LPL Financial Holdings Inc

NASDAQ:LPLA

Earnings Call Analysis

Strong Q2 growth for LPL Financial with significant asset inflow

LPL Financial experienced a robust second quarter with total advisory and brokerage assets rising to $1.5 trillion, a 4% increase from Q1. Organic net new assets totaled $29 billion, marking an 8% annualized growth rate. Recruiting remained strong, with $24 billion in recruited assets. Adjusted EPS was $3.88, supported by organic growth and expense management. In Q3, the payout rate is expected to rise to 87.5% due to seasonality. Additionally, the company plans to onboard the wealth management businesses of Prudential and Wintrust, and finalize the Atria acquisition by mid-2025, adding significant future assets.

Introduction and Business Overview

During the second quarter of 2024, LPL Financial continued its focus on supporting advisors in providing personalized financial guidance to help clients achieve their life goals. The company showcased the growing appeal of its robust, feature-rich platform, which helps advisors and institutions address challenges and capitalize on opportunities. This quarter, LPL Financial experienced steady organic growth and made significant strides in executing its strategic plans.

Financial Performance

LPL Financial reported total advisory and brokerage assets of $1.5 trillion, marking a 4% increase from the first quarter. This growth was driven by a blend of organic growth and favorable equity markets. Organic net new assets for the quarter were $29 billion, reflecting an 8% annualized growth rate. Over the trailing 12 months, the recruited assets reached a record $93 billion. The adjusted EPS for Q2 stood at $3.88, with a gross profit of $1.079 billion, up $13 million sequentially.

Organic Growth and Recruiting

LPL Financial achieved a record in recruited assets, amounting to $24 billion, excluding large institutions. This robust performance underscores the attractiveness of LPL’s model and its expanding market reach. On the same-store sales front, advisors focused on client care helped drive solid results, contributing to a 98% asset retention over the past year. Looking forward, the company expects to sustain its recruiting momentum into the third quarter.

Client Cash and ICA Portfolio

The client cash balances at the end of Q2 were $44 billion, down by $2 billion sequentially due to record client net buying activity of $39 billion. The ICA yield for the quarter was at 318 basis points, a slight decrease from Q1. For Q3, the company anticipates an ICA yield increase of approximately 10 basis points, driven by new fixed-rate contracts yielding around 420 basis points.

Revenue Sources and Expectations

Service and fee revenue for Q2 was $135 million, up $3 million from the previous quarter. The company projects a $10 million sequential increase in Q3, primarily from the annual Focus conference and higher IRA fees. Transaction revenue in Q2 was $59 million and is expected to remain flat in the next quarter. Core G&A expenses for Q2 were $371 million, with an anticipated sequential increase of $5-10 million in Q3.

Expense Management and Capital Deployment

Promotional expenses rose by $16 million sequentially to $148 million, driven by onboarding costs related to Prudential and increased transition assists from strong recruiting. This is expected to rise to around $170-180 million in Q3. The company ended the quarter with $684 million in corporate cash and a leverage ratio of 1.7x. During Q2, LPL issued $1 billion of senior notes to finance the Atria acquisition.

Strategic Initiatives and Acquisitions

LPL Financial is on track to close the acquisition of Atria Wealth Solutions, expected to be completed by mid-2025. This move will add approximately 2,400 advisors and 150 banks and credit unions, managing around $100 billion in client assets. The company is also set to onboard the retail wealth management businesses of Prudential and Wintrust, collectively adding $66 billion in assets by early 2025.

Future Outlook and Market Position

The company remains optimistic about its future, focusing on executing its strategy to differentiate and win in the marketplace, ultimately driving long-term shareholder value. The strategic separation from certain OSJ firms that collectively manage $20 billion in assets is seen as a move to strengthen the overall ecosystem. LPL’s preparedness to adapt to market changes, along with its robust recruiting pipeline, positions it well for continued growth.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, and thank you for joining the Second Quarter 2024 Earnings Conference Call for LPL Financial Holdings Inc. Joining the call today are President and Chief Executive Officer, Dan Arnold; and Chief Financial Officer and Head of Business Operations, Matt Audette. Dan and Matt will offer introductory remarks, and then the call will be open for your questions. [Operator Instructions] The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com.

Today's call will include forward-looking statements, including statements about LPL Financial's future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties, the company refers listeners to the disclosures set forth under the caption Forward-Looking Statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures. For reconciliation of such non-GAAP financial measures to comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com.

With that, I'll turn the call over to Mr. Arnold.

[Dan Arnold, executive]

Thank you, operator, and thanks to everyone for joining our call today. To set the stage for tonight's call, I'll start by taking us through our quarterly business results and hand it over to Matt to cover the financials. Then before we open the call up for Q&A, I'll take a few minutes to share our perspective on recent events in the marketplace related to [indiscernible].

Okay. With that as context, over the past quarter, our advisers continue to provide their clients with personalized financial guidance on the journey to help them achieve their life goals and dreams. To help support that important work. We remain focused on our mission, taking care of our advisers so they can take care of their clients. During the second quarter, we continued to see the appeal of our model grow due to the combination of our robust and feature-rich platform, stability and scale of our industry-leading model and our capacity and commitment to invest back into the platform. As a result, we continue to make solid progress in helping advisers and institutions solve challenges and capitalize on opportunities better than anyone else and thereby serve as the most appealing player in the industry.

Now with respect to our performance, we delivered another quarter of solid results while also continuing to make progress on the execution of our strategic plan. I'll review both of these areas, starting with our second quarter business results. In the quarter, total assets increased to $1.5 trillion as continued solid organic growth was complemented by higher equity markets. Regarding organic growth, second quarter organic net new assets were $29 billion, representing 8% annualized growth. This contributed to organic net new assets over the past 12 months of $104 billion, also representing an 8% growth rate.

In the second quarter, recruited assets were $24 billion, bringing our total for the trailing 12 months to a record $93 billion. These results reflect the continuing appeal of our model as well as the strength of our recruiting across our expanded addressable market.

Looking at the same-store sales, our advisers remain focused on taking care of their clients and delivering a differentiated experience. As a result, our advisers are both winning new clients and expanding wallet share with existing clients, the combination that drove solid same-store sales in Q2. At the same time, we continue to enhance the adviser experience through the delivery of new capabilities and technology and the evolution of our service and operations function. As a result, asset retention for the second quarter was approximately 98% and 98% over the last 12 months.

Our second quarter business results led to solid financial outcomes with adjusted EPS of $3.88. Let's now turn to the progress we made on our strategic deployment. Now as a reminder, our long-term vision is to become a leader across the adviser-centered marketplace. To do that, strategy is to invest back into platform to provide unprecedented flexibility in how advisers can affiliate with us and to deliver capabilities and services to help maximize adviser's success, throughout the life cycle of their businesses. Doing this well gives us a sustainable path to industry leadership across the adviser experience, organic growth and market share.

Now to execute on our strategy, we organize our work into 2 strategic categories: horizontal expansion, where we look to expand the ways that advisers and institutions can affiliate with us such that we are positioned to compete for all 300,000 advisers in the marketplace; and vertical integration, where we focus on delivering capabilities, technology and services, to help our advisers differentiate and win in the marketplace, be great operators of the business.

And with that as context, let's start with our efforts around horizontal expansion. Over the second quarter, we saw strong recruiting in our traditional independent market, reaching a new quarterly high of approximately $19 billion in assets. At the same time, through to the ongoing appeal of our model and the evolution of our go-to-market approach, we maintained our industry-leading win rates while also expanding the breadth and depth of our pipeline.

With respect to our new affiliation models, strategic wealth employee and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $4 billion in assets. And as we look ahead, we expect that the increasing awareness of these models in the marketplace and the ongoing enhancements to our capabilities will drive a sustained increase in their [ book ].

Next, in Q2, we added approximately $1 billion of recruited assets in the traditional bank and credit union space, which continues to be a consistent contributor to organic growth. During the quarter, we also continued to make progress within the large institution market where we advanced our preparation to onboard the retail wealth management businesses of Prudential Financial and Wintrust. Collectively, these 2 deals will add approximately $66 billion of brokerage and advisory assets by early 2025.

Now as a complement to our organic growth, we are on track to close the acquisition of Atria Wealth Solutions later this year to complete the conversion in mid-2025. As a reminder, this acquisition will add approximately 2,400 advisers and 150 banks and credit unions, managing approximately $100 billion in client assets. In addition, we're seeing solid momentum within our liquidity and succession solution as demand continues to build with existing LPL advisers and with advisers outside of our ecosystem, including the signing of another external deal in Q2.

Next, I want to update you on our OSJ ecosystem. A reminder that for many years, we have collaborated with large OSJ in serving and supporting independent advisers on our platform. We've been actively working to strengthen our alignment with these firms for a number of years, driving incremental changes to the broader OSJ ecosystem over that period. This year, we put a capstone on those efforts. And through that work, there were a couple of isolated firms that surfaced, as strategically misaligned with our mission and model as they were limiting adviser's ability to choose how and where they do business. That posture is in stark contrast to our core principles of adviser independence. And as a result, we have resolved to separating these relationships.

Collectively, these firms have roughly $20 billion of client assets, which began to offboard from our platform in July. At the end of the day, these separations will strengthen our overall ecosystem and position us to better serve the great part on our platform. Now within our vertical integration efforts, we remain focused on investing back into the model to deliver a comprehensive platform capabilities, services and technology to help our advisers differentiate and win in the marketplace and run thriving business.

As part of this effort, we continue to make progress across several key areas of focus, including our ongoing journey to build a world-class wealth management platform. And within this body of work, we are developing a comprehensive suite of trading capabilities that will help advisers deliver a differentiated client experience and manage their advisory business more efficiently and effectively.

In that spirit, we're rolling out a new trading system, ClientWorks Rebalancer, which enables advisers to rebalance models across multiple client accounts at one time and deliver a more personalized client experience across the book of business. In doing so, our aspiration is to help more advisers run models-based practices and ultimately turn trading from the administrative function into a strategic asset.

The initial feedback from ClientWorks Rebalancer has been positive. We're seeing solid early adoption. In summary, in the second quarter, we continued to invest in the value proposition for advisers and their clients while driving growth and increasing our market leadership. As we look ahead, we remain focused on executing our strategy to help our advisers further differentiate and win in the marketplace and as a result, drive long-term shareholder value.

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

[Matthew Audette, executive]

All right. Thank you, Dan, and I'm glad to speak with everyone on today's call. In the second quarter, we remain focused on serving our advisers, growing our business and delivering shareholder value. This focus led to another quarter of strong organic growth in both our traditional and new markets. And we are preparing to onboard the wealth management businesses of Prudential and Wintrust. In addition, we continue to build momentum in our liquidity and succession solution, closing 6 deals during the quarter and signing 1 deal with an external practice.

Lastly, we remain on track to close on the Atria transaction in the second half of the year and plan to onboard their business in mid-2025. So as we look ahead, we remain excited by the opportunities we have to serve and support our 23,000 advisers while continuing to deliver an industry-leading value proposition and drive organic growth.

Now let's turn to our second quarter business results. Total advisory and brokerage assets were $1.5 trillion, up 4% from Q1 as continued organic growth was complemented by higher equity markets. Total organic net new assets were $29 billion or approximately an 8% annualized growth rate. Our Q2 recruited assets were $24 billion, which prior to large institutions, was the highest quarter on record. Looking ahead to Q3, our momentum continues, and we are on pace to deliver another strong quarter of recruiting.

As for our Q2 financial results, the combination of organic growth and expense discipline led to adjusted EPS of $3.88. Gross profit was $1.079 billion, up $13 million sequentially. As for the components, commission advisory fees net of payout were $263 million, up $3 million from Q1. Our payout rate was 87.3%, up 70 basis points from Q1 due to typical seasonality. Looking ahead to Q3, we anticipate our payout rate will increase to approximately 87.5%, driven by the typical seasonal build in the production.

With respect to client cash revenue, it was $361 million, down $12 million from Q1, as average client cash balances declined slightly during the quarter. Overall client cash balances ended the quarter at $44 billion, down $2 billion sequentially, driven by a record client net buying activity of $39 billion.

Within our ICA portfolio, the mix of fixed rate balances increased slightly to roughly 70%, within our target range of 50% to 75%. As a reminder, during Q2, there were roughly $2.1 billion of fixed rate contracts that matured. We placed $1.7 billion of those maturing balances into new 3- to 6-year contracts, yielding approximately 420 basis points, which is roughly 220 basis points higher than their prior yield.

Looking more closely at our ICA yield, it was 318 basis points in Q2, down 5 basis points from Q1. As for Q3, based on where client cash balances and interest rates are today as well as the yields on our new fixed rate contracts, we expect our ICA yield to increase by approximately 10 basis points.

As for service and fee revenue, it was $135 million in Q2, up $3 million from Q1. Looking ahead to Q3, we expect service fee revenue to increase by approximately $10 million sequentially, driven by revenues from our annual Focus conference as well as higher IRA fees. Also, depending on the timing of the previously mentioned separation from a couple of large OSJs, we could record up to an additional $5 million of fees.

Moving on to Q2 transaction revenue. It was $59 million, up $2 million sequentially due to increased trading volumes. As we look ahead to Q3, we expect transaction revenue to be relatively flat with Q2.

Now let's turn to expenses starting with core G&A. It was $371 million in Q2. Looking ahead, if our strong levels of organic growth continue into the second half of this year, we would expect to be in the upper half of our 2024 core G&A guidance range. As a reminder, this is prior to expenses associated with Prudential and Atria. To give you a sense of the near-term timing of the spend, in Q3, we expect core G&A to increase by $5 million to $10 million sequentially.

Moving on to Q2 promotional expense. It was $148 million, up $16 million from Q1, primarily driven by Prudential-related onboarding costs as well as increased transition assists resulting from our strong recruiting. Looking ahead to Q3, we expect promotional expense to increase to approximately $170 million to $180 million, primarily driven by conference spend as we will host our annual Focus conference next month as well as continued Prudential-related onboarding and integration costs.

Turning to depreciation and amortization. It was $71 million in Q2, up $4 million sequentially. Looking ahead to Q3, we expect depreciation and amortization to increase by roughly $8 million sequentially, which includes approximately $3 million of technology development related to Prudential.

Regarding capital management. We ended Q2 with corporate cash of $684 million, up $373 million from Q1. Our leverage ratio increased slightly to 1.7x, within our target leverage range of 1.5 to 2.5x. I would note that during the quarter, we issued $1 billion of senior notes, the proceeds of which will be used to finance our acquisition of Atria. As for capital deployment, our framework remains focused on allocating capital aligned with the returns we generate. Investing in organic growth first and foremost, pursuing M&A where appropriate and returning excess capital to shareholders.

In Q2, the majority of our capital deployment was focused on supporting organic growth as well as M&A, where we allocated capital to our liquidity and succession solution and closed on the acquisition of Crown Capital. Specific to share repurchases, a reminder that we paused buybacks following the announcement of the Atria acquisition. Our plan remains to evaluate restarting share repurchases following close, which we expect to occur in the second half of this year.

In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we see to continue investing to serve our advisers, grow our business and create long-term shareholder value.

Before we open the call up for questions, I'd like to turn it back over to Dan.

[Dan Arnold, executive]

Thanks, Matt. I'd be remiss not to acknowledge recent developments in the marketplace related to cash revenue and speculation on the potential read-throughs to our business. We've been evaluating the announced changes to better understand the emphasis, magnitude and competitive implications. As for the firms that have made changes, they have different business models and monetization plans, so we can only speculate as to the issues they may be addressed.

As it relates to LPL, we continuously strive to ensure advisers have choice and the tools and products they use to serve their clients in a comprehensive look and feel good about our position, both competitively and regulatory. To that end, and specific to line cash, our broad-based range from solutions for operational balances to cash-like alternatives when seeking yield or solutions like our sweep deposit program, which offers expanded FDIC insurance and immediate liquidity to the transaction with [indiscernible], to positional money market funds, those seeking higher yields in a liquid product to CDs and fixed income funds to achieve interest rate exposure and various maturities.

In all, we feel good about the strong complement of cash solutions we provide. In that spirit, we do not have plans to change our pricing and believe our product set provides adviser solutions they need to successfully serve [indiscernible]. As always, we will remain agile and nimble as we continuously evaluate our solution set and control framework for opportunities to enhance our.

With that, operator, please open the call to questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Steven Chubak from Wolfe Research.

[Steven Chubak, analyst]

So Dan, just appreciated the remarks around some of the sweep cash developments across the industry. Clearly, you have no plans to adjust sweep pricing on the platform at this time. Just looking out over the next few years, do you anticipate any wholesale changes to sweep deposit pricing and how sweep cash is monetized across the industry more broadly?

[Dan Arnold, executive]

Yes. Thanks for the question. And look, maybe just a little context of our jumping off point and then I love the sort of future question. At the highest level, we have evaluated all of our pricing in the context of our overall strategic pricing framework and value proposition, which we review regularly. So within that framework, we consider a host of factors, including industry benchmarking to ensure that we competitively position ourselves in the market. So specific to the pricing of our cash sweep program or our ICA, we take a dynamic and thoughtful approach, including household AUM-based tiers that range anywhere from 35 to 220 basis points. And that typically puts us in the top half of the marketplace and that's where we are today.

And of course, as you look out over the next year and you look at the dot plots, you expect rates to change over that period of time. It certainly will influence some of that pricing. But that's kind of where we are from a jumping off point and how we've approached it up at this point. I think as we look into the future, we obviously don't know what exactly the pricing might look like. But I do believe it challenges all of us to evolve and transform and maybe even disrupt our fair value proposition, including pricing, all in the spirit of helping our advisers better serve and support their clients. And that's what we've been trying to do over the last 5 years that we shared with you all that journey of investing back into the adviser's value proposition by lowering prices in areas that matter most to the advisers and their clients.

In exchange, we're obviously then enhancing the value that we provide them. Now with respect to cash sweep pricing, is just one 1 element of the various discrete pricing mechanisms we consider and not one of great priority to the advisers. That said, as we think about the future, we'll continue to focus on pricing through a highly strategic win, evaluating all fees and charges at the aggregate of our value proposition and in context of the overall priorities and needs of the advisers and their clients.

And to the extent that we're compelled to make a change with respect to this cash sweep program, I think because of our scale, because of our vertically integrated solution, because of the number of different affiliation programs that we have, we have great flexibility in how we think about our options and alternatives from a pricing standpoint and believe that across the aggregate of our different pricing options and alternatives, that we can make most any adjustment do it in a very competitive way and most likely turn it into a strategic opportunity.

So I hope that helps in color. We don't know exactly what that looks like, but that's the discipline and the framework and the approach that we take with respect to our pricing model.

[Steven Chubak, analyst]

No, it's very helpful color, Dan, in framing your philosophy around that. Maybe just sticking to the same topic but just looking at it from a growth strategy lens. You had another strong quarter of M&A, continue to be active on the liquidity and succession front. Just given some of the unknowns around the developments relating to sweep cash, whether it's competitive or regulatory, just want to get a sense of whether that would alter your approach to underwriting deals. And do you anticipate any changes to TA for you and industry peers in light of some of these developments?

[Dan Arnold, executive]

Yes. Let me let Matt start with that, and then I'll follow with any color.

[Matthew Audette, executive]

Yes. Steven. I think when you look at TA, just first and foremost, a reminder of what's most important for advisers when they're determining and deciding to change firms, right? Their top priorities are really the capabilities, technology service, that's Tier 1 for them. And then second is ongoing economics. And third is TA to really just facilitate, as the name would say, assist in the transition from one firm to another. I think our approach of underwriting to returns, which we've been doing for quite some time at 3 to 4x EBITDA as a general rule, wouldn't change. And I think when you look across our revenue model, to the extent things move up and down within that, we've always reflected that. We've underwritten this way across a range of interest rate environment.

So I don't think that would change. We don't expect that to change. I'm just reiterating that there are other things that are much, much more important. And perhaps emphasizing Dan's point, I'll turn it back over to him that we don't -- we feel good where we are positioned from a value proposition to specifically for cash sweep, unless you want to.

[Dan Arnold, executive]

Yes. I just might add that I reinforce it's the availability of the product set to give the advisers the necessary flexibility they need to meet their clients' needs. If I'm looking for yield or I'm looking for income, we make it very easily and accessible for them to access those solutions necessary to meet the needs of their clients. We're looking to simplify our client's life and make it very easy to pay for fees or get quick access to some liquidity or to store some cash in between trades, et cetera, then we have sweep vehicle that is intended to do that. And I think that's the key to the advisers that you give them the necessary flexibility so they can deliver a great experience to the client and have the solutions necessary to help them achieve their life goals and dreams, and we think that our portfolio does a good job of doing that.

[Operator]

And our next question comes from the line of Devin Ryan from Citizens JMP.

[Devin Ryan, analyst]

I guess first question, I want to ask on the centrally managed accounts specifically because we've received some questions on that as well. And so it would be great just to get the percentage range of cash in these accounts. And then if you can just talk about kind of the fiduciary obligation, either at the adviser level or at the firm level, when appropriate, on advisory cash and centrally managed accounts and maybe how that's different from just fee-based more broadly, if at all?

[Matthew Audette, executive]

Yes, Devin, I'll start there. I mean I think when you look at Centrally managed, we've got around $127 billion of assets in there. It's about 8% of total assets. From a cash standpoint, just similar to our business overall, the cash levels from a transactional cash standpoint are at low levels. Think about it as about 3% of AUM like our business overall. And in those models, right, if there's a portfolio allocation to cash beyond that, that goes into what Dan was just talking about those invest in cash options. So it would go into things like money market funds, treasury, short-term bonds and things like that.

So I think when we look at the cash allocations within centrally managed, I'd just reiterate our overall perspective that Dan articulated, I think, quite well, applies just the same to centrally managed, and we feel good about how that is set up, how that is priced and the value prop both on transactional cash, but as well as those invest in cash products that are really available for advisers to make sure that they can serve and support their clients as needed.

[Dan Arnold, executive]

I just would add that our allocation to cash within our centrally managed programs are consistent and the same across all models, whether they're contributed to by LPL research for external third-party management. So there's a consistent and common structure.

[Devin Ryan, analyst]

Okay. Terrific color. And then just as a follow-up, can you remind us on what the OSJ economics generally look like on an EBIT ROA basis relative to the firm-wide average? I believe they're lower, but would love to just get a little color there. And then we know this topic has been in the headline a bit, not too surprising. But do you anticipate other OSJs to potentially exit intermediate term? It sounded like this was maybe part of the mutual process. But just wanted to get a little bit more color on expectations there.

[Matthew Audette, executive]

Yes, Devin. I'll start on the returns. You're right. I think when you look at our overall gross profit ROA for the firm, it's in the low 30s. For the firms that we're talking about, this $20 billion, it's around 2/3 of that, so I think, in the low 20s. So the returns are lower. And then from an organic growth standpoint, these folks weren't growing. They were actually a drag or a reduction on organic growth. So I think lower returning, lower growing would be the headline on those firms. Maybe on Dan, I'll turn it back to you on the OSJs overall.

[Dan Arnold, executive]

Yes, Devin. And as we look forward or strategically, I think now that we've strengthened and done a good job of aligning with these large OSJs, I think we're more convicted than ever that we can collectively pull through the synergies of our relationships and serve and support advisers really well, which ultimately will contribute to the overall growth of the business. I think we feel great about where we landed and it's work that it needed to be done, and it was done over an extended period of time dating back to 2018.

So I think in working through it, there are some key things that we focused on and solve for, one was making sure that we're well aligned on the value to be delivered by both parties, us and them refining the policies on how to operate within our ecosystem and then the legal agreements that help memorialize all of that. And I think that's the right structure that gives us the foundation to go forward and work with these folks is a real contributor to growth, and I hope that helps.

[Operator]

And our next question comes from the line of Alex Blostein from Goldman Sachs.

[Alexander Blostein, analyst]

So sticking with the topic, I guess, of the starting season, I appreciate that you might not have the perfect visibility and what sort of happened with some of your larger competitors and the details and rationale obviously seem to be pretty murky there. But can you discuss how LPL's advisory offering might differ from what's transpired to the larger banks? And I guess what gives you confidence that you will remain insulated from any regulatory action that may result in either higher client credit and rates or incremental shift to money market funds or kind of other high-yielding options? So is it a function of disclosure or is it a function of account size? Anything else that you could provide supporting your view and thinking there would be great.

[Dan Arnold, executive]

Yes. Alex, let me start with just maybe how we think about the programs being different. And then I'll answer your bigger question around how do we think about our positioning from a regulatory standpoint going forward. So I think, look, as a starting point relative to the differences in the programs, we don't have an affiliated bank proprietary mutual fund complex. So we don't have that same structure or potential conflicts of interest, and we certainly have a different monetization program because of that with our cash sweep solution.

As you know, they would tend to monetize that business, both on the cash sweep as well as potentially through the banks. And then the foundational structure around why we don't have proprietary products and the potential elimination of conflicts associated with essentially also earning asset management fees. So those are, I think, foundational or big sort of foundational difference, if you will, in our models.

Second, those companies sweep programs potentially don't have or only sort of single sleeve through their banks, right? And where we have a program that contracts with ultimately third-party banks, and so we can actually create added benefit with our program through that by having 10x the amount of FDIC insurance limits, $2.5 million for an individual, $5 million for a joint account is another place where I think there's a fundamental difference in our programs in our platforms from a value standpoint.

Additionally, as part of our cash program offerings, we make all of the positional money market funds available to our advisers with a really low entry point of $10,000 and which is less typical in a lot of those, I think, firms that have contemplated moves. And for purchases in an advisory account, there's no ticket charge associated with these movements in and out of the money funds. And so we've tried to make it really easy and accessible to access a money market fund or any other of the alternative cash-light solutions so that these advisers can make sure they're easily meeting the needs of their clients and performing their duty of care, if you will.

So that's just some of the high-level places we're different. It's not meant to be exhausted. It's not meant to be comprehensive, but it gives you a little color.

Maybe to your second part of your question, and as I said in the prepared remarks, we feel good about our positioning from a regulatory standpoint. Now why do we think that maybe a little color around that? If you take -- create a framework around the regulatory guidelines, these typically will focus on duty of care obligations, operating control environment and disclosure requirements. And as such, we regularly review all of these elements to ensure that we're operating within the prescribed requirements and guidelines.

So with respect to duty of care, we regularly review our sweep program and cash investment products to ensure we're meeting both our conduct standards and the needs of our advisers and their clients and that we provide the flexibility and low barriers to entry in our solutions for investing cash to help our advisers serve and support their clients, and that's what I was just referring to earlier. And that is done consistent with their obligations as advisers. And then we don't provide incentives for advisers to direct allocations to cash sweep programs, another important point, I think, with respect to duty of care.

Now with respect to controls, there's any number of controls that we might have, but the one specifically in this area is we actively monitor the levels of cash position with an advisory accounts, making sure that advisers are actively managing those accounts, and there's not idle cash sitting in there that is not optimized, aligned with the clients' goals and objectives for that overall portfolio.

And then with respect to controls -- I mean, sorry, and then with respect to disclosures, we provide clear and transparent disclosures describing the features in terms of our programs, including the fees we earn relative to the yield clients receive. So to that end, that's why we feel that our cash offering controls, monetization, framework, meet the needs and the expectations for all of the [indiscernible]. I know that was a lot, but I'll pause there.

[Operator]

And our next question comes from the line of Michael Cyprys from Morgan Stanley.

[Michael Cyprys, analyst]

Maybe just continue with the same theme, understanding that you don't have plans to change your sweep pricing. But maybe just to clarify, I was just hoping you might be able to unpack like what might lead you to change it at some point? What might be those different scenarios? And to what extent have you heard from regulators on your sweep rates or disclosure practices and such?

[Dan Arnold, executive]

Yes. I think, Michael, with respect to the second part of your question, as an ongoing matter around our ongoing reviews with regulators, this is always a part of their review, and we've had that consistent and constant discussion with them along the way, part of the reason we feel very confident in our regulatory positioning today. I think with respect to the first part of your question, first and foremost, when we look at pricing, it's through the strategic lens, and we're always looking to make sure that we do two things: how do we make sure that we are differentiating in the marketplace with our overall sort of holistic value proposition; and then two, is that well aligned with our advisers' needs and their clients' needs. And those are the two biggest drivers that we think about relative to how we might invest, innovate or evolve our pricing strategies.

In the past 5 years, we've very much focused on advisory and transaction charges because that's sort of where the trend in the business was going, and that's where our advisers really challenged us to focus on. And so that's what drove that activity. And that's a great example of those two being the real catalyst for how we think about that. I think with respect to any other drivers, I mean, we should always be challenging ourselves to think outside the box. What can we learn from other places, other industries around how they create value, how they price, how they may create new value that extends new revenue streams that then could offset pricing somewhere else. So I think those are all part of how we challenge ourselves from an innovation standpoint to evolve this business model to ultimately enhance the value to the end client and to the adviser. And if we do that really well going forward, we'll create a lot of shareholder value through that.

So the good news is because we're vertically integrated, we have a clearing solution. We're broker-dealer. We're an RIA. We've created lots of services that are down inside the adviser's ecosystem. With that vertical integration, we've got lots of different levers of revenue, of which we could think about hey, where do we innovate to create new levels of revenue if we wanted to modify or change 1 level of revenue, we can look at that as an investment back into the business. What we can look at it as a -- that's a bigger priority for advisers. So we'll offset that with a fee somewhere else.

So I think that's the sort of the flexibility and the approach that we take in terms of scenario planning and trying to think about how we evolve this pricing, again, and best in line with serving the advisers and the client. I hope that helps. There's nothing specific, but at least gives you the sense of how we think about it.

[Michael Cyprys, analyst]

Great. And just a follow-up question, if I could here. Just as you look at the actions of others across the industry and based on conversations you're having with folks across the industry, including regulators, do you have any sense whether or not the goalpost is moving beyond practices that have been accepted over the years that are disclosure based?

[Dan Arnold, executive]

That is not our sense. I think there's a pretty tidy and clear regulatory framework, of which that we all understand how to operate in. That regulatory framework governs the entire aggregate value proposition and relationships that we have with clients. And again, I think anywhere where there may be a potential conflict within that overall aggregate business model, there's a requirement to disclose and to be clear to set that expectation for the clients so that they can make an informed choice. And that's a very logical and very principled way to approach it. And we think when we begin to change principles, it's much, much harder to change that. And so we don't necessarily see that on the landscape. I will tell you we're not clairvoyants, so we don't have all the answers, but we're not seeing signs that, that would ultimately change going forward. It's a great question.

[Operator]

And our next question comes from the line of Kyle Voigt from KBW.

[Kyle Voigt, analyst]

Maybe I'll start on the same topic that everyone else has, but just a follow-up on the advisory cash discussion. You mentioned that 3% of the centrally managed program is in sweep. I guess can you provide any color on cash as a percentage of client assets for total advisory accounts in the corporate RIA, so on the $568 billion of assets or so? I think you -- in the past, you've mentioned that typically, there's higher cash allocations in those accounts versus brokerage, but I'm not sure if that's still true today.

[Matthew Audette, executive]

Yes. I think when you look at cash as a percent of AUM overall, it's around 3%. The Century manages a little bit above that. And I think when you look at the rest of advisory, it's still in the same ballpark, but it's a little bit above centrally managed. I think on brokerage, that cash is around 2.5%, that's because brokerage has a lot of business and accounts that just simply have no cash at all, like annuities and direct business on the mutual fund side. So you end up brokerage overall ends up having a smaller balance or a smaller percentage. But headline point is on the outside of centrally managed on the advisory side, it's in the same ballpark, just a little bit higher.

[Kyle Voigt, analyst]

That's helpful. And then, Matt, just wondering also if you could give an update on July to date sweep cash balances. And related to the OSJs that are off-boarding towards the end of this month or starting this month, any color on if they have a similar cash as a percentage of client assets as well, which I think would imply maybe $600 million or so of an impact that we should expect to show up in the monthly figures this quarter?

[Matthew Audette, executive]

Yes, I think so. So on how things are trending so far in July, I mean, the headline I would give you is it's shaping up to be the month. And especially when you factor in the seasonality that I think you're well familiar with on month 1 of a quarter, but I'll walk through that. I think specific to client cash, so a reminder that seasonality is advisory fees primarily hit in the first month of the quarter. So that will reduce cash in July by around $1.4 billion, all else being equal. And flows outside of that have been an inflow of around $700 million. So when you put those two things together, what we've seen in from a cash sweep standpoint in July is a decline of around $700 million or putting it at around $43.3 billion.

To add to that on the organic growth side, those advisory fees impact organic growth just the same, hitting that first month at $1.4 billion. And outside of that, the momentum we've seen in the first half of this year and as we saw in this quarter, has really continued. So I think that puts us from an organic growth standpoint in July, looking at something in that 6% to 6.5% zone, keeping in mind that it's usually the lowest month of the quarter.

Now those numbers are -- to your point on the OSJs, those numbers are prior to any impact of those OSJs leaving. We'll make sure as we report results to clearly delineate the impact that those have had, meaning how much of that $20 billion is flowed out. We'll just make that clear going forward. Very little has flowed out so far. And to your point on cash, I don't think there's anything distinct different from an amount of cash standpoint from those two firms. But again, we'll make it clear in the metrics as probably over the next 3 or 4 months is when it will flow out. We'll make it clear so you can see that versus the rest of the business.

[Operator]

And our next question comes from the line of Michael Cho from JPMorgan.

[Y. Cho, analyst]

I'm going to skip the regulatory cash discussion. I just wanted to follow up on the OSJ. Matt, you talk through kind of the timing and that you'll delineate kind of going forward. I was just curious what -- and this is not necessarily new, but what kind of areas were particularly misaligned as you characterized? And going forward, Dan, you touched on it a little bit, how would you frame the potential for other OSJs maybe falling into similar buckets over time?

[Dan Arnold, executive]

Yes. So going forward, to answer your second part of your question, because of the alignment and the structure we put around the program, there's very little probability that, that would occur. I think back to your first part of your question, we see in some cases where an OSJ may buy up their advisers practices, turn them into more of an employee-based construct. And ultimately, because of that approach, it's more of a captive type of model at that point, which again is very different from the principles of independence and providing the flexibility for those advisers to move those assets where they want to or bill where they want to. And I think that's our point. As soon as they began to lose the principles of independence within the model, we have a hard time with that sitting within our platform and within our [indiscernible]. So that's an example of something that I think we were just trying to make sure we had alignment on and tease out such that as we go forward, that foundational principle is in place across our collective ecosystem. Hope that helps.

[Y. Cho, analyst]

Great. And then just to switch gears a little bit, just on the annuity side, annuities can remain solid. Clearly, the rate environment has helped and continues to help. I'm wondering what you're seeing at the incremental level that the strong demand in recent quarters or years could be nearing any sort of normalization point yet, just given strong growth that annuities has been seeing on LPL's platform.

[Dan Arnold, executive]

Sorry, what was the second half of that? You just broke up a little bit.

[Y. Cho, analyst]

Yes. No, on the -- any sort of normalization that you might see on the strong demand?

[Dan Arnold, executive]

Sorry, got it. Okay. Thank you. Yes. So look, I think that if you look at the marketplace and the growth, call it over the last year or 2, is very much a couple of things happening. The foundation of an annuity as it supports and help someone with the retirement planning is clearly a relevant problem to be solving for many folks as they think about one of those all important life goals. And so it's a relevant solution across a broad opportunity set. And with the rate environment becoming very, very different than the one we lived in for an extended period of time, it has created an opportunity, obviously, to help clients solve for creating that revenue stream or income stream in retirement and certainly whether it be a fixed or variable annuities are well positioned to do that.

As with a steepening yield curve may occur as we go forward, that also is helpful with respect to variable annuities in terms of the features and benefits that they provide. And so that is obviously something that if you've got more appealing features and benefits relative to the macro, then obviously, that's something that can differentiate annuities relative to other options and alternatives.

From a seasonality standpoint, I look at it, it's probably more of a product choice in solving a really important need for a broad set of an adviser's clients than necessarily a found opportunity, if you will, to create new asset gathering opportunity because the features are more sound. I think it's ultimately more of how do you ultimately pick which solution you're going to use to best serve and support the client.

So I don't think it necessarily create some step down or step up as much as it's just a demonstration of a heavier utilization in a product given the market conditions. That said, as we evolve and grow our number of advisers on our platform, that certainly is a tailwind to the overall volumes of brokerage solutions or in this case, annuity solutions being done. So that certainly does provide some tailwind. I hope that helps. You want to add anything to that?

[Matthew Audette, executive]

No. Well said.

[Operator]

And our next question comes from the line of Dan Fannon from Jefferies.

[Daniel Fannon, analyst]

So just a question on the environment for recruiting. Obviously, $24 billion, quite strong in the quarter. Can you talk to the economics of those assets today versus maybe what you were underwriting a year ago? And then ultimately, you talked about good momentum, I think, into July and the backlog. So maybe some characterizations around how that's progressing as we think about the rest of the year.

[Dan Arnold, executive]

You want to hit the first part?

[Matthew Audette, executive]

Yes. Yes, Dan. I'll start. On the economics and underwriting, kind of to my point earlier to Steven's question, I think our underwriting approach and economics haven't changed. I think we underwrite returns, TA and the economics there are really the third thing that advisers are looking at. But the return hurdles in the underwritings have not changed. If you think about it as recruiting in general, comes on board at 3 to 4x EBITDA, and that has not moved much.

[Dan Arnold, executive]

Yes. With respect, maybe to your second question, just again, as you -- as we said the margin as you just said as a jumping off point, you had recruited assets of $24 billion in Q2 and $93 billion over the trailing 12, which is a solid place for momentum. And we continue to see that momentum into the third quarter. I think we're seeing it across all of our affiliation models. So you've got good diversification in that opportunity set. That's being driven by this continued evolution of the appeal of our model and then that breadth of market that we serve, given the different affiliation models. So as we look in the third quarter, we certainly see momentum there. And beyond that, given those sort of structural value that we're creating inside the model, our go-to-market strategy and efficacy around how we deliver that to the marketplace, we feel are pretty good strong structural trends.

So as we look out even further and beyond third quarter, we feel good about that momentum across all of our models. At the same time, we have some built in as we've talked about institutions, large institutions that have yet to onboard that collectively represent $66 billion in sort of recruited large institutions. So that certainly is a tailwind to that outlook as well. So you got really good positioning across all models in your adviser recruiting and then on the institution side, you've got that already committed wins in the pipeline. And then beyond that, we feel good about that evolving and growing pipeline at cost of large banks as well as insurance set. I hope that helps.

[Daniel Fannon, analyst]

Yes. That is helpful. And then just a quick one, Matt, on expenses. The promo spend is a sizable pickup both sequentially as well as year-over-year. I think you said conferences, but I mean you have this conference every year. So just curious about the magnitude of the pickup. And then should we see that normalize again in the fourth quarter after, I guess, what would be seasonal pickups?

[Matthew Audette, executive]

Yes. I mean I think a couple of things. I think the conference from a seasonality standpoint, it is in Q3 each year. So just given a little -- I was giving color on the sequential change. The other thing I'd keep in mind is specific to the onboarding costs associated with Prudential. Just a reminder of the spend there to bring them on board, there's no TA associated with Prudential is really important to them is really the technology build and the process to get on board. So when you look at the -- what we're spending there, $125 million of integration cost and $200 million of technology, that is the entire amount that's being spent there, and a lot of that will show up in promotional.

So when you think about the trends, especially year-over-year, probably the spend-related Prudential, which will -- when you look at the overall spend, probably peak for the 2 highest quarters or likely be Q2 and Q3 related to that. I think when you get on the other side of that, meaning on the other side of our largest conference, you get into Q4 and you get on the other side of Prudential-related spend, I think then you get into the core drivers, just the level and amount of our recruiting, right? So the underwriting TA hasn't changed, then it's really just driven by the -- really the tonnage or the amount of recruiting we're doing, which I think we've covered a few times, we keep hitting new record levels.

So we think it's a good use of capital, but hopefully, that helps give you a little sense as to why that number is increasing. It's largely a timing of conference in Prudential.

[Operator]

And our next question comes from the line of Brennan Hawken from UBS.

[Brennan Hawken, analyst]

I'd like to ask a question on the upcoming fixed rate maturity. So you guys are now at about 70% of the ICA and fixed rate. Are you going to continue to roll the maturities into fixed rate? Or at this point, is there some benefit to seeing the floating rate side pick up bring you closer to the middle or even lower end of the targeted range?

[Matthew Audette, executive]

Yes, Brennan. And I think when you look at our approach there in targeting 50% to 75%, and I think looking at what I think most folks would conclude a peak rate environment that we're in right now, I think while we always want to be within that range, I think we like being towards the, call it, the upper half of the range and where we are now, just given where the rate environment is. So I think as we move forward in the next couple of quarters, we got about $2 billion maturing each quarter based on where sweep balances are overall and where rates are overall, we'll make those choices. But I think in the near term, I think we like being in that upper half. When you look at where rates are for those fixed rate contracts, we typically will deploy in the 3- to 5-year point on the curve. And those rates, including the spreads that you can earn, which are in that 20 to 30 basis point range are around 400 right now. So that should hopefully give you a sense as to where we deploy that, which would be above the rates that they're currently earning. So I hope that helps with the headline is, we like 50% to 75%. We like being kind of towards the top half of that just given where the rate environment is.

[Brennan Hawken, analyst]

Great. Matt, that's helpful. And then second question, I noticed that the adviser loan growth was a little healthy here quarter-over-quarter, up about 12%. And I know that you closed some deals, so I expect some might be deal related, but really it would be helpful if you could maybe unpack some of the contributors to that growth here.

[Matthew Audette, executive]

Yes. I think from a TA standpoint, remember, there's 2 things in there. We don't necessarily break them out in the release. But there's all -- there is TA as well as repayable loans, right? So it's not all entirely TA related. For the components that are TA related, just emphasize kind of what we're talking about before, the underwriting standards have not changed. We do continue to deliver record levels of recruiting. So it's more volume, but the rates that we're paying are consistent. And just keep in mind that TA is not the entire driver of that line item.

[Brennan Hawken, analyst]

Okay. Was there some contribution from the recently closed deals though in that growth?

[Matthew Audette, executive]

Yes. So I think when you're talking about adviser loans, so the recently closed deals were acquisitions. So that would be -- that would come out in a different spot, and it would show up in goodwill and other places. Specific to the loans, that would just be to the extent we're doing growth-related loans or things of that nature, the primary driver is typically TA, and it would just be connected to the record recruiting in the quarter.

[Operator]

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Dan Arnold for any further remarks.

[Dan Arnold, executive]

Just thanks, everyone, for taking the time to join us this afternoon. And we look forward to speaking with you again next quarter. Take care.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.