LPL Financial - Earnings Call - Q3 2025

Executive Summary

• Record adjusted EPS and robust top-line: Adjusted EPS rose 25% YoY to $5.20, far above S&P Global consensus of $3.51; total revenue was $4.55B, up 19% QoQ and 46% YoY, versus Street at ~$4.31B. GAAP EPS was a loss of $0.37 on $419M of acquisition costs recognized at the Commonwealth close. Estimates marked with * are from S&P Global.
• Business momentum plus M&A: Assets reached $2.31T (+21% QoQ, +45% YoY) with $308B total net new assets, including $275B acquired (Commonwealth); organic NNA was $33B (7% annualized).
• Cost discipline and outlook: Core G&A outlook for FY25 lowered to $1.86–$1.88B (from $1.88–$1.92B including Commonwealth costs); Q3 core G&A was $477M. Management cited automation and process improvements driving leverage.
• Pricing/actions set 2026 tailwind: New pricing changes (effective July 1, 2026) reduce fees on advisory platforms and are expected to add ~100 bps to trailing 12-month adjusted pre-tax margin in 2026; targeted fee increases align brokerage pricing to market.
• Near-term watch items: ICA yield was 351 bps and is guided to ~345 bps in Q4 on recent rate cuts; leverage rose to 2.04x post-Commonwealth, with buybacks paused until onboarding completes.

What Went Well and What Went Wrong

What Went Well

• Record adjusted earnings amid strong revenue mix: Adjusted EPS $5.20 (+25% YoY), gross profit $1.48B (+13% QoQ, +31% YoY), and adjusted pre-tax income $569M (+16% QoQ, +35% YoY). CEO: “delivering strong business results and record adjusted earnings per share”.
• Strategic execution across growth vectors: $33B organic NNA (7% annualized) and $33B recruited assets; First Horizon onboarding largely complete ($17B transitioned); Commonwealth closed with advisors representing nearly 80% of assets signed, tracking to 90% retention.
• Operating leverage and pricing strategy: Core G&A guidance lowered to $1.86–$1.88B for 2025; management emphasized automation, straight-through processing, and targeted fee actions to remain competitive and lift margins ~100 bps in 2026.

What Went Wrong

• GAAP loss driven by acquisition accounting: Net loss of $30M (−$0.37 diluted EPS) primarily due to $419M of one-time acquisition costs at Commonwealth closing.
• Higher operating expense lines tied to M&A and growth: Compensation & benefits up 83% QoQ and 120% YoY; occupancy and equipment up sharply; acquisition-related costs of $538M (ex-interest) in Q3.
• ICA yield headwind near term: Management guided ICA yield to ~345 bps in Q4 on recent rate cuts, while interest expense is expected to rise ~$5M sequentially in Q4; interest income guided to ~$30M in Q4 as corporate cash normalizes.

Transcript

Speaker 5

Good afternoon, and thank you for joining the third quarter 2025 earnings conference call for LPL Financial Holdings Inc. Joining the call today are Chief Executive Officer Rich Steinmeier and President and Chief Financial Officer Matt Audette. Rich and Matt will offer introductory remarks, and then the call will be open for questions. The company would appreciate if analysts would limit themselves to only one question. To ask a follow-up, please re-enter the queue. 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 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 are subject to known and unknown risks 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 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 the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com. With that, I will now turn the call over to Mr. Steinmeier.

Speaker 1

Thanks, Operator. Thank you to everyone for joining our call. It's a pleasure to speak with you again. It is hard to believe, but it's been a little over a year since I became the CEO of LPL Financial. In that time, we've advanced the firm, extending our privileged competitive position in the advisor-mediated marketplace while driving efficiency in the business. I'd like to spend some time today sharing an update on the progress against the key initiatives I outlined on my first earnings call. First, let's hit our Q3 results. In the quarter, total assets increased to a record $2.3 trillion, driven by our acquisition of Commonwealth Financial Network and complemented by solid organic growth and higher equity markets. We attracted organic net new assets of $33 billion, representing a 7% annualized growth rate.

Our third quarter business results led to strong financial performance with a record adjusted EPS of $5.20, an increase of 25% from a year ago. With that as context, let's review a few highlights of our business growth. In the third quarter, recruited assets were $33 billion, bringing our total for the trailing 12 months to a record $168 billion. In our traditional independent market, we added approximately $12 billion in assets during Q3, where, despite depressed industry-wide advisor movement, we maintained our industry-leading capture rates of advisors in motion while also expanding the breadth and depth of our pipeline. With respect to our expanded affiliation models, Strategic Wealth, independent employee, and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $3 billion in assets. Our third quarter advisor recruiting underscores the evolution of our business and the appeal of our flexible affiliation models.

During the quarter, we attracted four separate $1 billion-plus practices, which joined us from a range of firms, including regional broker-dealers, insurance companies, and wirehouses. Our recruiting results this quarter underscore the extensibility of our offering across the entire advisor-mediated marketplace, where we have created the flexibility to serve any advisor where they are in the evolution of their practice. This breadth of affiliation models is key to the sustainability of our growth as we look ahead. We also continue to make progress with large institutions, onboarding the wealth management business of First Horizon. It's only been a couple of months, but there are already signs that the integrated experience and enhanced capabilities we are delivering are improving the efficiency of their advisor practices.

Turning to overall asset retention, prior to previously disclosed misaligned OSJ assets that offboarded during the quarter, it was 98% for Q3 and over the last 12 months. This is a testament to our continued efforts to enhance the advisor experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As a complement to our organic growth, we closed our acquisition of Commonwealth Financial Network, welcoming their approximately 3,000 advisors and home office staff to the LPL family. The transaction is progressing well, and we continue to track towards our 90% retention target. Thus far, advisors representing nearly 80% of assets have signed to stay with Commonwealth and LPL. From an operational standpoint, following the close, we commence work on the capability build and onboarding planning.

To give you a sense of the scope of this work, we are ushering in a foundational shift in our advisor workstation, ClientWorks, establishing a householding-based architecture compared to our historically account-based orientation. Further bolstering this relationship-based logic with a single relationship agreement to vastly improve the client onboarding experience and simplify ease of movement between account types, and launching a mobile version of our ClientWorks workstation for ease of access for advisors on the go. These are key capabilities that not only enable Commonwealth conversion but also accelerate the delivery of core functionality for the benefit of all LPL advisors. Next, let's turn to our strategic plan. Our vision is clear. We aspire to be the best firm in wealth management. To connect this back to my first earnings call a year ago, in service of this goal, we've amplified our focus in three key areas.

One, maintaining the client centricity the firm was built on. Two, empowering our employees to deliver exceptionally for our advisors and their clients. Three, delivering improved operating leverage. Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model. In terms of our clients, we have been laser-focused on preparing for a seamless onboarding of Commonwealth Financial Network, including the delivery of capabilities and implementation of systems and practices which will benefit all LPL advisors, new and existing. Separately, we continue to look for opportunities to strengthen our value proposition in the market while ensuring that we are pricing our services aligned with the value that we deliver. Earlier this year, we made adjustments to our production bonus as well as within our business solutions group.

Looking ahead, we plan to make additional adjustments as we evolve our offering, streamlining our services portfolio to focus on high-demand, high-impact services that deliver the greatest value to advisors while simplifying pricing across our advisory platforms. To ensure we maintain our competitive position, we're making a few targeted offsetting fee adjustments where we've been priced below the market. As for our employees, we've been focused on elevating our benefits and better distributing decision-making authority to the teammates closest to our advisors. During the quarter, we also welcomed Emily Field, our new Chief People Officer, to help guide this critical work. Just last week, she kicked off our revamped Manager Learning Program aimed at giving managers the necessary skills to build empowered teams and deliver exceptional employee and client experiences. Finally, regarding our efforts to drive improved operating leverage, we've made meaningful progress reducing our cost to serve.

Matt will share some additional detail on that in a moment. To summarize, we are pleased with the third quarter results and we feel great about our position as a critical partner to our advisors and institutions while we continue to create long-term value for our shareholders. With that, I'll turn the call over to Matt. Before I do, I just wanted to preempt that first question that we're hearing from so many of you. You wanted an update on our favorite Halloween candy. Mine is 100-gram bars, and Matt's is actually Muscle Milk. With that, Matt, take it away.

Speaker 2

I love the script, Rich. You're very funny. I do like me a good protein shake. It's not my favorite candy. I do have a favorite candy. I didn't want to tell you. I figured it'd be too triggering, given your high school football nickname: Butterfingers.

Speaker 1

Oh, boo. I love those. Now I can eat them. Now I can eat them. All right. Thank you for that intro. I'm glad to speak with everyone on today's call. It was another productive quarter as we advanced several strategic priorities, including another quarter of industry-leading organic growth, the onboarding of the wealth management business of First Horizon, closing of our acquisition of Commonwealth Financial Network, and the continued advancement of our cost efficiency work, which is driving sustainable improvement in our margin. Now turning to a few highlights from our Q3 business results. Total advisory and brokerage assets were $2.3 trillion, up 21% from Q2, as continued organic growth and higher equity markets were complemented by our acquisition of Commonwealth Financial Network, which added $275 billion of assets in Q3.

Total organic net new assets were $33 billion and approximately 7% annualized growth rate, a strong result both on an absolute and relative basis. On the recruiting front, Q3 recruited assets were $33 billion, contributing to a record $168 billion over the trailing 12 months. With respect to large institutions, we successfully onboarded First Horizon with $18 billion of AUM, of which $17 billion transitioned onto our platform in Q3. Looking at Q3 financial results, the combination of organic growth and expense discipline led to an adjusted pre-tax margin of approximately 38% and record adjusted EPS of $5.20. Gross profit was $1,479 million, up $175 million sequentially. As for the key drivers, commission and advisory fees net of payout were $426 million, up $77 million from Q2.

Our payout rate was 87.5%, up approximately 14 basis points from Q2, driven by the typical seasonal build in the production booths, as well as our acquisition of Commonwealth Financial Network. With respect to client cash revenue, it was $442 million, up $28 million from Q2. Overall client cash balances ended the quarter at $56 billion, up $5 billion, which included approximately $4 billion from Commonwealth Financial Network. The remaining $1 billion of cash balance growth was a result of the organic growth of our business. Within our ICA portfolio, the mix of fixed-rate balances ended the quarter at roughly 60%, near the midpoint of our target range of 50% to 75%. Looking more closely at our ICA yield, it was 351 basis points in Q3, up 9 basis points from Q2, driven by benefits from the Atria conversion and our acquisition of Commonwealth Financial Network.

As we look ahead to Q4, based on where client cash balances and interest rates are today, we expect our ICA yield to decrease to roughly 345 basis points, driven by the impact of recent rate cuts. As for service and fee revenue, it was $175 million in Q3, up $23 million from Q2, primarily driven by revenues from our annual focus conference, as well as our acquisition of Commonwealth Financial Network. Looking ahead to Q4, we expect service and fee revenue to be roughly flat sequentially, as a full quarter of revenue from Commonwealth Financial Network is offset by lower conference revenue and seasonally lower IRA fees. Moving on to Q3 transaction revenue, it was $67 million, up $7 million sequentially, primarily driven by Commonwealth Financial Network. As we look ahead to Q4, based on activity levels to date, we expect transaction revenue to be roughly $70 million.

With respect to the monetization initiatives Rich Steinmeier mentioned earlier, we regularly evaluate how effectively we're delivering services, pricing, and an overall experience that aligns with advisor needs. Starting next year, we will streamline our business solutions portfolio to focus on those that deliver the greatest value to advisors, further reduce pricing across our advisory platforms, and make targeted offsetting fee increases where we've been priced below the market. These actions are designed to strengthen our competitive position while ensuring we have the resources to continue investing in the platforms, tools, and services that enable advisors to grow and succeed. To help frame the financial impact to our 2026 results, we estimate that these changes would increase our trailing 12-month adjusted pre-tax margin by approximately 1%. Now let's move on to our recent acquisitions, starting with Commonwealth Financial Network.

Overall, the transaction is progressing well, and we are on track to onboard Commonwealth Financial Network in the fourth quarter of 2026. We continue to track towards our 90% retention target, with advisors representing nearly 80% of assets already signed. In addition, factoring in current asset levels, our run rate EBITDA expectation has increased to approximately $425 million once fully integrated. As for Atria, the onboarding is complete. Considering current assets, we are increasing our expected run rate EBITDA to approximately $155 million. Now let's turn to expenses, starting with 4G Net. It was $477 million in Q3, below our outlook range for the quarter, as we continue to make progress driving incremental operating leverage in the business. To give you a sense of the work, we're automating manual processes in our operations and service space, increasing straight-through processing and reducing friction in our service center.

In addition, these initiatives have the added benefit of improving the client experience. With that as context, looking at the full year 2025, given our cost initiatives are tracking ahead of schedule, we are lowering our 2025 outlook to a range of $1,860 million to $1,880 million. Moving on to Q3 promotional expense. It was $202 million, up $38 million from Q2, primarily driven by conference spend as we hosted our annual focus conference in August, as well as transition assistance related to Commonwealth. Turning to depreciation and amortization, it was $100 million in Q3, up $3 million sequentially. Looking ahead to Q4, we expect depreciation and amortization to increase by roughly $5 million. As for interest expense, it was $106 million in Q3, up $4 million sequentially, driven by increased usage of our revolver following the close of the Commonwealth transaction.

Looking ahead to Q4, given current debt balances and interest rates, we expect interest expense to increase by approximately $5 million from Q3. Turning to capital management, we ended Q3 with corporate cash of $568 million, down $3 billion from Q2, as we deployed the proceeds from our capital raises to fund the acquisition of Commonwealth. While the majority of transition assistance was deployed in Q3, we expect a couple hundred million of additional payments in the fourth quarter, which will return corporate cash to more normalized levels. As a result, we anticipate Q4 interest income to decline to approximately $30 million. As for our leverage ratio, it was 2.04 times at the end of Q3, below our initial expectations for roughly 2.25 times following the close of Commonwealth.

Moving on to 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 Q3, the majority of our capital deployment was focused on supporting organic growth and M&A, where we closed Commonwealth and continued to allocate capital to our liquidity and succession solution. To uphold our commitment to maintaining a strong and flexible capital position, share repurchases remain paused, which we will revisit once we onboard Commonwealth Financial Network. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage, and create long-term shareholder value. With that, operator, please open the call for questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, simply press star 11 again. As a reminder, please limit yourself to one question. You may ask a follow-up and re-enter the queue. Please stand by while we compile the Q&A roster. Our first question coming from the line of Alex Blostein with Goldman Sachs. Hey, Lance Melvin.

Hey, guys. Good afternoon. Thank you for all the details, including the SNAC preferences. Just maybe starting with Commonwealth, obviously it's a big topic. Helpful update with the 80%. Maybe help us frame how that's tracking at this point of integration relative to your original plan. Given that 80% is already quite a sizable number, at what point do you find that your recruiting teams could start to focus more externally again to re-accelerate the pace of net organic growth? Thanks.

Hey, good question, Alex. Appreciate you asking. Let me start out. It's been around six months since we signed the deal and three months since we closed. As we mentioned, the transaction continues to progress as planned. It's really been an ongoing engagement with Commonwealth advisors and home office staff, and it is incredibly productive as we jointly chart this course ahead together. As we've said previously, the Commonwealth advisors are really thoughtful, and they are a very diligent community, which really doesn't surprise us, given that they include many of the best advisors in the industry. It stands to reason that they have been extremely thorough in their diligence. We have been dedicated to making sure that we can give them all the information they need to make their very best decision.

That includes thousands of interactions since the announcement to ensure the advisors understand the benefits of the combination. Most recently, last week, there were over 1,000 Commonwealth advisors at their national conference in Washington, DC. We had sessions from Mainstage, breakouts, as well as a number of individual sessions across both the Commonwealth leadership as well as the LPL leadership. We know that we have scheduled many more in-person home office visits and virtual meetings for the next coming months. As we said earlier, we're at that kind of nearly 80% of assets having signed their agreements to stay with Commonwealth on track for the 90%. Putting all of that retention aside, we feel over the moon with this transaction. The cultural alignment and complementary capabilities are creating a combined firm that is far stronger than the sum of the parts.

We feel great about the value that this will deliver to Commonwealth advisors, existing LPL advisors, and shareholders. The work that we're doing here significantly advances our progress on creating the best firm in wealth management. One last thing you did mention, as we begin to continue to progress towards higher and higher percentages of the advisors who have decisioned to stay with Commonwealth, that does present us the opportunity to bring back some of the recruiting and retention specialists that we had ring-fenced and allocated into educating Commonwealth advisors. That's beginning throughout the second half of this year and will continue. Matt, is there more you'd like to add?

Sure. I think maybe just to underscore what you said, I think we feel great about the transaction. We feel great about Commonwealth as a firm, high-quality advisors they have, high-quality leadership team, home office team, culture. Just all around from an acquisition standpoint, before we even get to the economics, which I'll give a little more color on, we feel really great about it. I think since there's been, let's just say, a little bit of focus on the retention targets and how those have been progressing. I think, Alex, to your question, it's always hard to predict exactly how things will trend. I think as a general point, we are on track to where we thought we would be.

If you just look at where we are right now at nearly 80% retention and the economics that come with that, where we are right now, you're just under a nine times multiple, right? I think for a property of the quality that Commonwealth is, I think we'd be very happy with that. To Rich's point, as we progress to 90% retention, just to give a little bit of the sensitivities, every incremental percentage of retention that we have is about a reduction of a tenth of a turn on the multiple or an increase of $5 million in run rate EBITDA. Just so you have kind of the sensitivities of how that would work. I think as you pull back up, we're incredibly excited to have the opportunity to engage with them, to sign the transaction, to close the transaction.

Now that we're much, much closer and involved with the teams, as Rich said, we're over the moon. We're really, really happy.

Thank you. Our next question coming from the lineup, Steven Chubak with Wolfe Research. Hey, Rich Steinmeier.

Hello, Rich. Hello, Matt. Good afternoon. Appreciate you guys taking my question. Maybe to start, I was hoping to dive a bit deeper into the pricing changes you mentioned in the prepared remarks. It's certainly encouraging to hear the net impact will be a 100-bp benefit to the margin. I wanted to clarify whether the 100-bp net benefit contemplates both efficiency in addition to pricing changes and how these pricing adjustments could enhance the value prop, maybe drive some better organic growth outcomes going forward. Sure, Steven. I think the 100-bp improvement was solely from the pricing changes. Any additional improvements on the cost side would be in addition to that.

To your second part of your question, when you look at the areas where the pricing changes are being made, in the core area where our advisors are bringing in assets on the advisory side, I think our pricing there has been competitive, and we're lowering the pricing there to make it even more competitive. If you think about where advice is being delivered and where the flows are, I think that helps enhance our opportunity to grow. On the other side, on the brokerage side, as we looked at the market, we were priced below the market. What you see us doing on the brokerage side is bringing fees up into line where the market is currently. Broadly, brokerage in line, and I think we position advisory to be a place that can grow even further.

Thank you. Our next question coming from the lineup, Craig Siegenthaler with BofA Merrill Lynch. Hey, Lance Melvin.

Thanks. Good evening, everyone. I have another follow-up on Commonwealth, and congrats on getting to the 80% retention. That fell faster than expected. On the 90% target, is the timeline there the 4Q 2026 onboarding target, or could that actually be sooner?

I think, Craig, maybe the answer could be yes to both. I think when you look at when we will finalize what the retention is, it's when they're onboarded. That's when you snap the chalk. Whether we get from 80 to 90 before that certainly could occur. Ultimately, it's when they're onboarded that we'll measure that. Our estimate is that that's the estimate of $425 million when we'll start to begin to recognize synergies, and building up to that $425 million is when onboarding happens as well. All a little bit over a year from now.

Thank you. Our next question is coming from the line of Brennan Hockett with BMO Capital Markets. Hey, Lance Melvin.

Good afternoon. Thanks for taking my question, Rich and Matt. Good to hear from you. I know Commonwealth brings new capabilities to you. You've also been steadily investing in building out the service offering, particularly for high-net-worth investors, really with the goal of pursuing larger teams and targeting some more warehouse advisors. Could you speak to how that's progressing and what your updated expectations are on that front?

Yeah. Hey, thanks, Brennan. I would thank you for painting within the lines on that question. I appreciate your sticking to the knitting there. Let me try to hit it. First off, you're right. We have been pursuing a multi-year journey to become increasingly more relevant to wirehouse advisors. I think Commonwealth adds a tremendous amount, not only of capabilities, of brand credibility, capabilities, and a service orientation that is second to none in the independent channel that is very attractive to wirehouse breakaways as well.

When you take a couple of steps back and think about the ways we've built towards methodically serving this market more expansively, it started with expanding our affiliation models several years ago, specifically as you think about our independent advisor channel around our W-2 channel we call LINSCO, as well as our Strategic Wealth-supported independent channel, and progress with our introduction of a private wealth channel. The three of those offerings, plus a continued investment in capabilities around degrading the difference between ourselves and the wires, certainly now on alternative investments, high-net-worth capabilities, specifically advanced tax planning, long-term planning, investment solutions as well, and our ability to upgrade our service experience with the introduction of our field management organization oriented towards the success of those larger advisors. Taken together with our pool of existing high-net-worth oriented advisors, you have a community that is building in capabilities.

The capstone to those investments for us over the last year has been the introduction of an enhancement of the LPL brand in the marketplace. All of those things taken together have expanded consideration for us in that wirehouse W-2 market. I believe now we have begun to expand our consideration for those high-net-worth wirehouse advisors that represent an additional $5 trillion market opportunity. We continue to run into that space. We continue to build capabilities. We continue to build credible capabilities, and we've enhanced consideration. Taken together, I would expect that that would continue to advance our capture of flow and movement out of the wires and the regionals across our affiliation models in a way that we have methodically seen. I would expect it to continue at pace.

Thank you. Our next question is coming from the line of Devin Ryan with Citizens JMP Securities. Hey, Lance Melvin.

Hey, thanks. Good afternoon, Rich and Matt. I want to ask a question just on expenses. Obviously, good to see the improvement on the 2025 G&A guide. Just trying to think about the bigger picture, there's been a lot of moving parts on expenses with a couple big acquisitions coming into the system here in recent quarters. At the same time, you guys are taking actions to become more efficient. I'd love to just think about, first off, some of the drivers that improved the guidance for the year, how much of that is structural, carries into 2026, and then more broadly how you're feeling about the expense trajectory of the firm as you're probably finding more efficiencies with these transactions. At the same time, still plenty of growth investment to do, and some business inflation. Just trying to think about the guidance, but also the trajectory. Thanks.

Yeah, Devin. I think when you look at the things that we're doing that are driving the savings, they are, to the point of your question, ongoing, right? There are things where we're making investments to automate things in our service areas and our operations groups. There are process improvements, capability deployments. We're starting to use AI in a way that is practical and delivering. You think about where and how that shows up as you're able to improve those things, you start to have lower NIGO rates, which are things that have to be reworked back and forth between us and our clients, which is a frustration from a client standpoint. It has also incurred costs on our side. Our advisors and their staff have to call us less, right, because there's less to call about. We have less folks that have to spend time answering those calls.

We have increased use of our digital tools, right? It goes on and on. I think those are the things that really led to the improvements this year. Those are the things that I think we're going to continue to focus on from here going forward. I think we do get into some things, even if you just look at next year. We'll give our guidance for next year on the next call like we normally do. To your point on some of the other deals coming on board, maybe there are two things I would highlight that are in addition to the efficiencies that we are driving. One is maybe obvious, but just keeping in mind, you're going to have a full-year impact of Commonwealth Financial Network's expenses next year.

As they onboard towards the end of the year, the synergies on the expense side largely won't show up until 2027, so you just want to keep that in mind. Second is a little bit building on what Rich Steinmeier was talking about earlier with respect to recruiting capacity. Another big driver of our expenses is the level of organic growth, right? As recruiting frees up from Commonwealth Financial Network, pivots back to the marketplace in general, to the extent that drives up organic growth, you would naturally have some incremental expenses coming on the core general and administrative expenses side. Now, at a more efficient level, given all the automation that we've done, that's something that could drive it as well, which I think we'd all put in the category of a high-class problem on an expense side. Hope that helps frame it.

I think the headline I'd hit is I think we feel really good about what we're able to drive on the automation side, how that's dropping to the bottom line, but also how it improves our client experience and improves our employee experience. I mean, the things that we are removing are rote, monotonous things that allow people to focus on things that are more interesting. I think it's exciting. The entire management team's aligned on it. Hopefully, the results show that we're able to deliver here.

Thank you. Our next question coming from the lineup, Jeff Schmitt with William Blair.

Hi, thank you. You had talked about how advisor movements are still depressed for the industry, I believe. I was curious, how is your share of those movements trending? Do you still expect that to be kind of a temporary phenomenon and ultimately lead to higher organic growth in future quarters? Thanks.

Yeah. Thanks for the question. We have seen that movement continues to stay a little bit artificially low. The truth is that when you look at movement in the industry, you see overall movement, but then you often see times where there are events in the marketplace that drive advisor churn. Those two events that we're seeing right now in the marketplace that would drive churn are, one, the advisor compensation changes at the wirehouse. They just continue to get further and further away from market competitive, and you see more and more advisors in increasing numbers picking up their heads to consider their alternatives. I think that actually is a good trend for the independent segment where you could see continued movement and may move us back towards historical norms.

The other side of that is actually our Commonwealth Financial Network acquisition as well, which drove activity in the marketplace, certainly from competitors, and drove more, I would say, even elevated TA rates that have extended more broadly, not only just at Commonwealth Financial Network opportunities, but I think more broadly across the industry. How do we think about that extending in time? I think we would be hopeful that we would return to historical norms as well as for how our capture has been trending. Our capture has stayed consistent. We are the number one capture of advisors in movement and in motion in the marketplace. That has persisted at historical levels. In time, over the last five years, we have seen that we have continued to grow share capture of advisors in motion, and we would hope to believe that would continue in time as well.

As we head back towards more stable times, I think we would expect to see ourselves continue to participate in the way that we have in the marketplace. We feel as convicted, if not more convicted, that our relative value proposition is absolutely the strongest in the marketplace in support of advisors. I think we feel good at the forward-looking outlook.

Thank you. Now, next question coming from the lineup, Michael Cyprys with Morgan Stanley.

Hi, good afternoon. Thanks for taking the question. Wanted to ask about alternatives. If you could update us on the progress of building out your alternative investment capabilities, how that stands today, steps you're looking to take over the next 12 to 24 months. If you could also touch upon digital assets, speaking of alts generally, what sort of access do your customers have today? How's that evolving? What sort of demand are you seeing? How might both of these enhance your appeal to advisors in the marketplace as you build this out? How might it also support revenue ROCA monetization? Thanks.

Yeah. I'll hit the developments of the—that's like a quadruple embedded question, which is pretty awesome. Thanks, Michael. On alts, alternative investments, we have, and we've shared a couple of times on earnings, we've been on a multi-year journey to delivering a very compelling alternative investment offering. I would tell you, by the end of this calendar year, I think we're on par with any player in the marketplace around the breadth and quality of our offerings. That journey was, for us, one, building a core technology platform, which we have largely implemented. Two, expanding the offering and those selling agreements across a broad set of alts that we've done diligence on. We're making really good progress there and expect our alternatives approved for sale have more than doubled to 80 by the end of—that was from the end of 2024.

We're moving towards 120 alts available for sale by the end of this year, which I think puts us toe-to-toe with anybody in the industry. The third thing for us is beginning to educate advisors and assisting them in how alternatives can help the needs of their clients. We've done a couple of things there. We not only introduced Alts Connect last year, which is our e-signature and digital sign and simplifying the subscription process, but we also launched a learning hub in Q1, which is a one-stop shopping for educational resources designed to empower advisors with the knowledge and tools necessary to incorporate alts into their practices. On alts, I think I can reflect and say we have made tremendous progress over the last 18 months. I'm incredibly proud of the team and the work that they've done.

I think we feel really good about not only the technology platform, because in addition to those for which we have selling agreements, we've actually enhanced our custodial and operational capabilities so that we can actually convert over 2,500 products that are held away to be brought onto our custodial platform. The ability to move advisors, move those holdings, sell forward, give them a really good operating environment with technology, I think we feel strong about our position to compete in the marketplace. You asked about digital assets. As for crypto, we'll always prioritize solutions that align with our advisors' needs. Today, we have five cryptocurrency ETFs on the platform. We are hearing from advisors and making available the products they need to manage their business in a controlled environment that is responsible, not only for the advisors and the risk, but also for end investors.

While we do not currently facilitate crypto trading, we are closely monitoring the competitive landscape. We will keep you updated on that continued progress. All in all, I think we feel good about continuing to extend those offerings. They make us more competitive in the marketplace, make us an available landing spot for more sophisticated advisors, and allow our advisors to have a range of offerings that are second to none in the industry.

Thank you. Our next question coming from the lineup, Benjamin Budish with Barclays.

Hi. Good evening and thanks for taking my question. Matt, a few questions ago, you were talking about how the slowdown in advisors in motion has resulted in some elevated TA rates, not just that are impacting Commonwealth, but across the industry more broadly. I'm curious, you guys have talked in the past about these sort of slowdowns being temporary. Given where rates are, I think you've explained in the past that TA rates rose as somewhat reflecting a reinvestment of higher rates on cash balances. What would your expectation be or how do you think about the progression of TA rates from here as rates come down? Would it be natural to expect that if advisors in motion, the turnover picks up, that rates come back down? What would your expectation be there? How should we be thinking about that over, say, the next 12 months?

Yeah. I mean, I think if history is a guide, right, the overall returns are going to guide where TA rates go, right? As interest rates have gone up, you saw TA rates go up. As it comes down, you would expect them to come down. I think the other dynamic you have are a couple of dynamics to your point of less advisors moving, so there's more demand for that. When you have transactions in the marketplace, like we are currently engaging with Commonwealth Financial Network, folks will bring more money to the table from a TA standpoint. I think that's what we're seeing right now. For us, which you've heard us talk about before, we always underwrite to returns with a consistent framework and return hurdle, which for us is usually deploying capital in the three to four times EBITDA range.

I think when you have an environment like this, we'll just hedge towards the upper end of that, right, so being closer to four times than three times, but still going back to what really, really matters, which is really the environment that an advisor is going to land on, meaning the capabilities, technology, service, and their ongoing economics. That's really what's going to carry the day. TA, of course, is important. I think where it trends over time is it's hard to predict, but it's going to be driven by the factors that you highlighted: the number of advisors moving, what's happening in the marketplace, and where rates are going. I think from our standpoint, we've operated in all those environments. Ultimately, what matters is the value that we're bringing to the table is going to carry the day.

I think that's why, to what Rich Steinmeier was just talking about, when advisors do decide to change firms, we're the number one place they come.

Thank you. We have a follow-up question from Steven Chubak from Wolfe Research.

Hi. Thanks so much for accommodating the follow-up. Given the NNA trajectory has been impacted by the repurposing of resources to support better, higher Commonwealth retention, has anything changed about your long-term NNA expectations? I was also hoping you can give an update, Matt, on October cash and NNA trends as well.

Sure. I'll start with October. I think Rich, you can jump in on the NNA. I think October has been a good month, similar to September. If you look at client cash balances, reminders that you know well, Steven, but I'll hit them anyways, advisory fees primarily hit in the first month of the quarter. Just given our size, including with Commonwealth at $2.3 trillion of AUM, those fees get bigger and bigger. For October, they were at $2.4 billion. Outside of that, client cash balances continue to grow, and they're up so far $700 million in the month. You kind of net that out, down at $1.7 billion or just over $54 billion of cash. I think a good month on cash. On the organic growth side, those advisory fees hit there as well.

The first month of the quarter is typically lower, and then factoring in that advisor movement still remains low, when you factor in those two factors, I think October's looked good. Where we sit today, we're around 4% organic growth for the month, keeping in mind that's prior to the around $1 billion of AUM left to go on those large OSJs that are offboarding that we would expect to come out sometime in the fourth quarter. Overall, I think it was a good start to the quarter.

Hey, Steven, it's Rich. On that NNA trajectory, I think what we've seen would say that you should not think that our NNA trajectory is changing because of this. This is a temporary, really ring-fencing of many of our most sophisticated recruiting and/or retention resources to move them over to help educate Commonwealth advisors, some of which they've already been in discussions with. As such, our feeding has been quite good. It's the progression in the pipeline that was going to be most impacted as that team only has so many hours in the day. As they begin to move back in to enhancing the share of their time that's spent on external advisors to this firm, I think you would expect to see that we would continue to have the successes we've had in the past.

Thank you. Our next question coming from the line, Bill Katz with TD Cowen.

Great. Thanks very much for taking the questions. Congrats on the one-year, Rich Steinmeier, how quick it's been. Maybe a two-part question, just embedded, a little bit disparate in nature, so I apologize for that. Can you give us a sense of where you might stand on the enterprise side now that you're working your way through Commonwealth Financial Network and how you might be able to sort of multitask maybe some larger platforms to the extent that that pipeline is building? On the net new money that's coming in the door, can you tell us what kind of cash allocation it is relative to roughly 2.5%? That's the legacy book right now. Thank you.

Speaker 5

Do you want to take institution first?

Speaker 1

Oh, I was just going to say thank you to Bill first because he said something really nice to me. You hit the last part, and then I'll come back on institution.

Yeah, sure. Bill, make sure—just jump in. When you say the cash sweep that's coming in, when you say allocation, are you talking about the % per account on the incremental versus the overall? I want to make sure I follow up question.

Excuse me. Apologize for coughing on the call. Yes, the cash allocation, as I was saying, your net new assets compared to roughly the 2.5%, that's the average for the quarter or at the end of the quarter.

Okay. I think maybe the cash that's coming in, it's around, it's not a material difference than where things are overall, if that's where you're getting. So pretty similar.

Okay. On that institutional side, Bill, maybe I should acknowledge, for us, getting Commonwealth right is the singular number one job right now. We are focusing a lot of our resources on delivering a seamless experience for the new advisors joining the platform while ensuring we continue to deliver a great experience for our existing advisors. We framed this a couple of times, but I'd just reiterate, I wouldn't expect too much by way of other large announcements for the time being. That being said, maybe in some broader context, we have been targeting historically large banks. I think especially as you think about this market environment for large banks, we see the ability for the banks that we work with to be winners and net consolidators in the consolidation of that retail banking industry.

We feel really good about our ability to be a counterparty to large banks as they acquire in that market. Historically, we've had some fantastic partners like M&T, BMO, where we've seen them be net acquirers and us help them with their wealth management business on some of those transactions. We continue to be in conversations around insurance, broker-dealers, and product manufacturers. As an aside, those markets are similar sized. Bank outsource model opportunity sits around $1.5 trillion in the market, and in that insurance, broker-dealers, and product manufacturers, there's another $1.5 trillion in market opportunity. Post that onboarding of Prudential that we feel really good about, we've seen great successes in partnership with them. I think that is a very validating event in the marketplace. As we've said before, those are some long lead-time conversations.

Just to reiterate, at this moment in time, we are focusing all of our resources on ensuring that we get Commonwealth right and landed. We are still progressing conversations, but I would expect less in the way of announcements to come in that large institutional segment.

Thank you. I'm showing there are no further questions in the queue at this time. I will now turn the call back over to Mr. Steinmeier for any closing remarks.

Thank you, operator. Thank you to everyone for joining us tonight. We look forward to speaking with you all again in January. Have a great evening. Thanks.

This concludes today's conference call. Thank you for your participation. You may now disconnect.