LPL Financial Holdings Inc. Q4 FY2025 Earnings Call

Good afternoon, and thank you for joining the Fourth Quarter 2025 Earnings Conference Call for LPL Financial Holdings Inc. We have with us today Chief Executive Officer, Rich Steinmeier, and President and Chief Financial Officer, Matt Audette. Rich and Matt will provide introductory comments, after which we will open the line for questions. The company has made its earnings press release and supplementary information available in the Investor Relations section of its website, investor.lpl.com. Today's call will include forward-looking statements regarding LPL Financial's future financial results, outlook, business strategies, and associated risks. These statements reflect management's current estimates and beliefs and are subject to various risks and uncertainties that could cause actual results to differ significantly. For more details about these risks, please refer to the Forward-Looking Statements section in the earnings press release and the risk factors in the company’s recent filings with the Securities and Exchange Commission. We will also cover some non-GAAP financial measures during the call. For a reconciliation of these measures to GAAP figures, please check the earnings release on our website. With that, I'll 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. Before touching on our fourth quarter results, it was a milestone year for LPL as we significantly advanced our key strategic priorities. To reflect on a few of our key accomplishments, we delivered industry-leading organic asset growth of 8%, including the onboarding of the retail wealth management businesses of Wintrust Financial and First Horizon, which collectively support over 200 financial advisers managing roughly $34 billion in client assets. We completed the onboarding and integration of Atria Wealth Solutions, converting 7 distinct broker-dealers to the LPL platform. We signed and closed our acquisition of Commonwealth Financial Network, marking the largest deal in LPL history, welcoming their home office staff and approximately 3,000 advisers to the LPL family. We launched a national marketing campaign to elevate our brand with advisers and their clients. We significantly advanced our employee experience, resulting in our highest employee engagement scores in nearly a decade. We made meaningful progress driving improved operating leverage. And finally, our collective efforts resulted in record adjusted earnings per share of $20.09. Okay. Now let's turn to our Q4 results. In the quarter, total assets increased to a record $2.4 trillion, driven by organic growth and higher equity markets. We attracted organic net new assets of $23 billion, representing a 4% annualized growth rate. Our fourth quarter business results led to strong financial performance with record adjusted EPS of $5.23, an increase of 23% from a year ago. Next, let's turn to our strategic plan and progress across our organic and inorganic initiatives. Our vision is clear. We aspire to be the best firm in wealth management. To do that, we are focused on 3 key priorities: One, maintaining the client centricity the firm was built on; two, empowering our employees to deliver exceptionally for our advisers and their clients; and three, delivering improved operating leverage. Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model. With that as context, let's review a few highlights of our business growth. In Q4, recruited assets were $14 billion, bringing our total for the year to $104 billion. Throughout the quarter, our pipelines continued to build and are near record levels. Recognizing that many opportunities are in the early and mid-stages, we expect the pull-through to improve over the course of the year as we reignite our industry-leading growth engine. In our traditional markets, we added approximately $13 billion in assets during Q4 as we maintained our industry-leading capture rates of advisers in motion. With respect to our expanded affiliation models, strategic wealth, independent employee and our enhanced RIA offering, we delivered another solid quarter, recruiting roughly $1 billion in assets. Turning to overall asset retention. It was 97% for Q4 and over the last 12 months. This is a testament to the continued efforts to enhance the adviser experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As for Commonwealth, we are thrilled to be working closely with our new colleagues to develop the target operating model and positioning for the Commonwealth value proposition within our suite of offerings. The work is well underway, and we remain on track to onboard the Commonwealth advisers in Q4. In parallel, in partnership with our Commonwealth colleagues, we remain focused on helping their advisers understand the benefits of staying with Commonwealth, ensuring each adviser has everything needed to complete their diligence and make an informed decision. We continue to expect roughly 90% retention of client assets. As we get closer to onboarding later this year, our estimate will continue to firm up. In closing, the fourth quarter was a capstone on an outstanding year. This is a result of the dedication of our team and their unwavering commitment to our advisers. So I want to thank everyone at LPL for their efforts. As we look ahead, we remain well positioned to serve as a critical partner to our advisers 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, and I'm glad to speak with everyone on today's call. As we reflect on 2025, it's been a year of meaningful progress for LPL as we continue to execute against some of our key strategic priorities, which include advancing our efforts to drive improved operating leverage through a combination of increased efficiency in our business and refinements to pricing to ensure it is aligned with the value we deliver and driving further improvements to the adviser experience by removing friction through investments in automation across our service, operations and supervision. As we look ahead, we're encouraged by the opportunities in front of us to better serve our advisers and continue strengthening our industry-leading value proposition. Now turning to a few highlights from our Q4 business results. Total advisory and brokerage assets were $2.4 trillion, up 2% from Q3 as continued organic growth was complemented by higher equity markets. Total organic net new assets were $23 billion, an approximately 4% annualized growth rate. For the full year, total organic net new assets were $147 billion, or an approximately 8% growth rate. As for our Q4 financial results, the combination of organic growth and expense discipline led to an adjusted pretax margin of approximately 36% and record adjusted EPS of $5.23. Gross profit was $1.542 billion, up $62 million sequentially. As for the key drivers, commission and advisory fees net of payout were $453 million, up $27 million from Q3. Our payout rate was 88%, up 53 basis points from Q3 due to the seasonal build in the production bonus. With respect to client cash revenue, it was $456 million, up $14 million from Q3, as the sequential growth in balances more than offset the impact of lower short-term interest rates. Overall client cash balances ended the quarter at $61 billion, up $5 billion sequentially, a strong outcome even when considering the typical Q4 seasonal build. Within our ICA portfolio, the mix of fixed-rate balances ended the quarter at roughly 55%, within our target range of 50% to 75%. Looking more closely at our ICA yield, it was 341 basis points in Q4, down 10 basis points from Q3, driven by the impact of the October and December rate cuts. As we look ahead to Q1, we expect the full quarter impact of the Q4 rate cuts to lower our ICA yield by roughly 10 basis points. As for service and fee revenue, it was $181 million in Q4, up $6 million from Q3, as the full quarter of Commonwealth was partially offset by lower conference revenue and IRA fees. Looking ahead to Q1, we expect first quarter service and fee revenue to increase by approximately $25 million sequentially. This is driven by 2 factors: first, a seasonal decline in conference revenue of approximately $10 million; this is more than offset by the impact of the fee changes we announced last quarter, which will provide an ongoing quarterly benefit to service and fee revenue of roughly $35 million, or $140 million annually. Moving on to Q4 transaction revenue. It was $75 million, up $8 million from Q3, driven by increased trading volumes. As we look ahead to Q1, trading activity levels remain roughly in line with Q4. However, I would note there are 3 fewer trading days in Q1, so we expect transaction revenue to decline by a few million sequentially. Now let's turn to our acquisition of Commonwealth. As Rich mentioned, the transaction is progressing well, and we remain on track to onboard in the fourth quarter. As for the financials, accounting for current client assets and cash balances as well as interest rates, we continue to estimate run-rate EBITDA of approximately $425 million once fully integrated. Next, let's move on to expenses, starting with core G&A. It was $536 million in Q4, bringing our full-year core G&A to $1.852 billion, below the low end of our outlook range, reflecting progress we've made driving greater efficiency and lowering our cost to serve. For the full year, prior to the impact of Prudential, Atria, and Commonwealth, 2025 core G&A increased by approximately 4%, our lowest level of growth in several years. In 2026, we plan to continue to invest in the business to deliver greater efficiencies and drive operating leverage as we scale. Prior to Commonwealth, we expect core G&A growth of 4.5% to 7%, or $1.775 billion to $1.820 billion. In addition, we'll have the full year impact of expenses related to Commonwealth, which adds roughly $380 million to $390 million. This brings our overall expectation for 2026 core G&A to be in a range of $2.155 billion to $2.210 billion. And to give you a sense of the near-term timing of the spend, as we look ahead to Q1, we expect core G&A to be in a range of $540 million to $560 million. Next, I want to highlight a minor update to our management P&L this quarter, where we separated TA loan amortization from promotional expense. While this is not a new disclosure, we hope the updated placement allows you to more easily analyze our results. So looking at TA loan amortization, it was $133 million in Q4, up $28 million sequentially due to Commonwealth-related transition assistance as well as our ongoing recruiting. As we look ahead to Q1, we expect TA loan amortization to increase by roughly $5 million, primarily driven by Commonwealth. Turning to promotional expense, it totaled $76 million in the fourth quarter, down $21 million sequentially, primarily driven by lower conference spend. Looking ahead to Q1, we expect promotional expense to be roughly flat sequentially. Turning to depreciation and amortization. It was $105 million in Q4, up $5 million sequentially. Looking ahead to Q1, we expect depreciation and amortization to increase by $5 million. As for interest expense, it was $106 million in Q4, roughly flat sequentially as increased usage of the revolver was offset by lower short-term interest rates. Regarding capital management, we ended Q4 with corporate cash of $470 million, down $99 million from Q3. As for our leverage ratio, it was 1.95x at the end of Q4, near the midpoint of our target range. Moving on to capital deployment. Our framework remains 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 Q4, we continued to deploy capital in line with our priorities, investing primarily in organic growth and M&A, where we advanced the Commonwealth integration and continue to allocate capital to our Liquidity & Succession solution. Specific to share repurchases, a reminder that we paused buybacks following the announcement of the Commonwealth acquisition with a plan to revisit following the onboarding. As we look ahead, we are ahead of schedule with leverage already at the midpoint of our target range and the operational work to onboard Commonwealth well underway, there may be an opportunity to refine the timing of resuming share buybacks later this year. 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, please open the call for questions.

Our first question comes from Steven Chubak from Wolfe Research.

Rich and Matt, thanks for taking my questions or one question. So I did want to ask on Commonwealth retention. There's been a fair amount of press coverage in recent weeks, suggesting the retention was running well below that 90% target. So certainly pleased to see the 90% target reaffirmed. I was hoping you could speak to what gives you confidence that you could still achieve that 90% asset retention figure. And just given the near-record recruiting pipeline that you cited, just speak to some of the actions that you're planning on taking to get core recruiting ex Commonwealth back on track.

I'll start or do you want to start?

Yes, I'll start with the retention, Steven. I think when you look at retention, right, and it's based on assets, right? The assets we expect to land on our platform after the onboarding in Q4. And that's our methodology. We consistently do that on our acquisitions. So I think when you and others that are speaking here that are reading headlines about headcount departures, just to give you a little color on that, when you look at the advisers who have signed to stay with LPL so far, we're now just over 80%. And you look at those, on average, they are larger, they are faster growing, and they are higher producers than those that have decided to go elsewhere. So I think when you get some noise when you look at those headcount departures. But when you look at the advisers that have committed to stay with LPL, with Commonwealth, it is an impressive group, and we are really excited to welcome them on the platform as we onboard in the fourth quarter.

To add to that briefly, Matt has clearly outlined our commitment to asset retention and our focus on keeping larger advisers. Some advisers will continue making decisions over the next few months and possibly quarters. We are closely collaborating between Commonwealth and LPL to inform them about the ongoing value proposition of Commonwealth. We believe that by maintaining community integrity, protecting their experiences, cultures, capabilities, and leadership, we will ultimately succeed. Conversations are now more productive compared to the early stages of a lengthy due diligence process. Overall, we are very pleased with this transaction and the collaboration between teams. We see great potential in our go-to-market strategy and the integrated firm. Last quarter, Matt shared that nearly 80% of advisers representing 80% of assets had agreed to remain with Commonwealth, and as of today, that figure has improved to the low 80% range of advisers representing the same percentage of assets. Regarding recruitment, many of our top recruiters have focused on retention efforts, but as we approach the conversion and more Commonwealth advisers finalize their agreements, our recruiters will shift back to organic recruiting. Looking ahead, we anticipate a gradual return to more typical recruiting results, driven by increased success in traditional markets with our unique value proposition, further encroaching on the wirehouse and regional employee adviser segment where our solutions are gaining recognition. Notably, over the past couple of years, we have increased our share of wirehouse and regional employee advisers from 9% to over 11% of all advisers moving. Additionally, our Liquidity & Succession solutions enhance our attractiveness for new advisers, providing them options for transitioning their businesses. Combined with low attrition and steady same-store sales, we are well positioned for sustained mid- to high single-digit growth in the long term.

And our next question comes from the line of Alexander Blostein from Goldman Sachs.

Maybe building on that a little bit, Matt, I heard you reaffirm your EBITDA contribution of $425 million once everything is onboarded. Maybe help unpack that a little bit because given just the assets have grown due to market largely and you're still on track to $90 million, and you highlighted you're running, I guess, in the low $80s million now. Why isn't the $425 million higher? Are there other puts and takes we need to consider? Or you guys are just looking to revisit that once the assets are fully onboarded? I just want to kind of better understand the mark-to-market impact on all of that.

Yes, while assets have increased slightly, there's also been another interest rate cut. Additionally, the cash sweep at Commonwealth that accumulated in December has already been reintroduced to the marketplace. These factors tend to balance each other out, which is why we're still around $425 million.

And our next question comes from the line of Dan Fannon from Jefferies.

So I wanted to follow up just on the growth outlook. And Rich, you had mentioned reigniting the growth engine at LPL. So is it just time and the timing of this in terms of getting back to regular recruiting? Or can you talk to the industry dynamics and advisers in motion and kind of the recruiting backlog today versus where it maybe was a year ago? And just kind of thinking more about the acceleration, whether that could be more of a first-half dynamic or you think it's really closer towards that onboarding of the Commonwealth assets?

Yes. I appreciate it, Dan. There's a lot in there. So maybe let's start with the recruiting environment first. I will tell you, we pay very close attention to the advisers in motion. And relative to historic norms, we still see that adviser movement remains tempered relative to historic levels. Now look, truth there is that there are events in the marketplace that can drive that churn to higher levels. And that one right now is probably the acquisition of Commonwealth. And so we're participating there, obviously, dedicating recruiters. A recruiting event where you're trying to educate 3,000 advisers is a very large event for us. And so we dedicated and ring-fenced a set of our most sophisticated and most senior recruiters and working against that. And as I alluded to and as you referenced, as we get more signs and you mentioned where we're at, those recruiters get the chance to pivot back to their organic recruiting pipeline. But as I noted earlier, when you start building those pipelines, you're going to build into the earlier stages as you think about a stage progression pipeline. And so while our pipelines continue to build through Q4 and they are near record levels, they're loaded towards that early and mid-stages. And so that takes time, and we've alluded to on calls in the past, you get different durations of how long a cycle time is for a recruiting event, and they vary from independent adviser 1099 direct to our supported models in strategic wealth and Linsco have longer lead times. And so when that will pull through is a function of the mix of those advisers and how they get through their diligence and decision-making. But we expect that pull-through to continue to improve over the course of the year. And maybe if we think about the environment that we're in, I think you've heard it on some of the other calls as well, it's a competitive environment right now. Competitors remain aggressive. We've seen TA levels spike up, most notably right after the Commonwealth announcement. And we see those TA levels staying elevated in the marketplace. And so typically, in the wake of several interest cuts, we would have expected some moderation in TA, and that really hasn't happened. Rates have remained high in absolute terms. And so from our perspective, nothing about our approach has changed. We stayed disciplined on returns with TA being a part of the conversation but really not the driver of decisions. And as a reminder, advisers in motion's priorities continue to be: One, capabilities, technology, service, culture; two, ongoing economics; and then third, upfront economics. So as you put that all together, I think as recruiting activity normalizes, we'd expect organic growth to pick up as those pipelines convert, positioning us to reignite and sustain industry-leading organic growth over time.

And our next question comes from the line of Craig Siegenthaler from Bank of America.

My question is on footnote 15 from the historical file. You disclosed purchase money market funds there, and it looks like they might be finally at a ceiling. So I'm wondering, do you expect liquidity to start to run there with a few more Fed cuts? And where does that go? Is there an opportunity to generate more ROA on that, maybe in alts, insurance and probably eventually back in the cash sweep?

Kudos, Craig, on the detailed historical file there.

I thought he would have called on historical footnote 14, 15.

Yes, we'll address that. What you're referring to is the cash equivalents and the amount of money in purchase money markets, short-term bond funds, and treasuries. We've observed those balances grow throughout this cycle. In total, the combined amounts in purchase money markets and those other categories, including treasuries and short-term bond funds, exceed the overall cash sweep balances. As interest rates decline, it is likely that advisers will guide their clients back into the marketplace. Consequently, it's natural for these types of funds to become more relevant again. While there is more than just purchase money markets in this category, it reflects the trend of where advisers are directing their clients as cash yields decrease and opportunities in equity markets and other areas, like annuities, become attractive. This is what appears to be influencing the movements we're seeing.

And our next question comes from the line of Michael Cho from JPMorgan.

I just want to touch on Commonwealth as well, just more from an, I guess, an integration perspective. I mean you closed the deal maybe 4 or 5 months ago. I was just wondering, can you just talk through the progress of the integration and preparing for the onboarding ahead? Any key takeaways you'd highlight or anything that might influence priorities for the broader LTL organization looking ahead?

Thanks, Michael. It's great to have you here. Integration is progressing very well. Over the past 5 to 7 years, we have handled several significant integration events, including those involving M&T, BMO, TruStage, Waddell & Reed, Atria, and Prudential. Many of these events required substantial investments, often exceeding $100 million, sometimes reaching above $200 million. As we look at Commonwealth, we carefully assessed all the necessary capabilities before finalizing the transaction that would benefit not only Commonwealth advisers who join our platform but also all of our advisers and institutions. We have completed the scoping of that work, have built our model, and have already begun development. The complexity of this development has led to a longer timeframe for conversion. However, we feel confident about our ability to deliver on this capability development and ensure our advisers have a positive experience. Commonwealth excels in delivering exceptional service, significantly due to how they gather feedback. This aspects differ from how our workstation was initially set up. Therefore, we are creating a highly effective feedback system that enables us to collect input from advisers, prioritize it, assign tasks accordingly, and execute efficiently, creating a smooth environment over time. Additionally, they have an impressive single relationship agreement that covers multiple account structures, which requires significant development, and we are currently working on that as well. This development includes householding, restructuring the pricing model for some of our advisory platforms, and more. We have a solid grasp of the work needed and the capabilities to be delivered. Now, we are also defining our target operating model, collaborating closely with Wayne Bloom and his team to ensure we maintain the essence of Commonwealth while equipping the team serving Commonwealth advisers with the necessary tools to provide the outstanding service that has garnered 12 consecutive J.D. Power Awards for independent adviser satisfaction, a record in the industry. Our aim is to build these capabilities so they can achieve awards #13, #14, and #15 while we enhance our ability to serve excellently, just as Commonwealth does today. Overall, we are very positive about our understanding of what needs to be accomplished, our capacity to execute and deliver, and the combined value proposition that will emerge from the two firms.

And our next question comes from the line of Ben Budish from Barclays.

In the earlier Q&A, Rich mentioned an increase in the win rate of advisers in motion coming from the wires. Could you elaborate on what's happening there? It seems some media coverage and comments from larger banks indicate they are becoming more aggressive, whether regarding recruiting TA packages or other aspects. What do you think has led to this recent success? How significant do you believe the development of initiatives like securities-backed lending and the alts platform, which are expected to be ready by year-end, is in enhancing that position? Additionally, you've discussed competition generally; how would you assess the competitive landscape specifically with that particular group of rivals?

Thank you, Ben. To understand the recent improvements in our capture rates within the wire and regional employee channels, we can point to a favorable macro trend. We have observed a significant shift where advisers are increasingly transitioning from W-2 channels, with more than 50% of them now moving to an independent structure rather than just switching between W-2 firms. We are the top choice for those looking to establish independent businesses, given our diverse affiliation models. Several years ago, we implemented these models to make the transition from W-2 to independent a more appealing option, offering support throughout the process. This was the basis for our strategic wealth offering, which assists 1099 advisers in establishing and transitioning their practices with the necessary support, including through our W-2 channel, Linsco. Moreover, we've recognized and are addressing some gaps in our product offerings, particularly in lending and high net worth capabilities. We are continuously closing those gaps, leading to an increase in our consideration rate. Advisers are increasingly interested in engaging with us, whether through the Linsco channel or our Strategic Wealth offering. They could end up starting their own RIA, benefiting from our employee W-2 support, a supported independence channel, or a 1099 affiliation through our corporate RIA. We have more options for affiliation than any other firm. Additionally, we have launched a national brand campaign that clearly communicates our value to investors, which has boosted brand awareness among both investors and advisers. Lastly, our partnership with Commonwealth is a significant endorsement of our market position. They are recognized for their premium brand and top-tier advisers, and their decision to partner with us has drawn attention from more W-2 advisers, reinforcing our status as a leading firm in wealth management.

And our next question comes from the line of Brennan Hawken from BMO Capital Markets.

I have a two-part question. I understand that Commonwealth is a priority for you. You mentioned that your top recruiters are focused on this task, but I also recognize that it takes time to build a new asset pipeline. How long do you think it will take before we start seeing net new assets return to the growth rates that align with your strong historical performance? Additionally, could you provide an update on the progress of net new assets so far this year and any information about cash balances?

I will begin by addressing how January has progressed so far. When we examine organic growth, it's important to note that January is typically one of the slowest months of the year for this metric due to two main factors. First, the slowdown at year-end in December results in minimal recruiting as the month comes to a close, making it difficult for new hires to start onboarding. Then, it usually takes a couple of weeks into January to ramp up recruiting and same-store activities. Consequently, January tends to show low growth. However, as we transition into February and March, we expect to see improvements. Additionally, advisory fees typically peak in the first month of the quarter, and with our advisory segment growing larger—now comprising about 58% or 59% of our business—this will contribute significantly in the first quarter. All of this leads us to an estimated 2.5% organic growth for January, with expectations for increases in February and March. On the cash sweep front, there are still a few days left in January, but I can say that it's performing somewhat better than usual. We see the same seasonal trend in advisory fees, which are around $2.5 billion, impacting our cash flow directly for the month. Aside from this, the buildup we experienced in Q4, particularly in December, is largely intact. Overall, cash balances, excluding fees, have decreased by approximately $1 billion, resulting in an overall decline of about $3.5 billion, placing the total cash sweep at roughly $57.5 billion. To provide further context, compared to November, we are currently about $3 billion above those levels, indicating that cash has been relatively stable this year compared to previous years. I’ll hand it back to you now for further discussion on the timing of organic growth.

Yes. So I think, Brennan, the way to think about this is, as we alluded to, we sit in the low 80s in terms of AUM assets that are committed to join. And that's not a complete proxy, as Matt had alluded to, for the actual number of advisers based on the fact that we have larger advisers joining. But what you'd see there is as we started in April, we had a real shift of our recruiters into that event. And we are now moving towards the tail end of that event. The issue that you have at hand is that the lead times for recruiting for an independent adviser going from one firm to the next usually sit between 3 to 6 months. And so once you enter pipeline, you can think about that as the time frame for most center of gravity decisions to make to move from firm to firm. But as you get into larger advisers, especially as they're considering supported models like Linsco, if they're establishing their own RIA as well or our strategic wealth, you're oftentimes with those larger teams looking at pipeline decision-making to conversion that sits center of gravity between 6 months to a year. So it really does depend on the mix makeup of what we have in pipeline. As we alluded, we've seen really nice pipeline build, especially into the first couple of stages of our pipeline. And what it takes is a little bit of time, especially with those seasoned recruiters to progress those through the pipeline. So as we alluded to, it's going to occur during the course of this year, and I'm probably giving an answer that is more precise than that at this moment in time, I probably can't do that.

And our next question comes from the line of Devin Ryan from Citizens Bank.

I want to shift to the enterprise channel and Prudential specifically now that we're a little bit over a year past that integration. And just would love to dig in a little bit more around some of the learnings. I'm sure you have a lot more data today on how that's going. So it would just be great if you could give any proof points to us on how it's going? What type of acceleration in growth are you are they seeing? And then just how it sets you up for maybe more in the insurance channel. I'm curious if you're seeing interest from other parties as these maybe positive anecdotes start to make their way to the market.

Thanks, Devin. Just to remind everyone, we partnered with Prudential in November 2024, which brought in around $67 billion in assets. During our discussions, it was clear that Prudential has an excellent wealth management division and was optimistic about its future. They were eager to explore further advancements in the business. Our collaboration involved significant development of our capabilities, positioning us well to engage with other insurance companies and product manufacturers. I can share that in the fourth quarter, Prudential announced a 9% year-over-year growth in their adviser headcount, along with approximately $3 billion in net new assets. I spent time with them over the holidays, and they are very positive about their franchise. Their sales infrastructure is outstanding, and their leadership is strong. They excel in developing new advisers, and their roster of insurance-based advisers considering Prudential continues to expand. Our partnership has yielded great results in recruiting for their franchise. Regarding our pipeline, I’ve mentioned before that this partnership resembles our relationship with M&T Bank, where they took a bold step with us into new areas of larger bank wealth outsourcing. We're starting to have similar discussions with others, but it's important to acknowledge that some firms are hesitant to engage in these conversations because Prudential set a new standard in our partnership. I believe I can confidently say that both of us are thrilled with the outcomes we've achieved, and Prudential's strength positions them very well in the market. I take great pride in our partnership with Prudential and look forward to advancing discussions with several other firms that have started exploratory conversations, which are progressing further.

And our next question comes from the line of Bill Katz from TD Cowen.

And happy anniversary since no one else has said that. Just a couple of maybe interconnected questions. Matt, you alluded to the possibility of accelerating the sort of capital deployment that you're running a little bit ahead in terms of operationally and your leverage ratios. Can you give us a sense of what mileposts we should be looking at to potentially think about maybe starting to reincorporate capital return? And then just on the interest rate management side of the equation, you're sort of running at the lower end of your fixed to float. How are you thinking about that shape as you look into the new year given the forward curves are relatively stable from here?

Yes. What anniversary, Bill?

I understand what he's referring to. First of all, he's very generous and thoughtful, something we always appreciated about Bill. I want to express my gratitude, Bill. He believes this marks the one-year anniversary of my first earnings call, but it was actually during Q3, just a couple of weeks later.

Was that it, Bill?

It was.

Look at you. Super thoughtful.

My anniversary was in August. So my wife would...

Thank you, Bill. Regarding your two-part question, initially when we announced the acquisition of Commonwealth, our goal was to reduce leverage back to 2x before reevaluating capital returns. Given that Commonwealth will onboard in Q4, we expected to revisit this then. As we've discussed today, we are ahead of our deleveraging plans, which is encouraging. Although the timeline for Commonwealth hasn't changed, the preparation is going well. We are considering the possibility of starting share repurchases earlier, potentially a quarter sooner. However, there is still work to be done before we finalize that. We will provide an update in a future quarter. As for your second question about the fixed rate sweep, our plans remain unchanged. The decrease relates to the year-end buildup seen in Q4. As we stabilize our cash balances this quarter and noted for January, they are proving to be more consistent than in prior years. We anticipate moving into the fixed rate market, typically landing between low to mid-60%. Thus, in Q1, our expectations for that 55% range was mainly due to the year-end buildup in December.

And our next question comes from the line of Michael Cyprys from Morgan Stanley.

Just wanted to ask around core G&A. I think that your guide implies underlying core G&A growth of 4.5% to 7%, which is a bit of an acceleration from the underlying 4% you put up in '25. So I was just hoping you could elaborate on what's driving that acceleration into '26. Maybe speak to some of the areas you're investing in across '26 here. And maybe if you could also just update us on some of the initiatives that you have across expanding technology capabilities, broadening out the platform for advisers. Just what are your priorities here in '26 around that?

Yes, absolutely. To provide some context on 2025, our initial outlook suggested a growth rate of 6% to 8%. Historically, this would have been considered our lowest growth rate in recent years. However, we ended up achieving a much lower rate of 4%, which means our guidance for next year is set at 4.5% to 7%, representing a slight increase. It's important to note that this is still among the lowest growth rates we've seen in quite a while, primarily due to our cost efficiency initiatives and the structural changes we've made to our operations. Regarding 2026, we're focusing on similar strategies but are also committed to investing in ways that enhance our offerings and drive growth. We recognize the necessity of making additional investments that promote efficiencies and scalability within the business. We are just at the beginning of exploring our investment opportunities that enable us to scale effectively while improving the client experience. Even looking at the midpoint of our projected range, it still reflects one of our slowest growth rates in some time, which highlights the potential opportunities for driving growth. Additionally, our wider range of 4.5% to 7% reflects our numerous initiatives involving automation and AI, acknowledging that the timing of these initiatives can vary. While some expected impacts might shift from one quarter to another, we remain confident in our ability to improve efficiencies that benefit our bottom line and enhance the client experience. We have a long list of initiatives in play, and we're excited about the potential ahead, as demonstrated in our guidance.

And our next question comes from the line of Jeff Schmitt from William Blair.

For the Liquidity & Succession solution, and I think you spent a little over $50 million in the quarter. How do the returns on that look compared to traditional M&A and recruiting? I mean, are the multiples a lot lower in M&A? I know recruiting, you've kind of pointed to that being maybe 3, maybe 4x in this environment. So where does that sort of shake out?

Yes, Jeff. In our target M&A range, we typically operate between 6 to 8 times, and L&S fits right within that range. However, there are some differences to consider. When evaluating L&S, the quality of earnings is notable; the economics involved in acquiring companies at 6 to 8 times in this sector are entirely based on recurring noncash sweep earnings, indicating a higher quality. Additionally, the strategic advantages come into play throughout the life cycle of properties within L&S, from acquisition to aiding in the transition to the next generation. We support these successors in growing and regaining the capacity to repurchase their practice, all while allowing them to concentrate on servicing their clients and enhancing growth. When considering any L&S opportunity, you can see a transformation from the acquired practice to one that’s fully transitioned. The next generation is poised to be more efficient, experience faster growth, and operate a higher-quality advisory practice. Hence, the benefits extend beyond mere economics. That said, I want to emphasize that the economics remain in the same range of 6 to 8 times, but the earnings quality here is significantly better since it entirely involves noncash sweep earnings.

And our next question comes from the line of Wilma Burdis from Raymond James.

Do you think there's some level of short-term interest rates where we'll start to see more cash build? And if so, are we starting to approach that level? And maybe you could just talk a little bit about the rate cuts in 4Q '25 and how that may or may not have contributed to build in the quarter.

Yes. When examining cash balances, particularly in the context of operational factors, we see that average balances per account have remained quite stable, rounding to about $5,000. This stability is why we observed a larger-than-usual build in December. Looking ahead, as rates decrease, we anticipate cash sweep to remain stable or increase since the cash levels are adequate for account management. Over the last couple of quarters, the average balance per account has actually grown. Even with individual rate cuts this quarter, I don't believe they significantly impacted cash balances; the increases were primarily due to seasonal factors such as rebalancing and loss harvesting.

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

Thank you all for joining us. We look forward to speaking with you again in April. Have a good night.

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