Earnings Call Transcript - LPLA Q4 2022

Operator, Operator

Good afternoon, and thank you for joining the Fourth Quarter 2022 Earnings Conference Call for LPL Financial Holdings Inc. We have our President and Chief Executive Officer, Dan Arnold, and Chief Financial Officer, Matt Audette, with us today. Dan and Matt will provide opening remarks, after which the call will be open for questions. The company has posted its earnings press release and supplementary information on the Investor Relations section of the website, investor.lpl.com. Today's call will include forward-looking statements concerning LPL's financial and operating results, outlook, business strategy, and potential risks and opportunities that management anticipates. These forward-looking statements reflect management's current beliefs and are subject to various risks and uncertainties that may cause actual results or the timing of events to differ significantly from what is expressed or implied. For more details about such risks and uncertainties, please refer to the disclosures in the earnings press release under Forward-Looking Statements, as well as the risk factors and other disclosures in the company's recent filings with the Securities and Exchange Commission. The company will also discuss certain non-GAAP financial measures during the call. For a reconciliation of these non-GAAP measures to the comparable GAAP figures, please see the earnings release at investor.lpl.com. Now, I'll turn the call over to Mr. Arnold.

Dan Arnold, CEO

Thank you, John, and thanks to everyone for joining our call today. Over the past quarter and throughout 2022, our advisers have continued to provide essential support and guidance to their clients amid increased market volatility. This reinforces the value they bring and highlights their important role. We appreciate their ongoing commitment as we work to support them in caring for their clients. Regarding our performance, our fourth quarter results indicate a strong financial outlook while we continue to execute our strategic plan. I'll cover both, starting with the fourth quarter results. During the quarter, total assets rose to $1.1 trillion, fueled by solid organic growth and stronger equity markets. Fourth quarter net new assets were $21 billion, reflecting 8% annualized growth, contributing to an annual total of $96 billion, also at 8% organic growth. In Q4, recruited assets reached $15 billion, bringing the yearly total to $82 billion. These outcomes stem from enhancements to our model and an expanded market reach. Our advisers are focused on providing excellent service, resulting in successful new client acquisitions and increased share of wallet from existing clients, which bolstered same-store sales in the fourth quarter. In terms of retention, we have improved the adviser experience by introducing new capabilities and modernizing our services and operations, resulting in an asset retention rate of about 98% for both the fourth quarter and the full year. Our fourth quarter performance yielded a strong financial result of $4.21 in EPS before intangibles and acquisition costs, culminating in a total of $11.52 for the year, a 64% increase from last year. Now, let’s discuss the progress on our strategic plan. Our long-term goal is to establish ourselves as the leader in the adviser center market, which means empowering advisers to deliver exceptional advice and operate their businesses efficiently. To achieve this, we provide tools and solutions that allow advisers to offer personalized advice and planning experiences. We are also supporting advisers’ business growth with technology-driven solutions. Successfully accomplishing this will lead to sustainable industry leadership in adviser experience, organic growth, and market share. To implement our strategy, we have organized our initiatives into four strategic areas, which I will outline. Our first strategy is to engage advisers and institutions based on their business evolution, focusing on our traditional markets and innovative affiliation models to broaden our market reach. In traditional markets, enhancements in our platform and business development efforts have improved our win rates, leading to our strongest recruiting quarter in 2022 with approximately $11 billion in assets. We aim to maintain this momentum into Q1. With new affiliation models, including strategic wealth and our enhanced RIA offering, we acquired over $1 billion in Q4. We see growing demand in all models, indicating substantial potential for organic growth. Large enterprises continue to be a significant recruitment source, with plans to onboard Commerce Bank mid-year and increasing demand reflected in our pipeline. Our recent liquidity and succession capability shows promise, as we offer tailored solutions for advisers' succession needs. We have ventured into providing M&A support to facilitate transitions, and we’re working on a new liquidity and succession offering where we can purchase an adviser's business to bridge the gap to the next successor, preserving independence principles. This offering has been positively received, with early transactions completed, and we plan to expand its availability this year. Our second strategy focuses on equipping our advisers to stand out in the marketplace and enhance back-office efficiency. In 2023, we will develop capabilities across four areas: improving our wealth management platform for better client advice, advancing ClientWorks for operational efficiency, expanding our banking and lending services, and enhancing digital solutions for personalized client experiences. We believe these innovations will boost adviser growth, productivity, and retention. Our third strategy aims to create a superior service experience to delight advisers and their clients, supporting recruitment and retention. We are transforming our service model into an omnichannel client care approach, which has led to approximately 75% of digital interactions resolving service requests without a phone call. As we refine our digital support, we anticipate more advisers adopting this efficient service model. Furthermore, we are automating core operations, which improves efficiency and compliance. Our fourth strategic initiative focuses on building a services portfolio to assist advisers and institutions in delivering comprehensive client advice. Increasing engagement in our services group has led to over 3,000 active users generating $36 million in run-rate revenue. We are expanding our offerings to cater to a wider adviser base, targeting additional channels, leveraging innovation, and growing our new affiliation models. In summary, we have continued to invest in our value proposition for advisers and their clients throughout the year while driving growth and enhancing market leadership. Looking ahead, we are committed to executing our strategy to help advisers differentiate and succeed in the marketplace, leading to long-term shareholder value. Now, I’ll turn the call over to Matt.

Matthew Audette, CFO

All right. Thank you, Dan, and I'm glad to speak with everyone on today's call. Before I review our fourth quarter results, I'd like to highlight our progress during 2022. Against an evolving market backdrop, we maintained our focus on supporting our advisers and their clients while executing on our strategic priorities. We continue to grow assets organically in both our traditional and new markets, successfully onboard new enterprise clients, develop and pilot our new liquidity and succession capability, and announce two strategic acquisitions. We accomplished all this while continuing to invest in our industry-leading value proposition and delivering record earnings per share. Now let's turn to our fourth quarter business results. Total advisory and brokerage assets were $1.1 trillion, up 7% from Q3 as continued organic growth was complemented by higher equity markets. Total net new assets were $21 billion or an 8% annualized growth rate. Our Q4 recruited assets were $15 billion. I would note this included $11 billion from our traditional independent model, which was the highest quarter of the year. Looking ahead to Q1, our overall pipelines continue to remain strong. In particular, I would highlight that within our traditional models, the momentum we saw in Q4 has continued into Q1, and we are on pace to deliver one of our strongest first quarters in what is typically our slowest quarter of the year. As for our Q4 financial results, the combination of organic growth, rising interest rates and expense discipline led to EPS prior to intangibles and acquisition costs of $4.21, the highest in our history. Looking at our top line growth, gross profit reached a new high of $972 million, up $135 million or 16% sequentially. As for the components, commission advisory fees net of payout were $172 million, down $10 million from Q3, primarily driven by the seasonal increase in production mode. In Q4, our payout rate was 88.4%, up about 50 basis points from Q3 due to the seasonal build in the production model. Looking ahead to Q1, we anticipate our payout rate will decline to approximately 87% as the production bonus resets at the beginning of each year. With respect to client cash revenue, it was $439 million, up $136 million from Q3 as the impact of higher short-term interest rates more than offset a sequential decline in balances. Looking at overall client cash balances, they ended the quarter at $64 billion, down $3 billion driven by record net buying of $25 billion. Regarding Q4 transaction revenue, it was $47 million, up $4 million sequentially as trading volume increased. Based on what we have seen in Q1 to date, we would expect transaction revenue to be roughly flat with Q4. Turning to expenses. Our core G&A was $327 million in Q4, bringing our full year core G&A to $1.192 billion. This was in the middle of our outlook range and, for the full year, represents approximately 13% growth. As for our outlook for 2023, our long-term cost strategy remains unchanged. We plan to continue to prioritize investments that drive organic growth and create incremental operating leverage in our core business. As we shared at our Investor and Analyst Day, the current environment is creating opportunities to accelerate our investment plans. As such, we expect to grow our investments at a similar pace this year. More specifically, we plan to grow our 2023 core G&A in the range of 12% to 15%. To share a little more color on where our investments are focused, this expense growth spans the following three broad categories: first, to support our core business growth, including investments in technology and capabilities; second, to support growth in our expanded addressable market and scale our new services; and third, to accelerate the timing of investments that advance our strategy. To give you a sense of the near-term timing of this spend, as we look ahead to Q1, we would expect core G&A to be in the range of $320 million to $325 million. As always, we will remain flexible and can adjust to shifts in the operating environment. Turning to promotional expense. In Q4, it was $84 million, down $15 million sequentially, primarily driven by lower conference spend. In Q1, we expect promotional expense to increase by approximately $25 million as we have two of our largest conferences of the year during the quarter. Looking at share-based compensation expense, it was $12 million in Q4, up $1 million from Q3. As we look ahead, we anticipate this expense to increase by approximately $5 million sequentially in Q1 as it tends to be our highest quarter of the year given the timing of our annual stock awards. As for interest expense, it was $37 million in Q4, up $4 million sequentially as higher LIBOR rates increased the cost of our floating rate debt. Regarding capital management, our balance sheet remained strong in Q4 with corporate cash of $459 million, up $35 million from Q3. Our leverage ratio was 1.4 times, down from 1.7 times in Q3. This decline was driven by a combination of our continued growth in a higher interest rate environment, both of which have meaningfully improved our earnings power. As for 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. As we look ahead to 2023, the strength of our balance sheet leaves us with ample capacity to allocate capital across our entire framework. Specific to organic growth, we see opportunities in recruiting and continued investment in our technology platform. On M&A, we see opportunities in the succession offering where we are emerging from the pilot phase and closed four deals in 2022 for around $50 million. With regards to capital return, we plan to increase our share repurchases to roughly $250 million in Q1. And lastly, we plan to increase our quarterly dividend by 20% beginning in Q1. To summarize, our balance sheet is strong, and we are well positioned to drive value through our capital allocation framework. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we see to continue investing to serve our advisers, grow our business and create long-term shareholder value. With that, operator, please open the call for questions.

Operator, Operator

Our first question comes from Alexander Blostein from Goldman Sachs.

Alexander Blostein, Analyst

Hi, guys. thanks for the question. So, Matt, maybe we can start with the question around just the cash dynamics. Obviously, it's an area that creates a lot of anxiety for investors still. Maybe talk a little bit about dynamics you saw in December that kind of let the balances be a little bit better than we saw with some of the peers, what you're seeing so far in January and then, importantly, the demand from the bank channel given that the fixed extensions you highlighted in the deck seemed pretty robust. So maybe kind of walk us through the current environment and cash.

Matthew Audette, CFO

In December, we experienced the usual seasonal increase due to tax loss harvesting and rebalancing. This cash typically returns to the market in January. The $1.6 billion build we saw in December was reinvested into the market in January. Additionally, January is typically our highest month for advisory fees, reaching around $1 billion. When looking at the seasonal trends, we anticipate a decline of about $2.5 billion to $2.6 billion for the month. Overall market activity has shown broad reengagement from advisors and investors. Our customer net buying metric for January exceeded $11 billion, which indicates strong engagement, surpassing the previous high of $10 billion in August 2022. This influx of funds is going primarily into equity markets and longer-term fixed income securities, which will naturally lower balances when considering seasonal effects. We expect the cash sweep for January to be around $60 billion. Regarding the market for ICA contracts, the situation has been improving throughout 2022 and saw further improvement in Q4. The market for floating rate balances has demand that significantly exceeds our deposits, leading to price enhancements. Currently, we're offering floating rate contracts at fed funds plus 10 or 15, compared to the previous quarter's rates of plus five to ten, and even lower during the pandemic. On the fixed rate side, we added $4 billion in balances this quarter over two to six-year terms. We're getting close to our historical high of 45% in terms of portfolio composition. Looking ahead to Q1, we have $2 billion in maturities and feel confident about placing those into new fixed rate agreements and continuing to grow our overall portfolio due to strong demand. Overall, the outlook from my side is positive.

Alexander Blostein, Analyst

Great. And maybe just a second question around the balance sheet. It's nice to see the leverage come down now below your guidance target, which I think you guys revisited recently to lower that. So, as you think about priorities between building out the lending practice, perhaps inorganic opportunities and maybe accelerating some of the share repurchases, how would you think about that?

Matthew Audette, CFO

Yes. Well, I think, Alex, the key point on the lending side is it's not a big use of the balance sheet. So, it's really more about connecting the capabilities so our clients can use that. I think on the buyback, I think just going back to our overall capital allocation framework, I think we're focused on investing in organic growth first, M&A second and capital returns third. And I think from a pace of the buyback, it would just all depend upon the opportunities that we see. So, if the opportunities to invest in organic growth weren't there or M&A wasn't as strong as we would expect, I think that's a scenario where we could accelerate buyback. And then the opposite is also true. We can slow it down if opportunities would lead there. So, the key for us is really to be flexible. And maybe I'd just reiterate that our center of gravity is really that $250 million.

Operator, Operator

And our next question comes from the line of Steven Chubak from Wolfe Research.

Steven Chubak, Analyst

Hi. Good afternoon Dan, good afternoon Matt. So, I really appreciated the additional granularity in terms of the expense guidance. Your prior expense guide was 15% growth in '23. This latest update appears better or at least a tighter range of 12% to 15%. Is that the right way to interpret the guidance, a bit better than what you offered up last time? And just looking beyond '23 and thinking about that longer-term expense growth algorithm, is there anything we can infer from those buckets that you offered as to what's a normal pace of expense growth, say, in a period where you're not accelerating your investment plans?

Matthew Audette, CFO

Yes, Steve. Our plans haven't changed at all since Investor Day. We shared our initial thoughts and went through our typical year-end process to finalize those plans, which is where the 12% to 15% range comes from. Our strategy remains to leverage this environment to enhance our investments, and you're now seeing a more precise approach. Regarding the three categories, I can confirm that the information is relevant. For our core business growth, assuming that growth continues, the 4% to 5% level of investment supports it. The second and third categories offer flexibility and can be adjusted based on market conditions and spending opportunities, particularly the third category, where we're moving up initiatives originally planned for '24 and beyond to '23.

Steven Chubak, Analyst

And just for my follow-up on organic growth, certainly encouraging to hear that the NNA momentum in 4Q has continued to start the year. I was hoping you could just speak to some of the factors that's driving that better NNA momentum? Just trying to gauge how much is environmental, so the strength in the markets, maybe increasing advisers in motion versus more idiosyncratic. You were talking about the pipeline strength in institutional as well in your NNA remarks, how much of that strength is coming from larger institutions?

Dan Arnold, CEO

So, let me take that one, Steven. There's a lot there, so if I missed something, you give me guidance after I finish. So, look, I think if we start as a jump-off point, last year, 80% organic growth rate, $96 billion in NNA, which is a pretty solid outcome against a challenging macro backdrop. And I think irrespective of that backdrop, I think making the progress or working through sort of that environment, both in terms of our teams and advisers, you just continue to evolve capabilities, skills and operating in any potential environment. So, I think as we look forward and we think about going forward, we feel good that the acclimation to an upper macro, if it sustains itself, that we can execute in it better and ultimately contribute improved or better growth. So that's how I would sort of think about the environmental. It may influence what I might call short-term progress around our growth metrics. I think, probably more importantly, strategically, as we think about our opportunity those drivers of that strategy, right, those significant structural, big durable trends all remain in place. It's growing demand for advice. The appeal of receiving that advice through a financial professional, the attractiveness of the independent model versus other models all continue. I think we sit at the intersection of all of those and believe we're uniquely positioned to capitalize on that opportunity. And whether that's through our market leadership, singular focus on what we do, a robust platform of which to leverage and use and differentiate, or even the capacity and commitment to invest, but that was just speaking of to evolve platform and continue to differentiate it. So, I think as we think about going forward, that comes up to that 7% to 13% sort of growth rates that we talked about across different macro environments, I think is still highly relevant, still how we think about it. And I think last year demonstrated the ability to persevere through a tougher macro and still reside within that range. So, that's how we think about the shorter run and the longer run. I think to your question on the enterprises within that, look, it's a channel that we've talked about is a durable growth contributor. We've continued to evolve our capability set with more wins and with good success with those relationships, create better advocacy from our clients and that IP and insight from being on the court for a couple of years working on those large enterprises is certainly insight that's hard to replicate without that experience itself. And so, when we look at that going forward, it's a pretty appealing model that is finding a marketplace that is in need of that type of model, and we're pretty convicted around our solution. So, we do believe that, again, within those bookends of 7% to 13%, we do get some contribution from large enterprises. So, I hope that gives you a little color.

Steven Chubak, Analyst

Thanks, for taking my question.

Operator, Operator

And our next question comes from the line of Bill Katz from Credit Suisse. Your question please.

William Katz, Analyst

Okay. Unfortunately, my connection cut out a little bit, Matt, while you're talking a little bit about the ICA dynamics. I guess my broader question is, as you think about what's been happening in the forward market and expectations softening up a little bit, how is that informing the opportunity here to potentially accelerate the ratio of fixing out relative to the float? And then you mentioned that demand is very healthy. How should we be thinking about reinvestment rate opportunity?

Matthew Audette, CFO

Yes. Our view on fixed rates is aimed at achieving our target range of 50% to 75%. The market continues to show improvement, although it's not perfect and we can't move precisely where we want. However, if we examine the trends from 2022 and what we see already in Q1, demand is on the rise. We're optimistic about the maturities that we have involving fixed rate agreements. In Q4, we targeted five to six-year durations, depending on market conditions. Overall, we believe there’s room for growth beyond those maturities. The key point is that the marketplace is strong, and given the current curve, we still see it as sensible to aim for that target range if the market permits.

William Katz, Analyst

Terrific. And then just going back to expenses, again, I apologize my connection just cut out. Of the variability to this sort of more refined 12% to 15% and sort of bringing forward that growth, should we be interpreting that, as we look out into '24, all else being equal, that the absolute level of this growth rate would decelerate? Or might you be in the same kind of situation where you would have the opportunity here to sort of advance your organic growth? And is it really now a point of trade-off between organic growth and margin as you think about the business?

Matthew Audette, CFO

Yes. I mean I think when you get to our long-term cost strategy, Bill, where that fourth principle is really adjusting our cost to the market, right? So I think, as you may expect, we'll make judgments about 2024 as we get closer to that year. But I would emphasize from an optionality standpoint, when you look at that third category of 4% to 5%, that is opportunistic. The market, especially for 2023 with the interest rate benefits that we have, allow us to make those investments. And you can look at our operational margins with the tailwind of interest rates or operational margins continuing to be quite strong, we're in a good place to do that. If the market does not allow us to do that, we've got the ability to adjust. So, I think I would definitely take away that we've got the flexibility. And when you start to look beyond 2023, we'll make those judgments as we get closer to that time period.

Operator, Operator

And our next question comes from the line of Devin Ryan from JMP Securities. Your question please.

Devin Ryan, Analyst

Hi, thanks. Dan, Matt. I guess first question, as we think about the opportunity to move upstream with larger advisers and higher net worth over time here, what are the capabilities that you need to add to be able to do that? Do you have everything you need and just kind of investing and improving? Or are there other types of capabilities that are maybe incorporated in some of that expense growth that are coming that could really help accelerate that push?

Dan Arnold, CEO

Yes. Devin, it's Dan. So, look, as we think about the opportunity set in the high net worth space, I'm referring now to the end client segment. That's a function of our advisers' overall evolving practices. And as they have clients or more clients that they can serve inside that category, that's really driven the demand for services and capabilities that traditionally may not have sat inside our overall sweet spot. And so, I think that's been the real catalyst for the driver of our contemplation of building out certain capabilities. And so, examples of that are us building out our own service around complex case design, right? That would be an investment that shows up in the core G&A reference that Matt was making, as an example, to your question. I think you also see that in extended financial planning support. It's not just the technology, but it's the paraplanning services that sit around it, as an example. So those are things that we're building ourselves or organic capabilities that we're building ourselves. So, as we've gone on this journey, we have built and will continue to build certain things that are in-house. There's also other things that we think are important to serve high net worth types of clients, maybe that's tailored insurance offerings that we traditionally haven't done inside our own insurance agency or services like helping to sell a small or midsized business. And that's where we'll be developing strategic partnerships in order to provide those integrated solutions and services inside our overall offering rather than building. And so that's how we're putting together what we think is a compelling set of solutions that position our advisers to serve and support their high net worth clients. Now as we build out those capabilities or we're in the progress of, it also challenges us then to say, well, how do we better deploy those to the marketplace or leverage them, if you will? And I think that's where we realize with the capability set that we have today, could we utilize that to even target advisers who specifically operate with only high net worth clients? And I think that would be an example of how we better leverage these capabilities, and that's something we continue to explore in terms of how we go to market with this capability. But think about it that way: we're building some of these capabilities. We've been on a journey, we're not completely there, but we've made some significant progress. And then we'll look to the outside market for strategic partnerships. I think we can take the capital-light model to what is a compelling value proposition and use it to support our existing advisers and help us potentially attract new ones.

Devin Ryan, Analyst

Okay. Great context, thanks Dan. Just a quick follow-up here on the M&A market and conditions. You sounded reasonably optimistic around what you're seeing now. There was a big wealth manager deal in the wealth management space announced today. I guess just what are some of the themes that you're seeing in the market that are catalyzing activity? I'm not sure if it's the same across channels, but any context around what's making you feel like it's a reasonable M&A market right now.

Dan Arnold, CEO

Yes. I think we'll continue to see that ongoing trend around consolidation. I think you're continuing to see innovation around capabilities as well, and so that leads to transactions around a certain type of IP or capability set that firms may want to deploy or utilize in a different way. And then we're seeing more robust activity around solving for succession planning at the individual adviser level and/or smaller practices level. I think you're seeing a healthy amount of activity across the ecosystem. We continue to stay active in exploring all of those possibilities, right? And you see us deploying capital, as an example, the closings we did yesterday with Boenning & Scattergood and FRGIS. I would just remind you of our framework for exploring those possibilities, and you know these: first, it's in sort of a side that what I would call growth opportunities in traditional markets where we see opportunity for purposes of growth to potentially acquire a practice, and Boenning & Scattergood would be a great example of that. We also look in that second category where we can add capabilities faster through an acquisition than building them ourselves. We believe we've got to stay open and agile and nimble around that framework. The final one, the third one, which is a little newer and is aligned with this new capability of liquidity and succession, is putting capital work through acquiring these practices and being that bridge to that future successors. I think that's where we're active, exploring potential possibilities. We see pretty good activity going on in the consumer market.

Devin Ryan, Analyst

Great. Thank you so much.

Operator, Operator

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

Michael Cho, Analyst

Hi, good afternoon Dan and Matt. Thanks for taking my question. I wanted to get your thoughts on the pricing trends you're observing in your business. Considering the current environment, are there areas where you're planning to either raise prices or invest in pricing strategies as you move forward with various initiatives?

Dan Arnold, CEO

Yes, Michael, I'll take that one, and certainly, Matt, you add anything you want at the end. Look, we look at pricing as part of our overall offering. Think about such capability, services, and technology. We look at pricing as part of our overall investment strategy, if you will. I think as we shared in the past, we've created a recurring theme of investing back into the platform, specifically trying to use price to help our advisers differentiate and win in the marketplace. And so I think the places that we've been historically focused on for the past, call it, four to five years has been typically around the advisory platform, right, 70%, 75% of new assets, sorry, yes, new cash is going to these types of solutions, and we want to make sure that we're enriching the appeal of them. And so as we look at 2023, you'll see us continue to lower pricing around our centrally managed platforms as a way to create more applications for advisers to leverage middle all of those, refined with the enriched capability set that we're adding to them, more and more using them versus that was the type of purchase. You're also seeing us look at transaction charges in certain areas where we're being very tactical around that. Although this holistic sort of lowering of transaction, we're trying to be very tactical about where we make those changes, such that we actually make the adjustments on where they make the most sense for our advisers that ultimately help them. And so I think those are a couple of examples that we'll continue to pursue this year. So whatever we can do that we think is optimal to help our advisers differentiate and win in the places that matter most for them is what we're trying to solve for. Those are a couple. I hope that helps.

Michael Cho, Analyst

Yes, it does. I appreciate the color. And then just one quick follow-up. Dan, I think you kind of referenced this just on the expenses. Just looking at the third bucket of expenses where we're talking about the accelerated portion. I guess, are there areas you'd call out that are going to receive those accelerated investments?

Matthew Audette, CFO

Yes, this is Matt. I'll take that one. When considering the third bucket, it's primarily about the timing of our investments rather than a specific category. If you look back at our investments in technology and capabilities that enhance our value proposition or enable us to access new markets, we have multi-year plans in place for what we deem essential. The third bucket is focused on accelerating some of those plans given the current environment. That's the main point. Dan, do you have anything you'd like to add?

Dan Arnold, CEO

I would just give you an additional way to frame that. If you remember back at the Investor and Analyst Day that we did, we shared the framework around vertical integration, and a lot of those investments are showing off that spectrum of opportunities that we have. So as we drive more and more solutions into sort of that lower end of the ecosystem where it really helps the adviser operate at a local level, but you'll find it also coming all the way back to things that enhance our advisory platform. And so I think you're seeing an accelerated investment across that entire spectrum as opposed to any one specific play. So I hope that helps keep your framework to think about how we think about the spectrum of investments.

Operator, Operator

And our next question comes from the line of Kyle Voigt from KBW. Your question, please.

Kyle Voigt, Analyst

Hi, good evening. Maybe just another question on centrally managed platforms. You mentioned that, in a response on pricing, the organic net new asset growth there is still strong but it's been decelerating over the past couple of quarters. Just wondering if you could provide a little bit more color on the recent trends and then kind of where you see the opportunity to take that penetration rate to over time for the centrally managed business? Thank you.

Dan Arnold, CEO

Yes. So obviously, with respect to our advisory platforms, that fits inside that overall spectrum of our offering. And as we think about enriching that entire platform, one of the places we've been focused on is centrally managed solutions. We continue to add more capabilities and more value there. We think about the investment content that's available, the ability for advisers to use that in different ways, really turning that into a UMA and expanding the SMAs that are available on it. There's really cool enhancements and functionality that is materially improving the appeal and how one would apply it in more scenarios and cases. So we're excited about the potential opportunity and for it to continue to sort of grow share, if you will, in that overall mix of business, both with respect to advisory but we even think about it across a full spectrum of brokerage. The more appealing we make this even at smaller accounts, where it's appropriate, and people feel that the plan is better served from that movement of brokerage to advisory, a lot of that would tend to move over to centrally managed solutions. So that's one way to think about how we add capability to make it more appealing to drive utilization. I think we believe that upside can be significant, certainly continuing to invest in the pricing helps also drive the appeal and demand for it. And think about, as you think about last year and rightfully so, still good demand but the trend was down. Historically speaking, centrally managed usually reacts more or is more impacted, if you will, by a challenging macro environment. The more volatility, the more sort of a downward trend in equity markets, and in fact, we had the combination of tough fixed income markets last year, and that's where we'll many times see an adviser sort of more want to put their hands on the wheel and drive that. So you're seeing some of that sort of volatility in the marketplace, the macro marketplace noise occurring in that trend. I think structurally speaking, we continue to invest in the appeal of it. And the more appealing we make it, the more it should drive up utilization on a relevant basis. I hope that helps.

Kyle Voigt, Analyst

Good. Thank you. And then for a follow-up, maybe just a modeling question here for Matt. The DCA yield came in a bit above our expectation. I know that's formulaic really. But just wondering maybe you could provide an update on the number of accounts that flow into that program currently and how or if that number has grown recently?

Matthew Audette, CFO

Yes. I mean I don't have an update on the number of accounts. I would emphasize, though, I think the point you're making, it is a fee per account. So we quote it in basis points, but it's a little hard for it to be predictive, just given balances to move up and down. So it's the account, I would emphasize they haven't changed materially. But when you get a pop perhaps like you've seen in this quarter, that may not be something that you would expect to see going forward just because it's not really rate driven, it's fee per account driven.

Operator, Operator

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

Jeff Schmitt, Analyst

Thank you. On recruited assets, I'm just curious how the recruiting environment for advisers looks right now. I know you mentioned it is pretty strong for you. But are you seeing any competitors get more aggressive on pricing just with organic growth down for the industry, maybe they're trying to look for growth?

Dan Arnold, CEO

Yes. The recruiting environment has changed significantly over the past three years. The churn in the industry slowed from 2020 to 2022 due to the pandemic and the macro volatility we experienced last year, which had severe effects. With fewer opportunities, competitors are responding differently, and some have become more aggressive in transitioning systems. This aggression also stems from rising interest rates that are easier to monetize, especially in underwriting deals. For us, we do not see any changes in the opportunities available. Our ability to enhance our capabilities and expand our market opportunities through our new affiliation models and services group, combined with positive experiences from existing advisers, are key factors driving this opportunity and our success in increasing win rates, regardless of market churn. We observed the market stabilizing more in the third and fourth quarters, with advisers moving past volatility and considering their strategic options. Unless there is a significant macro shift, we expect this trend to continue. More advisers are exploring the transition from employee-based models to independent models, and with our growing capabilities, we are seeing more demand for better support that addresses client needs and succession planning, creating further opportunities. While there has been some disruption recently due to macro conditions, particularly influenced by the pandemic and the equity markets last year, these factors are ultimately driving the size of the movement in the industry. I hope this provides clarity on what we are witnessing in the recruiting landscape.

Jeff Schmitt, Analyst

Yes, absolutely. Thank you. And then a question on the brokerage assets organic growth rate up 7% in the quarter. How much of that was driven by bank outsourcing? And I guess, like what deals specifically, any breakdown of that would be helpful.

Matthew Audette, CFO

Yes. So the large financial institutions, that’s what you're asking about, on the brokerage assets?

Jeff Schmitt, Analyst

Yes, right.

Matthew Audette, CFO

Yes, it's relatively minor. I mean the growth rate was 7% for the quarter. Prior to that, it'd be 6.5%. So a relatively minor part of it in the quarter.

Dan Arnold, CEO

Maybe to add to that, if you're curious around why the trend or better growth in brokerage over the past three to four quarters, I think that's the evolving interest rate environment and advisers using solutions that may be more brokerage-oriented solutions, whether that be fixed income or whether that be annuities of which to help clients seeking higher yield or higher rates. And so that's where you're seeing some of that growth come from that wasn't necessarily the trend prior to last year.

Operator, Operator

And our next question comes from the line of Gerry O'Hara from Jefferies. Your question please.

Gerry O'Hara, Analyst

Thanks. Maybe one for Matt. The leverage ratio of 1.4 coming down from 1.7, I think you said it kind of continues to grow in a higher interest rate environment. What do you feel is maybe sort of an optimal long-term leverage ratio? I think some peers, both public and private, tend to run at a bit of a higher number. And just sort of want to get a little bit more color as to how you think this might be best set up to optimize the business, I think, kind of in a long-term environment? Thank you.

Matthew Audette, CFO

Yes. I think the 1.5 to 2.5 times, I think, is really the leverage ratio that we think makes sense in a range of different economic environments. And I think the ability to maintain a strong balance sheet and have the capacity to invest for growth in a range of different environments, I think, is a key part of our value proposition. I think it's a key part for our advisers and clients knowing that if the macro moves against us, and we're not at a leverage ratio, we're going to have to immediately pull back on investments or immediately pull back on being able to serve and support them and the host of capabilities that we have, recruiting and succession being an example. So I think the 1.5 to 2.5 times, we've landed on that with a view that that's the right leverage ratio in a range of environments. I think it certainly is a key part of the value prop that differentiates us from some of the firms that you mentioned. And I think where we are today, being at the low end or just below the low end of that, with a fair bit of capital deployment coming our way in Q1, including the acquisitions that we closed, as well as being positioned at that point in a macro that's, I think, anything but certain at this point, I think we like where we're sitting.

Gerry O'Hara, Analyst

Great. That’s it for me this evening. Thanks, guys.

Operator, Operator

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

Dan Arnold, CEO

Thanks much, John, and I just want to thank everyone for taking their valuable time out to join us this afternoon, and we look forward to speaking with you again next quarter.

Operator, Operator

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