54 Grove Street,
Dear LPL Financial clients:
Throughout our history and across various economic cycles, LPL Financial has produced consistent earnings results.
Our financial stability can be attributed to our independent business model, differentiated technology and capabilities, and to the hard work and dedication of our financial advisors to their clients.
Because our model is different, I would like to provide you with some additional insight into how LPL enables financial advisors to focus on creating the personal, long-term client relationships that are the foundation for turning life’s aspirations into financial realities.
Our business model
One of the distinguishing characteristics of our business model is our ability to consistently generate significant free cash flow. LPL does not provide investment banking or other alternative financial services.
We do not engage in market-making activities, nor do we engage in speculative trading for our own account. Our trading activities are focused solely on facilitating trades for the clients of our financial advisors.
In addition, we have no direct exposure to mortgage-related investments or securities, nor do we provide loans to hedge funds or other speculators, which lowers our credit risk.
What LPL Financial does provide is technology, brokerage, and investment advisory services through business relationships with independent financial advisors, registered investment advisors (RIAs), and financial institutions and their financial representatives, whom we refer to collectively as our “clients.”
We offer our clients access to a broad array of financial products and services to support them in providing financial advice and brokerage services to retail investors. Financial advisors and institutions are our only clients.
Financial performance and liquidity position
As a Financial Industry Regulatory Authority (FINRA) member firm subject to the federal securities laws and the rules of industry self-regulatory organizations, LPL Financial prioritizes its obligations to protect client assets in our custody with the utmost care and scrupulous adherence to financial protection rules, including those governing the segregation of client assets.
Moreover, LPL Financial maintains net capital well in excess of requirements set out by our regulators.
Because the vast majority of LPL Financial advisors are independent contractors rather than employees, LPL Financial does not have a high degree of fixed costs.
Our revenue is derived from our business relationships with financial advisors, banks, credit unions, investment companies, insurance carriers, and other financial institutions.
Counter-party risk assessment
Our Governance, Risk, and Compliance department routinely reviews our counter-party risk, as well as that of our business partners, to limit our exposure to risk.
The team monitors all outstanding debits and credits and the firms that clear those trades to help ensure they are healthy and do not pose a risk to LPL or the clients of our financial advisors.
This process includes extensive research, due diligence, financial analysis, and forward-looking measures of financial strength and sustainability.
Client account protection
LPL Financial is a member of the Securities Investor Protection Corporation (SIPC). Membership provides protection for client accounts up to $500,000, of which $250,000 may be claims for cash, in the unlikely event that LPL Financial were to fail financially. (For an explanatory brochure, visit www.sipc.org.)
Moreover, LPL Financial accounts have additional securities protection to cover the net equity of client accounts up to an overall aggregate firm limit of $600,000,000, subject to conditions and limitations.
This coverage is underwritten by London Insurers through the Lloyds of London syndicates. Protection applies when an SIPC member firm fails financially and is unable to meet its obligations to securities clients, but it does not protect against losses from the rise and fall in the market value of investments.
This extensive coverage reflects a strong commitment to serving your investment needs. As always, our focus remains on our financial advisors and financial institutions and their clients and on helping you meet your financial needs and goals.
Thank you for the opportunity to partner with your financial advisor to serve your financial needs.
Matthew AudetteChief Financial OfficerLPL Financial
*Throughout this message, “financial advisors” include registered representatives and/or investment adviser representatives affiliated with LPL Financial LLC, an SEC registered broker-dealer and investment adviser.