LPL Financial Holdings Inc.
Q4 2020 Earnings Call Transcript

Published: 5 Feb 2021

[Operator:]

Good afternoon. And thank you for joining the Fourth Quarter and Full 2020 Earnings Conference Call for LPL Financial Holdings Incorporated. 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 will appreciate if analysts will 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.

[Dan Arnold:]

Thank you, Carmel, and thanks to everyone for joining our call today. Over the past quarter and throughout 2020, our focus remained on our mission of taking care of our advisors, so they can take care of their clients. This is a credit to our employees who responded with agility and ingenuity to new working conditions and new opportunities to support our advisors. Their dedication is inspired by the unfailing commitment of our advisors who continue to provide much-needed financial advice to millions of Americans managing through a challenging environment. As we enter the New Year, we remain focused on executing our strategy, while also evolving our long-term vision of how we deliver on our mission. We aspire to push past 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. Our approach is to build a platform that is simple and straightforward for advisors to use in constructing the perfect practice for themselves and their clients. More specifically, this vision centers around making it easy for advisors to join our platform with no friction or complexity, and as simple as turning dials, they can determine the exact services they want to leverage, pick the business model that will work best for them, choose the technology and workflows that make them most efficient, and select the product mix that best meets the needs of their clients, all while leveraging expertise and solutions to enhance the performance of their businesses.

[Matt Audette:]

All right. Thank you, Dan. And I am glad to speak with everyone on today’s call. Before I review our fourth quarter results, I would like to highlight our progress during 2020. Looking at the year, we are proud of what we accomplished within our framework for driving long-term shareholder value. We entered 2020 with momentum, and continued to invest through a volatile environment to provide an industry-leading value proposition for our advisors to serve their clients and win in the marketplace. This commitment to enhancing the support we provide our advisors, resulted in the highest quarterly and full year levels of organic net new assets in our history. By leveraging the investments in our platform and the financial strength we built over the last several years, we enter 2021 in an even stronger position, as we work to onboard our two largest financial institutions, M&T and BMO, as well as Waddell & Reed. So as we look ahead, we are excited to continue growing our business and leveraging our increased scale and capacity to further invest in our platform, which positions us to drive additional growth and long-term shareholder value. Now let’s turn to our fourth quarter business results. Total advisory and brokerage assets increased to a new high of $903 billion, up 11% percent from Q3, driven by continued organic growth and higher equity markets. Looking at organic growth, total net new assets were $17.8 billion or an 8.8% annualized growth rate.

[Operator:]

Thank you. Our first question comes from Steven Chubak with Wolfe Research. Your question, please.

[Steven Chubak:]

Hey, Dan. Hey, Matt. Good afternoon.

[Dan Arnold:]

Hi.

[Steven Chubak:]

So I wanted to start with a question on organic growth. As you noted, you are coming off a record year organic growth north of 7% 4Q was your strongest quarter and 9%. So momentum was clearly building nicely towards year end. I was hoping you could speak to what you are seeing in terms of the backlog across both the traditional market, as well as some of the newer camps and how that compares with the year ago levels. Is this what’s informing your confidence around the sustainability of that 7% plus organic growth rate from here?

[Dan Arnold:]

Yes. Steven, so let me let me take a stab at that, and please, if I don’t get it all, you ask a follow on? So, look, the short answer is, as we said in the remarks, we think that pace around 7% is sustainable. And then we continue to challenge ourselves to expand on that growth rate. So let me give you a little color as to how we think about that. I think one quick way to orient yourself to it is, how do we get to where we are over the last call it three years and that’s been driven by new store sales increasing by 50% over that period of time, which has come almost totally out of our traditional markets. Retention rates have improved from 96% to 98% over that period of time. So that’s also a helpful contribution. And then same-store sales continue kind of a steady, durable, increase over that period of time. And so what you have done is you have gone over that period of time from roughly below 3% organic growth rate to 7%. Now, as we look ahead, relative to the opportunity to both sustain, but more importantly, grow that rate, we look to new store sales first, and see the new markets that we have entered, the strategic wealth services model, the independent employee model and the RA markets, and obviously, see a much bigger opportunity set with momentum building inside those three new offerings, which largely haven’t contributed a whole lot to our growth up to this point. So that that’s one opportunity. Certainly this emerging new bank opportunity with respect to larger banks exploring outsourcing is a second way to think about an opportunity going forward. And then we continue to improve our own efficacy of our business development team and its capabilities to grow and win at higher rates. That’s a third one as we continue to innovate there. And then, finally, I think we continue to innovate around onboarding and the more seamless we can make that we believe creates two more movement in the marketplace in the future. So those are how we think about opportunities and new store sales. I think it would be, if you click over the same-store sales for a minute, we see the opportunity to continue to drive automation into the advisors key workflows that then they get the benefits of efficiency, freeing up time to reallocate to more valuable activities. We also see this technology creating more scalability in their practices. So they can obviously attracted support more clients. We continue to build out new solutions for their organic growth efforts. And finally, this new M&A Solutions becomes yet another way for them to create another lever to grow their practices. So across new store and same-store says you have got multiple oars in the water that we are working on, in order to drive that rate higher. If we are successful on executing on these, well, then you can see where the logic around the opportunity set grows and we deliver higher growth rates. I hope that helps.

[Steven Chubak:]

No. That’s great, Dan, a very fulsome response. So thanks for all that color. And maybe just follow up for Matt, just on the ICA outlook. The lack of deposit appetite from third-party banks, it’s something we have been hearing from you and also for many of your competitors. Typically, we don’t see demand for cash increase until short rates start to rise. Clients are to engage in some form of cash sorting. And if we enter a prolonged period where short rates are at zero, but the yield curve steepens materially. How do you see demand from third-party banks evolving? Do you anticipate you are going to have opportunities to turn out the cash, take advantage of this deepening and if cash balance continue to build from here, should we assume that that’s going to fall into the overflow bucket? Are there opportunities to maybe optimize the pricing there as well?

[Matt Audette:]

Yeah. Steven, I think, you summarized the market well. I think right now there is so much liquidity in the market from lots of sources that you all know that there’s just not a lot of demand for the banks on the sweet fund side. So I think you see that the balance is flowing into overflow contracts, a little over $2 billion this quarter. And I think in the near-term, that’s likely where cash would go. But I think on your point and your scenario, as we move past, what I call, just kind of the technicals of the market right now. I think in an environment where near-term rates are low, but the curve starts to steepen. I think there’s opportunities to move into fixing that environment, right? So, of course, it’s always hard to predict. But I think this environment we are in right now is really just driven by that excess cash. Now, when you look at our financials, right, and we target and being in the 50% to 75% zone for fixed, and we are hovering in the kind of a third of the 35% zone, there’s pretty meaningful upside when we are able to do that. So I think we are comfortable long-term that opportunity is there. But today that -- it’s -- there’s just not a lot of demand.

[Steven Chubak:]

That’s great, Matt. Thanks so much for taking my questions.

[Matt Audette:]

You bet.

[Operator:]

Thank you. Our next question comes from Bill Katz with Citigroup. Your question, please.

[Bill Katz:]

Okay. Thank you very much. Good evening, everybody. Appreciate you taking the questions. Maybe, Dan, start with you. So I am intrigued by your commentary about maybe taking Business Solutions on the road. I was just wondering if you could maybe flesh out how you sort of thinking about that beta test, what kind of milestones you might be looking for and then how do you think about the TAM associated with that?

[Dan Arnold:]

Yeah. So, Bill, good question. I -- look, first of all, these Business Solutions are subscription based services, right? So that gives us flexibility as to how an advisor can plug in and leverage the LPL platform. So that’s the premise where you have a bit more flexibility in this concept about being able to serve advisors outside of the LPL family, if you will. And today we are focused on continuing to innovate and deliver those services for LPL advisors. So that’s where the majority of our allocation of investment goes across this strategic play. And that’s allowing us to continue to learn and innovate on our offering. That said, our hypothesis is, these services could potentially be offered to all 300,000 financial advisors in the marketplace. If you think about that premise of, if I am operating my own business and I have local level services that are necessary to support the operation of that business. Well, then we believe we can step in and create higher quality solutions at a lower cost using automation and digital capabilities to create real interesting scalability. And you began to see where you could take for an example, take our M&A Solutions that we were just talking about and if we do that well for LPL advisors, then we could easily take that and point that to an advisor that doesn’t necessarily sit on our platform today and help create growth opportunities associated with a practice by providing or plugging in to that type of solution. So that’s the concept. Your right, call it, an experimental phase now. I think it’s logical for us in our overall journey around this play to begin to experiment there and it’s early days of that experiment. We will likely take one of these solutions and begin to explore how that might work and present itself outside of the of the LPL family of advisors. And that will allow us some learning that didn’t apply and further innovate on how we might take this portfolio outside the LPL advisor base. I hope that helps.

[Bill Katz:]

That’s very helpful. I appreciate the incremental change there. Follow up question is for you, Dan or for Matt, two-part. So I apologize for sneaking that extra question in. But so on the 20% of the Waddell Financial advisor that haven’t agreed to this point, I was wondering if you can provide some color on why not? And then could you just help me understand, I apologize if I show you know this, the interplay between the integration charges associated with Waddell and any flow through onto the Core G&A line? Thank you.

[Dan Arnold:]

Yeah. Thanks, Bill. I will take the first part of that and Matt, you take the second. How about that?

[Matt Audette:]

Pretty good.

[Dan Arnold:]

So, Bill, as you recall, we announced the transaction in early December and at that point we began our retention efforts associated with the Waddell & Reed advisors. And so we have been at that largely six weeks. And so what you are seeing is that 80% retention rate has more to do with just the timing and where we are in the overall process than anything else. As Matt said, we expect to close and convert in the second quarter. So there’s still time left to have that ongoing dialogue and make sure that all advisors can make an informed choice around where that best option is for them. So think about that just as more where we are in the timing process than anything else. Matt, do you want to take the second part of that?

[Matt Audette:]

Yeah. Sure. Bill on the Waddell & Reed expenses, they are not included in Core G&A. So we are going to have a separate line item that includes the acquisition and integration expenses. So you can clearly see that and there weren’t any in Q4.

[Bill Katz:]

Okay. Thank you. I will follow up offline. Thank you.

[Operator:]

Thank you. Our next question comes from Craig Siegenthaler with Credit Suisse. Your question, please.

[Craig Siegenthaler:]

Hey. Good afternoon, Dan, Matt, and congrats on the record organic growth.

[Dan Arnold:]

Hey. Thank you.

[Craig Siegenthaler:]

So I am just wanted to start with the Waddell & Reed transaction first. So its advisors hold a very high percentage of Waddell and IV product. How do you think about the trajectory for them to reinvest this product into other funds and could this have any economic impact on LPL or the commission rates and shelf fees roughly in line with the product on LPL platform?

[Matt Audette:]

Yeah. Do you want me.

[Dan Arnold:]

Yeah. Take that Matt and then I will add color around that.

[Matt Audette:]

Yeah. Sure. Yeah. It sounds good. So, Craig, I would just highlight the partnership with Macquarie that really that we worked with on this transaction together. So I think when we look on the other side of closing and integration, I think we see ourselves continuing to be that strong partner with Macquarie, meaning the IV Funds moving over to their platform. So I think that relationship and that synergy being able to continue the experience that what all advisors have with those funds today. On the other side of this transaction was a really, really important part of the, I think, what made this deal exciting for all three parties. So I just wanted to give you, just emphasize that from a strategic level and then Dan is anything you would add.

[Dan Arnold:]

Yeah. More from an operational standpoint, we don’t expect some big reallocation or shift in, how they are thinking about their portfolios or using what will then be Macquarie product on a go forward basis. So, I don’t think you are going to see some big step function change in terms of the allocation of those assets. So I am not sure you see any then knock on effect from that, which is the second part of your question.

[Craig Siegenthaler:]

Great. Helpful. And I had one question on the production retention, it’s still at a really nice level, but we have watched it go down for three quarters now. Can you talk about any puts and takes or seasonality that could be acting -- that could be impacting 4Q or any other perspective on it would be helpful?

[Dan Arnold:]

Yeah. I think you are talking about our overall retention inside LPL. And look, I think, this is mainly just, you have seen it increase throughout the year, which is largely a matter of timing related to the impact the pandemic had in the early part of the year. So where might have been more complex or tougher inside that four-month to five-month period of real uncertainty. I think you just see now some of that pulling through. As we think about it and look at it over the full year, you have got 98% retention, and as I shared last quarter, we think about a good sustainable range being somewhere around 2% to 3% of attrition or said differently 97% to 98% retention. So that’s what we are trying to manage to and work to and we feel good about the client experience and the advisor experience we are providing. And that is the primary driver of that attrition rate or retention rate and so that’s kind of how we are managing to it and thinking about it. I hope that helps.

[Craig Siegenthaler:]

Thank you, Dan.

[Operator:]

Thank you. Our next question comes from Alex Blostein with Goldman Sachs. Please go ahead.

[Alex Blostein:]

Hey, guys. Good evening. I wanted to ask you around TA packages that are out there in the marketplace right now. Obviously, Raymond James talked about seeing a little bit more pressure in that market, sounds like that’s more in the employee channel, which is small for you guys for now, but curious if you seeing any meaningful change there? And maybe, Matt on -- Matt, the follow on is for you, I guess, with respect to promotional expense, to what extent that’s putting some incremental pressure on promotional expense for you guys into ‘21?

[Dan Arnold:]

I will take the first half of that and then Matt, I will turn it over to you. So, look, the short answer is, we are not seeing a lot of change in transition assistance rates this time. And you said it as a core principle for us, we determined transition assistance on a return basis approach and our TA rates have been stable over the last few quarters and as we enter this New Year, we don’t see that changing. And when we look ahead, we think about TA and how it’s currently positioned or transition assistance, along with the rest of our value proposition from capabilities, technology and service and believe that that’s an overall really solid competitive offering and believe, as we go forward, that it will be a source of us continuing to gain market share. Do you want to talk about promotional expense?

[Matt Audette:]

Yeah. I think I was just building what Dan said, I think, with the rates being stable, I think promo and the transition assistance amortization. If that’s going up in a meaningful way, it’s simply because recruiting and therefore organic growth has gone up. So I think it will move along with our recruiting success and the rates themselves really have been quite stable.

[Alex Blostein:]

Great. Perfect. And then just a follow up on Waddell & Reed, I know you guys give a little bit of color on the kind of the composition of the assets, et cetera, at the time that the deal was announced. But on the 80% that you already sort of retained, an you give us an update on sort of what’s the gross profit ROAs on that base and the mix of assets kind of equity fixed income? Thanks.

[Matt Audette:]

Yeah. Not yet. I think it’s a little bit early. I think as we move towards close and onboard and we will start to get more updates on overall economics. I think, today we wanted to really highlight the early success on the retention front. So we will give you more on that at a future date.

[Alex Blostein:]

All right. We will stay tune. Thanks.

[Matt Audette:]

Yeah.

[Operator:]

Thank you. Our next question comes from Chris Harris with Wells Fargo. Your question, please.

[Chris Harris:]

Yeah. Thanks. Can you guys talk a little bit about your risk management controls and what you are doing to keep risk reasonably well controlled with all the growth that you guys are seeing across the platform?

[Dan Arnold:]

Yeah. Let me take that one and then, certainly, you can add anything to that. Look, it’s a core component and value proposition of what we offer, both from a protection of -- to the firm, to the advisors, to the clients. But it’s also a really important value proposition for us of taking complexity out of this business and simplifying it to enable the advisors to operate their businesses successfully. So it’s a place that we have constantly have to innovate on regardless of our growth rates, but in a world where you are growing that just creates more opportunity to allocate resources to think about how you improve the efficacy and the efficiency of compliance and our overall risk management programs. And though we are not perfect and though we will try to play into that, I think, look, there’s key components of our overall risk profile that we look at. There’s some 16 different risk components that we actively monitor and review how we are doing in, in those areas. So think about that is managing your day-to-day risk or your operational risk. And then as a complement to that, there’s that strategic opportunity that says, hey, how do we take and use robotics and artificial intelligence and automation of which to enrich the efficacy of our supervision, of our oversight? How do we imagine new ways of which to use technology to drive efficiency into what we do, which simply just then creates much more scalability to support that growth. And so we look at it through an operational lens and track that on a monthly basis and hold ourselves accountable to constantly iterating and learning and applying what we are doing well and or not to improve it and then we allocate resources to drive innovation to do it better. And look, our goal is to take risk management and turn it into an asset. If we continue to invest in it and we can do it better and cheaper than anyone else, it becomes a differentiator. And so that’s how we think about our risk management programs and that’s sort of what is our Northstar , if you will, with respect to risk management.

[Chris Harris:]

Helpful. Thank you.

[Operator:]

Thank you. Our next question comes from Jeremy Campbell with Barclays. Your question, please.

[Jeremy Campbell:]

Hey. Thanks. Looks like a really nice December drove the big robust with acceleration and M&A growth, but also it’s like your recruited assets was pretty stable with prior couple of quarters. So just wondering if you could unpack some of the key drivers behind the December pickup?

[Matt Audette:]

Yeah. Hey, Jeremy. It’s Matt. I think when you look at the interest and dividends component of that and as to your observation that happens typically in the third month of each quarter. And then in the third month of Q4, at year end in December, you have got a lot of funds that will distribute things annually. So that was a driver of it. But even if he had kind of pulled that uptick out, when you look at our growth rate in Q4 at 8.8%, that was about a 0.5 percentage point, so still above an 8% organic growth rate. So really, really strong quarter in our view, but that interest dynamic that happens at the end of the year was the thing that bias December up over that.

[Dan Arnold:]

And if I added anything to that, I think, if click down on that, this is where you see that durable, but steady trend upward in same-store sales, where you are seeing advisors doing a really great job of serving and supporting their existing clients. So they are actually capturing assets from those existing clients at a higher rate than historically and certainly pre-pandemic. At the same time, we have seen them now return to capturing or acquiring new clients at the rates, they were pre-pandemic and so some of that dynamic underneath fourth quarter is certainly supportive of increasing growth rates both across the quarter, I am sorry, across the whole quarter and ramping up within the quarter.

[Jeremy Campbell:]

Got it. Great. And then, Dan, you gave some really nice high level color around with the growth trajectory going forward to an earlier question, but I don’t know whether this is for you or for Matt, but can you just give us a quick update around how January activity is shaping up so far or will shape up?

[Dan Arnold:]

Matt, do you want to take that.

[Matt Audette:]

Yeah.

[Dan Arnold:]

Yeah.

[Matt Audette:]

Yeah. I will take that one, Jeremy. Since we are sitting here in February, we certainly have some thoughts on January. So, overall, it pretty well. I mean, we are still finalizing the results. But I would describe it as growth consistent with what we saw in 2020, right. So nice organic growth. There are a couple of things to highlight though for January by its nature, kind of the building on how are we just talking about December, by its nature, that drives NNA a little bit lower for that month. The first one is December recruiting. I think you know this well, but FINRA shuts down for the last week or two of the year. So you just don’t have new advisors coming onto the platform. So it naturally slows NNA down in the beginning -- the early parts of January each year. And then just building on what we are talking about December, while month three is the highest kind of interest and fees driven NNA of the month, month one is the lowest, right, because you have the advisor fees coming out primarily in the first month of the quarter. So those two things together kind of put a naturally have you -- have a decline in January, when I put all that together, I think, we would expect January to be in the 4% to 5% growth -- organic growth. But again, we will finalize those results and release them in a couple weeks.

[Jeremy Campbell:]

Perfect. Thanks a lot.

[Matt Audette:]

You bet.

[Operator:]

Thank you. Our next question comes from Kyle Voigt with KBW. Your question, please.

[Kyle Voigt:]

Hi. Good evening. Just a couple of follow ups on promotional expenses. I am wondering if you have any update on how much TA you are contemplating for the Waddell deal, whether TA rates associated with those Waddell assets you are expecting to onboard? And then separately, how should we think about the return of some higher non-TA related promotional expenses in a post pandemic world? Maybe frame how much expense benefit you realize there in 2020 due to lower conference spend or something else?

[Matt Audette:]

Okay. Okay. I guess. Yeah. So, Kyle, I will start there. I think on the Waddell side, I think, we and Dan talked about our approach and thoughts on TA a little bit earlier. And I’d say, we have the same approach with Waddell. So there’s really no different approach. They are making sure that we put those advisors in a position to successfully transition onto our platform. That’s what transition assistance is for. And we will underwrite it in the same way. I think on the conference side of things and I will get a little color here, and Dan, if you want to jump in. But I think as we evolve over time, I think, like most folks we see on the other side of the pandemic doing a mix of continued virtual and digital things, but also, people value getting together in person. I think, especially in the independent advisory space, folks value getting together. So I likely see us having a mix of what we had pre-pandemic, but it’s a little bit early to kind of call where and how those numbers start to change. So we will keep you updated a quarter ahead of time kind of how we gave -- how we did here today on promotional for next quarter. That’s on a cost side. I don’t know Dan if there is anything you want to add.

[Dan Arnold:]

No. well said.

[Matt Audette:]

Yeah. All right. We are all good there, Kyle.

[Kyle Voigt:]

Thank you.

[Operator:]

Thank you. Our next question comes from Gerry O’Hara with Jefferies. Your question, please.

[Gerry O’Hara:]

Great. Thanks and good evening, folks. Matt, perhaps, you could give a little bit more detail just around the Waddell timeline as it relates now to the close advisor onboarding and synergy runway. I know you had a nice graphic in the presentation last quarter and I may have missed it this time around, but if you could help us just kind of walk through that a little bit, that would be appreciated?

[Matt Audette:]

Yeah. Sure. Gerry, we didn’t update it, but it’s unchanged. So I think when we think about the next key dates, which are closing into the subsequent asset transfer. Our estimate for that is the middle of this year and then the integration, the on-boarding process, et cetera occurs after that and I think that will lead to an EBITDA benefit ramp of about 12 months after closing. So if you think we are closing and onboarding in the middle of this year, that will have us reach that run rate EBITDA estimate by the middle of next year or the middle of 2022. Yeah, so that’s what was in that presentation and those estimates are the same today.

[Gerry O’Hara:]

Okay. Thanks. And then just a follow-up, I think in the prepared remarks, Dan, you mentioned kind of the evolving opportunity around the custodial platform. Is there any potential kind of color you could add or context as to what that opportunity might be sizing or just, I guess, clients advisors anything you might be able to add would be helpful?

[Dan Arnold:]

Yeah. Hi. I will just give you a higher level macro overview at this point. I think we can give you more color as we move forward. But with respect to our RA offering, we currently provide this solution to a number of advisors. That said, we are investing in our capabilities and resources that we believe match that growing opportunity set. As we do expect over the next few years more advisor movement or churn across that space. And so we believe we can put together an interesting differentiated solution that will contribute to our ongoing organic growth and be a nice contribution to increasing that organic growth rate. So that’s how we see that and where we are is continuing to make sure we have got that differentiated solution and that we have got the resources in place to take that to the market. So more color on that as we go forward throughout the year, but hopefully that gives you a sort of our jumping off-point.

[Gerry O’Hara:]

That’s helpful. Thanks for taking my questions this evening.

[Operator:]

Thank you. Our next question comes from Chris Shutler with William Blair. Your question, please.

[Chris Shutler:]

Hi, guys. Good afternoon. On the $10 million expected increase in promotional expense quarter-over-quarter, how much of that is BMO and M&T, and how much is something else? I am guessing marketing and conference expense are reasonably stable sequentially, so I am just trying to figure out if that Q1 level is kind of a new jumping off point or how to think about anything that might be that’s more seasonal or one-time?

[Matt Audette:]

Yeah. Chris, M&T and BMO are about half of that. There are large financial institutions where there is a bit more technology, a bit more on-boarding support, so that’s why you see that increase. And well, I wouldn’t call that one-time. I call it connected to on-boarding a large financial institution. So anytime we have those coming, you will see a little bit of a pickup in promotional for that, but it is, to your point, it’s not recurring, it’s just associated with those firms. And the rest of it’s really -- there is a handful of things in there, but it’s primarily tied to transition assistance amortization as we continue to recruit.

[Chris Shutler:]

Okay. So the half associated with the two big banks is not amortization of transition assistance, it’s other stuff?

[Matt Audette:]

That’s right. That’s right.

[Chris Shutler:]

Okay.

[Matt Audette:]

They haven’t joined yet. So that wouldn’t have begun.

[Chris Shutler:]

Yeah. Makes sense. Okay. And then the other one was just on the new M&A offering, maybe just give us a sense of how you plan to price that offering. I am guessing the workload there could vary a decent bit depending on the advisory firm that you are working with or the complexity of the target. So help us think through how to sort of think about that?

[Dan Arnold:]

Yeah. Let me give you a little color on that, and again, I think, there is more to play out here as we go forward. So I can -- if I can answer anything -- everything today, I think, we can give you that color over the next couple of months. And so with respect to our M&A solutions, again what we are trying to solve for is actually helping advisors acquire other practices to integrate into their businesses, right? So that’s the context, and quite frankly, we realized and recognized and working with our advisors, that many of them saw this as an opportunity, but saw the complexity associated with M&A really hard and it kept them out of exploring those opportunities. So our concept was, could we go create or build a solution that makes it much easier and simpler for them to go from point A to Z in that M&A process and thus in building a platform that helps them do that. If they do it once, then we are going to increase the odds, that they can do it again and again, you sort of create this repeatable, sustainable growth lever for them and a bit of a flywheel, if you think about it across a larger number of advisors. So that’s the concept. And so what we have done over the last year is build that end-to-end platform for ourselves. So we will deliver that with LPL resources. So we have got a technology platform we have built that will host that and drive that and digitize that and make that easier. We obviously have access to the marketplace and will help facilitate that marketplace of buyers and sellers. We can give good transaction advice around that. We know this well and we know the models well. So we can provide advisor and we are positioned to do that and we can also provide the capital funding or an option to the advisor for their capital funding. So it’s really delivered by us. We are not working with other advisory firms. And again, us doing it as a service, our opportunity is to certainly charge for the value that we are providing associated with managing through that process. But the real win for us is at the end of it is helping these advisors capture assets and grow on the platform. And so that’s how we think about that. That’s how you would see us pricing it associated with the more discounted fees for the value that we provide in the M&A process knowing that we can both help retain and grow organic assets on our platform. So I hope that helps you get the principles in the macro way we are thinking about it, more to come when we roll it out on pricing and things of that nature and that will happen in this quarter.

[Chris Shutler:]

All right. Thank you, Matt and Dan.

[Dan Arnold:]

Okay.

[Operator:]

Thank you. Our last question comes from Michael Cyprys with Morgan Stanley. Your question, please.

[Michael Cyprys:]

Hey. Good evening and thanks for squeezing me in here. I just want to come back to the client cash levels, looks like the allocations there came in a bit 5.4%, client cash allocations. I guess how do you see that evolving from here? Where do you see that leveling out say a year or two from now? And what environment, would you say that it would be higher or lower and has there anything changed structurally that could result in a different cash allocation than what we have seen historically on your platform?

[Dan Arnold:]

Yeah. I mean, I think, it’s -- I mean when you -- maybe the book in to look at, right? If you look at the periods that we have got in our key metrics supplement, right? We -- you kind of bottomed out in the low 4% range and think of that as probably the max deployed in the market that we have seen and then the other extreme is, when you go back years and years ago when you have seen the max pullback is in the 9% to 10%. So it kind of feels like where we are right now at least with recent history, balances are a little bit high. I don’t think it would surprise us if you get on the other side of a pandemic with vaccines out and whatever environment you would describe as the new normal. It wouldn’t surprise us if that -- if you saw that 5.4% start to go back down as you see money go into the market. But I’d emphasize of course that’s a really hard one to predict. But I think if -- when we look at the history that we have, that’s probably what we would expect to see.

[Michael Cyprys:]

Got it. And just a quick follow-up on the money fund and DCA yields there, they continue to come in the fourth quarter. Just curious, any color you could share on the drivers there and what would need to happen to see further compression or -- and what scenario, could it even go negative or how do you think about any sort of floor on that and thoughts into ‘21?

[Dan Arnold:]

Yeah. Remember DCA was a little bit challenging, because it’s a fee-per-account, not a rate. So balances moving around can just change that reported rate, because it’s a fee-per-account type fee. So I wouldn’t read into that -- the move into that much. On the money market side, I think, you are just seeing the dynamic of interest rates being near zero and those products where the product manufacturers can waive fees that puts a little bit of pressure on the yields. But I don’t think it’s anything that you unexpected in an environment where Fed funds is in the 7, 8, 9 zone. I think that’s what you expect to see on money funds. And of course emphasize, when you look at the balances, those are -- of our nearly $50 billion in client cash balances those are pretty small piece of the overall pie.

[Michael Cyprys:]

Great. Thank you.

[Operator:]

Thank you. And ladies and gentlemen, this concludes our Q&A session for today. I will turn the call back to Dan Arnold for his final remarks.

[Dan Arnold:]

Yeah. Thank you, Carmel. And thanks everyone for taking the time to join us this afternoon. We really appreciate it. We look forward to speaking with you again next quarter. Have a great rest of your day.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s program and you may now disconnect.