LPL Financial Holdings Inc.
Q1 2021 Earnings Call Transcript

Published: 1 May 2021

[Operator:]

Good afternoon, and thank you for joining the First Quarter 2021 Earnings Conference Call for LPL Financial Holdings Inc. Joining the call today are our President and Chief Executive Officer, Dan Arnold; and Chief Financial Officer, Matt Audette. Dan and Matt will offer introductory remarks and then the call will be open for questions. The company would appreciate if analysts would limit themselves to one question and one follow-up each. The company has posted its earnings press release and supplementary information on the Investor Relations section of the company's website, investor.lpl.com. Today's call will include forward-looking statements, including statements about LPL Financial's future financial opening operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees.

[Dan Arnold:]

Thank you, Kirby, and thanks to everyone for joining our call today. Over the past quarter, our advisors continue to be a source of extraordinary support and guidance for their clients. And at the same time, we remain focused on our mission of taking care of our advisors so they can take care of their clients. This combination positions us to deliver another quarter of solid results while also continuing to make progress on our strategic plan. I'd like to review both of these areas, starting with our first quarter business results. In the quarter, total assets reached a new high of over $950 billion, up more than 40% from a year ago. This increase was primarily driven by continued organic growth and equity market appreciation. With respect to organic growth, first quarter net new assets were $29 billion, which included $12 billion from BMO Harris Financial Advisors. This result translated to double-digit annualized growth of 13%, driven by continued strength across new store sales, same-store sales and retention. First quarter recruited assets were $24 billion, which includes $15 billion from BMO. This result brought our total recruited assets over the past year to a new high of $56 billion. Our continued progress on recruiting is primarily driven by the appeal of our model, our ongoing innovation for the future and the expanded flexibility of our platform. At the same time, we further enhanced the advisor experience through continued delivery of new capabilities and technology as well as the ongoing modernization of our service and operations functions. As a result, asset retention remained solid at 98% in the first quarter and Net Promoter Scores increased year-over-year. Our first quarter business results led to solid financial outcomes with $1.77 of EPS prior to intangibles and acquisition cost. Let's now turn to the progress we have made executing our strategic plan. As a reminder, we have evolved our long-term vision. We aspire to expand beyond our old vision of extending our leadership in the independent space and redefine the independent model over time, and by doing so, become the leader across the entire advisor centered marketplace.

[Matt Audette:]

All right. Thank you, Dan, and I'm glad to speak with everyone on today's call. As we move into 2021, we remain focused on serving our advisors, growing our business and delivering shareholder value. This focus led to the highest quarter of organic growth in our history. And in addition, we are in the midst of onboarding what will become three of our largest partners in BMO, M&T and Waddell & Reed. We expect these three partners to collectively add approximately $100 billion of AUM to our platform, bringing our total AUM to over $1 trillion. Now let's turn to our first quarter business results. Total advisory and brokerage assets increased to a new high of $958 billion, up 6% from Q4, driven by continued organic growth and higher equity markets. Looking at organic growth, total net new assets were $29 billion, which translates to a 12.8% annualized growth rate. Prior to large bank onboarding, organic growth was 7.6%. Moving on to recruiting and retention. We continue to produce strong results in the first quarter. Recruited assets in Q1 were the strongest in our history at $24 billion, which included $15 billion from large bank onboarding. These results brought our 12-month recruiting total to a new high of $56 billion. Looking at retention, it remained strong at 98.1%. I would also note that we updated our retention metric to reflect asset retention rather than our previous method of production retention. We believe this change will be more helpful in evaluating our business results, and we have provided historical data in our Key Metrics presentation, so you can see both the old and new metric.

[Q - Bill Katz:]

Okay. Thank you very much and good evening, everybody. So maybe, Dan, to start off with you. It seems like I'm seeing from the headlines in your comments that the -- there's been acceleration in both Strategic Wealth Services and building so on sort of the independent play side. What's changing at the margin here? Is it just time or maybe a sense of maybe peel back a layer sort of what's been the incremental change in the marketplace that's resonating better?

[Dan Arnold:]

Yes, Bill, thanks for the question. And as a reminder, we just launched these last year, SWS in April and then the employee model in the second half of last year. And as you know, it takes a bit of positioning in the marketplace, seasoning, iterating on your value proposition as you learn and you get feedback, bringing on clients and then having a good experience and being able to use them as a reference to future prospects and considerations. We've also continued to invest and enhance in the talent on our business development team. So a combination of those things are driving a bigger pipeline, better positioning out in the marketplace from a competitive standpoint, building on existing clients who are having a good experience and then finally using that quality talent to ultimately help go execute. So that's a similar concept for both. SWS, or Strategic Wealth Services, is a bit ahead of the independent employee model only because it started several months earlier, but you can see them on a similar trajectory. I hope that helps.

[Bill Katz:]

Yes. Thanks. And then maybe one just for Matt. I guess one of the themes that's been coming out is sort of this excess liquidity in the system overall. I think you mentioned in the last quarter as well. Can you sort of maybe update us your thinking on how to sort of track through fixed to float or float to fix, I should say, and so the ability to sort of drive the third-party sweep opportunity?

[Matt Audette:]

Yes. Sure, Bill. I think that -- maybe just starting with our strategy and goals here, which are really unchanged, specifically on the fixed rate deposit side, which is really to get to a place where 50% to 75% of the portfolio is fixed. So I think from a long-term perspective, that's where we're headed. But I think to the point of your question and similar to last quarter is when you look at the amount of liquidity in the system right now, there's really just very little demand for deposits. That said, I think you're starting to see some early indicators of that changing and maybe really early indicators, but things like the yield curve starting to steepen, right? The 10-year moving up, where there's a -- for those banks that are on the demand side of these deposits, there's some economics in the spread for them to invest it. Consumer spending picking up, right? There's trillions of dollars in savings and checking accounts that's built up over the pandemic. And as that spending picks up, that going back into the market is one of the things that could lead to that demand. So if those trends continue, I think those are some of the things that could start to change and improve that demand. But I'd emphasize we're not seeing that pick up today. But I'd just end with, I think, our long-term strategy of moving into that 50% to 75% fixed zone. When there is demand, we feel really good about being able to execute it then.

[Bill Katz:]

Okay, thank you.

[Operator:]

Next question comes from the line of Steven Chubak of Wolfe Research. Steven, your line is now open.

[Steven Chubak:]

Hey. Dan, Matt, good afternoon. So I wanted to start off with a question on M&A and the appetite for more transformational deals. In August '17, you announced the NPH transaction. You retained about 70% of the assets as part of the deal. Since then, you've made a lot of enhancements, whether it's investments in digital or just to the platform more broadly and fast forward to Waddell and now you've retained 95%. So just given that much stronger retention and the favorable experience with Waddell, given all the metrics you have in cited. I'm just curious whether that increases your appetite to do more transformational deals as a much higher retention significantly impact some of the future deal math?

[Dan Arnold:]

Yes. So Steven, it's Dan. So look, I think we continue to see M&A from a strategy standpoint as a complement to our organic growth and as you know, we look across the lens of growth opportunities or acceleration of capabilities. And so that hasn't changed in our overall strategy. We do believe that if we're good at executing on these transactions, then that becomes an interesting differentiator and an opportunity for us in terms of how we might structure a deal, value a deal, etc. And so we are staying disciplined on making sure with every acquisition that we learned from those and we apply those insights and learnings such that we can execute better the next time. If you look at the drivers of the difference in these two transactions, I think most of it were activities that we control or drive, where we maybe didn't do them as well back in 2017, '18 and we did them much better today. Things like being able to automate and streamline the transition of asset and advisors moving from one place to the next. You take the friction out and help them continue to focus on their clients, that's a pretty appealing scenario. Our ability to take a strategy and go deliver it in a simple articulate manner to help advisors understand what that experience would be like, what their structure, what their economics will be like on the other side of that transaction and do it at pace and clear, you begin to create the right dialogues very quickly that lead to good outcomes. And so those are things that as examples that we continue to learn and evolve and get better in terms of our ability to execute. So as we go forward, to your point, do we think there's continued consolidation, both in what I might call the smaller transactions across the entire spectrum, the larger transactions? Yes. Would we continue to have an opening and exploring and potentially participating in some of that consolidation? I think based on our strategy, the absolute answer would be yes. And to the extent that we get better and better at executing on these, we will use that insight perspective and advantage to think about how we consider approaching them.

[Steven Chubak:]

Thanks for that color, Dan. And just for my follow-up, I wanted to ask on the centrally managed platform. I mean the assets grew organically at a very impressive 47% rate. It looks like the bulk of the increase in the quarter was tied to the BMO onboarding. I was hoping you could speak to what drove such strong demand for the centrally managed product just from those advisors. And should we expect a higher ROA on those assets given the more attractive economics of centrally managed?

[Dan Arnold:]

Yes. Steven, it's great observation in that you did see solid growth in centrally managed platforms. And you're continuing to see that underlying strong baseline growth and utilization of that platform increase, right? So that didn't change in the first quarter across our entire platform. And as we invest and add capabilities, investment content, lower price, we think those centrally managed solutions only become that much more appealing. And then you complement that or add that to, in this case, BMO's utilization of centrally managed solutions and that creates a really interesting opportunity not only for us to think about how we expand and grow our centrally managed platform, but even unique capabilities, we may put inside of it that are helpful and supportive of large institutions. And then all the way finally to large institutions or users of models-based approach and our robust centrally managed solution with MWP enables them to leverage both the growing momentum their advisors have in this space, the great talent they have to serve and support their clients, matched with a platform that is really well aligned with their needs and the way they serve their clients. And that is a pretty interesting formula that certainly drives higher ROA with the more advisory they do and then the utilization of those centrally managed platforms. Today, BMO's business is about one-third advisory, two-third brokerage. So as we go forward, we think our platform is a nice tool and a leverage point to help them as they evolve their business in order to serve their clients in the best way possible.

[Steven Chubak:]

That's great color, Dan. Thanks so much for taking my questions.

[Dan Arnold:]

Thank you.

[Operator:]

Next question comes from the line of Alex Blostein of Goldman Sachs.

[Alex Blostein:]

Hey. Good afternoon, everybody. I was hoping to zone in on the retention stats you guys provided, not just for Waddell, but obviously for the book as a whole. It looks like you guys are running at about 98% overall retention on the assets. It's quite a bit above from where we've been historically. And I think, Dan, you talked about the pandemic being sort of one of the reasons why retention might be strong, albeit maybe temporarily. It feels like it's sticking around. So I just wanted to get your updated thoughts on whether or not we sort of entering a bit of a new paradigm with the retention of the assets being as high as it's been recently.

[Dan Arnold:]

Yes, absolutely. As you say, if you look back historically, three years, you saw more of a retention rate in the 96% range. We saw -- if you look over the last 12 months, a retention range in the 97.5% level. So as you've said, we've seen some good stability in that 97% to 98% range for the better part of the last three quarters, which would indicate there's good staying power beyond the pandemic as you return to what I might call normal movement of advisors in the marketplace. And so we're encouraged by that. We continue to invest in the model to improve that service experience, expand the capabilities and deliver those to our advisors such that it helps support them operate an efficient practice and effective practice, serve their clients and grow their business, and you would expect retention rates to be pretty sticky. For us, we're trying to manage in that 97% to 98% range and think that's a pretty good solid outcome and a good sustainable place to operate in if we're doing our job of investing in our model, ensuring it's delivering the right value for our clients.

[Alex Blostein:]

Got you. Thanks for that. And Matt, a follow-up for you around expenses, I was just hoping to unpack that a little bit. So it sounds like the guidance obviously does not include any expenses related to Waddell & Reed, whether it's kind of their expenses coming on or I guess, expenses that you anticipate to kind of facilitate the transition, if I'm hearing that correctly? So kind of like the $10 million annualized EBITDA drag, for instance, that you're highlighting in the second quarter. That expense is not in your full year expense guide. I just want to, I guess, confirm that. And also, maybe you can help us think through expenses, core G&A inclusive of Waddell. And I guess, secondarily, as you guys pointed out in the slide, first quarter core G&A run rate is below the full year guide. So you anticipate a bit of a ramp. So maybe just kind of walk us through the sources of that ramp.

[Matt Audette:]

Alex, I think that was a three-part question. I'll answer. I think -- so you're correct. I think that the guidance of $975 million to $1 billion core G&A, that's excluding Waddell. And the reason for that is just as we ramp up both on the EBITDA side as well as the acquisition costs, I think our perspective was the way to give you the most clarity on that is to really keep them separate. Knowing that Waddell between both the revenues and gross profit and expenses, we're going to be ramping over roughly a year period to that $80 million run rate. So I think that's the way to think about it. I think obviously, when we get to the other side, everything will be put together from a dialogue and a guidance standpoint. I think -- we think that will be the most clear path and way to understand the core or existing business, if you will, as well as how and when, Waddell comes on board. So I think that covers questions one and two. Question three, on how the existing business is ramping. And it's really pretty similar to what you've seen in prior years, which is you kind of steadily ramp throughout the year, meaning that Q1 run rate, I think probably the premise of your question or the genesis of your question is where our run rate right now is kind of below the low end of that range. And it's just that natural ramping during the year. And I think you saw that last year as well. So that would be our expectation this year.

[Alex Blostein:]

Great. Thanks for that.

[Matt Audette:]

Yes.

[Operator:]

Next question comes from the line of Craig Siegenthaler of Credit Suisse.

[Craig Siegenthaler:]

Thanks, guys. I had a follow-up on Steve's earlier question on the centrally managed platform. We know this business is highly gross profit ROA and ROCA accretive, but can you walk us through the math relative to your advisory assets that are not on the centrally managed platform?

[Matt Audette:]

Yes, Craig, I think the dynamics haven't really changed. I think centrally managed usually adds about 10 basis points. I think we've got good disclosures in our investor deck on that. So I think the dynamics there are really pretty similar to what we have there. I think what I would add and note specific to BMO, just to build on Dan's comments earlier because that was a big driver in centrally managed for the quarter. When you look at those large financial institutions, right, those are contracts that are negotiated overall. And specific to large financial institutions, they typically start with a high percentage of brokerage, which brokerage assets overall are in that 15 to 20 basis point range. And just given the positive mixes at BMO that Dan highlighted, one-third of the assets in advisory and then a lot of that going into centrally managed. I think it's pretty reasonable to assume that BMO will be at the higher end of that range. The only thing I would add is similar to M&A, those contracts, usually, there's some ramping, right? The first couple of years usually have some incentives, not dissimilar from what we're just talking about on the ramp for Waddell & Reed. So as that ramp occurs, just as an overall point on BMO really coming out of the high concentration in advisory and centrally managed, you've got a really accretive from a margin standpoint versus our current margin on that business. So hopefully that helps.

[Craig Siegenthaler:]

Thanks, Matt. And just circling back on cash sweep. How should we think about the near term opportunity to reinvest the $6 billion of overflow balances?

[Matt Audette:]

Yes. I think when you look at the kind of the floating side of the sweep dynamic, it's really pretty similar to what's going on in the fixed contract side and that there's just not a lot of new demand. So if you think about those contracts in a normalized environment, you typically see them at a spread of 20 to 30 basis points versus Fed funds. And in this environment, you're really seeing them kind of Fed funds flat to Fed funds minus 5%. So I think that's kind of how I think of the marginal investment rates there. And this maybe give you just a little bit of color on those as those things mature, right? When you think about floating rate contracts, the nature of those are usually a one- to two-year contracts that typically roll into new periods pretty often. So just to give you context for us for the rest of the year, if you look past the Q2 guidance I gave on ICA overall, so kind of looking in the second half of the year. And if the contracts that mature in that period, if they -- if we invest -- reinvest all of them, Craig, to your question in current rates, that would bring the overall ICA yield down by just a couple of basis points by the end of the year. So it's a relatively small reinvestment risk there. And then add to that with no additional fixed maturities in the second half of the year, it kind of gives you, I think, a good perspective on overall ICA rates. There's not a lot of downside risk, at least in the current environment in the second half of the year. You're talking mid-90s to low 90s is just the way to think about it.

[Craig Siegenthaler:]

Great. Thank you, Matt.

[Operator:]

Next question comes from the line of Michael Cyprys of Morgan Stanley.

[Michael Cyprys:]

Hey, good afternoon. Thank you for taking the question. I just wanted to circle back on the Business Solutions, I think you had quoted about $19 million of revenue annualized. I was just hoping you could maybe help us appreciate the profit margin on that, the gross profit contribution to that. And then just also maybe you can elaborate a little bit on some of the initiatives you have in place on expanding that out and growing the penetration within the existing advisor base?

[Dan Arnold:]

You want to take the economics on the first half, and I'll get the second.

[Matt Audette:]

Yes, you got it. Mike, I think that when you look at Business Solutions, I think that there's two ways to think through it. First is on the economics. And I would think of it as a capability and a product that's generating fee revenue like we discussed. And then in addition to that, I think probably one of the more interesting parts of Business Solutions is really what that positions advisors that are utilizing them to do, right? It's about us helping them really run their small business in a really efficient and effective way that frees them up to be focused on the wealth management side, right, to deliver same-store sales and grow their practices or position them to do acquisitions with our new M&A solution. So I would really view that the financial benefits of Business Solutions really in a holistic way for the entire firm given the different types of dynamics that, that can drive.

[Dan Arnold:]

Yes. And maybe to build on your product road map question, as we look at our different options and alternatives to expand the portfolio and thus reach either more LPL advisors and/or sell existing advisors additional services, this, again, is based on the premise that they are engaging in many of these services at a local level. So our concept is we can offer them at a higher quality and perhaps at a cheaper cost, a pretty appealing combination. And so if you think about our road map today, you've got the original three offerings, which were admin solution, a CFO solution and a marketing solution. So what we're doing with each one of those is we're exploring, can we create new variations of those offerings, of which might have a narrower value proposition, a lower price point and solve a specific problem or challenge that an advisor has to address on a weekly, monthly reoccurring basis. And so we are working inside our product portfolio across that entire spectrum of offerings to come up with new iterations on that. And you'll see a couple under the CFO solution, one that we're about to begin to go to pilot in Q2 that I mentioned earlier, and that was a derivative of our marketing solutions. And so that's kind of innovation area number one of the road map. The second one is we continue to experiment with new capabilities or new solutions. A great example of that would be experimenting with paraplanning, if you will. A whole new offering with respect to the professional services portfolio, but one that we're testing right now out in the marketplace, learning, iterating and potentially will become a whole new solution, if you will, to that portfolio. So that would be an example of a new solution. M&A solution would fit into that category of new offerings. And so those are the two primary places that we tend to explore, how do we expand the product road map and thus create more and more value that our advisors can leverage to replace that spend that we estimate is close to $1.5 billion a year that they spend on local level services. So that's what's driving that road map. I hope that helps.

[Michael Cyprys:]

Got it. Thanks. And maybe just a quick follow-up here just on the expense side. It looked like the share-based comp and D&A were both up meaningfully on a sequential and year-on-year basis. I know you gave some guidance into the second quarter. But just curious, I guess, any color on what's driving that and how you would expect this to sort of trend over the next couple of years? Should these lines grow in line with AUM growth or something else or some multiplier to that?

[Matt Audette:]

Yes. On share-based comp, and you see the dynamic Q1 is typically the highest quarter, Q2 kind of close and then it drops down in the second half of the year. And it's really about the timing of those grants that kind of drives that dynamic. So that's on share-based comp. On depreciation, I think a little bit of context there. The depreciation and amortization is largely driven by our technology spend. And obviously, that's the area where we're focused on developing capabilities that are key drivers of organic growth. And I think the key P&L dynamic to note that you probably know, but I'll highlight anyways, is that the expense really changes when you deploy the technology, not when you're spending the money. And when you look at Q1, we just had some larger projects that we deployed and rolled out. Dan covered a few of them in his prepared remarks. So that really started the depreciation and expense associated with that. So if you look at the few quarters leading up to this quarter, you saw relatively low or small increases in depreciation, and we would expect a similar dynamic in the next few quarters. So it's really just that kind of concentrated deployment. The overall tech spend trends have been pretty consistent and unchanged from our overall expectations. So I hope that helps.

[Operator:]

Next question comes from the line of Chris Harris of Wells Fargo.

[Chris Harris:]

Great, thanks. So you guys are -- I mean LPL is just growing so incredibly fast right now. Can you maybe talk a bit about how you guys are feeling about the platform from a capacity perspective? In other words, you have the capacity in place, the services in place to be able to support all the incremental growth you're seeing and expected to see.

[Dan Arnold:]

Yes, it's a great question. And I think it goes back to the start of our mission, right? We got to take care of our advisors, so they can take care of their clients, which means we've got to make sure that we're there for them day in, day out from a service experience standpoint, that our platform has the stability necessary to leverage it and utilize it and then ultimately we're providing them the capabilities to create efficient workflows and capabilities to help them differentiate with their clients and continue to win. And we've got to make sure that we give them the tools necessary to pivot their businesses into a multichannel service business, where it's no longer just in person. They got to do it in a combined digital and in-person way. So there's a tremendous opportunity for this platform to show up and support and help them and add value every single day, and that comes first and foremost for them. So our -- we've got to be diligent around making sure that we understand and plan for that growth, well, that we've got the technology and engineering capabilities of which to build the tools that are necessary and scale the platform. We've got to make sure that we've got the fine-tuning, the testing, the utilization of AI to help us with respect to the risk management of our overall platform and stability, privacy, etc., associated with it. So that operating muscle to be really strong to execute on our plan comes first and foremost for us. I'd love to tell you we're perfect at it. We also have to have the humility to constantly listen to feedback. And if we're not getting something right to quickly focus on addressing it and iterating and then ultimately getting better because of it. And so I think that's a principle and the foundation of how we operate and execute. Then we got to make sure that we're investing in the right people, attracting the right talent that we've got the right size talent that is well aligned and positioned to collaborate and execute together to deliver on our expectations. So that comes number two, what are our operating metrics, how do we observe, measure, how we operate not on a weekly or a monthly basis, but on a daily basis. So it's that we can take that data, learn from it, fine-tune, revise, iterate, etc, to make sure that we can be the best that we can be every day. And then finally, we got to be investing in technology and automation that helps us scale. So you can scale into bursts of growth or you can constantly with consistent sustainable growth that you are constantly improving and enhancing your performance because you're able to digitize and automate it from end to end throughout the ecosystem, not to mention the benefits that you get from a scalability from an economic standpoint by doing that. So we continue to work on that. Introducing robotics, deploying AI and machine learning throughout our ecosystem in order to do that. And so we've got a lot of passion for doing it. We're not perfect. We hold ourselves uber accountable to our NPS scores. We've got room to improve, and it's priority one for the firm. I hope that helps.

[Operator:]

Next question comes from the line of Gerry O'Hara from Jefferies. Gerry, your line is now open.

[Gerry O'Hara:]

Maybe circling back to Business Solutions. Just curious if you have tracked or have kept any data points around the overlap among advisors as it relates to the various different solutions. It almost strikes me as though if you could kind of get the adoption of one such as admin solution or CFO solution that could work as a gateway to additional, but not sure if you sort of track that or seen that metric develop?

[Dan Arnold:]

I think that's great strategic utility. And I think that is a good hypothesis and a premise that we are seeing trend once someone is engaged in a service, if they're having good success and it's a good leverage point, there's a higher propensity to use another one. I think as we iterate on the portfolio and expand the different offerings and you create, as an example, not just a holistic CFO offering, but you can take elements of what a CFO's role might be, bookkeeping as an example, or FP&A work, and you're able to create discrete products out of things like that. I think your premise of sort of a land-and-expand strategy makes even more sense. And so there's more to play out on that as we evolve our product road map. But we are trying to also be digital first and use data of which to learn and understand how our clients are engaging with us, both so that we can improve our offering, better -- deliver a better service experience to them across this portfolio. It's a good question.

[Gerry O'Hara:]

Okay. Fair enough. And then perhaps you can remind us what the mix on the $100 billion of assets that's going to be onboarded across the two banks and Waddell as it relates to fee-based advisory versus more traditional commission-based business. I think you just sort of highlighted earlier, the BMO mix. But if you could just kind of remind us what that aggregate split is that would be helpful.

[Matt Audette:]

Yes. Gerry, I think, well, we can be directional here. I think to the point on BMO, they're a little bit higher on the advisory side than your typical large financial institution, right, meaning M&T would be more focused on the brokerage side. And then Waddell, I think as we're near closing and then onboarding, I think we'll give you more specifics on that in the near future.

[Gerry O'Hara:]

Okay, fair enough. Thanks for taking my questions this evening.

[Operator:]

Next question comes from the line of Brennan Hawken from UBS. Brennan, your line is now open.

[Brennan Hawken:]

Great. Thanks for taking my question. This one, you might -- it might be -- have been answered by the last question on Waddell and the fact that more details are coming. But I wanted to follow up on Alex's question earlier to see whether or not we could get some -- maybe some more granularity on the profile of what it will look like? Are FAs going to ramp over time over that year? Or is there -- how should we assume that will come on board, both the revenues and the expenses when we think about modeling it? Or was your last comment basically to say that you're not really in a position to say and we got to hold our horses for these questions?

[Matt Audette:]

Yes, I think I liked it a little bit between those two points. So I think if you look at -- we did some updated disclosures in our key metric materials if you have those handy, I'll speak to them on Pages seven and eight. But I think you've got the mix of Waddell at the time we announced the deal, which is a little bit over 50% brokerage, so 45% advisory, 55% brokerage. At least you can see what it looked like back then. I think on the ramp, I'd highlight a few things. And this is where we added some detail on Slide eight, just to think about our path from closing, which could be as early as tomorrow to hitting that run rate EBITDA of $80 million. And there's really, I think, three broad steps that are happening that would drive it. And that's why I was giving a little bit of color on earlier. It's first and foremost is really adding the resources and technology and expenses, maybe to build a little bit on the question Dan was just answering just to make sure that we are in a position to receive Waddell the company at closing and to onboard the advisors a few months after that. So the expenses start first. I think then onboarding, we think it will happen a few months after closing, so call it a few months from now. And that's really where the gross profit synergies start, right? Once the advisors and their assets are on our platform, and then following that, it's really your classic M&A integration work to get the expense synergies. And we think that will take about a full year from close. So you kind of put all that together. And that's, I think, a pretty good road map from here till hitting that run rate EBITDA and using that time line that I just walked through kind of by the end of Q2 of next year of 2022.

[Dan Arnold:]

Dan H. Arnold -- President and Chief Executive Officer Yes. In that maybe one helpful comment. Relative to your gross profit point because this is an acquisition, the ramp of the advisors is different than a normal recruiting scenario. So the assets and the advisors will all come over in mass. So let's say, we close tomorrow, let's just say, three months later, the assets come over a weekend and the advisors come over a weekend. And so they will be all on our platform. So your ability to begin ramping from that point is solid and a little different from recruiting where you ramp in over time. So hopefully, that gives you a little more color.

[Brennan Hawken:]

It does. Thanks. It almost sort of suggests it's more like a step function than a ramp to some degree. Thanks for that. Also kind of curious about thinking about the impact of the reopening of the economy and the idea that people are going to start getting more comfortable with face-to-face meetings with vaccines rolling out as successfully as they have been. How should we think about -- there's a couple of different perspectives I'm curious about. Number one, from a recruiting perspective, is that going to put a bit more expense back into the recruiting effort versus before? Or are -- have you learned that you can be so much more efficient recruiting in a Zoom world that you'll keep a lot of the recruiting efforts to Zoom, that's one angle. And then from another angle, thinking about the advisors and the net new assets over the past year, how much of those -- has the amount that normally comes from an advisor's existing book of business been impacted by the fact that they can't do prospecting, dinners or seminars or what have you. And do you expect that, that might start to kick back in now that people will be coming back to restaurants and whatnot? And maybe what kind of an impact do you think that could have? Sorry for the multi-parter.

[Dan Arnold:]

No, there's a lot there. So let me give you a directional answer of that, just I think to give you some guideposts and in some places, not to try to be overly precise on something we don't exactly know, right? So with respect to recruiting, your first part of your question, I think the short answer is it does not go back to what it was before, but it doesn't necessarily stay what it is today. And I do believe that we've continued to recruit throughout. We've had some people doing some travel throughout. We've been incurring some expense relative to our business development activities, right, the sort of the core G&A expenses associated with that. But we have used technology and learn to use technology in a much, much more creative way, and we've broken through and set new paradigms, if you will, on how to do that in acceptable ways to do that and gotten better at it over the years. So I actually think you'll see a mix where we'll use technology where it's more efficient, it's less wear and tear. And quite frankly, it's more appealing for the advisors or the prospect as well as for our business development resources as an example. And then where we do need to travel and where we do make a difference in face-to-face, we will absolutely do that. So if we do this well, we should find both improved efficiency and efficacy in our business development efforts. So that's how I would answer that one. Again, not trying to be really precise about exactly where the dial goes back to. But I think it's some middle ground. I hope that was helpful to you on the recruiting. On -- with respect to our advisors, a couple of things. Their baselines changed significantly in the first 90 days when the country shut down. But the pace of reopening, as you know, has been very, very different at a local level across the country. And many of our advisors are doing a lot more face-to-face than what we might -- would expect living in bigger cities. And so consequently, I think you've already seen a pivot for a lot of advisors, probably more back to that baseline way they did business. But I think the cool part about our advisors being in businesses for themselves, they've got to be quite innovative and have that entrepreneurial spirit, right, of a small business owner. And most have added this digital capability to their repertoire. So now they've got two ways of which to serve clients, which again, opens up the aperture of their opportunity to increase the size of their book, find more efficient ways to engage with clients, and then ultimately provide a mix of those that would rather meet in person versus those that are good doing it over the video. And you now redefine geography for them by doing that as well. And so we actually think this becomes a really interesting opportunity for our advisors as a catalyst to enhance the service experience, expand the flexibility around it and ultimately use that as a catalyst for growth. Do I think they're going to get back to doing dinners full time like they used to? No, but I do think that dial will go back to what is -- how that advisor uniquely wants to run their practice. So you'll see probably a spectrum of different outcomes depending on the advisor themselves and their clients. I'll stop there.

[Brennan Hawken:]

Yes. Thanks for that color. Helpful.

[Operator:]

And there are no further questions at this time. I will turn it back to Mr. Arnold.

[Dan Arnold:]

Yes. Thanks, everyone, for taking the time to join us this afternoon, and we look forward to speaking with you again next quarter. Stay safe.

[Operator:]

Thank you so much for our presenters and everyone who participated. This concludes today’s conference call. You may now disconnect. Have a great day.