What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-02-23 compared with 2022-02-22 · 113 added, 110 removed, 422 unchanged (35% of the section changed)

24 unchanged sentences

federal income tax law could make some of the products distributed by our advisors less attractive to clients.

• The effects of the outbreak of COVID-19 have negatively affected the global economy, U.S.

economy and global financial markets, and may disrupt our operations and our advisors' operations, which could have a material adverse effect on our business, financial condition and results of operations.

• The effects of the COVID-19 pandemic have negatively affected the global economy, the U.S.

economy and global financial markets, and may disrupt our operations.

Risks Related to Our Regulatory Environment

3 unchanged sentences

• Failure to comply with ERISA regulations and certain tax-qualified plan laws and regulations could result in penalties against us.

Table of Content s

Risks Related to Our Technology

8 unchanged sentences

• We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our debt service and other obligations.

• Our future ability to pay regular dividends to holders of our common stock or repurchase shares are subject to the discretion of our board of directors and will be limited by our ability to generate sufficient earnings and cash flows.

• Our future ability to pay regular dividends to holders of our common stock or repurchase shares are subject to the discretion of our Board and will be limited by our ability to generate sufficient earnings and cash flows.

Risks Related to Our Business and Industry

4 unchanged sentences

The market for experienced and productive advisors is highly competitive, and we devote significant resources to attracting and retaining well-qualified advisors.

In attracting and retaining advisors, we compete directly with a variety of financial institutions such as wirehouses, regional broker-dealers, banks, insurance companies and other independent broker-dealers.

In attracting and retaining advisors, we compete directly with a variety of financial institutions such as wirehouses, regional broker-dealers, banks, insurance companies, other independent broker-dealers and independent RIA firms.

If we are not successful in retaining highly qualified advisors, we may not be able to recover the expense involved in attracting and training these individuals.

11 unchanged sentences

We believe that competition within our industry will intensify as a

Table of Content s

result of consolidation and acquisition activity and because new competitors face few barriers to entry, which could adversely affect our ability to recruit new advisors and retain existing advisors.

14 unchanged sentences

Significant interest rate changes could affect our profitability and financial condition.

Our revenue is exposed to interest rate risk primarily from changes in fees payable to us from banks participating in our client cash programs, which are generally based on prevailing interest rates.

Our revenue from our client cash programs has declined in the past as a result of a low interest rate environment, and our revenue may decline in the future due to decreases in interest rates, decreases in client cash balances or mix shifts among the current or future bank sweep vehicles and money market programs that we offer.

The Federal Reserve’s federal funds rate was near zero throughout 2021, and there is no assurance that it will not maintain a low-interest rate environment for a significant period of time.

Our revenue is exposed to interest rate risk primarily from changes in fees payable to us from banks participating in our client cash programs and changes in interest income earned on deposits in third-party bank accounts and short-term U.S.

treasury bills, which are generally based on prevailing interest rates.

Our revenue from our client cash programs has declined in the past as a result of a low interest rate environment, and our revenue may decline in the future due to decreases in interest rates, decreases in client cash balances or mix shifts among the current or future deposit sweep vehicles, client cash account or money market accounts that we offer.

Though the Federal Reserve increased its target federal funds rate in 2022 to combat rising inflation, there is no guarantee of further increases, or that the higher interest rate environment will be sustained.

If the Federal Reserve reduces its target federal funds rate from current levels, our revenue will be impacted.

Our revenue from our client cash programs also depends on our success in placing deposits and negotiating favorable terms in agreements with third-party banks and money market fund providers participating in our programs, as well as our success in offering competitive products, program fees and interest rates payable to clients.

The expiration of contracts with favorable pricing terms, less favorable terms in future contracts, the inability to place deposits with third-party sweep banks, or changes in money market programs that we offer could result in declines in our revenue.

The expiration of contracts with favorable pricing terms, less favorable terms in future contracts, the inability to place deposits with third-party sweep banks, or changes in client cash or money market accounts that we offer could result in declines in our revenue.

A sustained low interest rate environment may also have a negative impact upon our ability to negotiate contracts with new banks or renegotiate existing contracts on comparable terms with banks participating in our client cash programs.

If interest rates do not rise, or if balances or yields in our client cash programs decrease, future revenue from our client cash programs may be lower than expected.

Even in a rising interest rate environment, if balances or yields in our client cash programs decrease, future revenue from our client cash programs may be lower than expected.

Table of Content s

Any damage to our reputation could harm our business and lead to a loss of revenue and net income.

12 unchanged sentences

From time to time, we have been subjected to and are currently subject to legal and regulatory proceedings arising out of our business operations, including lawsuits, arbitration claims, governmental subpoenas and regulatory, governmental and self-regulatory organization (“SRO”) inquiries, investigations and enforcement proceedings, as well as other actions and claims.

Many of our legal claims are initiated by clients of our advisors and involve the purchase or sale of investment securities, but other claims and proceedings may be, and have been, initiated by state-level and federal regulatory authorities and SROs, including the SEC, FINRA and state securities regulators.

The outcomes of any such legal or regulatory proceedings, including inquiries, investigations and enforcement proceedings by the SEC, FINRA, DOL and state securities regulators, are difficult to predict.

The outcomes of any such legal or regulatory proceedings, including litigations, arbitrations, inquiries, investigations and enforcement proceedings by the SEC, FINRA, DOL and state securities regulators, are difficult to predict.

A negative outcome in such a matter could result in substantial legal liability, censures, penalties and fines, disgorgement of profits, restitution to customers, remediation, the issuance of cease-and-desist orders, or injunctive or other equitable relief against us.

Further, such negative outcomes individually or in the aggregate may cause us significant reputational harm and could have a material adverse effect on our ability to recruit or retain financial advisors, or our results of operations, cash flows or financial condition.

We may face liabilities for deficiencies or failures in our compliance systems and programs, as well as actual or alleged breaches of legal duties to our advisors’ clients, including in respect of issues related to the financial products we make available in our curated product platform or the investment advice or securities recommendations our advisors provide to their clients, which are subject to various standards of care, including in some cases fiduciary obligations.

Further, such negative outcomes individually or in the aggregate may cause us significant reputational harm and could have a material adverse effect on our ability to recruit or retain financial advisors or enterprises, or our results of operations, cash flows or financial condition.

We may face liabilities for deficiencies or failures in our supervisory and regulatory compliance systems and programs.

We may also face liabilities for actual or alleged breaches of legal duties to clients of our advisors or Independent RIAs, including in respect of issues related to the financial products we make available in our curated product platform or the investment advice or securities recommendations our advisors or Independent RIAs provide to their clients.

We are subject to various standards of care, including in some cases fiduciary obligations.

In addition, the administration of client accounts involves functions such as recordkeeping and accounting, security pricing, corporate actions, and account reconciliations that are complex and rely on tools and resources to support these operational processes.

5 unchanged sentences

Our approach may make it more challenging for us to comply with our supervisory and regulatory compliance obligations, particularly in light of our limited on-site supervision and the complexity of certain advisor business models.

Misconduct and errors by our employees and our advisors could be difficult for us to detect and could result in violations of law by us, regulatory sanctions, or serious reputational or financial harm.

Although we have designed policies and procedures to comply with applicable laws, rules, regulations and interpretations, we cannot always prevent or detect misconduct and errors by our employees and our advisors, and the precautions we take to prevent and detect these activities may not be effective in all cases.

Prevention and detection among our advisors, who are typically not our direct employees and some of whom tend to be located in small, decentralized offices, present additional challenges, particularly in the case of complex products or supervision of outside business activities.

Table of Content s

Misconduct and errors by our employees, advisors or Independent RIAs could be difficult for us to detect and could result in actual or alleged violations of law by us, investigations, litigation, regulatory sanctions, or serious reputational or financial harm.

Although we have designed policies and procedures to comply with applicable laws, rules, regulations and interpretations, we cannot always prevent or detect misconduct and errors by our employees, advisors or Independent RIAs, and the precautions we take to prevent and detect these activities may not be effective in all cases.

In addition, although we provide our advisors with requirements and recommendations for their office technology, we cannot fully control or monitor the extent of their implementation of our requirements and recommendations.

Accordingly, we cannot assure that our advisors’ technology meets our standards, including with regard to information security and cybersecurity.

We also cannot assure that misconduct or errors by our employees or advisors will not lead to a material adverse effect on our business, or that our errors and omissions insurance will be sufficient to cover such misconduct or errors.

We also cannot assure that misconduct or errors by our employees, advisors or Independent RIAs will not lead to a material adverse effect on our business, or that our errors and omissions insurance will be sufficient to cover such misconduct or errors.

We rely on third-party service providers, including off-shore providers, to perform technology, processing and support functions, and our operations are dependent on financial intermediaries that we do not control.

18 unchanged sentences

If these risks were to materialize, or if there was a widespread perception that they could materialize, our business, reputation and results of operations could be adversely affected.

Table of Content s

Lack of liquidity or access to capital could impair our business and financial condition.

7 unchanged sentences

• unforeseen cash or capital requirements;

• actual or alleged events of default under our Credit Agreement, Broker-Dealer Revolving Credit Facility or other agreements governing our indebtedness;

• regulatory penalties or fines, settlements, customer restitution or other remediation costs;

4 unchanged sentences

We may sometimes be required to fund timing differences arising from the delayed receipt of client funds associated with the settlement of client transactions in securities markets.

These timing differences are funded either with internally generated cash flow or, if needed, with funds drawn under our revolving credit facility, the committed revolving credit facility at our broker-dealer subsidiary, LPL Financial, or uncommitted lines of credit.

These timing differences are funded either with internally generated cash flow or, if needed, with funds drawn under our revolving credit facility, Broker-Dealer Revolving Credit Facility or uncommitted lines of credit.

We may also need access to capital in connection with the growth of our business, through acquisitions or otherwise.

6 unchanged sentences

• our credit ratings and credit capacity;

• the possibility that our lenders could develop a negative perception of our long- or short-term financial prospects as a result of industry- or company-specific considerations.

• the possibility that current or future lenders could develop a negative perception of our long- or short-term financial prospects as a result of industry- or company-specific considerations.

Similarly, our access to funds may be impaired if regulatory authorities or rating organizations take negative actions against us.

3 unchanged sentences

Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.

We have made acquisitions and investments in the past and may pursue further acquisitions and investments in the future.

We have made acquisitions and investments in the past and plan to pursue further acquisitions and investments in the future, including in connection with our Liquidity & Succession solution.

These transactions are accompanied by risks.

For instance, an acquisition could have a negative effect on our financial and strategic position and reputation, or the acquired business could fail to further our strategic goals.

For instance, an acquisition could have a negative effect on our financial and strategic position and reputation, or the acquired business could fail to further our strategic or financial goals.

We can provide no assurances that advisors who join LPL Financial through acquisitions or investments in advisor practices will remain at LPL Financial.

3 unchanged sentences

All of these and other potential risks may serve as a diversion of our management’s attention from other business concerns, and any of these factors could have a material adverse effect on our business.

Table of Content s

Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risks.

5 unchanged sentences

In addition, our existing systems, policies and procedures, and staffing levels may be insufficient to support a significant increase in our advisor population.

Any such increase could require us to increase our costs, including

information technology costs, in order to maintain our compliance and risk management obligations, or strain our existing policies and procedures as we evolve to support a larger advisor population.

Any such increase could require us to increase our costs, including information technology costs, in order to maintain our compliance and risk management obligations, or strain our existing policies and procedures as we evolve to support a larger advisor population.

If our systems, policies and procedures are not effective, or if we are not successful in capturing risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory actions that could have a material adverse effect on our business and financial condition.

7 unchanged sentences

The securities settlement process exposes us to risks related to adverse movements in price.

LPL Financial provides clearing services and trade processing for our advisors and their clients and certain financial institutions.

LPL Financial provides clearing services and trade processing for our advisors and their clients and certain enterprises.

Broker-dealers that clear their own trades are subject to substantially more regulatory requirements than brokers that outsource these functions to third-party providers.

6 unchanged sentences

In addition, our level of indebtedness may limit our flexibility in planning for changes in our business and the industry in which we operate and limit our ability to borrow additional funds.

If interest rates increase, our interest expense would increase because borrowings under our Credit Agreement are based on variable interest rates.

With interest rate increases, our interest expense has increased because borrowings under our Credit Agreement are based on variable interest rates.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness.

2 unchanged sentences

Even if we could consummate those sales, the proceeds that we realize from them may not be adequate to meet any debt service obligations then due.

Furthermore, if an event of default were to occur with respect to our Credit Agreement or other future indebtedness, our creditors could, among other things, accelerate the maturity of our indebtedness.

Furthermore, if an event of default were to occur with respect to our Credit Agreement, our Broker-Dealer Revolving Credit Facility or other future indebtedness, we could lose access to these sources of liquidity and our creditors could, among other things, accelerate the maturity of our indebtedness.

Table of Content s

Our Credit Agreement and the Indentures governing our Notes permit us to incur additional indebtedness.

1 unchanged sentence

Although the Credit Agreement and the Indentures contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.

Also, these restrictions do not prevent us from incurring obligations that do not constitute “indebtedness” as defined in the Credit Agreement or the Indentures.

In addition, other obligations that do not qualify as “indebtedness” under the terms of our Credit Agreement or the Indentures are not restricted by those agreements.

To the extent new debt or other obligations are added to our currently anticipated debt levels, the substantial indebtedness risks described above would increase.

1 unchanged sentence

However, any such downgrade would negatively impact our ability to obtain comparable rates and terms on any future refinancing of our debt and could restrict our ability to incur additional indebtedness.

if such downgrade were to occur, or if ratings agencies indicated that a downgrade may occur, perceptions of our financial strength could be damaged, which could affect our client relationships and decrease the number of investors, clients and counterparties that do business with us.

In addition, if such downgrade were to occur, or if ratings agencies indicated that a downgrade may occur, perceptions of our financial strength could be damaged, which could affect our client relationships and decrease the number of investors, clients and counterparties that do business with us.

Restrictions under our Credit Agreement and the Indentures governing our Notes may prevent us from taking actions that we believe would be in the best interest of our business.

13 unchanged sentences

Our ability to comply with these restrictive covenants will depend on our future performance, which may be affected by events beyond our control.

If we violate any of these covenants and are unable to obtain waivers, we would be in default under our Credit Agreement or the Indentures, as applicable, and payment of the indebtedness could be accelerated.

Acceleration of our indebtedness under our Credit Agreement or the Indentures may permit acceleration of indebtedness under other agreements that contain cross-default or cross-acceleration provisions.

If we violate any of these covenants or covenants under our Broker-Dealer Revolving Credit Facility and are unable to obtain waivers, we would be in default under our Credit Agreement, the Indentures or the Broker-Dealer Revolving Credit Facility, as applicable.

As a result, payment of the indebtedness could be accelerated, which may permit acceleration of indebtedness under other agreements that contain cross-default or cross-acceleration provisions.

If our indebtedness is accelerated, we may not be able to repay that indebtedness or borrow sufficient funds to refinance it.

6 unchanged sentences

A potential acquirer may not have sufficient financial resources to purchase our outstanding indebtedness in connection with a change of control.

Table of Content s

Our insurance coverage may be inadequate or expensive.

2 unchanged sentences

It is not always possible to prevent or detect activities giving rise to claims, and the precautions we take may not be effective in all cases.

We maintain voluntary and required insurance coverage, including, among others, general liability, property, director and officer, excess- Securities Investor Protection Corporation (“SIPC”), business interruption, cyber and data breach, errors and omissions and fidelity bond insurance.

We maintain voluntary and required insurance coverage, including, among others, general liability, property, director and officer, excess Securities Investor Protection Corporation, business interruption, cyber and data breach, errors and omissions and fidelity bond insurance.

We have self-insurance for certain potential liabilities through a wholly-owned captive insurance subsidiary.

While we endeavor to self-insure and purchase coverage that is appropriate based on our assessment of our risk, we are unable to predict with certainty the frequency, nature or magnitude of claims for direct or consequential damages.

Assessing the probability of a loss occurring and the timing and amount of any loss related to a regulatory matter or a legal proceeding is inherently difficult, and there

are particular uncertainties and complexities involved when assessing the adequacy of loss reserves for potential liabilities that are self-insured by our captive insurance subsidiary.

Assessing the probability of a loss occurring and the timing and amount of any loss related to a regulatory matter or a legal proceeding is inherently difficult, and there are particular uncertainties and complexities involved when assessing the adequacy of loss reserves for potential liabilities that are self-insured by our captive insurance subsidiary.

The availability of coverage depends on the nature of the claim and the adequacy of reserves, which in turn depends in part on historical claims experience, including the actual timing and costs of resolving matters that begin in one policy period and are resolved in a subsequent period.

Assessing the probability of a loss occurring and the timing and amount of any loss related to a regulatory matter or a legal proceeding is inherently difficult and requires complex judgments, which may include the procedural status of the matter and any recent developments;

prior experience and the experience of others in similar matters;

the size and nature of potential exposures;

available defenses;

the progress of fact discovery;

the opinions of counsel and experts;

potential opportunities for settlement and the status of any settlement discussions;

as well as the potential for insurance coverage and indemnification, if available.

In addition, certain types of potential claims for damages cannot be insured.

11 unchanged sentences

To help our advisors meet their clients’ needs with suitable investment options, we have relationships with many of the industry-leading providers of financial and insurance products.

We have sponsorship agreements with some manufacturers of fixed and variable annuities, mutual funds and ETFs that, subject to the survival of certain terms and conditions, may be terminated by the manufacturer upon notice.

We have sponsorship agreements with some manufacturers of fixed and variable annuities, mutual funds and exchange-traded funds that, subject to the survival of certain terms and conditions, may be terminated by the manufacturer upon notice.

If we lose our relationships with one or more of these manufacturers, our ability to serve our advisors and, in turn, their clients, and our business, may be materially adversely affected.

8 unchanged sentences

Changes in U.S.

federal income tax law, in particular with respect to variable annuity products, or with respect to tax rates on capital gains or dividends, could make some of these products less attractive to clients and, as a result, could have a material adverse effect on our business, results of operations, cash flows, or financial condition.

The effects of the outbreak of COVID-19 have negatively affected the global economy, U.S.

The ongoing COVID-19 pandemic has caused significant disruption in the international and U.S.

economies and financial markets.

The spread of COVID-19 and efforts to contain it have resulted in illness, quarantines, cancellation of events and travel, business shutdowns, reduction in business activity and financial transactions, labor shortages, increased unemployment, supply chain interruptions and overall economic and financial market instability.

Impacts on our business could be wide-ranging, and material impacts are possible, including the following:

• Employees contracting COVID-19, including unavailability of key personnel necessary to conduct our business operations

• A prolonged downturn in equity and other financial markets, which would adversely affect our advisory, asset-based and trailing commission revenue

• A sustained low interest rate environment, which would reduce revenue from our client cash programs included in asset-based revenue

• Reductions in our service levels or operating effectiveness as a substantial majority of our employees are working remotely

• Failure of our information technology systems, which could result in interruptions or errors in performing securities clearing and custody functions, as a result of extraordinary trading volumes, malware, ransomware or malicious cyber activity

• Disruptions in technology, processing or support functions as our outsourced service providers or other vendors, including off-shore providers, experience disruptions in their business operations

• Reduction in our ability to recruit advisors or otherwise execute our growth plans due to travel restrictions, limitations on interpersonal contact and challenging macro-economic conditions

• Closure of our offices or the offices of our advisors

The COVID-19 pandemic and efforts to contain it have also resulted in increased volatility.

The further spread of COVID-19 and attempts to curtail it by limiting interpersonal activity, including business activity, may increase instability in domestic and international financial markets and materially disrupt general economic and financial activity.

Significant disruptions in financial markets could result in a decline in demand for the products and services offered by our advisors to their clients, or their ability to provide them, which would negatively impact our and their financial results and growth strategy.

In addition, an overall decline in equity market prices will generally reduce the value of advisory and brokerage assets, which has previously resulted and may in the future result in a reduction in the advisory fees, asset-based fees and trailing commissions we are entitled to receive.

Moreover, in response to the economic fallout from the COVID-19 pandemic, the Federal Reserve reduced the federal funds rate, which remained near zero throughout 2021.

Lower interest rates reduce our revenue from our client cash programs and may affect our ability to negotiate favorable terms in future agreements with banks and money market fund providers that participate in our programs, and these effects are likely to continue for as long as interest rates remain suppressed.

The COVID-19 pandemic could also jeopardize our ability to rely on our outsourced service providers, including those that operate off-shore.

As COVID-19 has spread, governments in the United States and around the world, including in jurisdictions where our service providers have operations, have from time to time imposed or encouraged varying degrees of limitations on travel and social interaction.

In many cases this has resulted in the partial or complete closure of businesses, including some that we rely on.

While we have taken steps to minimize the disruptions that these closures have caused, and are seeking to avoid interruptions to our critical operations, there can be no guarantee that they will be effective, or, if they are effective, that such effect will be sustained or cost-effective.

In addition, if business closures are prolonged or become more widespread, our ability to modify our operations to avoid interruption may become more limited or costly.

Any interruption to our operations could have a negative effect on our reputation and results of operations.

federal income tax law, in particular with respect to

Table of Content s

variable annuity products, or with respect to tax rates on capital gains or dividends, could make some of these products less attractive to clients and, as a result, could have a material adverse effect on our business, results of operations, cash flows or financial condition.

The effects of the COVID-19 pandemic have negatively affected the global economy, the U.S.

economy and global financial markets, and may disrupt our operations.

The COVID-19 pandemic has caused significant disruption in the international and U.S.

economies and financial markets, and future material impacts on our business remain a possibility.

For example, a prolonged downturn in equity and other financial markets could adversely affect our advisory, asset-based and trailing commission revenues.

Alternatively, we could experience disruptions in technology, processing or support functions if our outsourced service providers or other vendors experience disruptions in their business operations resulting from the COVID-19 pandemic.

Other pandemic-related developments that could negatively affect our business are impossible to predict and are outside of our control.

We implemented significant elements of our business continuity plans in response to the COVID-19 pandemic, and we continue to rely on capabilities that we put into place to support these plans.

While we believe that these plans and their implementation have helped avoid significant interruptions to our critical services, there can be no assurance that they will be able to do so on a sustained or uninterrupted basis, and reliance on such plans could expose our business to other operational risks.

For example, while we have taken steps to ensure that our remote-work solutions are reliable and secure, especially those related to the handling, transmission, storage and disposal of sensitive personal or confidential information, there can be no assurance that these solutions will be used or function as intended, or that they will be completely effective in preventing interruptions in our services or cybersecurity incidents.

In addition, there can be no assurance that the third parties that provide and maintain some of these solutions will be able to do so on a sustained and uninterrupted basis.

Because we do not control these third parties, we are subject to the limitations, deficiencies and vulnerabilities of their services, products, and operations.

While we believe that these plans and their implementation have helped avoid significant interruptions to our critical services, there can be no assurance that they will be able to do so on an uninterrupted basis, and reliance on such plans could expose our business to other operational risks, including risks related to the security and reliability of our remote-work solutions.

Any compromise, failure or interruption in the availability of the solutions that support our remote-work operations could directly or indirectly result in cybersecurity incidents, interruptions to our business and negative effects on our reputation and results of operations.

3 unchanged sentences

Our subsidiary LPL Financial is:

• registered as a broker-dealer with the SEC, each of the 50 states, the District of Columbia, Puerto Rico and the U.S.

• registered as a clearing broker-dealer with the SEC, each of the 50 states, the District of Columbia, Puerto Rico and the U.S.

Virgin Islands;

• registered as an investment adviser with the SEC;

• registered as an introducing broker-dealer with the CFTC;

• a member of FINRA and various other SROs, and a participant in various clearing organizations, including the Depository Trust Company, the National Securities Clearing Corporation and the Options Clearing Corporation;

• regulated by the DOL relative to its servicing of retirement plan accounts subject to ERISA and the Code;

• regulated by the CFTC with respect to the futures and commodities trading activities it conducts as an introducing broker.

The primary self-regulator of LPL Financial’s broker-dealer activity is FINRA.

• subject to oversight by the DOL relative to its servicing of retirement plan accounts subject to ERISA and the Code.

The primary SRO of LPL Financial’s broker-dealer activity is FINRA, and the primary regulator of LPL Financial’s investment advisory activity is the SEC.

LPL Financial is also subject to state laws, including state “blue sky” laws, and the rules of the Municipal Securities Rulemaking Board for its municipal securities activities.

The CFTC has designated the NFA as LPL Financial’s primary regulator for futures and commodities trading activities.

The SEC, FINRA, DOL, the CFTC, the OCC, various securities and futures exchanges and other United States and state-level governmental or regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws, regulations or interpretations.

The SEC, FINRA, DOL, CFTC, OCC, various securities and futures exchanges and other United States and state-level governmental or regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws, regulations or interpretations.

There can be no assurance that other federal or state agencies will not attempt to further regulate our business or that specific interactions with foreign countries or foreign nationals will not trigger regulation in non-U.S.

5 unchanged sentences

In particular, the diversity of information security environments in which our services are offered makes it difficult to ensure a uniformly robust level of compliance.

Regulators have in the past raised, and may in the future raise, concerns with respect to the quality, consistency or oversight of our compliance systems and programs and our past or future compliance with applicable laws, rules and regulations.

Regulators have in the past raised, and may in the future raise, concerns with respect to the

Table of Content s

quality, consistency or oversight of our compliance systems and programs and our past or future compliance with applicable laws, rules and regulations.

As of the date of this Annual Report on Form 10-K, we have a number of pending regulatory matters.

Violations of laws, rules or regulations and settlements in respect of alleged violations have in the past resulted in, and could in the future result in, legal liability, censures, penalties and fines, disgorgement of profits, restitution to customers, remediation, the issuance of cease-and-desist orders or injunctive or other equitable relief against us, which individually or in the aggregate could negatively impact our financial results or adversely affect our ability to attract or retain financial advisors and institutions.

For example, in October 2022, we received a request for information from the SEC in connection with an investigation of the Company’s compliance with records preservation requirements for business-related electronic communications stored on personal devices or messaging platforms that we have not approved.

We intend to cooperate fully with the SEC’s inquiry.

We maintain insurance coverage for certain potential liabilities such as this, but we are unable to determine that our coverage will be adequate to cover all potential losses.

At this time, we do not believe that this request will have a material adverse effect on our results of operations, financial position, or cash flows.

For more information, see Note 14 - Commitments and Contingencies within the notes to the consolidated financial statements in this Annual Report on Form 10-K.

Depending on the nature of the violation, we may be required to offer restitution or remediation to customers, and the costs of doing so could exceed our loss reserves.

We have established a captive insurance subsidiary that underwrites insurance for various regulatory and legal risks, although self-insurance coverage is not available for all matters.

The availability of coverage depends on the nature of the claim and the adequacy of reserves, which depends in part on historical claims experience, including the actual timing and costs of resolving matters that begin in one policy period and are resolved in a subsequent period.

prior experience and the experience of others in similar matters;

the size and nature of potential exposures;

available defenses;

the progress of fact discovery;

the opinions of counsel and experts;

potential opportunities for settlement and the status of any settlement discussions;

as well as the potential for insurance coverage and indemnification, if available.

There are particular uncertainties and complexities involved when assessing the adequacy of loss reserves for potential liabilities that are self-insured by our captive insurance subsidiary.

As a result, actual self-insurance liabilities could exceed our loss reserves, in which case coverage may not be available, and we could incur material additional expense.

For more information about the potential limits of our insurance coverage, including our self-insurance coverage, please see “ Our insurance coverage may be inadequate or expensive ” above.

Regulatory developments could adversely affect our business by increasing our costs or making our business less profitable.

3 unchanged sentences

For example, the SEC’s Reg BI, which requires broker-dealers and their associated persons to act in the best interest of their retail customers when making securities recommendations and establishes a number of new compliance and disclosure obligations for broker-dealers, became applicable on June 30, 2020.

Nevada and Massachusetts enacted statutes that impose fiduciary standards and other obligations on broker-dealers and investment advisers operating in their states.

Nevada enacted a statute that imposes fiduciary standards and other obligations on broker-dealers and investment advisers operating in that state.

Other states have adopted or are considering adopting a best interest standard applicable to broker-dealers or the sale of certain annuity and insurance products.

2 unchanged sentences

These changes may also affect the array of products and services we offer to clients and the compensation that we and our advisors receive in connection with such products and services.

It is unclear how and whether other regulators, including the SEC, FINRA, the DOL, banking regulators and other state securities and insurance regulators may respond to, or enforce elements of, these new regulations, or develop their own similar laws and regulations.

It is unclear how and whether other regulators, including the SEC, FINRA, DOL, banking regulators and other state securities and insurance regulators may respond to, or enforce elements of, these new regulations, or develop their own similar laws and regulations.

The impacts, degree and timing of the effect of these laws and future regulations on our business cannot now be anticipated or planned for, and may have further impacts on our products and services and the results of operations.

1 unchanged sentence

Business” for specific information about risks associated with DOL regulations and related exemptions and their potential impact on our operations.

In addition, the Dodd-Frank Act enacted wide-ranging changes in the supervision and regulation of the financial industry designed to provide for greater oversight of financial industry participants, reduce risk in banking practices and in securities and derivatives trading, enhance public company corporate governance practices and executive compensation disclosures and provide for greater protections to individual consumers and investors.

Table of Content s

compensation disclosures and provide for greater protections to individual consumers and investors.

Certain elements of the Dodd-Frank Act remain subject to implementing regulations that are yet to be adopted by the applicable regulatory agencies.

Compliance with these provisions could require us to review our product and service offerings for potential changes and would likely result in increased compliance costs.

Moreover, to the extent the Dodd-Frank Act affects the operations, financial condition, liquidity and capital requirements of financial institutions with which we do business, those institutions may seek to pass on increased costs, reduce their capacity to transact, or otherwise present inefficiencies in their interactions with us.

The ultimate impact that the Dodd-Frank Act will have on us, the financial industry and the economy cannot be known until all such applicable regulations called for under the Dodd-Frank Act have been finalized and implemented.

Moreover, to the extent the Dodd-Frank Act, or other existing or new laws and regulations affect the operations, financial condition, liquidity and capital requirements of financial institutions with which we do business, those institutions may seek to pass on increased costs, reduce their capacity to transact, or otherwise present inefficiencies in their interactions with us.

It is not possible to determine the extent of the impact of any new laws, regulations or initiatives that may be imposed, or whether any existing proposals will become law.

New laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.

Likewise, federal and state standards prohibiting discrimination on the basis of disability in public accommodations and employment, including those related to the Americans with Disabilities Act, are evolving to require an increasing number of public spaces, including web-based applications, to be made accessible to the disabled.

14 unchanged sentences

As a result of these regulations, our future efforts to sell shares or raise additional capital may be delayed or prohibited.

In addition, the SEC, FINRA, the CFTC, the OCC and the NFA have extensive rules and regulations with respect to capital requirements.

In addition, the SEC, FINRA, CFTC, OCC and NFA have extensive rules and regulations with respect to capital requirements.

As a registered broker-dealer, LPL Financial is subject to Rule 15c3-1 (“Net Capital Rule”) under the Exchange Act, and related requirements of SROs.

The CFTC and the NFA also impose net capital requirements.

The CFTC and NFA also impose net capital requirements.

The Net Capital Rule specifies minimum capital requirements that are intended to ensure the general soundness and liquidity of broker-dealers.

Because our holding companies are not registered broker-dealers, they are not subject to the Net Capital Rule.

However, the ability of our holding companies to withdraw capital from our broker-dealer subsidiary could be restricted, which in turn could limit our ability to repay debt, redeem or purchase shares of our outstanding stock or pay dividends.

A large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our present levels of business.

However, the ability of our holding companies to withdraw capital from our broker-dealer subsidiary could be restricted in the event of a net capital shortfall at LPL Financial, which in turn could limit our ability to repay debt, redeem or purchase shares of our outstanding stock or pay dividends.

A large operating loss or charge against net capital could also adversely affect our ability to expand or even maintain our present levels of business.

Failure to comply with ERISA regulations and certain tax-qualified plan laws and regulations could result in penalties against us.

1 unchanged sentence

ERISA imposes certain duties on persons who are “fiduciaries” (as defined in Section 3(21) of ERISA and the DOL’s Five-Part Test and PTE 2020-02 rules or interpretations) and prohibits certain transactions involving plans subject to ERISA and fiduciaries or other service providers to such plans.

Non-compliance with or breaches of these provisions may expose an ERISA fiduciary or other service provider to liability under ERISA, which may include monetary and criminal penalties as well as equitable remedies for the affected plan.

Non-compliance with or breaches of these provisions may expose an ERISA fiduciary or other service provider to liability under ERISA, which may include monetary and criminal

Table of Content s

penalties as well as equitable remedies for the affected plan.

Section 4975 of the Code prohibits certain transactions involving “plans” (as defined in Section 4975(e)(1)), which include, for example, IRAs and certain Keogh plans and other qualified savings accounts, and service providers, including fiduciaries (as defined in Section 4975(e)(3)), to such plans.

22 unchanged sentences

If any person, including any of our employees or advisors, negligently disregards or intentionally breaches our established controls with respect to client data, or otherwise mismanages or misappropriates that data, we could also be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions.

Table of Content s

Our information technology systems may be vulnerable to security risks.

5 unchanged sentences

We will also be required to effectively and efficiently govern, manage and ensure timely evolutions in our systems, including in their design, architecture and interconnections as well as their organizational and technical protections.

issue or amend regulations, which sometimes conflict, governing handling of confidential information by companies within their jurisdiction.

The SEC has proposed new cybersecurity regulations for investment advisers, and other new regulations may be promulgated by relevant federal and state authorities at any time and compliance with regulatory expectations may become increasingly complex as more state regulatory authorities issue or amend regulations, which sometimes conflict, governing handling of confidential information by companies within their jurisdiction.

Several states have promulgated cybersecurity requirements that impact our compliance obligations.

6 unchanged sentences

The occurrence of any of these events may have a material adverse effect on our business or results of operations.

Our own information technology systems are to some degree vulnerable to unauthorized access and other security risks.

Our own information technology systems are vulnerable to an extent to unauthorized access and other security risks.

We rely on our advisors and employees to comply with our policies and procedures to safeguard confidential data, but disloyal or negligent insiders pose risks.

8 unchanged sentences

• subject us to regulatory sanctions or obligations, based on state law or the authority of the SEC and FINRA to enforce regulations regarding business continuity planning or cybersecurity;

Table of Content s

• subject us to litigation by consumers, advisors or other business partners that may suffer damages as a result of such activity;

8 unchanged sentences

Although we conduct some level of due diligence before sharing sensitive data with third-party vendors, this due diligence may not uncover administrative, technical or electronic gaps or flaws in their processes or systems.

In the past we have experienced limited breaches of information security with our vendors, which have led to notification costs and reputational harm with regulators, current and potential advisors, and advisors’ clients, and we may experience

similar or more significant events in the future.

Future data security incidents involving individual and regulatory notifications could lead to litigation involving other financial institutions, class actions, regulatory investigations or other harm.

Data security incidents within the financial services industry are increasing, and threat actors continue to find novel ways to attack the security environments of LPL and of our advisors.

Data security incidents within the financial services industry are increasing, and threat actors continue to find novel ways to attack security environments.

In light of the diversity of our advisors’ security environments and the increasing sophistication of malicious actors, an attack could occur and persist for an extended period of time without detection.

14 unchanged sentences

• portfolio management;

Table of Content s

• performance reporting;

5 unchanged sentences

There cannot be any assurance that another company will not design a similar or better platform that renders our technology less competitive.

Maintaining competitive technology requires us to make significant capital expenditures, both in the near term and longer-term.

Maintaining competitive technology requires us to make significant capital investments, both in the near term and longer-term.

There cannot be any assurance that we will have sufficient resources to adequately update and expand our information technology systems or capabilities, or offer our services on the personal and mobile computing devices that may be preferred by our advisors and/or their clients, nor can there be any assurance that any upgrade or expansion efforts will be sufficiently timely, successful, secure and accepted by our current and prospective advisors or their clients.

3 unchanged sentences

A technological breakdown could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to disciplinary action and to liability to our advisors and their clients.

Security, stability

and regulatory risks also exist because parts of our infrastructure and software are beyond their manufacturer’s stated end of life.

Security, stability and regulatory risks also exist because parts of our infrastructure and software are beyond their manufacturer’s stated end of life.

We are working to mitigate such risks through additional controls and increased modernization spending, although we cannot provide assurance that our risk mitigation efforts will be effective, in whole or in part.

8 unchanged sentences

The market price of our common stock may fluctuate substantially due to the following factors (in addition to the other risk factors described in this Item 1A ):

• actual or anticipated fluctuations in our results of operations, including with regard to interest rates or revenue associated with our client cash programs or key business lines;

• actual or anticipated fluctuations in our results of operations, including with regard to interest rates or revenue associated with our client cash programs;

• variance in our financial performance from the expectations of equity research analysts;

5 unchanged sentences

• changes in market valuation or earnings of our competitors;

Table of Content s

• the trading volume of our common stock;

10 unchanged sentences

We have no direct operations and derive all of our cash flow from our subsidiaries.

Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments or distributions

to meet any existing or future debt service and other obligations.

Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments or distributions to meet any existing or future debt service and other obligations.

The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us.

1 unchanged sentence

Compliance with this regulation may impede our ability to receive dividends from our broker-dealer subsidiary.

Our future ability to pay regular dividends to holders of our common stock or repurchase shares are subject to the discretion of our board of directors and will be limited by our ability to generate sufficient earnings and cash flows.

Our board of directors declared quarterly cash dividends on our outstanding common stock in 2021 and has from time to time authorized us to repurchase shares of the Company’s issued and outstanding shares of common stock.

The declaration and payment of any future quarterly cash dividend or any additional repurchase authorizations will be subject to the board of directors’ continuing determination that the declaration of future dividends or repurchase of our shares are in the best interests of our stockholders and are in compliance with our Credit Agreement, the Indentures and applicable law.

Such determinations will depend upon a number of factors that the board of directors deems relevant, including future earnings, the success of our business activities, capital requirements, alternative uses of capital, the general financial condition and future prospects of our business and general business conditions.

Our future ability to pay regular dividends to holders of our common stock or repurchase shares are subject to the discretion of our Board and will be limited by our ability to generate sufficient earnings and cash flows.

Our Board declared quarterly cash dividends on our outstanding common stock in 2022 and has authorized us to repurchase shares of the Company’s issued and outstanding shares of common stock.

The declaration and payment of any future quarterly cash dividend or any additional repurchase authorizations will be subject to the Board’s continuing determination that the declaration of future dividends or repurchase of our shares are in the best interests of our stockholders and are in compliance with our Credit Agreement, the Indentures and applicable law.

Such determinations will depend upon a number of factors that the Board deems relevant, including future earnings, the success of our business activities, capital requirements, alternative uses of capital, general economic, financial and business conditions, and the future prospects of our own business.

The future payment of dividends or repurchases of shares will also depend on our ability to generate earnings and cash flows.

1 unchanged sentence

In addition, our ability to pay cash dividends on our common stock and repurchase shares is dependent on the ability of our subsidiaries to pay dividends, including compliance with limitations under our Credit Agreement and the Indentures.

Our broker-dealer subsidiary is subject to requirements of the SEC, FINRA, the CFTC and other regulators relating to liquidity, capital standards and the use of client funds and securities, which may limit funds available for the payment of dividends to us.

Our broker-dealer subsidiary is subject to requirements of the SEC, FINRA, CFTC, NFA and other regulators relating to liquidity, capital standards and the use of client funds and securities, which may limit funds available for the payment of dividends to us.

Unresolved Staff Comments

Table of Content s

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors