Good day, ladies and gentlemen, and welcome to the LPL Financial Holdings' Third Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference may be recorded. I would now like to turn the conference over to our host of today's call. Mr. Chris Koegel, you may begin.

Thank you, Tanya. Good morning, and welcome to the LPL Financial third quarter 2015 earnings conference call. On the call today are Mark Casady, our Chairman and Chief Executive Officer; Tom Lux, who served as our Acting Chief Financial Officer for seven months, including through the third quarter; and Matt Audette, our recently appointed Chief Financial Officer. Mark, Tom, and Matt will each share introductory remarks, and then we will open the call for questions. We would appreciate it if each analyst would ask no more than two questions at a time. Please also note that we have posted a financial supplemental 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 concerning such topics as our future revenue, expenses and other financial and operating results, improvements in our risk management and compliance capabilities, the regulatory environment and its expected impact on us, future regulatory matters, industry growth and trends, our business strategies and plans, including those related to capital management and expense management, as well as other opportunities we foresee. Underpinning these forward-looking statements are certain risks and uncertainties. We refer our listeners to the Safe Harbor disclosures contained in the earnings release and our latest SEC filings to appreciate those factors that may cause actual financial or operating results or the timing of 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. Mark Stephen Casady - Chairman & Chief Executive Officer: Thank you,…

Thank you, Mark. Today, I'll comment on our third quarter financial and business results. We have provided expanded details about these results in the financial supplement, which is available on our website. Most of my remarks will focus on the four key elements that we believe drive shareholder value creation for our business: gathering assets, increasing gross profit, managing expenses and allocating capital. In the third quarter, we generated adjusted earnings per share of $0.55, which was up $0.07 year-over-year, but down $0.10 sequentially. Compared to the second quarter, growth in transaction and cash sweep revenues combined with our share repurchases drove an increase of $0.03. This growth was partially offset by $0.06 representing the net expenses of our annual national advisor conference. In addition, the remaining $0.07 primarily related to soft sales commissions and declines in various revenues that are sensitive to market valuations. Starting with assets, the market environment was challenging as the S&P 500 index was down 7% from the end of the prior quarter. Despite the environment, we added $4.2 billion in net new advisory flows, representing an annualized growth rate of 9.3%. At the same time, total advisory and brokerage assets decreased sequentially by 5% in the third quarter as the declines in market values more than offset net new asset flows. I would also highlight that our asset mix continued its shift toward advisory, which now represents 39% of total assets. New advisors contributed significantly to these net new asset flows as we continued to recruit high-producing advisors. Our recruiting outlook remains positive given competitive and regulatory dynamics. Our production retention remains high at approximately 97%. At the same time, we continue to see increased levels of departures primarily from low producers due to the market environment. In the first three quarters of 2015,…

Thank you, Tom. It's a pleasure to speak with everyone on the call today as LPL's Chief Financial Officer. Before I get into our announcements today, I thought it would be helpful to spend a little time talking about why I joined LPL, my experience and some early observations. Having spent nearly my entire career at one firm and helping lead it through some challenging times, I didn't make the decision lightly to leave and come to LPL. However, I was quite intrigued by the independent model, the secular shift to advise that I think will drive long-term growth, the capital-light model that empowers management to allocate capital in the best interest of shareholders, and most importantly, the strength and commitment of the management team to drive value for our advisors, retail investors and shareholders. After my first month of working closely with the management team and organization, I feel even more confident about my reasons for coming and the decision I made. I lived through a series of gut-wrenching experiences in my career, which gave me the focus and perspective of what drives value for shareholders and what doesn't. I believe prudent expense management and shareholder-focused capital allocation are critical to driving shareholder value. I believe every dollar we spend should be scrutinized to ensure it's invested to generate the greatest value, whether it's a simple expense, a capital expenditure, an investment in the business or return of capital to shareholders. It's also important to note that at LPL, a dollar that drives the greatest value for our advisors and retail investors is oftentimes the same dollar that drives the greatest value for our shareholders. Okay. Enough about me, let's talk about the decisions Mark announced earlier. First, let's cover expense management. As Mark said, we will continue to…

And our first question comes from Chris Harris. Chris, your line is open.

Great. Thanks, guys. In prior calls you guys had mentioned the possibility of potentially doing M&A. And I know we've got the share buyback announced this morning. Are you still interested in looking at M&A or is the primary focus now simply on buybacks? Mark Stephen Casady - Chairman & Chief Executive Officer: Well, we continue to look for M&A, Chris, and this leaves us flexibility to do M&A and take leverage up further. And so, we feel fine that we can do what we need to do in that market. We do know a number of properties available for sale and people looking to sell, so we'll continue to evaluate those as we have done in the past. I think we want to understand where value is and where pricing is in the market. I think there was a recently announced transaction in the last two weeks in which we saw a 14-plus multiple to EBITDA; that's a very high multiple. We're a six times to eight times EBITDA buyer. And so, that really will guide us as to what returns we can get in the M&A market. So, to my mind, repurchase of our shares at an eight times EBITDA multiple is a bargain.

Got it. Okay. It makes sense. And then my one follow-up; Mark, you talked about investors with small balances potentially being impacted by DOL. Is there any way to size how large this group is relative to LPL overall? Just trying to sort of bracket the risk here. Mark Stephen Casady - Chairman & Chief Executive Officer: It's small. It's less than 5% of assets, probably closer to 3%. So it's not a lot of assets that we may not be able to service. And we would characterize those assets under $15,000 in balances. So, they're assets that in our advisory platforms are just too small to deal with in and of itself.

Okay. Thank you.

Thank you. And our next question comes from Christian Bolu, Credit Suisse. Your line is open, Christian. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker): Good morning, Mark, Tom and Matt. So maybe this one is for Matt. Matt, as you noted, you've kind of managed the company and well aware of the risks to a company when your present environment turns for the worst. And I appreciate LPL's model has a far lower risk profile than your previous company. But, and I'm sure you did a lot of stress tests to make sure the company can run at higher leverage levels even in a downside scenario. Maybe we'd just like to get your thoughts on what you see as downside for this business, just sort of we can kind of frame the resiliency of the model.

Sure, Christian. So, I think in context of going to four times and having comfort with doing that is the core of your question. And there's a bunch of different factors that give us that comfort, and me specifically. And starting off with just the core business itself, so kind of two primary factors of just steady recurring EBITDA, which is a great measure for cash produced by the business, combined with a capital-light model, right. The business grows or shrinks; there's not a bunch of balance sheet capital that's necessary. So, it's just a much more predictable cash production engine, if you will. And I think just lends itself to more leverage. At the same time, we're not overly risky, so when you look through what we're doing here, our plans are to continue to maintain $200 million of cash available for corporate use on the balance sheet. If you saw the details of what we announced on the debt side, we plan to pay off our revolver, so on the other side of this we'll have an undrawn $400 million revolver. And when I take a step back and look at that overall package, I feel very good about our ability to support the debt and feel good about to Mark's point on the answer to the first question that we also flexibility to do more if needed. Mark Stephen Casady - Chairman & Chief Executive Officer: The only thing I'd add to that, Matt, is that in our history when we were privately transferred from our owner/founder to private equity firms, as part of our transaction in 2005, we were levered at almost 7.5 times leverage. So, the business has taken heavy leverage before. This is not heavy leverage in the context of its history. So, we feel very good about it. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker): Okay. Thank you. And then my follow up, just a quick cleanup question; so on the core G&A guidance for 2016, the 2% to 4%, what's the baseline for that? Is that core G&A ex-regulatory costs that you expect to grow 2% to 4% or is it total G&A?

You're correct on the first one, Christian, excluding regulatory cost; so just core G&A. Christian Bolu - Credit Suisse Securities (USA) LLC (Broker): Great. Okay. Thank you very much. Mark Stephen Casady - Chairman & Chief Executive Officer: Thank you.

And our next question comes from Ken Worthington. Your line is open, Ken.

Hi. Good morning. Mark Stephen Casady - Chairman & Chief Executive Officer: Good morning, Ken.

I guess, first for Mark, you said you had a much better understanding of the range of outcomes from the DOL. Maybe can you frame for us, how you see kind of the negative and positive extremes with regard to the proposal? Mark Stephen Casady - Chairman & Chief Executive Officer: Well, we've characterized before that we feel the DOL's made great progress and is roughly 80% of the way there, that there are about four areas we have some concerns; we're not going to the great detail there. The one that is the most difficult to work with is the best interest contract, because the nature of how it is suggested to be used and the quantum of data that would be there. So it basically requires an advisor to give to an investor prior to really having much of discussion with them what would be a very large disclosure document where you have lots of different fund choices, for example, if you're talking to our mutual fund portfolio. We have seen plenty of discussion in the press from the Department of Labor that they understand some of those concerns, and they plan on making changes. You've seen that from Secretary Perez, and from Phyllis Borzi, who is leading the effort there and so we applaud them for their willingness to listen. And to think through how to make that a workable document that gives good disclosure to consumers and helps bring transparency to the market. So we do think that is the most likely outcome, is a workable best interest contract that would allow us to continue to do our business, that would mean that we still have the product exemptions where there's a process where they approve certain products and don't approve of others and let's assume…

Okay. Great. Thank you very much. Mark Stephen Casady - Chairman & Chief Executive Officer: Sure.

And then, in terms of the reduction in the brokerage count and the low-producing brokers, is it market conditions that are really driving them out, maybe to what extent are you squeezing them out? And when we think about a small producer versus a large producer, are you making money on the small producers, I assume you still are, or is that actually the small producers kind of a net negative for LPL unless they have a chance to really growing up to be much bigger? Is it kind of in your best interest to see them maybe move to a different career? Mark Stephen Casady - Chairman & Chief Executive Officer: Well, I think you said it quite well. It's not unusual when you have moments of stress that somebody looks at the range of their economic activities. I grew up at a small town in Indiana, we have LPL advisors there, often that advisor will do the securities businesses, their primary means, but they may also be an insurance agent, they may also be an accountant. And so they have other businesses they're involved with. And typically in times like this, they assess, geez, my time better spent on one of the other activities where I can make better income or just, again, have a simpler life as things may go. So, it's exactly what you'd expect in the market where individuals make those decisions. It's also our business owners, remember that we have 4,600 business partners here who oversee their offices and their business and they're making a decision about exactly your point, which, is it economic to have this person in my space doing what they're doing, that may be in more a suburban location or even urban location, maybe they had someone who they put into place a couple of years ago and they're making decisions to see that that person isn't going to grow, as you suggest. And then finally, the third category are those that we look at, and again, reach that same conclusion. We've given them a couple of years, they haven't succeeded in the business the way we thought they would. And therefore, they're just not going to grow into something that makes sense for them to be involved in the business with us. Generally, we make money at lower levels of production, down to even $100,000 is just not a very much of a quantum of profits and the extent to which that takes away our focus from practices that are growing. We always want to focus on those practices that can grow and have good opportunity to continue to help their investors.

Okay. Great. Thank you very much.

And our next question comes from Chris Shutler. Your line is open. Chris C. Shutler - William Blair & Co. LLC: Hey, guys. Good morning. Mark Stephen Casady - Chairman & Chief Executive Officer: Good morning, Chris.

Good morning. Chris C. Shutler - William Blair & Co. LLC: And welcome aboard, Matt.

Thank you. Chris C. Shutler - William Blair & Co. LLC: As you guys think about core G&A next year, you mentioned spending on ClientWorks, maybe just talk about the timeline of that project. And then what are big buckets of spend that you're going to dial back? Mark Stephen Casady - Chairman & Chief Executive Officer: Well, I think let's start with the buckets of spend dialing back. We have spent over two years, about two-and-a-half years really investing heavily in our core IT infrastructure and heavily in our employee tools and toolkits. So, we replaced really 80% of the systems our employees touch, everything from hardware that they use such as the telephone system to the way we manage telephone calls and the service center to the document imaging system that we use and we replaced in some cases a significantly old technology or technology that didn't have the latest productivity to it. So, what we're now going to experience is a productivity dividend that comes from that heavy investment and from that focus on our core infrastructure for the business. So, that's what we'll spend less on we don't need to replace a document imaging system once every five years or so, so that's now done. And that would be a good way to characterize the extent of it. In our of the risk management organization we have a continuous investment, a bit more to wrap-up early next year on technology, but generally same characteristics. So, now you can imagine that coming down in spending, and for us not to need to hire at the same level for growth of business. So the productivity ratio, if you will, should be the payoff for that kind of investment in capital. So that's the down part. The up part…

You want honest assessment. I'm focused on that, and... Mark Stephen Casady - Chairman & Chief Executive Officer: That's good.

I think the big caveat here is a month into the job I think that most of my observations are validations around the reason I took at a lot of which are the decisions and things that we've talked about today. I think the things that we need to focus on and, I don't know if do better is the right term, but it's all the things that we've highlighted today and that Mark was just talking about, right, continuing to invest in technology and the service that goes along with it, ultimately just serving our advisors better, right, because every single thing that we do, ultimately comes from having advisors be happy with us. So, we just never want to lose sight that the ultimate end retail investor, if they're happy, everything leads to us having recurring EBITDA, cash balances going up to do all the things like we just announced today. So, I just think, my observation is continuing to focus on that is what needs to be done. Chris C. Shutler - William Blair & Co. LLC: Okay. Thank you.

Our next question comes from Bill Katz with Citigroup. Bill, your line is open.

Okay. Thanks very much. Welcome aboard as well. I appreciate you guys taking my question this morning. Could we just stay on the financial advisor dynamics for a moment, please? Some of your peers have reported some very strong growth in FAs over the last couple of quarters as some of them have flashed through here. Can you break down, maybe, the production that's coming in versus the production you're losing in terms of, is there a pick-up in productivity? It's hard to see that given the product mix and what's being going on underneath that, just trying to get a sense of the ins and outs against that? Mark Stephen Casady - Chairman & Chief Executive Officer: Yeah. Bill, I think, there's a couple of things that I'd point to, is we have seen those same announcements and always glad to see advisors generally move to independent models; that's a good thing. And as we look at it, we measure ultimately what assets are doing. Based on public announcements we've read thus far, we'll be the second fastest growing advisory on a percentage basis, asset growth for the quarter, which continues strong multi-quarter asset growth in that category. That's a category that's very valuable to us, worth about 120% of the economics that are associated with brokerage assets. And so, we think we're demonstrating strong asset growth fundamentally. That does come from two places; one is existing advisors adding to their client base or adding – clients adding new assets. And as you say, it's new recruits. Where we're having strengths and practices that are larger, so the characteristics of the class this quarter are little more than two times the average production that's here, and bringing good assets with them. You saw a number of announcements, including some here in the fourth quarter, of our practices that are quite large, hundreds of millions of dollars of assets that are moving to us, including one that has approximately $2 billion of assets moving as well. So, we continue to gather assets nicely through recruiting; this is why head count is a kludgy way of measuring it, because we're much better off to have smaller producers go often focus on some other industry, and to have large producers join us. Last thing I'd point to is our high net worth growth. If you saw on the Barron survey we moved up three places from number 26 to number 23 in serving high net worth families. We are growing quite significantly in that business and that's another health indicator for me; both our existing advisors and new advisors joining us in that space.

Can you just qualify one thing before I ask my follow-up question? What is the brokerage flow for the quarter? I'm just trying to get a sense of the overall net growth to the company. Could you guys focus on the advisory adds, but your peers focus on net assets? Mark Stephen Casady - Chairman & Chief Executive Officer: Yes. We have basically technology going in place in terms of measuring that brokerage piece. It's in beta now, and so we don't break out brokerage in and of itself. You can see overall, assets are down about what percentage for them, 5% for the quarter. So, that tells you that if advisory assets are up by $4.2 billion, that tells you a little bit more about the dynamic of the brokerage assets that are there. Brokerage assets tend to be a little more equity-based because they're not typically balanced portfolios. So, if markets are down, you see that absorption go through. So to me, it looks like a fairly normalized amount of assets on the brokerage side given the public data that we have for you.

Got you. Just my follow-up (46:15) How do you think about promotional expense next year? You run a lot of expenses through that that are not included into the difference between GAAP and your adjusted earnings and I think the market also focuses on that line. What's your sense for that kind of growth year-on-year in 2016?

Yeah. So, no guidance on that. I mean, it's really driven primarily by the dollars we use to grow the business, so it's really going to be correlated with that. And of course, that's hard to give guidance on. So, I'd leave it there.

All right. Thank you. Mark Stephen Casady - Chairman & Chief Executive Officer: Thanks, Bill.

Our next question comes from Joel Jeffrey of KBW. Your line is open, Joel. Joel Jeffrey - Keefe, Bruyette & Woods, Inc.: Hey, good morning, guys. Mark Stephen Casady - Chairman & Chief Executive Officer: Good morning, Joel. Joel Jeffrey - Keefe, Bruyette & Woods, Inc.: Just wanted to clarify one thing on Bill's question. Can you give us any sense of the percentage of the net new advisory assets that are from clients that are moving from brokerage to advisory? Mark Stephen Casady - Chairman & Chief Executive Officer: No, we don't have it broken out in that way. We have details of it, but we don't publicly disclose that piece of it. But it would be fair to characterize it given the announcements we made and people joining us, that a lot of it is driven by those who are joining the hybrid RIA platform, and those who – advisors who are in the advisory programs already growing further. That's what I observe rubs out in the market. Had three different client events for advisors this quarter, this last quarter, and certainly saw the significant growth they're having in the advisory business, again, particularly from more high net worth clients. Joel Jeffrey - Keefe, Bruyette & Woods, Inc.: Okay. Great. And then, just in terms of the commissions. Can you give us a sense for the, I guess, maybe sequential declines in the alternative revenue sales and maybe the variable annuity sales?

I think, overall, the alternative investment commissions were about $26 million. I think, we've sort of used in the past a bench-line quarterly for those revenues being about $40 million, so it was a very soft quarter overall. And VAs were roughly flat inclusive of both sales and trail commissions. Joel Jeffrey - Keefe, Bruyette & Woods, Inc.: Great. Thanks for taking my questions. Mark Stephen Casady - Chairman & Chief Executive Officer: Sure.

And our next question comes from Devin Ryan of JMP Securities. Your line is open.

Hey, thank you, good morning. Mark Stephen Casady - Chairman & Chief Executive Officer: Hi, Devin.

When you guys went public five years ago, a big focus seemed to be reducing leverage to move to investment-grade. So, obviously, a lot has occurred since then, but leverage is moving in the other direction. So, how are you thinking about a path toward investment-grade status today? Is that still an objective over time or do you just not see the same value in that today? Mark Stephen Casady - Chairman & Chief Executive Officer: There is no value in it. It's not something that is going to drive economics for shareholders. It doesn't really affect our business one way or the other. I think that's what we've learned in being public for five years, is what matters is how do we support advisors and investors, so that they can be successful in their outcomes, that always drives value to business, being a good value, and then really making sure that we're using the balance sheet appropriately. In this case today being clear that we think we can leverage further given the strength of the economics of the model and that's a smart way for us to drive value for shareholders.

Okay. All right, great. Thanks for the color there. And then, with respect to the fourth quarter, seasonally, can be a better quarter for commission activity. So I'm just curious if you're seeing any of those same seasonal trends thus far or the fact that the markets were kind of shaking up there in the third quarter. Is that subduing activities we're heading towards the end of the year here? Mark Stephen Casady - Chairman & Chief Executive Officer: I've got some prospective and I asked Tom to do the same, but – we look at it – it does a lot like 2012 where, remember you had sort of this tax change overhang that occurred right through the end of the year and dampened growth through the fourth quarter of that year, it looks the same way to us here in 2015; this time driven by a different set of issues, really the uncertainty in the economy. We're certainly hearing reports of slowing down in a number of sectors, nothing that's particularly worrisome, but the market hasn't quite sorted it out and the feds in action and action could be in the form of either raising rates, which is, of course, what we're hoping for at the end of the year. But, since hope is not a plan, we're also planning for the fed doing nothing. I think it would help the economy if the fed would be clear about what it is it wants to do one way or the other and that would help clear some of the cloud that is brining that dampening to activity. Tom, would you?

Yeah. I think, historically, we do see a little bit of a pick-up largely related to tax management, tax loss selling and things like that later in the fourth quarter. It's early in the quarter to see anything like that. And I think, as Mark described, the key items that have had caused the slowdown in commissionable activity, the lack of any increase in the long-term rates and the fact that we're well away from the 3% rate on the 10-year that we've talked about being a large trigger of creation of product features on Vas that make those attractive products in the investors toolkit, we just don't see anything changing on that in the near-term.

Okay, great. I appreciate the color. Thanks for taking my questions. Mark Stephen Casady - Chairman & Chief Executive Officer: Sure.

And our next question comes from Steven Chubak. Your line is open, Steven.

Hi, good morning.

Good morning. Mark Stephen Casady - Chairman & Chief Executive Officer: Good morning.

So, Matt, welcome. Just wanted to dig a little bit deeper into some of the core G&A guidance that you'd given for the 2% to 4% growth next year. And I was actually hoping you could size the incremental expense that you're contemplating that tied to the DOL preparedness specifically. I don't know how you guys are thinking about it, whether it's on absolute dollar basis or per advisor basis, but just giving us some color as to how you determine that incremental expense or investment that's required will be quite helpful. Mark Stephen Casady - Chairman & Chief Executive Officer: Yeah. We're not in a position to disclose the details of what we're going to do. We need to have the Department of Labor issue its guidelines, so we can decide from there the best way to approach it. I think it is fair to say that one thing that's important to understand about the best interest contract, is it looks an awful lot like what you do when you oversee from an SEC perspective, advisory assets; it's a very similar construct. In our view, we already have some new technology that works quite nicely for oversight of those activities just launched very recently, as part of our rebuilding of our employee infrastructure. So, we do think there're some characteristics of that technology that let us focus on how to comply with the Department of Labor as we understand it today, but we need to actually see the regulation to understand the best way to respond to it. So that gives us an ability to think about how to leverage assets we already have, so that helps. Secondly, we do conversions all day long, right, because of the amount of new advisors who come in to the business and which were converting their books of business to our platform. So we can size quite easily what it would take to move over, say, all the existing brokerage assets to advisory and which would absolutely be a significant change to say the least. And in doing that can size what it takes operationally in terms of just that expense for that year. It'd be one time in nature, but it needs to be there, that's included in the G&A forecast that we've given you. So, you can see that we're thoughtful about it, but not to a point of looking at it to quite the level of detail that you'd like to.

Okay. So, just to clarify, so that type of transformational change where you'd be transitioning the brokerage assets to an advisory relationship, that is contemplated within that 2% to 4% growth or not? Mark Stephen Casady - Chairman & Chief Executive Officer: Within G&A, the G&A perspective, it is, because that's the guideline we're giving you as what's the cost structure of that. And what we try to do is give ourselves a range of two outcomes and therefore you end up with having the movement of assets as part of that have some operational process. Now, whether that's the right thing to do, right, and whether that's what the investor wants to do, that's the big piece that we have to understand better from number of sources including the investor. But, we, from a cost standpoint, have acted as if that is going to be something that is going to happen, but I just want to make sure I'm quite clear that it's not something that we can command or nor should, but for planning purposes and for the G&A guidance we've given you for 2016, we have included the cost of doing and actually we think that's the most prudent thing to do is to be as planned as possible in our approach.

Understood, Mark. Thanks for clarifying that. And then just one quick cleanup question for me on pertaining to the other revenue line, that did come in a little bit below expectations. I noted there is some mark-to-market noise associated with deferred comp plans, but I was just trying to get a better understanding as to where we should be thinking about the numbers, the go-forward run rate excluding any mark-to-market noise, just given some of the pressure that we've seen on alternative investment sales?