The country’s largest independent broker-dealer is set to begin reducing its labor force this year.
LPL Financial announced the news along with its announcement of fourth-quarter and 2012 earnings, which showed modest revenue growth but also a decline in profits.
Net revenue for the fourth quarter ended December 31, 2012 climbed nearly 14% to $944.2 million, but profits slipped 6.4% from the year-ago period to $36.9 million. Net revenue for all of 2012 rose 5.2% from 2011 to $3.7 billion, while profits fell nearly 11% to $152 million.
LPL’s adjusted earnings per share rose 13.6% for the fourth quarter to 50 cents, beating an adjusted earnings per share estimate of 47 cents by Sanford C. Bernstein; earnings for the year were up 4.1% to $2.03 per share. The company’s stock price was down 2.1% at $32.58 in midday trading Wednesday, compared with a 52-week high of $38.67.
LPL plans to “reposition” its labor force “by transitioning select non-advisor-facing functions to a leading global services provider,” Mark Casady, chairman and chief executive of the firm, said in a statement. He said the move was “not simply a cost reduction exercise, but an initiative to implement changes to our foundational technology, enhance the quality of our work and improve the speed of our delivery.”
LPL also plans to make "more targeted investments in people and technology in areas that support our growth and create value for shareholders," Casady said.
Job cuts at LPL are likely to begin in the third quarter, according to published reports. The company did not cite any specific dates or numbers.
"Headcount reduction is not the primary goal of this work," LPL spokeswoman Betsy Weinberger told Financial Planning. Rather, she said, "we are repositioning our labor force on core strengths and [outsourcing] select, non-advisor-facing, back-office functions."
FOCUS ON MARGINS
Industry analysts hailed the move to reduce labor costs, and said they were not surprised.
“They’ve stated that part of their business strategy is to expand margins, and because a company like LPL has less control over revenues in this environment, they are going to focus on what they can control, which is expenses,” said John Furey, principal of Phoenix-based consulting firm Advisor Growth Strategies.
“LPL has lots of opportunities ahead and is expanding into areas such as high-net worth, banks, trusts and mass market,” said Alois Pirker, research director at Boston-based Aite Group. “As a result, they have to increase efficiencies, so it makes sense for them to streamline back-office functions if they can. The important point is that they’re doing this out of strength and not weakness. I think we’ve gotten to the point in the industry where companies aren’t so much big and small as they are strong or weak. And LPL is certainly strong.”