBS.

Yes, just one other quick follow-up, I think with Dan. On the promotional expense side, can you just walk through that again for 2015? I think you said for the first quarter, up $9 million but it sounds to me like it's the underlying promotional expense for new advisors is kind of stable. So how should we think about this as we go through the year in terms of the conferences that are coming in at what times and then related to that, can you also just review on the transaction side when those conference revenues should be coming in just so we get our models right? Thanks.

Yes, sure, so that's right the comment that I made about the $9 million of sequential growth in the promotional expense in Q1 is totally driven by conferences. We have our Masters and Summit conferences. Generally speaking, one will fall in Q1 and one will fall in Q2.

In 2015, they're both falling in Q1 and so you're going to get that roughly $9 million sequential change in your expenses. The other big conference that's a big driver of a lumpy expense there is our Annual Focus conference which will fall in Q3 of 2015 and that's typically when it falls in so no big change there in your -- how you think about the historical timing of that.

From a revenue standpoint, you do get a small amount of revenue pick-up in conference revenue associated in Q1 associated with those two conferences falling in that quarter. And then certainly, you get a much bigger conference revenue pick-up in Q3 associated with Focus. Generally speaking, on Focus, it's about 50% of the increase in the conferences expense. Your revenue pick-up in Q3, in Q1 your conference revenue associated with Summit and Masters is much lower, generally about one-third of what the overall cost is.

Excellent. That's all I needed.

Thank you. I'm showing no further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.