What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-21 · 173 added, 121 removed, 585 unchanged (33% of the section changed)

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We are a leader in the advisor-mediated marketplace as the nation’s largest independent broker-dealer, a leading investment advisory firm, and a top custodian.

We serve independent financial advisors and enterprises, providing them with the technology solutions, brokerage and advisory platforms, clearing services, compliance services, consultative practice management programs and training, business services and planning and advice services, and in-house research they need to run successful businesses.

We serve independent financial advisors and institutions, providing them with the technology solutions, brokerage and advisory platforms, clearing services, compliance services, consultative practice management programs and training, business services and planning and advice services, and in-house research they need to run successful businesses.

We enable them to provide personalized financial guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.

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Significant Events

Entered into a definitive purchase agreement to acquire Atria Wealth Solutions, Inc.

On February 13, 2024, the Company announced that it had entered into a definitive purchase agreement to acquire Atria, a wealth management solutions holding company headquartered in New York.

As part of the agreement, Atria will transition its brokerage and advisory assets, currently custodied with its network of broker-dealers, to the Company’s platform.

The Company expects to close the transaction in the second half of 2024 with the conversion expected in mid-2025, subject to receipt of regulatory approval and other closing conditions.

Completed initial investment grade debt offering

On November 17, 2023, the Company completed its initial investment grade debt offering with the issuance of $750.0 million in aggregate principal amount of 6.750% senior unsecured notes due 2028.

Closed on the acquisition of Atria Wealth Solutions, Inc.

On February 13, 2024, the Company announced that it had entered into a definitive purchase agreement to acquire Atria, a wealth management solutions holding company that supports approximately 2,200 advisors and approximately 160 banks and credit unions which manage approximately $110 billion of brokerage and advisory assets.

The transaction closed on October 1, 2024, for an initial cash payment of approximately $859 million and includes potential contingent consideration of up to $330 million based on future conversion, retention, and other milestones.

See Note 4 - Acquisitions , within the notes to the consolidated financial statements for additional information.

Completed transition of Prudential Advisors to the Company’s platform

On November 18, 2024, the Company announced the transition of Prudential Advisors, Prudential’s retail wealth management business, to LPL Enterprise, finalizing the launch of the strategic relationship that was first announced in 2023.

Completed debt refinancing and a $1.0 billion debt offering

On December 5, 2024, the Company entered into the ninth amendment to its amended and restated Credit Agreement to, among other changes, refinance its existing $1.0 billion senior secured Term Loan B (“Term Loan B”) facility with a new $1.0 billion Term Loan A (“Term Loan A”) facility due 2026, release the Company’s subsidiary guarantees under the Credit Agreement, release all of the security interests and liens granted by the Company to the collateral agent to secure the borrowing, and suspend certain restrictive covenants.

See Note 11 - Corporate Debt and Other Borrowings, Net , within the notes to the consolidated financial statements for further detail.

Announced a strategic relationship agreement with Prudential’s retail wealth management business

On August 24, 2023, the Company announced an agreement with Prudential to transition the brokerage and investment advisory assets of Prudential Advisors, Prudential’s retail wealth management business, from its current third-party custodian to LPL Financial in the second half of 2024, subject to receipt of regulatory approval and other conditions.

Closed various acquisitions during the year

During the year ended December 31, 2023, the Company completed 19 acquisitions under our Liquidity & Succession solution, in which we buy advisor practices.

The Company also completed the acquisition of Boenning & Scattergood’s Private Client Group and FRGIS on January 31, 2023.

See Note 4 - Acquisitions , within the notes to the consolidated financial statements for further detail.

On May 20, 2024, the Company completed the issuance and sale of $500.0 million in aggregate principal amount of 5.700% senior unsecured notes due 2027 and $500.0 million in aggregate principal amount of 6.000% senior unsecured notes due 2034.

See Note 11 - Corporate Debt and Other Borrowings, Net , within the notes to the consolidated financial statements for further detail.

Executive appointments

On October 21, 2024, the Board confirmed Rich Steinmeier as Chief Executive Officer and elected him to the Board, and named Matthew Audette as President and Chief Financial Officer.

This followed the departure of Dan H.

Arnold, the Company’s former CEO.

Executive Summary

Financial Highlights

Results for the year ended December 31, 2023 included net income of $1.1 billion, or $13.69 per diluted share, which compares to $845.7 million, or $10.40 per diluted share, for the year ended December 31, 2022.

Results for the year ended December 31, 2024 included net income of $1.1 billion, or $14.03 per diluted share, which compares to $1.1 billion, or $13.69 per diluted share, for the year ended December 31, 2023.

Total advisory and brokerage assets served were $1.7 trillion at December 31, 2024, compared to $1.4 trillion at December 31, 2023.

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Common Stock Dividends and Share Repurchases

During the year ended December 31, 2023, we paid stockholders cash dividends of $92.2 million and repurchased 5,075,900 of our outstanding shares for a total of $1.1 billion.

During the year ended December 31, 2024, we paid stockholders cash dividends of $89.7 million and repurchased 605,361 of our outstanding shares for a total of $170.0 million.

Key Performance Metrics

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Total Organic Net New Assets $ 140.7 $ 100.4

As of and for the Years Ended December 31,

Organic advisory net new assets annualized growth (4)

15.7 % 12.9 %

Total organic net new assets annualized growth (4)

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Client Cash Balances as a % of Total Assets 3.2% 3.6%

As of and for the Years Ended December 31,

Net buy (sell) activity (6)

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$ 4,501.3 $ 4,027.0

Adjusted EBITDA (11)

$ 2,224.4 $ 2,073.9

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(1) Totals may not foot due to rounding.

(2) Consists of total advisory and brokerage assets under custody at the Company’s primary broker-dealer subsidiary, LPL Financial.

(2) Consists of total advisory and brokerage assets under custody at the Company’s primary broker-dealer subsidiary, LPL Financial, as well as assets under custody of a third-party custodian related to Atria’s seven introducing broker-dealer subsidiaries.

Please consult the “ Results of Operations” section for a tabular presentation of advisory and brokerage assets.

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(4) Calculated as annualized current period organic net new assets divided by preceding period assets in their respective categories of a dvisory assets or total advisory and brokerage assets.

(5) During the first quarter of 2024, the Company updated its definition of client cash account balances to exclude other client payables.

Prior period disclosures have been updated to reflect this change as applicable.

(6) Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial.

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(8) The leverage ratio is a financial metric from our Credit Agreement and is calculated by dividing Credit Agreement net debt, which equals consolidated total debt less Corporate Cash, by Credit Agreement EBITDA.

Credit Agreement EBITDA, a non-GAAP financial measure, is defined by the Credit Agreement as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions .

Credit Agreement EBITDA, a non-GAAP financial measure, is

defined by the Credit Agreement as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions .

Please consult the “Debt and Related Covenants” section for more information.

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Advisor share-based compensation 2.6 2.6

Loss on extinguishment of debt 4.0 —

Credit Agreement EBITDA (†)

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(†) Totals may not foot due to rounding.

(8) Adjusted EPS is a non-GAAP financial measure defined as adjusted net income, a non-GAAP financial measure defined as net income plus the after-tax impact of amortization of other intangibles, acquisition costs and a regulatory charge related to an investigation of the Company’s compliance with records preservation requirements for business-related electronic communications stored on personal devices or messaging platforms that have not been approved by the Company, divided by the weighted average number of diluted shares outstanding for the applicable period.

The Company presents adjusted net income and adjusted EPS because management believes that these metrics can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items, acquisition costs and a regulatory charge that management does not believe impact the Company’s ongoing operations.

(9) Adjusted EPS is a non-GAAP financial measure defined as adjusted net income, a non-GAAP financial measure defined as net income plus the after-tax impact of amortization of other intangibles, acquisition costs, certain regulatory charges, losses on extinguishment of debt and amounts related to the departure of the Company’s former CEO, divided by the weighted average number of diluted shares outstanding for the applicable period.

The Company presents adjusted net income and adjusted EPS because management believes that these metrics can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items, acquisition costs and certain other charges that management does not believe impact the Company’s ongoing operations.

Adjusted net income and adjusted EPS are not measures of the Company's financial performance under GAAP and should not be considered as alternatives to net income, earnings per diluted share or any other performance measure derived in accordance with GAAP.

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105.9 1.40 48.1 0.62

Departure of former CEO (18)

(14.4) (0.19) — —

Loss on extinguishment of debt 4.0 0.05 — —

Tax benefit (62.1) (0.82) (37.4) (0.48)

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(†) Totals may not foot due to rounding.

(10) EBITDA is a non-GAAP financial measure defined as net income plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles.

The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations.

EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP.

Below is a reconciliation of net income to EBITDA for the periods presented (in millions):

(11) EBITDA and adjusted EBITDA are non-GAAP financial measures.

EBITDA is defined as net income plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles.

Adjusted EBITDA is defined as EBITDA plus acquisition costs, certain regulatory charges, losses on extinguishment of debt, and amounts related to the departure of the Company’s former CEO .

The Company presents EBITDA and adjusted EBITDA because management believes that they can be useful financial metrics in understanding the Company’s earnings from operations.

EBITDA and adjusted EBITDA are not measures of the Company's financial performance under GAAP and should not be considered as alternatives to net income or any other performance measure derived in accordance with GAAP.

Below is a reconciliation of net income to EBITDA and adjusted EBITDA for the periods presented (in millions):

Years Ended December 31,

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$ 2,110.8 $ 1,985.8

Regulatory charge (15)

Acquisition costs (17)

Departure of former CEO (18)

Loss on extinguishment of debt 4.0 —

Adjusted EBITDA (†)

$ 2,224.4 $ 2,073.9

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(†) Totals may not foot due to rounding.

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interest expense on borrowings;

brokerage, clearing and exchange;

amortization of other intangibles;

brokerage, clearing and exchange;

market fluctuations on employee deferred compensation;

losses on extinguishment of debt;

promotional (ongoing);

employee share-based compensation;

regulatory charges;

employee share-based compensation;

and acquisition costs.

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Employee deferred compensation

(4.8 ) (4.1 )

Loss on extinguishment of debt (4.0 ) —

Total G&A (†)

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(13) See the “Liquidity and Capital Resources” section for additional information about Corporate Cash.

(13) The Company recorded a $40.0 million regulatory charge for the year ended December 31, 2023 related to an investigation of the Company’s compliance with records preservation requirements for business-related electronic communications stored on personal

devices or messaging platforms that have not been approved by the Company applicable to broker-dealer firms and investment advisors.

See Note 14 - Commitments and Contingencies , within the notes to the consolidated financial statements for further detail.

(14) Acquisition costs include the costs to setup, onboard and integrate acquired entities and other costs that were incurred as a result of the acquisition.

(14) Acquisition costs and other primarily include acquisition costs, costs incurred related to the integration of the strategic relationship with Prudential, a $26.4 million reduction related to the departure of the Company’s former Chief Executive Officer and related clawback of share-based compensation awards, an $18.0 million regulatory charge recognized during the three months ended September 30, 2024 reflecting the amount of a penalty proposed by the SEC as part of its civil investigation of the Company’s compliance with certain elements of the Company’s AML compliance program, and a $40.0 million regulatory charge recognized during the three months ended September 30, 2023 to reflect the amount of a penalty proposed by the SEC as part of its civil investigation of the Company's compliance with records preservation requirements for business-related electronic communications stored on personal devices that have not been approved by the Company.

(15) The Company recorded an $18.0 million regulatory charge for the year ended December 31, 2024 related to an investigation of the Company’s compliance with certain elements of the Company’s Anti-Money Laundering compliance program .

The Company recorded a $40.0 million regulatory charge for the year ended December 31, 2023 related to an investigation of the Company’s compliance with records preservation requirements for business-related electronic communications stored on personal devices or messaging platforms that have not been approved by the Company.

See Note 14 - Commitments and Contingencies , within the notes to the consolidated financial statements for additional information.

(16) M&A accretion is an adjustment to reflect the annualized expected run rate EBITDA of an acquisition as permitted by the Credit Agreement for up to eight fiscal quarters following the close of such acquisition.

(17) Acquisition costs include the costs to setup, onboard and integrate acquired entities and other costs that were incurred as a result of acquisitions.

The below table summarizes the primary components of acquisition costs for the periods presented (in millions):

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Fair value mark on contingent consideration

$ 41.7 $ 26.7

Professional services 20.9 10.0

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$ 105.9 $ 48.1

(15) M&A accretion is an adjustment to reflect the annualized expected run rate EBITDA of an acquisition as permitted by the Credit Agreement for up to eight fiscal quarters following the close of such acquisition.

(16) During the first quarter of 2023, the Company updated its presentation of employee deferred compensation to be consistent with its presentation of advisor deferred compensation.

This change has not been applied retroactively as the impact on prior periods was not material.

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(†) Totals may not foot due to rounding.

(18) The departure of the Company’s former CEO resulted in other income of $26.4 million during the three months and year ended December 31, 2024 related to the clawback of share-based compensation awards, which was offset by share-based compensation expense of $12.0 million related to the modification of certain stock options that were retained as part of the settlement agreement that the Company reached with the former CEO.

See Note 16 - Share-Based Compensation, Employee Incentives and Benefit Plans, within the notes to the consolidated financial statements for additional information.

(19) Promotional (ongoing) for the years ended December 31, 2024 and December 31, 2023 includes $46.6 million and $30.7 million, respectively, of support costs related to full-time employees that are classified within compensation and benefits expense in the consolidated statements of income.

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economy grew 2.8% in 2024, and at an annualized pace of 2.3% in the fourth quarter of 2024 after growing at an annualized pace of 3.1% in the third quarter of 2024.

Although geopolitical tension and high interest rates were all headwinds, the U.S.

economy added approximately 494,000 jobs in the fourth quarter of 2023, down from 663,000 in the third quarter.

The unemployment rate averaged 3.7% in the fourth quarter, up slightly from the average in the third quarter of 2023.

Our business is also sensitive to current and expected short-term interest rates, which are largely driven by Federal Reserve (“Fed”) policy.

During the fourth quarter of 2023, Fed policymakers maintained the target range for the federal funds rate at 5.25% to 5.50%, and the equity markets rebounded as the Fed appeared to end their tightening cycle and prepare markets for future rate cuts.

economy added approximately 511,000 jobs in the fourth quarter of 2024, up from 477,000 in the third quarter.

The unemployment rate stabilized at approximately 4.2% in the latter half of 2024, up from 4.0% in the second quarter and 3.8% in the first quarter.

The equity markets rose modestly as risk appetite increased after the Federal Reserve (“Fed”) cut rates in mid-December by a quarter of a percentage point.

The S&P 500 total return index rose 25% for the year ended December 31, 2024, and the Bloomberg Barclays U.S.

Aggregate Bond Index fell 3.06% during the fourth quarter of 2024.

Our business is also sensitive to current and expected short-term interest rates, which are largely driven by Fed policy.

During the fourth quarter of 2024, Fed policymakers reduced the target range for the federal funds rate to 4.25% to 4.50%.

The Federal Open Market Committee members may take into account the weakening job market, the inflation trajectory, and global financial conditions as it evaluates whether to pursue faster easing in monetary policy.

Please consult the “Risks Related to Our Business and Industry” section within Part I, “Item 1A.

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Advisory $ 5,461,858 $ 4,135,681 32 %

Trailing 1,299,840 1,292,358 1 %

Sales-based 1,763,232 1,252,783 41 %

Trailing 1,542,255 1,299,840 19 %

Total commission 3,305,487 2,552,623 29 %

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Interest income, net 187,606 159,415 18 %

Other 119,024 (86,533) n/m

Other 144,164 119,024 21 %

Total revenue

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Promotional 589,339 459,233 28 %

Occupancy and equipment 248,620 219,798 13 %

Depreciation and amortization 308,527 246,994 25 %

Occupancy and equipment 281,210 248,620 13 %

Interest expense on borrowings 274,181 186,804 47 %

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Brokerage, clearing and exchange 127,941 105,984 21 %

Communications and data processing 75,717 67,687 12 %

Professional services 93,729 72,583 29 %

Communications and data processing 75,838 75,717 — %

Other 218,493 209,439 4 %

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The majority of these client accounts are on a calendar quarter and are billed using values as of the last business day of the preceding quarter.

The value of the eligible assets in an advisory account on the billing date is adjusted for estimates of contributions and withdrawals to determine the amount billed, and accordingly, the revenue earned in the following three-month period.

The value of the eligible assets in an advisory account on the billing date is adjusted for contributions and withdrawals during the period to determine the amount of revenue earned in the period.

Advisory revenue collected on our corporate RIA advisory platform is proposed by the advisor and agreed to by the client and was approximately 1% of the underlying assets for the year ended December 31, 2024.

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Advisory revenue increased during the year ended December 31, 2024 as compared to the same period in 2023.

The increase during the year ended December 31, 2023 was driven by continued organic growth, which increased advisory asset balances during the period, and a positive market impact as compared to the prior period.

The increase during the year ended December 31, 2024 was primarily driven by continued organic growth, which increased advisory asset balances during the period, and an increase in the market impact as compared to the prior period.

We generate two types of commission revenue:

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2024 2023 $ Change % Change

Trailing $ 1,299,840 $ 1,292,358 $ 7,482 1 %

Sales-based $ 1,763,232 $ 1,252,783 $ 510,449 41 %

Trailing 1,542,255 1,299,840 242,415 19 %

Total commission revenue

$ 3,305,487 $ 2,552,623 $ 752,864 29 %

The increase in trailing commission revenue in 2023 compared to 2022 was primarily due to an increase in sales of annuities during the period.

The increase in sales-based commission revenue in 2023 compared to 2022 was primarily driven by an increase in sales of annuities and fixed income securities as a result of the higher interest rate environment, partially offset by a decrease in sales of mutual funds and equities.

The increase in trailing commission revenue in 2024 compared to 2023 was primarily driven by increased sales of mutual funds and annuities along with positive market conditions during the period.

The increase in sales-based commission revenue in 2024 compared to 2023 was primarily driven by an increase in sales of annuities and fixed income securities as a result of the higher interest rate environment for most of the year, as well as increases in sales of mutual funds and equities.

The following table summarizes activity impacting brokerage assets for the periods presented (in billions):

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Networking revenue on brokerage assets is correlated to the number of positions we administer and is paid to us by mutual fund product sponsors and annuity product manufacturers.

Asset-based revenue for the year ended December 31, 2023 increased by $617.5 million compared to 2022, primarily d ue to an increase in client cash revenue.

Client cash revenue for the year ended December 31, 2023 increased compared to 2022 due to increases to the federal funds effective rate, partially offset by lower average client cash balances.

Asset-based revenue for the year ended December 31, 2024 increased by $120.0 million compared to 2023, primarily due to an increase in other asset-based revenue, partially offset by a decrease in client cash revenue.

Other asset-based revenue increased by $203.3 million compared to 2023 due to increases in asset balances in recordkeeping and sponsorship programs.

Client cash revenue for the year ended December 31, 2024 decreased $83.3 million compared to 2023 primarily due to lower average client cash balances.

For the year ended December 31, 2024, our average client cash balances decreased to $44.5 billion compared to $48.8 billion for the year ended December 31, 2023.

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Service and fee revenue is generated from advisor and retail investor services, including technology, insurance, conferences, licensing, business services and planning and advice services, IRA custodian and other client account fees.

We charge separate fees to RIAs on our Independent RIA advisory platform for technology, clearing, administrative, oversight and custody services, which may vary.

We charge separate fees to RIAs on our Independent RIA advisory platform for technology, clearing,

administrative, oversight and custody services, which may vary.

We also host certain advisor conferences that serve as training, education, sales and marketing events for which we charge sponsors a fee.

Service and fee revenue for the year ended December 31, 2023 increased by $41.1 million compared to 2022, primarily due to increases in IRA

custodian fees, business services and planning and advice services fees, and fees relating to confirmations and error and omission insurance.

Service and fee revenue for the year ended December 31, 2024 increased by $43.6 million compared to 2023, primarily due to increases in IRA custodian fees, trading, licensing, and resource fees, and error and omission insurance fees.

Transaction revenue includes transaction charges generated in both advisory and brokerage accounts from mutual funds, exchange-traded funds and fixed income products.

Transaction revenue for the year ended December 31, 2023 increased by $18.7 million compared to 2022, primarily due to increases in the number of transactions and transaction charges for fixed income products, partially offset by a decrease in charges for managed assets.

Transaction revenue for the year ended December 31, 2024 increased by $36.3 million compared to 2023, primarily due to increases in the volume of transactions for structured products, partially offset by a decrease in charges for managed assets.

Interest Income, net

We earn interest income primarily from client margin loans, client cash account (“CCA”) balances segregated under federal or other regulations and advisor repayable loans.

Interest income, net for the year ended December 31, 2023 increased compared to 2022, primarily due to increases in interest earned on bank deposits, short-term U.S.

treasury bills and margin loans, partially offset by an increase in interest paid on CCA balances.

Interest income is primarily generated from bank deposits, client margin loans, client cash account (“CCA”) balances segregated under federal or other regulations and advisor repayable loans.

Interest income, net for the year ended December 31, 2024 increased compared to 2023, primarily due to increases in average daily balances of bank deposits, short-term U.S.

treasury bills and margin loans.

Other revenue primarily includes unrealized gains and losses on assets held by us in our advisor non-qualified deferred compensation plan and model research portfolios and other miscellaneous revenue, which is not generated from contracts with customers.

Other revenue for the year ended December 31, 2023 increased by $205.6 million compared to 2022, primarily due to unrealized gains on assets held in our advisor non-qualified deferred compensation plan, which are based on the market performance of the underlying investment allocations chosen by advisors in the plan, and a related increase in dividend income on assets held in our advisor non-qualified deferred compensation plan.

Other revenue for the year ended December 31, 2024 increased by $25.1 million compared to 2023, primarily due to other income recognized as a result of the clawback of share-based compensation awards related to the departure of the Company’s former CEO.

This increase was partially offset by a net decrease in realized and unrealized gains on assets held in our advisor non-qualified deferred compensation plan, which are based on the market performance of the underlying investment allocations chosen by advisors in the plan, and a related increase in dividend income on assets held in our advisor non-qualified deferred compensation plan.

Advisory and Commission

Advisory and commission expense consists of the following:

payout amounts that are earned by and paid out to advisors and enterprises based on advisory and commission revenue earned on each client’s account, production-based bonuses earned by advisors and enterprises based on the levels of advisory and commission revenue they produce, compensation and benefits paid to employee advisors, share-based compensation expense from equity awards granted to advisors and enterprises based on the fair value of the awards at grant date and the deferred advisory and commission fee expense associated with mark-to-market gains or losses on the non-qualified deferred compensation plan offered to our advisors.

payout amounts that are earned by and paid out to advisors and institutions based on advisory and commission revenue earned on each client’s account, production-based bonuses earned by advisors and institutions based on the levels of advisory and commission revenue they produce, compensation and benefits paid to employee advisors, share-based compensation expense from equity awards granted to advisors and institutions based on the fair value of the awards at grant date and the deferred advisory and commission fee expense associated with mark-to-market gains or losses on the non-qualified deferred compensation plan offered to our advisors.

The following table sets forth our payout rate, which is a statistical or operating measure, for the periods presented:

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Payout rate 87.34 % 86.97 % 37 bps

Our payo ut rate decreased fo r the year ended December 31, 2023 compared to 2022, primarily due to the effect of acquisitions during the year and changes in product mix.

Our payo ut r ate increased fo r the year ended December 31, 2024 compared to 2023, primar ily due to the effect of acquisitions during the year and changes in product mix.

Compensation and Benefits

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Promotional expense includes business development costs related to advisor recruitment and retention, costs related to hosting certain advisory conferences that serve as training, sales and marketing events, and other costs that support advisor business growth.

Promotional expense for the year ended December 31, 2023 increased by $119.2 million compared to 2022, primarily due to increases in recruited assets and advisors that led to higher costs to support transition assistance and retention.

Promotional expense for the year ended December 31, 2024 increased by $130.1 million compared to 2023, primarily due to increases in large bank integration labor and increases in recruited assets and advisors that led to higher costs to support transition assistance and retention.

Depreciation and Amortization

Depreciation and amortization expense relates to the use of property and equipment, which includes internally developed software, hardware, leasehold improvements and other equipment.

Depreciation and amortization expense for the year ended December 31, 2024 increased by $61.5 million compared to 2023, primarily due to our continued investment in technology to support the integrations, enhance our advisor platform and experience, and support onboarding of institutions.

Occupancy and Equipment

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Occupancy and equipment expense for the year ended December 31, 2024 increased by $32.6 million compared to 2023, primarily due to increased expense related to software licenses and our technology portfolio.

Depreciation and Amortization

Depreciation and amortization expense relates to the use of property and equipment, which includes internally developed software, hardware, leasehold improvements and other equipment.

Depreciation and amortization expense for the year ended December 31, 2023 increased by $47.2 million compared to 2022, primarily due to our continued investment in technology to support the integrations, enhance our advisor platform and experience, and support onboarding of enterprises.

Interest Expense on Borrowings

Interest expense on borrowings includes the interest associated with the Company’s senior notes, senior secured Term Loan B (“Term Loan B”) and revolving credit facilities;

Interest expense on borrowings includes the interest associated with the Company’s Notes, Term Loan A, Term Loan B (together with our Term Loan A, the “Term Loans”) and revolving credit facilities;

amortization of debt issuance costs;

and fees associated with the Company’s revolving lines of credit.

Interest expense on borrowings for the year ended December 31, 2023 increased by $60.6 million compared to 2022, primarily due to increases in interest rates associated with our Term Loan B and revolving credit facilities and higher outstanding debt balances.

Interest expense on borrowings for the year ended December 31, 2024 increased by $87.4 million compared to 2023, primarily due to higher outstanding debt balances on our Term Loans, Notes, and revolving credit facilities.

See Note 11 - Corporate Debt and Other Borrowings, Net , within the notes to the consolidated financial statements for further detail.

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Brokerage, clearing and exchange expense for the year ended December 31, 2024 increased by $22.0 million compared to 2023, primarily due to an increase in the volume of trades and expenses for quote services.

Professional Services

Professional services includes costs paid to outside firms for assistance with legal, accounting, technology, regulatory, marketing, and general corporate matters, as well as non-capitalized costs related to service and technology enhancements.

Professional services increased by $21.1 million compared to 2023, primarily due to technology enhancement projects and acquisition related support .

Other Expense

Other expense includes the costs of the investigation, settlement and resolution of regulatory matters (including customer restitution and remediation), licensing fees, insurance, broker-dealer regulator fees, travel-related expenses and other miscellaneous expenses.

Other expense depends in part on the size and timing of resolving regulatory matters and the availability of self-insurance coverage, which in turn depend in part on the amount and timing of resolving historical claims.

Other expense for the year ended December 31, 2023 increased by $65.5 million compared to 2022, primarily due to a $40.0 million regulatory charge recognized in anticipation of a potential settlement with the SEC to resolve the civil investigation into compliance with records preservation requirements for business-related electronic communications stored on personal devices applicable to broker-dealer firms and investment advisors and a fair value adjustment to our contingent consideration liabilities.

See Note 4 - Acquisitions and Note 14 - Commitments and Contingencies , within the notes to the consolidated financial statements for further detail.

Other expense includes the costs of the investigation, settlement and resolution of regulatory matters (including customer restitution and remediation), licensing fees, insurance, broker-dealer regulatory fees, travel-related expenses, fair value adjustments to contingent consideration liabilities, and other miscellaneous expenses.

Other expense depends in part on the size and timing of resolving regulatory matters and the availability of self-insurance coverage, which depends in part on the amount and timing of resolving historical claims.

Other expense for the year

ended December 31, 2024 increased by $9.1 million compared to 2023, primarily due to an increase in fair value adjustments to our contingent consideration liabilities, increases in insurance and licensing fees, and a loss on extinguishment of debt which were partially offset by decreases in regulatory charges.

See Note 4 - Acquisitions, Note 11 - Corporate Debt and Other Borrowings, Net , and Note 14 - Commitments and Contingencies , within the notes to the consolidated financial statements for further detail.

Provision for Income Taxes

Our effective income tax rate was 24.0% and 26.2% for the years ended December 31, 2024 and 2023, respectively.

The increase in our effective tax rate for the year ended December 31, 2023 was primarily due to a decreased benefit from share-based compensation recognized during the year as well as an increase in non-deductible expenses due to the $40.0 million regulatory charge described above.

The decrease in our effective tax rate for the year ended December 31, 2024 was primarily due to a reduction in non-deductible expenses, a release of uncertain tax positions and additional tax benefits for the vesting and exercise of share-based compensation.

See Note 14 - Commitments and Contingencies , within the notes to the consolidated financial statements for further detail.

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LPL Holdings, Inc.

(the “Parent”), the direct holding company of our operating subsidiaries, considers its primary sources of liquidity to be dividends from and excess capital generated by LPL Financial, as well as capacity for additional borrowing under its $2.0 billion secured revolving credit facility, which it has the ability to borrow against for working capital and general corporate purposes.

(the “Parent”), the direct holding company of our operating subsidiaries, considers its primary sources of liquidity to be dividends from and excess capital generated by LPL Financial, as well as capacity for additional borrowing under its $2.25 billion unsecured revolving credit facility, which it has the ability to borrow against for working capital and general corporate purposes.

Dividends from and excess capital generated by LPL Financial are primarily generated through our cash flow from operations.

Subject to regulatory approval or notification, capital generated by regulated subsidiaries can be distributed to the Parent to the extent the capital levels exceed regulatory requirements and internal capital thresholds.

During the years ended December 31, 2023 and 2022, LPL Financial paid dividends of $710.0 million and $1.1 billion to the Parent, respectively.

During the years ended December 31, 2024 and 2023, LPL Financial paid dividends of $460.0 million and $710.0 million to the Parent, respectively.

We believe Corporate Cash, a component of cash and equivalents, is a useful measure of the Parent’s liquidity as it represents the capital available for use in excess of the amount we are required to maintain pursuant to the Credit Agreement.

Corporate Cash is the sum of cash and equivalents from the following:

(1) cash and equivalents held at the Parent, (2) cash and equivalents held at regulated subsidiaries as defined by the Credit Agreement, which include LPL Financial and PTC, in excess of the capital requirements of the Credit Agreement (which, in the case of LPL Financial, is net capital in excess of 10% of its aggregate debits, or five times the net capital required in accordance with Exchange Act Rule 15c3-1) and (3) cash and equivalents held at non-regulated subsidiaries.

(1) cash and equivalents held at the Parent, (2) cash and equivalents held at regulated subsidiaries as defined by the Credit Agreement, which include LPL Financial, LPL Enterprise, PTC and Atria’s introducing broker-dealer subsidiaries, in excess of the capital requirements of the Credit Agreement and (3) cash and equivalents held at non-regulated subsidiaries.

The following table presents the components of Corporate Cash (in thousands):

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Corporate Cash $ 479,438 $ 183,685

Corporate Cash is monitored as part of our liquidity risk management.

We target maintaining approximately $200 million in Corporate Cash, which covers approximately 12 months of principal and interest due on our corporate debt.

The decrease in Corporate Cash during the year ended December 31, 2023 was driven primarily by investments in the business, including acquisitions and capital expenditures, and capital returns to shareholders in the form of dividends and share repurchases offset by increases in cash resulting from operating activities and net borrowing.

Corporate Cash is monitored as part of our liquidity risk management strategy, and we target maintaining approximately $200 million in Corporate Cash to meet our near-term corporate debt obligations.

Corporate cash increased during the year ended December 31, 2024 primarily as a result of cash provided by operating activities and proceeds received from our $1.0 billion debt issuance in May 2024 offset by the repayment of balances outstanding on our senior unsecured revolving credit facility and the acquisition of Atria, which was funded by a combination of Corporate Cash on hand and borrowings under our senior unsecured revolving credit facility.

See Note 4 - Acquisitions and Note 11 - Corporate Debt and Other Borrowings, Net within the notes to the consolidated financial statements for additional information.

We actively monitor changes to our liquidity needs caused by general business volumes and price volatility, including higher margin requirements of clearing corporations and exchanges, and stress scenarios involving a sustained market downturn and the persistence of current interest rates.

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Our current capital deployment framework remains focused on investing in organic growth first, pursuing acquisitions where appropriate and returning excess capital to stockholders.

We repurchased 5,075,900 shares for a total of $1.1 billion for the year ended December 31, 2023.

We paused share repurchases following the announcement of the Atria transaction in the first quarter of 2024 and resumed repurchases in the fourth quarter of 2024.

The Company repurchased 605,361 shares for a total of $170.0 million for the year ended December 31, 2024.

As of December 31, 2024 we had $730.0 million remaining under our existing repurchase program.

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Common Stock Dividends

The payment, timing and amount of any dividends are subject to approval by the Board, as well as certain limits under our Credit Agreement.

The Board approved an increase to the quarterly cash dividend to $0.30 per share beginning in the first quarter of 2023.

The payment, timing and amount of any dividends are subject to approval by LPLFH’s Board, as well as certain limits under our Credit Agreement.

See Note 15 - Stockholders’ Equity , within the notes to the consolidated financial statements for additional information regarding our dividends.

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Description Borrower Maturity Date Outstanding Available

Senior secured, revolving credit facility LPL Holdings, Inc.

March 2026 $ 280 $ 1,720

Broker-dealer revolving credit facility LPL Financial LLC July 2024 $ — $ 1,000

Senior unsecured, revolving credit facility

LPL Holdings, Inc.

May 2029 $ 1,047 $ 1,203

Broker-dealer revolving credit facility LPL Financial LLC May 2025 $ — $ 1,000

Unsecured, uncommitted lines of credit LPL Financial LLC None

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Failure to meet the respective minimum capital requirements can result in certain mandatory and discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary impacts on PTC’s operations.

As of December 31, 2024, the Company’s regulated subsidiaries, including LPL Financial, LPL Enterprise, Atria’s seven introducing broker-dealer subsidiaries, and PTC, met all capital adequacy requirements to which they were subject.

Supplemental Guarantor Financial Information

The Company filed a registration statement on Form S-3 to register, among other things, non-convertible debt securities that may be offered by LPL Holdings, Inc.

The Company has an outstanding registration statement to issue, among other things, non-convertible debt securities that may be offered by LPL Holdings, Inc.

(the “Issuer”), a wholly owned subsidiary of LPLFH (together with the Issuer, the “Obligor Group”), and full and unconditional guarantees by LPLFH of such debt securities.

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However, a credit rating downgrade to a below investment grade rating could cause currently suspended restrictive covenants under certain of our Indentures to be automatically reinstated.

See Note 11 - Corporate Debt and Other Borrowings, Net , within the notes to the consolidated financial statements for further detail regarding the Credit Agreement.

See Note 11 - Corporate Debt and Other Borrowings, Net , within the notes to the consolidated financial statements for additional information regarding the Credit Agreement.

Contractual Obligations

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See Note 11 - Corporate Debt and Other Borrowings, Net , within the notes to the consolidated financial statements for further detail.

(4) Represents interest payments under our Credit Agreement, which include a variable interest payment for our senior secured credit facilities and a fixed interest payment for our senior unsecured notes.

(4) Represents interest payments under our Credit Agreement, which include a variable interest payment for our senior unsecured credit facilities and a fixed interest payment for our senior unsecured notes.

Variable interest payments assume the applicable interest rates at December 31, 2024 remain unchanged.

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Risk Management

Risk is an inherent part of our businesses and activities.

To effectively manage these risks, we have an ERM framework designed to facilitate the incorporation of risk assessment into decision-making processes across the Company, enable execution our business strategy, and protect our Company and its franchise.

This framework aims to ensure policies and procedures are in place and appropriately designed to identify and manage risk at appropriate levels throughout our organization and within various departments.

Risk is an inherent part of our business activities.

To manage risk, we have implemented an ERM framework that supports a resilient and adaptive risk-focused organization, designed to enable us to navigate uncertainties, make informed and consistent decisions, and seize growth opportunities.

This framework defines our risk appetite, facilitates the incorporation of risk assessment into decision-making processes, enables execution of our business strategy, and protects the Company and our franchise.

Our Company-wide risk appetite statement is a crucial component of our risk governance framework.

It defines the overall level and types of risk we are prepared to accept in order to achieve our strategic objectives and business plan.

This statement categorizes risks into strategic, technology, regulatory compliance, operational, liquidity, reputational, credit, interest rate risk, and market risks.

Additionally, this framework aims to ensure policies and procedures are in place and appropriately designed to identify and manage risk at appropriate levels throughout the Company and within various departments.

We have established advisor-facing and internal written policies and procedures that govern the conduct of our advisors and employees.

Our advisor-facing policies are specifically designed to provide guidelines and procedures that ensure advisors adhere to regulatory requirements and maintain ethical standards in their professional conduct while our internal policies cover a wide range of topics designed to promote compliance, consistency, risk management, and culture and values across the Company.

Our framework is designed to promote clear lines of risk management ownership and accountability while providing a structured escalation process for key risk information and events.

Additionally, risk is managed and monitored within business units by embedded risk groups providing guidance on governance, controls, policies and other risk management activities.

We operate a three lines of defense model to manage risk throughout the organization.

Primary ownership for risk and control processes is with the business units and control owners, who are the first line of defense in effectively managing risks, and who are responsible for day-to-day compliance and risk management, including execution of operating and supervisory procedures.

These business units and certain control owners implement and execute controls to manage risk, execute risk assessments, identify emerging risks and comply with risk management policies.

Within these business units a risk management function monitors, provides guidance and works with the business units and control owners to deploy risk management ownership within the first line of defense.

The second line of defense consists of certain functions within our Finance and Business Operations department, which provides risk oversight and compliance, and Legal department, which provides related legal counsel.

The third line of defense is independent verification of the effectiveness of risk management practices and internal controls and is conducted by the Internal Audit department.

Our risk management governance approach includes the Board and certain of its committees;

our ROC and its subcommittees;

and our three lines of defense model.

We regularly reevaluate and, when necessary, modify our processes to improve the identification and escalation of risks and events.

In addition to the ERM framework, we also have written policies and procedures that govern the conduct of business by our advisors, employees and the terms and conditions of our relationships with product manufacturers.

Our client and advisor policies address the extension of credit for client accounts, data, cyber and physical security, compliance with industry regulations and codes of conduct and ethics to govern employee and advisor conduct, among other emerging risk types.

Risk Governance Structure

We operate a three lines of defense model, an industry-standard framework that clarifies roles and responsibilities, and that supports a comprehensive risk management and governance framework.

The three lines and associated responsibilities are as follows:

• First Line of Defense :

This consists of operational management, which owns and manages the risks within their business unit.

They are responsible for implementing controls and managing day-to-day risks.

• Second Line of Defense :

This includes the risk management and compliance functions.

They provide guidance and oversight, and monitor the effectiveness of controls implemented by the first line.

• Third Line of Defense :

This is the internal audit function, which provides independent assurance.

They assess the effectiveness of our risk management and internal controls.

Internal Audit Department

As the third line of defense, the Internal Audit department provides independent and objective assurance of the effectiveness of the Company’s governance, risk management, and internal controls by conducting risk assessments and audits designed to identify and cover important risk categories.

Internal Audit reports directly to the ARC, which provides oversight of Internal Audit’s activities and approves its annual plan.

The Internal Audit department reports to the ARC at least quarterly.

Risk Governance Committee Structure

Risk management at the Company requires independent Company-level oversight, accountability of our business areas, and effective communication of risk matters to senior management and ultimately the Board.

This risk management approach encompasses the Board and its committees, the ROC and its subcommittees, and our three lines of defense model.

We regularly reevaluate and, when necessary, modify our processes to enhance the identification and escalation of risks and events.

Audit and Risk Committee of the Board

The ARC oversees and monitors, among other things, the Company’s enterprise risk management (except for risks assigned to other committees of the Board or retained by the Board), and is responsible for reviewing and assessing the Company’s processes to manage and control risk.

In this capacity, the ARC reviews reports from risk-focused management committees;

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The ROC, a management committee chaired by the chief risk officer, oversees our risk management activities, including those of our subsidiaries.

The chief risk officer of LPL Financial serves as chair of the ROC, which generally meets once every two months, with additional ad hoc meetings as necessary.

The members of the ROC include certain Managing Directors of LPL Financial, as well as other members of LPL Financial’s senior management team who serve as ex-officio members and represent key control areas of the Company.

Participation in the ROC by senior officers is intended to ensure that the ROC covers the key risk areas of the Company, including its subsidiaries, and that the ROC thoroughly reviews significant matters relating to risk priorities, policies, control procedures and related exceptions, certain new and complex products and business arrangements, transactions with significant risk elements and identified emerging risks.

The ROC, which generally meets once every two months, with additional ad hoc meetings as necessary.

The members of the ROC include certain Managing Directors of LPL Financial, as well as other members of LPL Financial’s senior management team who serve as ex-officio/non-voting members and represent key control areas of the Company.

Participation in the ROC by senior officers is intended to ensure that the ROC covers the key risk areas of the Company, including its subsidiaries.

The ROC thoroughly reviews significant matters relating to risk priorities, policies, control procedures and related exceptions.

It also examines certain new and complex products and business arrangements, transactions with significant risk elements and identified emerging risks.

The chief risk officer provides updates on pertinent ROC discussions to the Audit and Risk Committee on a regular basis and, if necessary or requested, to the Board.

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oversight of the approval of new and complex investment products offered to advisors’ clients;

oversight of the firm’s technology;

oversight of our technology;

and issues and trends related to advisor compliance.

Internal Audit Department

As the third line of defense, the Internal Audit department provides independent and objective assurance of the effectiveness of the Company’s governance, risk management and internal controls by conducting risk assessments and audits designed to identify and cover important risk categories.

Internal Audit reports directly to the ARC, which provides oversight of Internal Audit’s activities and approves its annual plan.

The Internal Audit department reports to the ARC at least quarterly.

Operational Risk

Operational Risk is reviewed, monitored and challenged by the Operational Risk Oversight Committee (the “OROC”), which is a subcommittee of the ROC.

Operational risk is defined as the risk of loss resulting from failed or inadequate processes or systems, actions by people or external events.

We are exposed to a variety of operational risks and actively monitor and manage them across the following risk categories:

• Information Security & Cybersecurity Risk – the potential disclosure, misuse or loss of our data (including client data) that may adversely impact the availability, integrity and/or confidentiality of our data or information through unintentional or malicious acts, either internal or external.

• Information Technology Risk – the potential for a technology failure, obsolescence or improper operation of our technology systems.

• Third Party Risk – the risk of exposure caused by our reliance on third-party service providers to execute critical processes.

• General Operational Risk – all other types of operational risks not detailed above, including external or internal fraud, execution, process or internal control failures, business disruptions unrelated to technology, or human capital risk, such as key person dependencies.

Regulatory and Legal Risk

Regulatory and Compliance Risk

The regulatory environment in which we operate is discussed in detail within Part I, “Item 1.

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Risk Factors” for more information about the risks associated with operating within our regulatory environment, pending regulatory matters and the potential related effects on our operations.

Operational Risk

Operational risk refers to the risk of loss resulting from inadequate or failed processes and/or systems as a result of external events and is inherent in all Company activities.

Instances where operational risk exposure can manifest across our business include, but are not limited to:

process or control failures;

external or internal fraud resulting from unethical behavior or misconduct of employees and advisors;

external events such as a pandemic, theft, or fraud;

risks introduced by third-party vendors and/or counterparties;

issues stemming from the use of artificial intelligence;

and inadequate data governance, which could result in data breaches, loss, lack of compliance, or unauthorized access.

As a Company, we manage operational risk exposure through sound processes, tracking performance across key risk appetite metrics, making key investments that account for the complexity inherent in our operations, and proactively identifying risks, while ensuring the appropriate steps are taken to manage exceeding risk tolerance level.

Operational risk is reviewed, monitored and challenged by the Operational Risk Oversight Committee, which is a subcommittee of the ROC.

Critical Accounting Policies and Estimates

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Goodwill is recognized as the excess of the purchase consideration over the fair value of net assets acquired.

Certain of the Company’s acquisitions include contingent consideration, which may result in the transfer of additional cash consideration to the sellers if certain asset or revenue growth is achieved in the years following an acquisition.

Contingent Consideration

Certain of the Company’s acquisitions include contingent consideration, which may result in the transfer of additional cash consideration to the sellers if certain milestones are achieved in the years following an acquisition.

Contingent payments are estimated by applying forecasted growth or conversion rates to project future revenue or asset growth and discount rates which are based on the cost of capital.

For acquisitions accounted for under the acquisition method of accounting for business combinations, any such contingent consideration is recognized at its estimated fair value on the date of acquisition within other liabilities in the consolidated statements of financial condition.

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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 7. Management’s Discussion and Analysis