LPL Financial Holdings Inc.

Good afternoon and thank you for joining the second quarter 2026 earnings conference call for LPL Financial Holdings Inc. Joining the call today are Chief Executive Officer Rich Steinmeier and President and Chief Financial Officer Matt Audette. Rich 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 only one question. To ask a follow-up, please re-enter the queue. 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 and operating results, Outlook, Business Strategies and Plans, as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties, the company refers listeners to disclosures set forth under the captioned forward-looking statements in the earnings press release, as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call, the company will also discuss certain non-GAAP financial measures For a reconciliation of such non-GAAP financial measures to comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com. With that, I'll now turn the call over to Mr. Steinmeier.

Thanks, Operator, and thank you to everyone for joining our call. It's a pleasure to speak with you again. After a strong start to the year, we continued our momentum in Q2. We delivered improved organic growth during the quarter, while driving recruiting pipelines to record levels. We made meaningful progress in preparing to onboard Commonwealth Financial Network, and we drove material improvements in our operating leverage. We achieved this in a rapidly evolving environment as elevated macroeconomic uncertainty and market volatility at the start of the quarter gave way to a sharp market recovery during the quarter, serving as the latest reminder of the value of professional advice and the resilience of our business model. Underlying this consistent performance was the exceptional work and dedication of our teams, including the talented colleagues who joined us from Commonwealth. In recognition of these efforts, J.D. Power ranked Commonwealth and LPL number one and number two for independent advisor satisfaction. Commonwealth's award is its 13th straight number one ranking. This is a remarkable achievement and a meaningful validation of the complementary nature of our organization and the culture we are building together. Now, to highlight some of our Q2 results, in the quarter, total client assets were $2.6 trillion of 10% from Q1 as organic growth was complemented by higher equity markets. We attracted organic net new assets of $23 billion, representing a 4% annualized growth rate. Our second quarter business results translated into another quarter of strong financial performance with record-adjusted EPS of $5.84. Turning to our strategic plan, we remain unwavering in our strategy and our aspiration to be the best firm in wealth management. To that end, we remain focused on three key priorities. One, preserving the client centricity the firm was built on. Two, empowering our employees to deliver exceptional outcomes for our advisors and institutions and their clients. and three, delivering improved operating leverage. Continued execution across these priorities will help us sustain our industry leading growth while advancing the effectiveness and efficiency of our model. With that as context, let's review a few business highlights from the quarter. In Q2, recruited assets improved to $25 billion. Prior to large institutional wins, this was our strongest quarter of recruiting in nearly two years. During Q2, we continued to advance opportunities into the later stages of our recruiting pipeline, and despite the strong pull-through, the overall pipeline reached a new record. This positions us well for improved organic growth in the second half of the year. In our traditional markets, we added approximately $23 billion in assets during Q2, maintaining our industry-leading capture of advisors in motion while continuing to expand the depth and breadth of our recruiting pipeline. With respect to our expanded affiliation models, we delivered another solid quarter, recruiting roughly $2 billion in assets. Turning to overall asset retention, it was 97% for both the second quarter and over the last 12 months. This is a testament to our continued efforts to enhance the advisor experience through the delivery of new capabilities and technology and the ongoing evolution of our service and operations functions. Now let's turn to Commonwealth. The integration is progressing well, and we remain on track to onboard Commonwealth Advisors in the fourth quarter. In terms of asset retention, we are in the mid 80s today and we continue to work towards our target of 90% retention of client assets. From an operational standpoint, we are nearing the completion of the technology and capability builds needed to help facilitate a seamless conversion. Key initiatives include advancing our householding capabilities and modernizing our case management platform to support a more connected end-to-end service experience for existing Commonwealth advisors. When combined with the introduction of a single relationship agreement, this creates a more flexible, relationship-centric model that improves the client experience and enhances advisor productivity. These capabilities not only enable the Commonwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisors and institutions. In parallel, we are ramping up our training efforts to ensure that our Commonwealth teammates are positioned to continue delivering exceptional service to existing Commonwealth advisors, and that Commonwealth advisors and their support staff are ready to hit the ground running following the conversion to the LPL platform. In closing, the second quarter was another strong quarter for LPL. I want to take a moment to thank our entire team, both at LPL and Commonwealth, for the dedication and hard work that drove these results and contributed to the recognition from J.D. Power. We are building something special. and I am incredibly proud of the passion and dedication our teams bring to supporting our advisors. As we look ahead, we remain well positioned to serve as a critical partner to our advisors and institutions to continue delivering industry-leading organic growth and to maximize long-term value for shareholders. With that, I'll turn the call over to Matt.

Thanks, Rich. I couldn't agree more. It was a tremendous quarter as the team continues to deliver remarkable results. To reiterate some of these highlights, We delivered solid improvement in organic growth, continued to advance our advisor experience, drove improved operating leverage through ongoing efficiency gains and better monetization of the value we deliver to clients, progressed our preparation to onboard Commonwealth, and executed on our capital allocation strategy. We closed the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and given the dislocation in our stock price, accelerated share purchases. These efforts resulted in strong second quarter business and financial performance and positioned us well for the second half of the year. Now turning to a few highlights from our Q2 business results. Total client assets were $2.6 trillion, up 10% from Q1 as continued organic growth was complemented by higher equity markets. Total organic net new assets were $23 billion and approximately 4% annualized growth rate. As for our Q2 financial results, the combination of organic growth and expense discipline led to an adjusted pre-tax margin of approximately 39.3% and record adjusted EPS of $5.84. Growth profit was $1,618,000,000, up $26,000,000 sequentially. As for the key drivers, commission and advisory fees net of payout were $486,000,000, down $1,000,000 from Q1. Our payout rate was 87.4%, up 22 basis points from Q1, largely due to the typical seasonal build in the production points. Looking ahead, we expect our payout rate will increase by approximately 80 basis points in Q3, driven by typical seasonality as well as the previously announced reductions to our corporate advisory pricing that went into effect on July 1st. With respect to client cash revenue, it was $457 million, down 3 million from Q1, primarily reflecting lower average cash balances. Overall client cash balances ended the quarter at 56.9 billion, down 2.2 billion. Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 60% within our target range of 50 to 75%. Looking more closely at our ICA yield, it was 336 basis points in Q2, unchanged sequentially. One item of note is that we are shifting our client sweep rate methodology from an asset-based tiering structure to a cash balance-based tiering structure. As a result, as we look ahead to Q3, we expect our ICA yield to increase by 10 basis points. As for service and fee revenue, it was $209 million in Q2, down $2 million from Q1. Looking ahead to Q3, we expect service and fee revenue to increase by approximately $5 million driven by revenues from our annual focus conference. Moving on to Q2 transaction revenue. It was $83 million, up $2 million from Q1, driven by record trading volumes in one additional trading day during the quarter. As we look ahead to Q3, we expect transaction revenue to decline by roughly $5 million. Now, turning to our acquisition of Commonwealth. As Rich mentioned, the transaction continues to progress well, and we remain on track to onboard Commonwealth Advisors in the fourth quarter. As for the financials, accounting for current market levels, we now estimate run rate EBITDA of approximately $435 million once fully integrated. Now let's move on to expenses starting with Core G&A. It was $519 million in Q2, down $13 million sequentially and below the low end of our outlook range reflecting our continued progress in driving greater efficiency and reducing our cost to serve. For the full year, given our progress to date, we are lowering our core G&A outlook range. We now anticipate 2026 core G&A to be in a range of $2,140,000,000 to $2,165,000,000. To give you a sense of the near-term timing of this spend, we expect Q3 core G&A to be in the range of $540,000,000 to $560,000,000. Turning to TA loan amortization, it was $142 million in Q2, up $6 million from Q1. As we look ahead to the third quarter, we expect TA loan amortization to increase to approximately $150 million, reflecting strengthening advisor recruiting. As for promotional expense, it totaled $79 million in the second quarter, up $3 million from Q1, driven by increased conference spending. Looking ahead to Q3, we expect promotional expense to increase to approximately $95 million driven by conference spend. Turning to depreciation and amortization, it was $110 million in Q2, up $4 million sequentially. Looking ahead, we continue to invest in technology and expect depreciation and amortization to increase by roughly $8 million in Q3. Moving to our tax rate, it was approximately 26.4% in Q2, and we expect a similar level in Q3. Regarding capital management, we ended Q2 with corporate cash of $430 million down $137 million from Q1. As for our leverage ratio, it was 1.9 times at the end of Q2 near the midpoint of our target range. Moving on to capital deployment, our framework remains the same, focused on allocating capital aligned with the returns we generate. Investing in organic growth first and foremost, pursuing M&A where appropriate, and returning excess capital to shareholders. In Q2, we deployed capital across our entire framework. As we continued to invest to drive and support organic growth, closed the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and returned capital to shareholders. Specific to share purchases. While our initial plan was to repurchase $125 million of our stock in Q2, the dislocation in our share price presented an attractive opportunity to deploy additional capital, so we accelerated repurchases to $309 million. Additionally, in July, our board approved a new $2.5 billion repurchase authorization, with $300 million planned for the third quarter. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage, and create long-term shareholder value. With that, operator, we are finally ready to open the call for questions.

Certainly. And as a reminder, ladies and gentlemen, please limit yourself to one question each. If you'd like a follow-up question, you may re-enter the queue. Our first question comes from the line of Alexander Poste from Goldman Sachs. Your question, please.

Hi, good afternoon. Thank you for taking the question. So I was hoping to start with the outlook on organic growth. Obviously, June, so a nice pickup. And you talked about a recruiting pipeline looking pretty robust. So maybe spend a minute on how you view organic growth for the second half of the year, whether or not NNA can sustain above five. And also coupled with that, we continue to hear a pretty competitive landscape for recruiting. Curious how that squares away with the outlook you're seeing for the back half of the year. Thanks.

Yeah. Hey, Alex. Thanks for the question. And nice to hear from you. So maybe let's talk about the recruiting. Well, let's talk about organic growth through the balance of the year. I think we saw that we've got a rebound in this quarter up to the 4%. Look, there's a couple of things that drove that. First is that we saw advisor movement move back in line with historical norms. That's important for us as we capture a disproportionate share of the advisors in motion. And any movement to that overall You know, advisor movement. We're going to be one of the winners who benefit in that movement. And so I'd say, you know, there's a macro movement improvement that that helped us aligned with our long term share capture of advisors in motion. Second, you know, and this continues and you heard in prepared remarks, Commonwealth is largely coming towards the end of the recruiting and education event. We still have advisors out. to continue to progress with them, to problem solve with them, to get to solutioning with them. And so it's not completely over, but as we have continued on that journey, we've seen more and more of our capacity to go back into the marketplace and engage directly with advisors. And so when you think about that second half of the year, we should be able to return to more normalized levels, not only of recruiting, but continuing to build pipeline. And so that makes us confident in our ability to deliver mid to high single digit growth over time. If you extend Even further out and look at our long-term outlook, I think this is where we even strengthen our conviction even further. We continue to be the disproportionate winner in our traditional markets. We have an unmatched value proposition, and that actually continues to strengthen. When we look at the wire house and regional advisor movement, largely we have been continuing to gain consideration, which is really important for us because as we speak to those advisors, we more often than not are one of the winners in those conversations, but we have to get into more conversations. So we do that by closing our capability gap, which we continue to do in quarter and throughout the balance of the year. I alluded to some of those even in prepared remarks. And continuing, more importantly, to actually position our brand actively in the marketplace. So you saw us do that a year ago with our brand campaign. Additionally, we've announced a partnership with the PGA of America that we think will continue to progress our representation not only to advisors but to their high net worth and investors, which is critically important as they consider firms they're going to consider moving to. And maybe lastly, in the institutional channel, this is one where we had to pause a little bit in our consideration of large opportunities to bring onto the platform because of the Commonwealth transition was so extensive and the build was so comprehensive. And now as we move towards being on the other side of that and finishing our capability build, it opens up our ability to continue to progress pipeline and the institutional channel with opportunities to onboard them. You marry that with low attrition and steady contribution from same store sales. And again, I look at that longer outlook and say, okay, I think we have a strong ability to sustain mid to high single digit growth. Maybe lastly to that competitive environment, I think it's completely fair representation. It remains spirited. We saw about a year ago, we saw a move in market TA levels. They have continued to persist at higher elevated levels. And from our perspective, we stay disciplined on returns. TA is part of our conversation with advisors, but it's not the driver. I kind of repeat this pretty regularly, but advisors who are changing firms think first about capabilities, technology, and service. They then think about ongoing economics. And third, they think about upfront economics. So you put that all together, we feel incredibly strong in our ability to not only sustain our performance, to improve it over the latter half of the year.

Thank you, and our next question comes from the line of Stephen Chuback from Wolf Research. Your question, please.

Hi, good afternoon, Rich and Matt, and thanks for taking my question.

I was hoping to get an update.

I like that pause, Stephen. I like that pause. That is not our fault. We were not gracious hosts there. Thank you.

Now you are not, but all is forgiven, rest assured. I was hoping to get an update on the pricing review, just now that you're further along in the diligence process. What has been some of the early feedback from advisors as you've explored potential pricing changes? and what are some of the key milestones that need to be met as part of the review to get you and the board comfortable with adopting or implementing any such pricing changes to minimize the reliance on cash economics?

Hey, thanks, Steven. So, like we said last quarter, we're actually doing that work. And I think, you know, we need to make sure we take that time, as you've probed properly, to think and ensure that any potential solutions that we come up with, one, that they're well considered, that we are looking at it from all angles, that it's aligned with our long-term strategy, and that it creates value for our advisors, for our institutions, and for the clients that they serve. And so I'll give you a little bit of color why this may take us a little more time. We've exploded the types of advisors and institutions that we serve. If you think about the two business models that we have, in our advisor business, We've grown our affiliation models pretty dramatically, and that looks like different profiles of advisors who have different compositions of their book. And similarly, on the institution side, we no longer just serve banks and credit unions. We serve large regional banks, national banks. We serve product manufacturers. And so the complexity of the type of clients that we serve is pretty comprehensive, maybe extensive. We've got to make sure, and we're engaged with those clients to ensure as we build any solution and evaluate those solutions across 32,000 advisors, 1,000 plus institutions, and 8 million end investors, that the solutions work across those clients and their operating models. The levers are very clear to us. But as we go through the work, we have to make sure that it works for those constituents. And that's the update that we have on the work. We're doing that work. We don't have any precise updates on the completed work to date, but we'll make sure to update you when there's more to share.

Our next question comes from the line of Dan Fenton from Jefferies. Your question, please.

Great, thanks. Matt, I was hoping you could expand upon the G&A outlook. The numbers continue to come in better than you have forecast. As you think about the back half of the year, are you still implementing some of these efficiencies to think about the ongoing benefits, or is obviously what you're putting in the numbers today is that You know, realistic based upon the, you know, what you guys have done so far.

Yeah, Dan, I mean, I think you look, if you look at the trends, like I think the headline answer is this is, I think, an evergreen thing. I mean, the continued investments, whether it be automation, efficiency, AI driven things that do two things. They not only, you know, improve our efficiency and drive down our costs, they also improve Our value proposition with our advisors. So I think that's something we're going to consistently do. And I think what you're seeing so far this year is some outperformance on the pace at which we're able to do this thing. So I think it's been a couple quarters in a row we've been able to deliver more efficiencies than we expected and we're able to lower the guidance for the year. So to underscore, the guidance for the year includes everything that we have worked on and everything that we expect to work on. And I think you've seen us, there's been periods where we've met that, there's been periods where we've done better than we expected. So I think that now core G&A growth of 4 to 5.5% prior to Commonwealth is our best estimate right now. But I think if you broaden that out, I think there is, each and every year, I think we're going to be able to continue to drive investments. And again, underscore, it's not only about efficiencies, but it's improving the value proposition in our experience with our clients.

Thank you. Thank you. And our next question comes from the line of Devin Ryan from Citizens Bank. Your question, please.

Great. Hi, Rich. Hi, Matt. A lot of good stuff in here. I want to ask about, you know, Richard Point, you made, you know, advisors care about Thank you for joining us. How differentiated is it versus just table stakes? I know that may connect back to your recruiting pitch or just making the firm more attractive for institutions to think about partnering with you. Thank you.

Thanks, Devin. So I think, one, technology has always been important for advisors who are considering moving firms. It's usually one of the first things we go through. In fact, recently, we continue to accelerate in our home office visits, our tech demos earlier in the sales process. The reason being that what feedback we get from advisors is that there is a material differentiation in our capabilities in technology than the competitors that they're looking at. And I would tell you, as we get through a tech demo, what we see is we win in head-to-head more often than we did even a year ago because through the last couple of years, you've seen us continue to enhance our investments made in technology. And I think a latitude announcement is a reflection of that. We reflected that we've invested nearly $2 billion over the last few years in building the core foundational capabilities in our data, security, advisor technology, and AI. Latitude is the reflection of our unified tech experience that ties all of that together. It's a crisper way to reflect the integrated nature of our technology ecosystem that we think is a really good reflection to advisors. And as they get in, they see the connectivity across all of that. No longer a separation of the advisor workstation and the end investor capabilities and the workflows and the cyber environment. And now the introduction for us of Cyan, our AI agent, it helps us actually operate across all of the advisor workflows and deliver contextual real-time intelligence. And so specific to your question, When we look at just Cyan and we look at how does that improve the operation effectiveness of an advisor's practice, well, a couple of our high impact use cases that we're launching with include the ability to identify growth opportunities for advisors in their practice. As they probe into it, natural language processing to identify ways that they can grow, actions they can take, and actually one of the things that's really impressive is a button that simplifies the next actions they should take to prioritize improving their growth against the verticals that they choose to grow. Second, there's other things that we've done there to make them more efficient in their practice. We introduced Jump as a way to record and then get actions coming out of meetings. But now we're introducing through Scion the ability to take financial plans that they've already developed to synthesize those plans for insights to the end investor as well as ways to deliver that to the advisor that are much more efficient than they're doing today. and one other high value use case is automating routine maintenance tasks. So instead of having to go into the system to make address changes, you actually just go into the agent, say you're making an address change, you indicate the change of address, and then it's automatically propagated across the entire ecosystem of Latitude. I think these are good examples of a firm that is positioning itself to lead in technology, making investments, being enabled through AI, that further differentiate us from our competitive set. And as we've not only shown our capabilities, Devin, but as actually we've demonstrated our roadmap for AI to advisors who are considering the firm, it usually is a significant point of differentiation between us and the other firms they're evaluating.

Excellent. Thanks, Rich. Thank you. And our next question comes from the line of Michael Cho from JP Morgan. Your question, please.

Hi, good evening. Thanks for taking my question. I just wanted to touch on pricing as well. Not so much the work that you're doing now, Rich, but the pricing adjustments that you announced last year and you implemented some earlier this year. And Matt, you called out, you know, the other parts starting in July as well. So just given some time has passed, you know, have you seen any adjustments in advisor behavior since announcement and implementation? And any key takeaways here from an LPL perspective and You see other opportunities to potentially mark the market, maybe some of LPL's more enhanced offerings, maybe in light of Latitude and Cyan as well. Thanks.

Yeah, Michael, I'll just start resummarizing for you. I think the headline is things have played out as we expected. So I think when we announced those, we walked through the three. I'll take you through the components. But we had expected a net improvement in margins, kind of incorporating everything that you had just walked through of about one percentage point. and that's largely what's played out. So just as a reminder, there was one in each of the core in Q1, Q2, and Q3. So Q1 was the new fees on brokerage accounts. In Q2, it was fees on the direct mutual fund business. And those two things together led to an increase in service and fee revenue by about $40 million per quarter. And then the last change coming, what I talked about in prepared remarks, that's coming in Q3, was reductions on pricing in our advisory platforms, really to make them, even though they're already competitive, even more competitive. And those pricing reductions will show up as an increase in payout of about $20 million a quarter. So the net of all of that is around $20 million a quarter, $80 million annualized, right in line with where we thought. And to the broad point, I think it just positions, as we talked about when we announced them, the first two fee increases were really to bring fees in those two areas in line with markets. and then the third area in advisory I think is making a platform that was already competitive competitively and value prop wise even more competitive. So I think it's really played out how we thought.

Thank you.

Our next question comes from the line of Craig Steven Tyler from Bank of America. Your question please.

Thanks. Good evening everyone. So similar question but I want to see if you could potentially change your revenue share arrangements with asset managers. And I wonder if you view this as a future earnings lever, given that your size increase and you're a scaled retail distribution partner. And what I'm getting at is, could LPL increase its underlying economics on ETFs, mutual funds, and SMAs? Thank you.

Yeah, hey Craig, this is Matt. I'll just underscore kind of what Rich went through in detail as far as what we're looking at on economics and things we would change. That's where our energy is. I think that there is other things that, you know, once we're done with concluding, is there something to do there or not? If there was other things to look at, we'd take that up. But I think when you look at our overall economics, the thing that we're staring at is cash sweep that I just underscore everything that Rich said.

Thank you. And our next question comes from the line of Mike Brown from UBS. Your question, please.

Great. Good afternoon. Thanks for taking my question. You've observed that your advisors, when they adopt your business solutions, they tend to grow two times faster than advisors that do not. As you think about the Commonwealth cohort and the transition there, what are your expectations for their adoption of your subscription-based services like your CFO and marketing solutions? And do you think that there's kind of a similar opportunity set for the Commonwealth advisors?

Hey, Mike, it's Rich. Thanks. So first, you're right. We observed that as advisors actually begin to outsource more of the work that they do themselves, They put themselves in a position to go to the core advice delivery. And you see that not only through marketing and CFO, you see it also through OCIO solutions, para-planning solutions. And so anytime when an advisor is thoughtfully reorganizing the structure of their office to drive productivity and drive deeper engagement with clients, we see accelerated growth. We also see that inside of our managed models that have a lot of those offerings embedded inside of that. So when you look at are strategic wealth services as well as our Linsco offering. We see faster growth there as well because of the support system that's provided and the solutions that are embedded in those offers. Commonwealth actually has a subset of the business solutions capabilities and services. In fact, they have some that are differentiated from us around practice management and some growth support as well. And so there are elements already. We see that Commonwealth advisors are faster growing advisors. and more productive advisors. And so they have been embedding those capabilities and driven outsized same-store sales growth. We would anticipate as we get into conversations, further conversations with Commonwealth advisors, there's a lot of our solutions that are attractive to them. I think the CFO and marketing solutions are attractive. I think one to maybe put on your radar screen is liquidity and succession solution, which we find also accelerates growth in advisors' practices as they go through liquidity and succession We find that there's a pretty strong demand from Commonwealth advisors as Commonwealth was building a solution that was similar but wasn't as robust and wasn't as far along in its deployment as our liquidity and succession solutions are. So I'd say across a cadre of solutions, there is an appetite from Commonwealth advisors. I would say it skews more heavily towards liquidity and succession because they had some of the solutions that we have already available inside a Commonwealth financial network.

Great call. Thank you for all that, Rich.

Thank you. And our next question comes from the line of Brendan Hawkin from BMO. Your question, please.

Hi. Thanks for taking my question. This is a little bit more of an abstract question, but among some investors, there's some debate about whether or not AI tools could eventually lead to some hybrid solutions, you know, which marry AI with advisors and potentially come at a lower price point. You know, you talk to a lot of advisors. What's the advisor view on that? Is that, you know, considered a real risk? And, you know, is there anything that could be done to insulate from this risk if it does end up emerging? Thanks.

Hey, Brandon, it's Rich. Thanks for the question. I think when you look into AI solutions, what you see is kind of either look at it as a glass half full or glass half empty. Let me give you the glass half full case. What you're going to see is a pretty significant enhancement in the workflows that exist, certainly first inside of our ecosystem, our ability to process work, our ability to drive straight through processing, our ability to make it just easier to do business. And when you look at the workflows that exist inside of an advisor's practice, scheduling, preparing for meetings, running alternative investment solutions, actually running the solution set, you see there's material opportunity to improve the efficiency of an advisor's practice. When you take those two things together, we stare into what we think will be a pretty significant enhancement in the availability of capacity at an advisor's practice level. In fact, many of the folks that sit inside of an advisor's practice think of the CSAs. We think there's a potential for them to get much more productive and move to much more interesting and challenging work of beginning themselves to deliver advice. And so as we look at the automation of an advisor's practice, of the workflows inside of the practice, We think that there's going to be capacity to serve more end investors. And so we haven't seen a material reduction over the last several decades in spite of many new innovations that the advisory fee is driven down in any material way. But I would tell you the offset to that would be we think even were that to occur, the advisors inside of their practice would have the ability to grow the practice, grow the number of clients and the assets they serve, and serve them in ways that they serve their best clients today. and so we view delivering the automation in AI as enhancing the advisor's practice. We think it will strengthen their ability to go to market and it will actually allow them to spend more time in advice delivery, in context setting and helping take decisions with end investors. So that's the theory to our case. I think we believe strongly in it and that is largely what we hear from our advisors. They are more excited about the adoption of AI than they are scared of the impact of AI We support that perspective as well.

That's interesting.

Thank you. And our next question comes from the line of Michael Cypress from Morgan Stanley. Your question, please.

Hey, good evening. Thanks for taking the question. Just wanted to ask about expense growth. Just curious how you would characterize that underlying pace of four to five and a half percent core DNA growth that you referenced relative to a multi-year profile. And then when you layer in AI initiatives. I guess, how meaningful could that be on a multi-year profile when you look out? And as you think about AI, I guess, where do you see some of the biggest opportunities to change processes and workflows that could be the most meaningful and really drive the needle on the bottom line as you look out over the next couple of years?

Yeah, Michael, I think, I mean, the opportunity is huge. I mean, I think like most folks, I think you're going to be balanced in how much you're investing to improve an experience give you more capacity to invest and drive your value proposition versus expand your op margin. And I think you see us balancing that. I think just looking at, you know, just this year, I think you're starting to see a good taste of what we can do and deliver, I think, relatively reasonable expense growth, especially when you look at the last few years, while at the same time, you know, delivering an increased capability set, starting to reinvigorate organic growth, and doing that all, I think, at that four to five and a half percent where we estimate now to be is quite a good balance. When you think about AI, so just kind of the end of your question there on the areas, I think for us, I'd put it in three broad categories where first is directly serving the advisor, and Rich hit on this a little bit in talking about latitude, talking about cyan, but those are things where I'm just underscoring what he said, like the benefits of that are not only on the value proposition for advisors, but they lead directly to efficiencies on our side. Things that would typically have been a phone call or an email and multiple steps and processes on both sides can just be completely processed through by that agent. I think the second one is just pointing all that where right at our internal infrastructure, our back office, meaning service and operations, That's where it can materially improve the cost structure and the efficiency. And then the last one would just be in our technology development, right? The coding and the tech builds itself, where we're already seeing the ability to not only build things much cheaper than they were historically, but build them at a faster pace. And I think you put those things together, and I think it goes back to a little bit of my headline point in the answer, that not only can we drive Thank you, and our next question comes from the line of Benjamin Budish from Barclays. Your question, please. Hi, good evening, and thanks for taking my question.

In the prepared remarks, you talked about a pricing change in the ICA that's going to benefit a little bit in Q3. I wonder if you could explain the mechanics of that change a little bit more. How does it work? What's the rationale for doing it? Is there any particular behavior that you're looking to incent? How should we be thinking about that going forward? Thank you.

Yeah, you bet, Ben. I think it's primarily driven by the Commonwealth integration. So when you look at, as we prepared onboard Commonwealth, how we, LPL, have priced Cash-based tiering has been based on the level of AUM that the household has with us. Commonwealth prices are based on the actual level of cash balances that they have. So what we're doing going forward is just shifting to an integrated approach that is cash-based balanced tiering. And that also aligns us with our independent peers. So it's got a benefit there. Now as to why that leads to an increase in returns, When you look at the price tiering, right, to perhaps state the obvious, you pay less on smaller balances and more on the larger balances. And as we've talked a bit about, I think for a long time, our advisors have their clients in cash in relatively small levels. We're probably at about two years now where the average amount of cash per account at LPL has been around $5,000. It really hasn't moved below that for two years. So the net result of that is more cash at those lower tiers. and that will lead to an increase in the ICA yield on a run rate basis of about 20 basis points. And those changes that are referred to are going to go effect in August, so kind of in the middle of the quarter. So you can view that as half of it coming in Q3 and then the second half coming in Q4.

Okay, great.

Thank you. Thank you. And our next question comes from the line of Jeff Schmidt from William Blair. Your question, please.

Hi, thank you. Question on the institutional channel. You've sort of taken a pause, it sounds like, due to the Commonwealth deal. How would you characterize your pipeline today? Has that been building? And are you seeing demand for outsourcing increase versus a year ago, or has it been fairly stable?

Hey, Jeff. Thanks for the question. So first, you're right. I mean, we had to take an intentional pause, not necessarily in our engagement in the marketplace, but around our ability to onboard. We just put first and foremost making sure that we got the Commonwealth onboarding capability built ahead of everything else. And so it did put a pause on how we progressed opportunities in the pipeline. If I reflect on maybe just for a second kind of our positioning in the marketplace. So first in that institutional market, we are the absolute leader in the institutional space and have been as such for years. and the institutions we serve support 590 billion of client assets in their wealth businesses. And that's multiples greater than those of our next closest competitor. As we position in our conversations and actually with folks who have onboarded with us, we have a really compelling value proposition. We accelerate the growth of the firm as they come on. We actually improve their margins and we reduce regulatory and compliance risk. And maybe most importantly across that, especially when you think about us relative to competitors, We've proven our ability time and again to actually transition very complex, large-scale organizations and their wealth businesses seamlessly. And so maybe lastly in that, we also have signature clients. And two, I would say, you know, two of our more recent joins in Prudential and First Horizon, two clients that I think are thriving on our platform. and reflect the ability that have demonstrated that improves efficiency as well as accelerated growth. So you put that all together, I think what we have is a building of our reputation in the marketplace to serve large institutions. We're more engaged now certainly than we were a year ago with large institutions, not only with the number of institutions, but actually the size and complexity of some of those institutions continues to grow. That's probably emphasized more even on the product manufacturer side. Thank you for joining us. We continue to see a building the pipeline there, and we actually now have cleared the decks for us to have the ability to have more material conversations. So feeling better about where we are there than we were certainly a year ago.

Great. Thank you. Thank you. And our next question comes to the line of Bill Katz from TD Calend. Your question, please.

Great. Thank you very much. Good evening, everybody. Just maybe a two-part, if I could squeeze it in. On CFN, can you let me know what the cash is as a percentage of client AUA? And then, Matt, I'd be curious if you could give us an update on how things have been trending into July on both flows and client cash. Thank you.

All right. Very aggressive, Bill. Operator said one. I'll do two. Don't worry about it. Look, on Commonwealth, their cash balances, the whole time they've been with us, are a little bit below ours. So we're at a little above 2%. They're a little bit above 1%, so they just have much, much lower cash balances, and it's always been that way. With respect to how the third quarter is going so far, so for July, on the cash side, a couple days remaining, but it's shaping up as you would expect in the first month of the quarter, which is primarily the impact of advisory fees. So those hit in the first month. That reduced cash by $2.8 billion. Outside of that, cash balances have been flat. So if you put those two things together, July cash has decreased by only the impact of fees, and that puts cash at around $54.1 billion. On the organic growth side, similar impact. Month one is usually the lowest month of the quarter because advisory fees hit in the first month. Outside of that, we are seeing organic growth continuing to pull through, as we've noted on the recruiting picking up. And you put those two things together, that would put July organic growth in the zone of around 3%. Thank you for accommodating the two-parter.

You're welcome. Thank you. And our next question comes from the line of Mike Brown from UBS. Your question, please.

Okay, great. Thanks for taking my follow-up. I wanted to just follow up on Stephen's question at the beginning. And I guess as you evaluate the potential transition toward platform fees, can you clarify, should investors view that work you're doing today as primarily developing a Playbook that would only be implemented if the competitive dynamics or client behavior created meaningful pressure on cash sweep economics? Or is management increasingly inclined to make that shift proactively regardless of whether those pressures materialize? And then if it's the latter, what gives you confidence that moving first creates value rather than a disadvantage, particularly if competitors are slower to follow or really choose not to make a similar change at all?

Yeah, hey, Mike. Thanks a lot. And I think, Bill, look at what Mike did. He actually re-entered the queue and got his second question in. So learning event, too, for all of us. So look, the question is whether we are going to be a leader or a follower. I think the most important thing is we actually need to get the right answer. And that's actually the work that we're doing. It's why the evaluation is so comprehensive in nature. As I mentioned before, well, With 32,000 advisors, with 1,000 institutions, we are a market leader. We're already in that position, and we're comfortable making decisions that lead the market if that's where things land.

Got it. Thank you, Richard.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Richard Steinmeier for any further remarks.

Thank you, Operator, and thank you all for joining. We look forward to speaking to you again in October, and have a great night.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.