Welcome to the LPL Financial Holdings Fourth Quarter Earnings Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Mr. Trap Kloman, Head of Investor Relations. Sir, you may begin.

Thank you, Amanda. Good morning and welcome to the LPL Financial fourth quarter and full year 2014 earnings conference call. On the call today is Mark Casady, our Chairman and Chief Executive Officer, who will provide his perspective on our performance. Following his remarks, Dan Arnold, our Chief Financial Officer will speak to our financial results and capital deployment. Following the introductory remarks, we will open the call for questions. We would appreciate if each analyst would ask no more than two questions each. Please note that we have posted a financial supplement on the events section of the Investor Relations page on lpl.com. Before turning the call over to Mark, I would like to note that comments made during this conference call may include certain forward-looking statements. These may include statements concerning such topics as our future revenue, expenses and other financial and operating results, improvements in our risk management and compliance capabilities, future regulatory matters, industry growth and trends, our business strategies and plans, as well as other opportunities we foresee. Underpinning these forward-looking states are certain risks and uncertainties. We refer our listeners to the Safe Harbor disclosures contained in the earnings release in our latest SEC filings to appreciate those factors that may cause actual financial or operating results or the timing that matters to differ from those contemplated in such forward-looking statements. In addition, comments during this call will include certain non-GAAP financial measures governed by SEC Regulation G. For a reconciliation of these measures, please refer to our earnings press release. With that, I'll turn the call over to Mark Casady.

Thank you, Trap and thank you everyone for joining our call. Today, I look forward to sharing insight into our annual performance including the discussion of our asset, revenue and earnings growth. I will also provide perspective on our operating highlights for 2014 and the goals we have set for 2015 to help grow the business. Finally, as we continue to highlight areas of our business which will enhance our long-term growth, I'm excited to discuss our progress implementing our strategy in the retirement plan space. In 2014, we had another strong year accumulating assets as advisory and brokerage assets grew 8% to $475 billion including a record $18 billion in net new advisory assets. Our asset growth was driven by strong recruiting, solid advisor productivity and equity market growth. Revenue increased 6% in 2014 to a record $4.4 billion. Revenue growth was slightly less than asset growth primarily due to two factors, first, low interest rates continued to create headwinds causing cash sweep revenue to decline by $20 million for the year. Second, in 2014, non-traded REIT activity returned to historical levels and as expected, relative to the increased sales in the second half of 2013. Factoring in these two items, our revenue grew 8% year-over-year, in line with our asset growth. As I evaluate our overall performance in 2014, adjusted earnings per share remained flat at $2.44 which we believe does not fully reflect the success we had in growing the core of our business. Asset growth, G&A expense management and ongoing share repurchases helped to generate $0.33 in incremental EPS. This growth was fully offset by three challenges; the decline in cash sweep revenue, charges related to the restitution of regulatory matters and the comparative impact, a onetime tax benefit in 2013. Dan Arnold will speak to…

Thanks Mark. This morning, I'll be discussing four main themes. I'll begin by reviewing our performance including details on advisor productivity, activity in our cash sweep program and G&A expense. Second, I will address our bottom-line results for the quarter in 2014. Third, I'll review the progress made on restructuring efforts that we undertook to simplify our business through our service value commitment. I will then conclude with an update on our capital management activity. In the fourth quarter, we grew adjusted EBITDA 11% to $138 million. This was primarily driven by a 5% growth in gross profit and a 2% decline in core G&A expense excluding regulatory charges. To put these results into perspective, I will start with the review of our revenue which grew 1% year-over-year despite declines in cash sweep revenues and alternative investment sales. Outside of these two areas, remaining revenues grew at 3% year-over-year. In the quarter, investor engagement remained stable and advisors generated $249,000 in annualized production for advisors. Three notable factors influenced this result. First, this metric benefited from our continued success in accumulating net new advisory assets and market appreciation which led to underlying advisory fees per advisor, growing 7% year-over-year to a record $97,000. Second as expected, alternative investment sales were a headwind in 2014 as they came down from the elevated activity levels seen during the latter half of 2013. Third, annuity product sales were soft as we remained in a low interest rate cycle that reduced the feature richness and yield of these products. As a result, for the quarter, commissions per advisor declined by 7% year-over-year to $151,000. Over the long term, we feel well-positioned to drive growth, assets under custody per advisor reached a record $34 million, up 6% year-over-year and was driven by our advisor success…

[Operator Instructions]. Our first question comes from Chris Harris with Wells Fargo. Your line is open.

So quick question on expenses. Just wondering if you guys could clarify how you feel about the expense guidance for 2015. I know you just updated us recently on that but maybe a discussion on that would be helpful. And then as you think about hitting that number, I'm wondering if you comment what could potentially go wrong where you wouldn't be able to achieve the numbers you're looking for and if expense is reflecting high in one area, if they maybe offset what you could do to kind of managing around getting that guidance.

Chris, it's Dan. Good question. There are several there so if I don't get them all, please just remind me of what I may have missed. So as we think about core G&A expenses for 2015, we remain consistent on our guidance of that 7.5% to 8.5% range in expenses. We do expect those to ramp up in Q1 and be more evenly distributed throughout the year in the range of $172 million to $178 million on a quarterly basis. The majority of those expenses are driven on what I would call controllable expenses. They're driven by things like P&E, by compensation, by professional services and we manage and it put - the controls and the reporting in place and the accountability in place through our leadership team to ensure that we manage to the targets that we set for the year and that makes up the predominant amount of the expenses in that area. To the extent that you have to pivot or shift your strategy or your approach for something unforeseen comes up, well, then we look at the overall macro set of expenses that we have and we try to manage to a neutral outcome at the end of the day. And so you do have nimbleness of which to make adjustments throughout the year for the unforeseen matters and challenges that may emerge but again, our principal would be managing to a neutral outcome.

And then just a quick follow-up on your ICAC and the guidance there. We're seeing a little bit of evidence that banks are increasing the demand for deposits to some extent. Are you guys seeing any change in the market rates for that and could that potentially lead to a little bit of upside as you think about the rate in 2016?

In 2015 or 2016?

Well, 2016, because I think you're guiding to ICAC rate of - what, Fed funds plus 10 basis points?

Yes. That's correct. Thanks for the query. Yes, so I think that's exactly right is we see growing demand for deposits that is fueled by additional loan growth in financial institutions. That does create some buying power, if you will with respect to the ultimate rate. Historically speaking, we've seen that rate land at a market average of somewhere around Fed funds plus 20 so our guidance of that Fed funds plus 10 is below the sort of historical average or norm and the growing loan demand which then fuels the demand for deposits we do feel like gives us some opportunity for some pricing power around that ultimate landing point in 2016.

Our next question comes from Christian Bolu with Credit Suisse. Your line is open.

So my question is on regulatory environment. On the one hand, regulators are pushing for fiduciary standards and less than overall commissions but on the other hand, pushing back on so-called reverse churn-in and too much fee-based assets. So I guess my question to you is what controls you have in place to ensure advisors are putting clients in the right accounts?

Yes, good question and we've got the dichotomy, right? There is a series of things that we do that review activities of advisors, both in the brokerage part of our business and the advisory part of our business, looking for exactly the kind of issues you described, either too much activity or too little activity in each of the different cases. It's a series of technologies, some of which have been replaced recently, as in last year, particularly on the advisory side, we have a new piece of technology going in this year that updates that whole review process so we have a systems and people that oversee those activities. As we've said on many a call, we've increased the staff in our risk management, compliance, oversight grew significantly over the past few years, up to like 90%. And that has allowed us to also make sure that we have that surveillance and supervision activity well covered. So we have good processes for reviewing that. I think just to state it, we've obviously had some regulatory challenges that has led to charges that have been there to oversee those. Those relate mainly to historical issues and are really a part of our review and updating of our risk management systems and capabilities. So that, that's what we're trying to do is make sure that we have all the right capabilities in place to oversee the activities and advisors. So that we feel comfortable that we're doing the job we need to do in terms of that oversight of those activities in the world that is changing from a regulatory standpoint and we stand ready to change with it.

And as my follow-up, I'm just curious to get your thoughts on what you're seeing in terms of retail engagements so far this quarter.

Yes. So far in the quarter, it's been positive in terms of investor activity and advisor movement which are, of course, the two big drivers for our business, getting new advisors to join and having those advisors who are here be more productive and so nothing particularly different about this quarter. The low interest rate environment on the long end certainly hurt some product lines like annuities but that was true in fourth quarter and continues here in first quarter. And as we said before, we're returning to the alternative type of investments like REITs are really at normal levels which is just fine by us. They weren't in fourth quarter; they are in first quarter. In the general market activity, saving and investing in fundamental portfolios is going right along as planned which is good. So we're seeing what we think is another good your shaping up and then I'll just mention recruiting specifically, bringing on new advisors that's often a question and obviously fourth quarter was strongly and we feel very positive about recruiting here in Q1 and very positive about it in 2015. And that gives us a chance to use some of our capital because it does give us such a fantastic return on investment when we bring those either banks and credit unions or individual advisors or hybrid RIAs onto the platform.

Our next question comes from Bill Katz with Citi. Your line is open.

Just the first question is coming back to the comps discussion just for a quick sec, it looks like it was a bit lower as a percentage of revenues in Q4 versus some of the more recent run rates. So how much of that is maybe some year-end accrual cash out versus mix of the business and a related question beneath that is the guidance you've given the - from the guidance of 7.5% to 8.5% for G&A range, is that based on actual 2014 results or do we have to normalize for any seasonal balance in comp in Q4?

Let me answer your first question, or your last question first which is that the 7.5% to 8.5% is meant to deal with the normalization, for example, the bonus pool in 2015 because we would have cut it in 2014, appropriately so given our results. So there is nothing else beyond that, Bill. The one that I will say about the 7.5% to 8.5%, I just want to make sure we're all clear about, is that - trying to make sure we understand where regulatory costs are and we're out of the business of predicting regulatory cost so those are lumpy. They show up at different times and different ways that's very hard for us to predict which particular quarter those costs will come and it's also exceedingly difficult to predict the size of those charges. And so in the fourth quarter, we had a $5 million charge in regulatory that will feel familiar to people. We have a number we've talked about; that's only coincidence. It's not some sort of planned process in terms of how that shows up so I just want make sure that we understand that 7.5% to 8.5% includes, obviously, our expenses but we can easily see lumpiness in terms of the regulatory cost and it could be exceeding what we imagine it to be because that's what happened to us last year as it relates to regulatory. Your first question, Bill, I didn't quite catch it. Did you mean compensation as in production bonus for advisors, or do you mean compensation for employees?

I'm not for not being more specific. On employees, so the $98.6 million including that as a percentage of revenue, was a little bit less than 9%. So I'm wondering like maybe your peers are sort of a year-end catch-up just given production and just sort of overall revenue dynamics. I'm wondering is that a good run rate to build off of or do we need to go back and look at the full-year average as more of a predictor?

Well fourth quarter always has true-up to the bonus pool. The bonus pool was cut, I don't know, Dan, whether that - has different number, different characteristic in fourth quarter versus others coming into it.

Yes, you would catch the normal ramping of the expansion of employees, mainly in the areas of risk management that we had last year, Bill, as that ran through the year. And the only, I think onetime event in fourth quarter that would influence that number was just the adjustment to the bonus pool but to be clear we did that throughout the year as we saw headwinds in the results, mainly around the regulatory charges. And so, there is a component of the bonus adjustment in fourth quarter but it is not the full amount.

And my second question if I may, is when you step back, I know you have some dispute issues on your own, but just more broadly speaking, there seems to be a lot of back-and-forth about the intensity of the SEC's scrutiny of the industry whether or not it's getting deeper at the FA level. And then also whether or not there's a renewed focus on commission structures. Just stepping back a little bit, broadly, are you noticing any kind of change and if so, where do you see the greatest focus at this point?

The simple answer is there is a lot more regulation today than there was a year ago, there was two years ago, there was five years ago and there's going to be more regulation a year from now. I think the good news for us is difficult as last year was for the organization and for our shareholders, so that is what it is. The perspective that I do want to bring is the good news in that is that we're replacing systems, we have increased headcount significantly across risk management, compliance and to any number of other areas that give us a much stronger ability to manage and understand our regulatory risks and therefore, work with our regulators on them. So we're building the world that we need for this new environment and I do look at our competitors and think they're, frankly a bit behind, when I look at our activities, headcount and so forth. So I think we have to recognize it's quite increased in terms of regulatory scrutiny. Specifically to the SEC, they have 300 people in the division that examines broker-dealers. They have announced publicly that there are at least 300 people and they have announced publicly that they're going to do branch exams which is typically done by FINRA and we have seen activities where they're coming in to talk about branch exams for us. That's a perfectly normal course of process for us and we look forward to welcoming them into that process. And as we do so, we know that that will follow the work we do today with FINRA and similar exams. So we're definitely seeing the SEC increasing its brokerage review activities. It's also asking for additional funding and finding ways to potentially regulate RIAs more aggressively or at least,…

Our next question comes from Chris Shutler with William Blair. Your line is now open.

On the ICA, first the sensitivity table that you've given back in the supplement, it looks like the operating income benefit from the various changes in Fed funds, that improved a little bit and it looks like the number of ICA contracts in both 2015 and 2016 also increased. So maybe what are some new bank contracts you entered into and is that what's driving the improvement in the sensitivity?

Yes, there are a couple of things. I think one, what we did see some improvement, to your point, in the Fed funds rate in the fourth quarter. You've got about 1.5 point increase or sequential benefit that came from Fed funds in the fourth quarter - sorry, on a year-on-year comparison. So that was helpful in terms of offsetting some of the impact, if you will, of the repricing of the ICA contracts. With respect to the contracts themselves, as the balance has expanded, so we expanded a little over $1 billion in balances throughout 2014. We've got to place those new deposits at either new institutions or where we have existing capacity in existing institutions and typically those will come in at a market rate that is more in that Fed funds plus 10 basis points range. And so you see some of that lowering the overall average ICA contract rate that we have and that's what creates some the additional upside, the additional incremental balances, the lower average rate is going to create more upside as Fed funds return.

And then just one other on a different topic on technology. So Mark, you talked about the resource Center and client works a bit. Just curious as you look at 2015 and out into 2016, what are the main deliverables that Victor and his team are going to be working on, maybe just a little more detail there would be helpful. Thanks.

Yes, happy to do that. Thank you. Let me do a little history first then we'll go to the future. So over the last two years that - as Victor has been with us, he's led a very strong effort to essentially take ten identified systems that we did in work with Bain about two years ago, five for employees and five for advisors, that either by their age or by their functionality really needed to be replaced. Those have all been completed and they're significant systems. An example would be Documentum which is the document imaging system and document handling system we use across the firm, touches over 3,000 people here, both onshore in the U.S. and our offshore partners in India, so it's an incredibly complex application, incredibly important for productivity of our employee base and just general good hygiene of information and so forth. One of ten projects like that that are extensive and difficult to put in place. The other historical piece which is sort of midway through - or I don't need to characterize it as midway through, but plenty of work is, of course, around the infrastructure itself. We built out a new data center in Dallas. We're rebuilding our data center in Charlotte. This year, we'll build a third data center in 2016 and to give us hot-to-hot transfer for liability and of course, while we're doing that, we're doing a lot of work in protection of data in cyber security which is, of course, a popular area. So looking forward and specifically, let's go to client works because a lot of our work continues in terms of systems for risk management and compliance, legal and so forth as well as our financial group in terms of budgeting systems and such. And then the other area, our productivity systems that will impact both our employees and impact our advisors, cashiering being critical. That's the movement of money that will really transform the experience for advisors and their clients in terms of money movement. We're in beta now and moving thousands of transactions through that system and then we'll release somewhere in the first to second quarter this year and that's the second major piece of client works and then the third major piece let's just say later this year is account opening and account activities. If you do resource center, cashiering and account activity change over to client works, you're getting about 65% of the work an advisor's office does in a given day. So while there is still lots to do in terms of ultimately replacing branch net with client works and that will take us through 2017 to complete, the majority of that will actually be completed from an advisor standpoint by the end of this year. So it's new look and feel, new user experience, much more efficient information flow, much more connectedness across the platform which just makes life much easier, more productive for an advisor in their office.

Our next question comes from Alex Blostein with Goldman Sachs. Your line is now open.

Just stay on the regulatory bag there for a second, so I guess FINRA came out with a list of priorities earlier this year, maybe late last year, with a particular focus on variable annuities and that's obviously a meaningful product for you guys, so it looks like though specifically, they're try to address marketing else here, I guess like short of surrender period but higher cost. So maybe two questions there, I guess. A, help us understand how are these initiatives impacting your business if it all and then specifically, any color how might these sale shares comprise of your total TC?

So I'll leave the second question for Dan and let me just talk generally about the regulatory environment. First of all, we come at this process by making sure that we're here to protect and care about investors and the investing public. And so some of the issues that we've had that have cost us a range of money and a lot of headache over the last couple of years do relate to us, either in some cases self-identifying, in other cases, the regulator-identifying activities that are books and records-type of activities but also activities in which there would be some deficiency in the part of what an investor received. I think culturally, what's important to understand is that we've taken a stance that when we see that, we fix it. And we make the customer whole and make sure that we have repaired anything that may have happened to them in that process and that's where you've seen our settlement with Massachusetts, in the REIT matter, our settlement with Illinois and Massachusetts related to variable annuities and other activities to come. So we do want to make sure that we're clear about protecting investors and watching out for them. Secondly, we want to be clear that we're about standing up for independence that for the advisors who affiliate with LPL, we're here to back them up to make sure that we have the books and records, to make sure we have the clarity about their activity and to make sure that we know that they're doing a right job for their client and that's well-documented. A number of these issues relate to documentation; that really is our job as the broker-dealer or as the investment advisor. And when we find we don't have adequate information, we're there to write…

So just to give you a little context based on your question around how it - how they contribute to the numbers. If you look at our overall commission revenue, in the second half of last year given the conditions that Mark described with the ten-year treasury under 3% and just the futures not being as appealing, variable annuity revenue was reduced down to about 35% of our overall commission revenue. Now if you take an advisor's overall production base revenue and you add the advisory piece to it, then variable annuities go down to about 20%.

And the second question, Dan, just a couple of quick follow-ups for you. When we look at the $528 million commission for this quarter, is it possible to break down how much is this kind of trailer in the asset-based piece versus the sales-based piece in the quarter.

Usually from a - just on an average or rule of thumb from the commission's standpoint, your trails-based piece is roughly 1/3rd of that overall number. So of that $528 million, then you would roughly take about 1/3rd of that and think about that as the recurring trails that occur from both mutual funds and variable annuities.

Our next question comes from Alex Kramm with UBS. Your line is open.

Wanted to just go back to advisor growth and tie it in with regulation a little bit. Obviously, great fourth quarter in terms of net new addition but just curious how some of the regulatory noise that's been out there has impacted discussion. Has it been headwinds or has it not mattered of all. And then looking forward a little bit, one of the questions I've gotten from people is given that and don't take this the wrong way, but given that it might have been a laxer - that you have been a laxer firm in the past and now regulation is definitely something that you've been focused on the last couple of years, does that make you less often attractive place to do business. I mean again, just trying to push you a little bit here if you know what I'm trying to get.

No, don't you worry. We've never been more attractive in my view, but of course, I'm a bit biased. Well, I think simply one has to look at the record, Alex and for the last four years combined, we're the number one net new addition for advisors in the entire industry. It seems to me that sounds like a pretty winning track record. I come from title town, Boston. So I think I know winning track record and I think we'll let the market stand where it stands in terms of its statement about the appeal of LPL's platform and our ability to bring on significant advisors. So if you look across the charts from banks and credit unions to hybrid RIAs to independent advisors to retirement plan advisors, we really hit on all cylinders and when you look at where we receive advisors from, they come from a very diverse group of organizations, from warehouses to regional firms to independent firms to the others. So we have a multi-sourced model and we have a significant amount of what we believe to be the largest recruiting group in the industry doing this work so we think we've never been, frankly, more appealing than we're now as we're seeing a pick-up in turnover, a slight pick-up in turnover in the industry for advisors in motion. Let's review why that is. Number one, we're a fantastic platform when it comes to productivity and we're only going to get better as we invest in client works and other activities so if you think about a study we did a few years ago, it showed that an LPL practice is 18% more profitable than any other of our competitors. If you have a mix of competitive - of independent business and advisory business and…

I was just going to add around the 2014 results, if you look the recruiting class on average, the 363 net new advisors was very much in the range of our average net new advisors over the past four years so that does show the consistent strength of the model in attracting those advisors. And then from an expense standpoint, what we've also seen is us continuing to maintain that sort of mid-20% range of cost of acquiring new advisors and we have not seen inflation in that overall numbers so again I think that just reinforces that trend of the appeal of the model and our ability to help enable that independence approach for these advisors.

And then just I think Dan, this is for you as well. I mean a little more than we feel but if I look at asset-based fees, clearly, those are impacted by the sweeps but if I back out the sweeps. I think it's around $96 million or so in core asset-based fees. The number has grown pretty nicely, I think, 14% year-over-year, outpacing asset growth, but I think on a linked quarter basis right up third quarter was kind of flattish despite asset growth growing and advisors growing. So just wondering how I should be thinking about that, that core asset-based number, why it was maybe flat quarter-over-quarter and if going forward, it should be more tied to asset growth or what the best way to think about it is?

Okay, so with respect to that number, we have seen good growth in the number that reflects some of the expanded programs that we've developed with product sponsors as well as just the general growth or accelerated growth in our advisory platforms relative to our brokerage platforms. So we do expect to see sort of that general trend occurring and I think if you look at the year-over-year comparison, you're going to see that broader, more 10% year-on-year growth. I think from the third quarter to fourth quarter, you're just capturing some timing shifts there that probably just distort or create some noise in that number but we can certainly come back to you with a clearer picture on that.

Our next question comes from Devin Ryan, JMP Securities. Your line is open.

Just a couple of quick follow-ups. So I guess first on the regulatory front, really appreciate all the detail around some of the recent topics of discussion but thinking about the evolution of regulation, maybe the fiduciary standards, as an example, I know we're focusing on some of maybe more negative items but are there any potential positive scenarios here like if RIAs need better compliance capabilities or oversight. I think as you mentioned which can be cost prohibitive and that would drive accelerated consolidation into the larger firms like LPL. I'm just trying to think the other side of the coin. Are there actual positives that could come out of this for you guys?

I appreciate the question, Devin. I think though that's exactly right. Firms that have the - let's step back at the 30,000 foot level. Doing things that are in the best interest of clients is always going to be the best business practice, right? So I think as soon as we get caught up in language like fiduciary and standard of care and all this other stuff, but the reality is, when I talk to advisors, when I talk to their investors at a client event for them, what I know that happens there is that they are really making sure that they care of them because at the end of the day, it's a business. Right? And if you're well-served by your financial advisor in whatever form that is, you're going to refer people to them and you're going to bring more assets and you're going to grow that business together. I think we can't lose sight of that despite sort of all the noise and the language and the emotion that runs around this issue. We've been believers of the fiduciary standard would be a way to go across the entire industry for retail advice. I actually think there is a way to do that, that would allow you to be a broker but with a standard that works there but we would be supportive of that if it comes and it will show up in some form. It's surprisingly slow to me given the crisis of 2008 and 2009 but yet, I do think you see movement towards it. I think the Department of Labor work is good work. They've done an excellent job on the plan side of ERISA and I think there is - while it's controversial in the industry, what they're trying to do…

I really appreciate all that perspective, Mark, maybe a quick one for Dan, just on the other revenues, it looked like there's been bumped up sequentially in the quarter so just try to think through the moving parts there. Can you give a breakdown maybe of how much was re-allowances and then, if there is anything else onetime there that helped that line item in the quarter?

Yes, most of that other revenue would be tied to the marketing re-allowances for alternative investment sales, more specifically, REITs and that's going to be driving most of the change both on a year-on-year basis and any sequential change.

So is that then, if we were to have a breakout of commissions this quarter, would we assume that the non-tradeds, I guess bumped up commensurate with that increase in marketing real allowances?

You got it. There was a liquidity event that occurred in the latter part of the quarter which we saw some tailwind in the December results because of that. We'll also get some residual benefit in Q1; the quarter will, look very similar if you relative to AI sales.

Our next question comes from Tom Whitehead with Morgan Stanley. Your line is open.

Just a question on capital return. If we would look at the full year, the total capital return was sort of well above where net income and cash flow were so I'm just - from a big picture standpoint, trying to think of a good sort of normalized level of capital return as you work through rates increasing and all the things on the expense side and then I guess more specifically, where the stock is, what sort of opportunistic attitudes you take with regards to buybacks currently? Thanks.

Let me just start with an operating perspective and then Dan will chime in on the more specific question. We're seeing opportunity in the business to invest and our best place to invest money is in the business. We all know that as shareholders, it has a wonderful return characteristic. A year ago, two years ago we didn't see as much opportunity in recruiting and other areas to build out the business and we do now. So that's a little different operating environment going into 2015 that we've had, say, going into 2014 or 2013 and I think that's just an important pivot point to mention from an operating standpoint. And then Dan?

I think the last two years, we've certainly demonstrated that an investment in LPL through share repurchases was the smartest way to use our capital and drive the highest rate of return. We also in both 2013 and 2014, capitalized on the favorable conditions in the debt market and expand at those facilities of which to up-weight that ultimate use of capital for that purpose and so I think the up-weight in the use of that capital was more a driver of the additional leverage that we took on of which to do that. I think as we go forward, as Mark said, we'll continue to always look to see where there is opportunity in the business to invest strategically and then with respect to the return of capital, I think to the extent that you're not going to extend debt facilities or leverage of which to return that capital, then obviously the amount of capital that you're returning would be more commensurate with free cash flow.

Our next question comes from Ken Worthington with JPMorgan. Your line is open.

So far this quarter, you announced that Wellspring and Ellsworth have joined LPL. If I got this right, it looks like they are joining LPL by affiliating with other LPL affiliates and I'm not sure if I got that right but can you talk about where you're having success in recruiting and how brokering acquisitions by LPL affiliates is part of that recruiting and growth strategy?

So let's just be clear. In those cases are certainly affiliating with larger institutional groups that are here, larger branches, to use the brokerage lingo but they're not acquisitions. They are standard recruiting structures in which they're recruited in partnering with large existing offices and we're seeing more and more of that as a phenomenon. It's really has happened significantly over the last seven or eight years for LPL as we changed our production bonus payments that created an opportunity for these larger practices to bring together a number of advisors and benefit from synergies at the local level that we couldn't provide. Simple example would be space, training, just camaraderie, marketing and so forth that occurs at that level that is really a local advisor's activity and you're seeing economic and market response to that need. So these practices are joining because they see a value to that scale and to the activities those branches are providing and we're absolutely here to help everybody grow in doing so. We have certainly used the money for acquisition and we're happy to do that. Just to make sure everyone hears that though one might be thinking about a practice and in that case, we're not so much acquiring as we're essentially helping facilitate a payments right that allows the transfer of advisor. Just really a more sophisticated version of transition assistance which you don't - I mean we see a handful of times in the year as an opportunity but would love to see more.

Secondly, can you talk about the IRA rollover business at LPL. You're top advisor of IRA assets. How do you drive rollovers? How good a business is it and how does LPL retirement partners work with the rest of LPL to kind of promote IRA rollovers?

Well, I think it's important to understand, it is about 50% of accounts here are retirement related. Some will be rollover, some will be annual contributions and so forth and that comes mainly from the activities of an advisor working with somebody who has a rollover today. So in other words, it's built on their individual retail relationship so Jane Smith is moving from one company to another. She has an advisor who's at LPL. That advisor helps her with that rollover at her request and as part of Comprehensive Financial Plan that they're doing around that, that describes the vast majority of activities in rollovers today. And then what we spoke about on the call was a specific process that involves both the technology as well as the service to provide to employers a way to make the rollover choices their employees face easier so as you know, it's complex set of choices that an employee faces and what we're trying to do is make sure we interact with the employer and with the employee to show them what the range of choices are. A choice could be that they will go to talk to an LPL advisor, it could be that they speak to someone else, it could be that they decide to rollover on their own to another choice and we're here to help them. And we're here to help the plan in that activity and LPL network, basically, can also provide educational advice to a plan so if I'm running a, say a larger-sized company plan as a LPL retirement partner associate and I have a plant that's in a state far away from where I am, they can actually call on the LPL network to have an advisor go and provide employee education in that site and provide specific on-site rollover advice as well. So there is a number of ways to do it, both technological and human in order to facilitate that process.

The other part of your question is it good business, is it better or worse or in line with the rest of the kind of the brokerage and advisory business?

Yes, it's retail business so it's just as - it's perfectly fine business in and of itself. I think as we think about how the world may change and it goes to more advisory type accounts as opposed to brokerage accounts which may be an outcome of some of the regulatory changes that we're seeing there, remember that our advisory business has a characteristic of being slightly more profitable than brokerage, I think, 1.3 times, if I remember right. That would be the characteristic that's true for retirement account or true for a regular retail taxable account as well so it has the same characteristics as retail accounts.

Our next question comes from Steven Chubak with Nomura. Your line is now open.

So first question I have is on the GDC payout. I recognize that there is some seasonality as well as just some noise within the underlying components but I have - I did notice that the base payout rate actually did decline about 73 basis points year-on-year and I didn't know if could speak some of the factors driving the reduction in that base level.

Yes, the primary driver of that is just the growth in attachment revenue grew at a faster pace than the overall production-related revenue and that change is primarily being driven by the growth of Hybrid RIAs Solution so that's what we would expect based on how we account for that type of revenue. You would expect to see that dynamic happen and that actual contouring occurring in the income statement.

Okay, so just given the sustained momentum in that business, presumably we should see a continued reduction going forward?

Yes, I think - well, two things. One, the hybrid RIA growth and just general use of advisory solutions relevant to brokerage will help shift or change the sort of that baseline payout number and so that's the right way to think about that, that general trend would tend to have an ongoing shift, if you will, in that overall base rate

Okay. And one follow-up for me. I did see in your last presentation update that you were giving in December at the one slide that happened to have been in action was the update on the revenue growth target under a low and high growth scenario. I just wanted to clarify and see if you were still confirmed to those long-term targets.

Yes, I think maybe what you're getting at is we think about the model and achieving high single-digit growth and revenue. Is that what you're asking?

Even in a low growth scenario, exactly.

Yes. So again, we always think about growth relative to that which is driven by the expansion of number of advisors that which comes from productivity of our existing offices and then certainly, the any tailwind we might get from the market and so we haven't changed in our overall thinking around that framework.

I just might add one nuance which is right that the dynamic that we saw in 2014 was the dynamic of the regulatory charges that were what they were and I just want to remind the audience and you that, that still is a factor for us, right? So those dynamics that we described, as we talked about on our script show up. The problem is they're hidden of course by the cost of the regulatory structures and we do still see that lumpiness and we still see through that possibility here in 2015 at an elevated level and then we start to see the world get a bit better from 2016 forward on that front, as our new risk management systems and people really get fully in place and we get these historical issues behind us. So that's just one cautionary footnote I want to put there.

Our next question comes from Joel Jeffrey with Keefe, Bruyette, & Woods. Your line is now open.

Mark, you actually pretty much just answered my last question but just to make sure understand it correctly so there's sort of 20 - I know you guys are not interested in providing guidance on regulatory expenditures due to the lumpiness but kind of as it had been in the $20 million range in this last year, went to $36 million I think just want to make sure I'm understanding what you're saying that you could see elevated levels in 2015 but going into 2016, you do think those numbers should decline.

Well, I certainly think - let's characterize 2015 the way you just said it, let's leave 2016 for a later date. I don't think we will see as elevated as we saw in 2014 and 2015 but how quickly that curve comes off is awfully hard for us to tell and that's why we've really tried to get out of business of predicting it but I do want to make sure and emphasize that we see an elevated in 2015 and when we know it will be lumpy because we will have learned that lesson from 2014 in and of itself. But what I do want the audience to hear is that we're going to manage our other G&A and manage our growth opportunities in a very strong way. I think you've seen that in the fourth quarter and so I don't want to overly caution you on the regulatory charges but at the same time, make sure we're realistic about what may happen there.

Our next question comes from Douglas Sipkin with Susquehanna. Your line is now open.

Just two questions first, referencing I think, one of your earlier questions about the ICA fees and now sort of the balance is shifting back into your favor where there's a little bit more demand for deposits. I know you guys have thrown out sort of the guidance. I mean, would you like officially update that guidance, maybe to the positive if you did get the sense that the market rates in the industry were moving so much higher or you're probably not going to change sort of the guidance and any sort of impact which would just be a pleasant surprise if demand for deposits continue to increase like some of your competitors have alluded to.

No I think historically we've shown, as we've renegotiate these contracts, especially with the big sort of anchor banks that we have relationships with that we've shared with you the outcomes of those and the outlook associated with that spread so we would continue to practice that. I think to the extent that they come in, in small incremental bite sizes with either additional banks that we add to support the growing capacity, we're not going to do that every time we update one of those but we will do it in a disciplined way to help you understand the shifting spread.

Okay and then second question, just sort of relates to some of like your financial parameters and I know you guys have already talked about cash available for corporate use. Can you update us on sort of the parameters there for that? I'm just trying to think through that with the cash levels and sort of that number into the start of the year, I guess where cash, I would imagine usually declines - increases throughout the year so it's - usually starts at the lowest level in the beginning of the year or should I say the first quarter so I'm just looking at the number. It's like $205 million. I just want to maybe give a refresh on the parameters.

So typically speaking, sometimes our balance sheet it's tough to see it because you'll get at the end of quarters, any money that we have custody or possession here at LPL that our client monies that are moving through the balance sheet so you've got to net that out to really understand what I call our corporate capital and that, generally, you're going to find is in a range of around $400 million. What we generally do is have a standard of which we maintain at least a minimum of $205 million as a balance, if you will, for corporate available capital and so - sorry, of $200 million so that $205 million that you see in the update is just indicative of the fact that we're running to that maintaining that minimum amount of capital available for corporate use. And then cash flows throughout on a quarterly basis will then be added to that which we'll then obviously we use for strategic purposes, for investment in the business, return of capital etcetera.

So but you guys still feel pretty good that, that's a level you can maintain?

Yes, absolutely.

Our next question comes from Bill Katz with Citi. Your line is open.

Just a big picture question, Mark. I'm sort of curious. There's been a lot of discussion of late on robo-advisors and the implications for the business so I wondered if you could talk a little bit about maybe the pros and cons that you see developing in the early stages of this dynamic?

Yes, it's a great topic and thanks for the question. So I think there's a few things to think about. Number one is that what robo-advice, in my view, is a statement about the cost of getting a return so if we look across the industry, one of the things that we've tried to do is a firm is to lower the investor's cost as much as possible across our various platforms in a number of ways. And so if you compare, say, what a retail investor pays here for investment advice in an advisory account versus what they might pay at a wirehouse, we're going to be lower. When you look at what they pay at another independent, we're going to be lower and that's been our goal so robo-advice to me, Bill, is really a statement about what's the right price to pay for a return first, right? I think what they are being successful with is providing very low cost returns. And that's going to be a continued push in our industry in retail advice because return, the cost of returns, of course, matters a great deal so we believe that right strategic approach to that is to lower your cost to retail investors in and of itself. Now, remember, robo-advisor generally don't, at this stage, provide real counsel in a sense of saying to someone, look, you want a new car but the car you have is perfectly fine and therefore, don't lease the next new car or don't write a check for one. Instead, put that money away for long-term retirement so what I would describe is behavioral work is really the value of an advisor and particularly one that's face to face. There just is nothing like sitting with somebody and saying, let's talk…

Our next question comes from Alex Kramm with UBS. Your line is now open.

Yes, just one other quick follow-up, I think with Dan. On the promotional expense side, can you just walk through that again for 2015? I think you said for the first quarter, up $9 million but it sounds to me like it's the underlying promotional expense for new advisors is kind of stable. So how should we think about this as we go through the year in terms of the conferences that are coming in at what times and then related to that, can you also just review on the transaction side when those conference revenues should be coming in just so we get our models right? Thanks.

Yes sure, so that's right the comment that I made about the $9 million of sequential growth in the promotional expense in Q1 is totally driven by conferences. We have our Masters and Summit conferences. Generally speaking, one will fall in Q1 and one will fall in Q2. In 2015, they're both falling in Q1 and so you're going to get that roughly $9 million sequential change in your expenses. The other big conference that's a big driver of a lumpy expense there is our Annual Focus conference which will fall in Q3 of 2015 and that's typically when it falls in so no big change there in your - how you think about the historical timing of that. From a revenue standpoint, you do get a small amount of revenue pick-up in conference revenue associated in Q1 associated with those two conferences falling in that quarter and then certainly, you get a much bigger conference revenue pick-up in Q3 associated with Focus. Generally speaking, on Focus, it's about 50% of the increase in the conferences expense. Your revenue pick-up in Q3, in Q1 your conference revenue associated with Summit and Masters is much lower, generally about 1/3rd of what the overall cost is.