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LPL Financial Holdings, Inc. (NASDAQ:LPLA)

Q3 2012 Earnings Call

October 31, 2012 8:00 AM ET

Executives

Trap Kloman – SVP, IR

Mark Casady – CEO and Chairman

Dan Arnold – Head, Strategy

Robert Moore – CFO and Treasurer

Analysts

Chris Harris – Wells Fargo Securities

Ken Worthington – JPMorgan

Alex Kramm – UBS

Thomas Allen – Morgan Stanley

Devin Ryan – Sandler O’Neill

Alex Blostein – Goldman Sachs

Chris Shutler – William Blair

Ed Ditmire – Macquarie

Joel Jeffrey – KBW

Operator

Good day, ladies and gentlemen, and welcome to the LPL Financial Holdings Third Quarter Earnings 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. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference Mr. Trap Kloman, Senior Vice President of Investor Relations. Sir, you may begin.

Trap Kloman

Thank you, Kate. Good morning, and welcome to the LPL Financial third quarter earnings conference call. On the call today is Mark Casady, our Chairman and Chief Executive Officer, who’ll provide his perspective on our performance during the quarter. Following his remarks, Dan Arnold, our Chief Financial Officer, will speak to our financial performance and capital deployment, joining today as well is Robert Moore, our President and Chief Operating Officer. Following the introductory remarks, we will open the call for questions.

Please note that we have posted a financial supplement on the Events section of the Investors Relations page on lpl.com. We’ve added an additional slide this quarter providing further clarity on certain metrics that we’ll be referencing on this call. Before turning the call over to Mark, I’d like to note that comments made during this conference call may incorporate certain forward-looking statements. This may include statements concerning such topics as earnings growth targets, operational plans, and 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 results 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.

Mark Casady

Thanks, Trap and thank you for joining today’s call. For the quarter, we reported adjusted earnings per share of $0.47, which represents a modest growth of 2% year-over-year. We continue to experience subdued levels of advisor productivity for the quarter as individual investors took a cautious approach to engaging with the market leading to revenues of $907 million, up 3% year-over-year. With heightened attention to managing our cost structure, we were able to keep operating expenses in line with the second quarter despite increased levels of conference expenses, and ongoing investment in the future growth.

As we’ve all seen, the markets began to improve midway through August and finished up 6% sequentially for the quarter. While this momentum is positive, market rallies are not necessarily an immediate driver of renewed or sustained investor engagement as evidenced by our advisor productivity. Annualized commissions per advisor of $134,000 declined slightly year-over-year and sequentially. The pending elections and the fiscal cliff have contributed to low levels of individual investor engagement, and continue to have an impact due to lack of clarity on where these issues are headed. The resolution of these situations may serve as a catalyst for increased investor activity.

We anticipate that the low activity levels will persist into the fourth quarter and we’ll manage our expense base to reflect these conditions. This short-term outlook is balanced by our distinct value proposition that has led to the steady growth of core drivers of our business such as advisor and asset growth. Our experience has been that these metrics ultimately drive positive long-term financial performance across varied economic cycles. To sustain this trajectory, our strategy continues to be to invest during these down cycles. We know this approach positions LPL for greater bottom line growth and margin expansion when individual investor engagement returns.

We are achieving strong results in new business development; we’ve added 495 net new advisors over the past 12 months, excluding the impact of the U.S. conversion late last year.

Our platform continues to attract a diverse set of advisors including larger practices, RIAs, and retirement producers, in addition to core and financial institution advisors. Our advisor count declined by 15 for the quarter, as our success was dampened by the loss of a large bank program with the 181 advisors. This departure was due to an internalization and consolidation by the bank’s parent company of its broker-dealer operations to its own affiliate.

Despite this departure, we continue to feel very good about our production retention. The market remains very competitive for advisors moving their practices, which we monitor closely. We see opportunity for continued recruitment success as industry tailwinds remain in our favor. The outflow of wirehouse advisors who were previously restricted by state bonuses put in place in 2009, remained strong, and will continue for the foreseeable future.

A number of our independent competitors remain under pressure due to reduced advisor productivity, the sustained low rate environment, and the fact that most of them do not have the benefit of our scale.

Based on recent report by coaching research, 22% of all of advisors and 29% of advisors working for national wirehouses, state they are considering a move to a new firm in the next two years. In that study, LPL received the highest ranking among all broker-dealers as the leading destination. With 43% of advisors indicating they would consider moving to LPL. These figures speak to the strength of the company’s long-term prospects.

Another key metric I’d like to highlight is the positive flow of net new advisory assets, which were $2.9 billion this quarter, representing 10% annualized growth. Our existing advisors, who have been with LPL for more than a year, are key contributors to this metric. This growth affirms the value we bring to these practices, and reflects the success of our ongoing investment in business development. Recently, we have been discussing with you the strong growth of large practices at LPL. These larger enterprises offer a differentiated approach to recruiting advisors and provide ongoing marketing and training support combining their local value proposition with our technology, business development, and consulting services aligns our efforts to seize the opportunity before us to support the ongoing wave of advisors and investors seeking independence. Reflected on the evolution of these relationships, we’ve been collaborating with these large enterprises over the past two quarters to establish a mutually beneficial structure to promote our combined success on a sustainable basis.

I’d now like to update you on the positive development across the strategic initiatives we have made over the past few years. Our acquisitions and investments in the retirement, high net worth, trust services, and mass market spaces have expanded our ability to serve advisors in a variety of settings and target markets. We now have the tools and services necessary to cover over 90% of the assets in the retail market broadening and deepening our growth opportunities along several fronts. While we remain optimistic in pursuing any future acquisitions, our need to acquire scale or additional capabilities has largely been met.

We will continue to evaluate acquisition opportunities based on strategic merit and the ability to create value for our shareholders. We are seeing the benefit of our investments through the development of new business opportunities for example, Fortigent and Concord have teamed together to attract new business to LPL and are winning incremental assets from trust departments embedded in several of our existing institution services relationships.

Fortigent now serves as a strategist on our popular, centrally-managed model wealth portfolio platform, providing deeper access to alternative strategies for investors. Our retirement solution is successfully winning new and larger retirement plan business. In addition, we have successfully launched our IRA rollover desk and we are developing our in-plan advice solution. These are both designed to capitalize on the over $60 billion in retirement plan assets our advisors support today across 25,000 retirement plans. And although still in the early stages, NestWise has integrated the acquisition of Veritat, and has introduced in its training program to provide innovative new methods to support mass-market investors.

With our wider strategic footprint in place, our focus is now firmly on enhancing the fundamentals of the company to drive future financial success. This begins with helping our advisors support their existing clients, spend less time on back-office functions and empower them to win new prospects. To further this goal, we will continue to invest in our internal technology, and give our employees what they need to perform at their best.

As discussed in recent quarters, we look to enhance our performance through our service value commitment program, to support our customers while operating at a lower cost. We began this work by introducing lean methodologies to enhance service while creating operational efficiencies in various parts of our organization.

Going forward, we will look to expand and accelerate these positive outcomes. We’ve already engaged Accenture and Bain & Company, two experienced partners with extensive knowledge in helping organizations accomplish this type of evolution, to assist us with this work. As we complete this work in the fourth quarter, we look forward to providing our findings on our next earnings call. Our success will be built upon how we adapt through better and more efficient use of both technology and human resources.

Our technology team has performed a detailed review of our approach to IT strategy, to improve the delivery of new services to our customers. We have laid the groundwork to further develop our human capital with the addition of strong new leaders, and the transition of existing leaders to new roles on our executive management team. Combining these efforts with our service value commitment will result in more productive growth and an improved experience for our customers and employees. In conclusion, despite the intermittent volatility we have seen over the past two quarters, we believe LPL Financial remains well positioned for the long term.

With that, I’ll turn the call over to Dan who will provide you with a more detailed financial overview of the quarter. Thank you.

Dan Arnold

Thanks Mark. This morning I’ll be discussing four main themes. First I’ll address top line conditions followed by a review of our payout rate. I’ll then discuss our expense structure and conclude with a brief review of capital and management strategy. Third quarter revenue continued to be impacted by lower commission levels in trading activity. This was despite a rally in the markets as individual investor uncertainty caused lower advisor productivity. This resulted in a 3% net revenue growth year-over-year.

I’ll now mention the key drivers behind this growth. Commission based revenue increased by $4 million or 1% year-over-year to $442 million. Underlying this increase recurring trail revenue grew as brokerage asset levels increased 15% to $253 billion. This trail revenue growth was partially offset, however, by a decline in sales commissions. We continue to experience strong flows to our advisory platform as evidenced by the $2.9 billion of net new flows this quarter. Despite advisory asset growth being up 8% year-over-year as of June 30, advisory fees remained flat when compared to third quarter of 2011 at $267 million. This divergence is driven in large part by the manner in which we recognized revenue from hybrid RIA’s, which results in less revenue recorded in the advisory fee line from those assets.

Our corporate and hybrid advisory platforms however are structured to be equally profitable on a gross margin basis. To further reinforce the stability in our corporate RIA revenue, our fee as a percentage of advisory assets on our corporate RIA has remained steady at 111 basis points. To enhance transparency, we provide an additional data on our corporate and hybrid RIA assets in the financial supplement.

Asset-based fees increased by $10 million year-over-year or 12% due in part to rising asset balances benefiting product sponsor revenues. Another primary component of asset-based fees is cash sweep revenue, which increased by $3 million or 9%. This was primarily driven by an increase in the average effective rate for federal funds, which was 6 basis points year-over-year.

Looking ahead, we anticipate our ICA cash sweep yield to decline 1 to 3 basis points in the fourth quarter and 10 to 12 basis points over the course of 2013. This is assuming the effective funds rate remains consistent with today’s levels. This anticipated pressure on our cash sweep spreads is driven by the impact of the Fed’s quantitative easing measurements and protracted low rate environment.

Transaction and other fees increased by $6 million or 8% year-over-year. This was primarily driven by growth in the number of advisors, pricing changes implemented in 2012 and the acquisition of Fortigent. These increases were partially offset by a decline in transaction fees due to lower trading activity mentioned earlier. An item I’d like to call out regarding transaction and other fees is the $6 million increase from the second quarter. This was higher primarily as a result of the $4 million increase in revenue from our annual national conference held in August.

As a reminder, there are no major conferences in the fourth quarter so we expect about a $5 million decline in conference-related revenue. With these top line conditions in mind, I’d like to turn to our payout rate for the third quarter, which increased 45 basis points to 87.4% year-over-year. The increase was primarily driven by the non-GDC portion of our payout rate, which grew by 51 basis points. This is related to the market-driven increase in the value of the assets and advisors deferred compensation plans. I’ll point out that this is an offset to the $4 million growth we experienced in other revenue and therefore is basically neutral to gross margin.

Additional detail can be found in the financial supplement. As it relates to our advisor payout, I’d like to highlight the benefit of the work we’ve done with the large enterprises on our bonus payout rate. Over the past 12 months, the production bonus has increased 34 basis points year-over-year to 2.7%.

Looking forward to 2013, we expect the total production bonus to continue to rise based on the growth of our advisors practices, because of our efforts with large enterprises and all else being equal, the trajectory of the bonus payout rate will be approximately half the rate of growth incurred the last two years.

I’ll now discuss expenses with a breakout of the key components. Year-over-year G&A, excluding production expenses and depreciation and amortization grew 19% or $31 million to $192 million. This increase is demonstrative of the investments we’re making to position the business for continued growth. Approximately $4 million of this increase is related to transition assistance due to better business development results than the prior year, $7 million was from additions of NestWise and Fortigent, and roughly $4 million from increased non-capitalized project spend. In addition, $9 million is related to the increases in expenses that we exclude in our determination of adjusted earnings. The balance of G&A expense grew at 4% rate year-over-year.

To provide a better understanding of our expense management and our outlook, I’d like to share the drivers of our sequential performance. Third quarter G&A on a GAAP basis was $192 million as mentioned before, compared to $180 million in the second quarter, representing $12 million or 7% additional expense. Of this $12 million increase, $9 million came from higher expenses that we exclude in our adjusted earnings.

Promotional expense increased $6 million to $32 million primarily due to our annual conference. We also incurred an incremental $2 million in expense related to the full quarter impact from Fortigent and NestWise. As a result, our remaining G&A was $131 million, compared to $135 million in the second quarter, an improvement of 3%. This $4 million in savings was derived through several actions, tighter controls on discretionary expenses, reduced professional fees, and management of our compensation expense.

Looking forward, we’ll balance increases in G&A driven by advisor growth with investments that promote long-term growth. For the fourth quarter, we estimated $12 million decline in expense, because as mentioned earlier, we have no significant conferences. Transition assistance does provide a degree of variability quarter to quarter. And at this time, the opportunity for attracting new advisors remains strong in the market competitive. As Mark discussed, we are accelerating our effort around our service value commitment, not only will this enhance our ability to serve and support our customers, but it will also help us operate at a lower cost through greater efficiencies. We do not see a material decline in expenses from these actions in the fourth quarter. But as our efforts are finalized, I look forward to providing additional insight next quarter.

At this point, I’d like to briefly detail the drivers of our $23 million in third quarter GAAP expenses that were excluded in our adjusted results. As mentioned previously, they were up $9 million both year-over-year and sequentially. These non-operating adjustments include $2 million in fees related to the work by Bain and Accenture, another $4 million relates to an accrual for an IRS notice we received in July. This notice regarded the late deposit of withholding taxes related to the exercise of non-qualified stock options at the time of the IPO. We continue to review this matter and believe we’ve adequately accrued for it at this time.

We’ve experienced stronger than expected recruitment of retirement plan focused advisors. This resulted in a $15 million increase in contingent consideration for NRP. This was partially offset by a $5 million decline in the fair value of the contingent consideration related to Concord. This adjustment is based on delays in the timing of the expected realization of revenue synergies between Concord and LPL. The remaining adjustments are related to $4 million in employee share-based compensation expense, and $1 million from the runoff of restructuring and conversion cost from the consolidation of UVEST and the affiliated entities.

The muted top line revenue growth of 3% year-over-year was offset by increased expenses. Accordingly adjusted EBITDA declined 3% to $108 million for the quarter. Our tax rate for GAAP purposes for the quarter was 37% compared to 41% in the third quarter of last year. This decline is related to the change in the fair value of contingent consideration as well as the carryover of net operating losses related to the acquisition of Concord. These conditions resulted in adjusted net income of $53 million and adjusted earnings per share of $0.47 for the quarter, thus reflecting 2% year-over-year growth.

Turning to our capital deployment strategy, we continue to leverage the current operating environment committing resources to grow in the business and rewarding shareholders. One of the distinctive characteristics of our business is its ability to consistently generate free cash flow thereby giving us flexibility in our capital deployment strategy. Based upon our access to surplus cash, and our belief that our share price does not reflect the long-term earnings power of LPL, we’ve extended our use of share repurchases beyond mitigating the impact from stock option dilution.

Third quarter, we spent $55 million buying back 1.9 million shares at a weighted average price of $28.67 per share. This resulted in a fully diluted share count as of quarter end of $112 million. We continued our share repurchase program in October, buying back 0.7 million shares for $20 million as of October 26. The board recently approved an additional $150 million for future share repurchases, which leaves $155 million remaining for additional buybacks as of October 26.

In addition, the board has formally approved $0.12 per share per dividend for the quarter to be paid on November 30, 2012 to all stockholders of record on November 15, 2012. This commitment reflects the ability of the company to generate strong cash flows and our positive outlook on future capital resources.

Looking ahead, our priority remains to invest in the organic growth of our business while actively managing our expense base to achieve efficiencies. Despite external environmental challenges, we continue to possess the business model and market leadership to remain well-positioned to achieve our long-term goals.

Trap Kloman

Thank you. With the recent events from Sandy, we’d like to provide a brief update as well about the impact of that.

Mark Casady

Yes, this is Mark Casady, just want to let everyone know that none of our employees or offices were affected by the hurricane and the storm, and we’d certainly had offices that were closed at the home office for a day or two, but did not impact the day-to-day activities of the company and importantly no employees were harmed.

We’ve called out to our institution or customers as well as our independent practices and are happy to report that there are no injuries or other severe loss of anything to those individuals who are pleased that our customers have come through the storm quite well. What we’re hearing from both the financial institutions and our independent practices is that they were effectively closed in the affected states both Monday and Tuesday that certainly has had an impact to their business, but they are reporting that they’re all in good shape and look forward to getting back to work.

The effect of this just for example is about 10% to 15% of our GDC and so that gives you the concentration within states of New Hampshire, Massachusetts, New York, New Jersey, Connecticut, that were all in the affected areas, we have called out to all those independent practices and the banks impacted and feel good about where those customers are and how they’re dealing with the storm and the fact that they’re moving forward. So, we just want to provide that update to you because we knew it would be a question. Trap, back to you.

Trap Kloman

Great, looks like, Kate, we can open up the line for calls for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Chris Harris with Wells Fargo Securities. Your line is open.

Chris Harris – Wells Fargo Securities

Thanks a lot. Good morning, guys.

Mark Casady

Good morning.

Dan Arnold

Good morning.

Chris Harris – Wells Fargo Securities

So couple questions on the cost side of the ledger. Maybe first, you talk a little about working with some of your larger practices I guess to establish a beneficial operating structure, which I assume means you will be focusing on the production payout. Can you guys elaborate a little bit on what options are available to you here and exactly what it is you’ll be working on in your discussions with the larger practices?

Mark Casady

Yes. We have already discussed with all the practices that are affected changes to the way that the production bonus works. We’re not going to provide the details of that just in respect to business they do with us. But effectively, what we’re able to do is work with them on the way that new recruits come into the practice, the way that production bonus is paid based on production level of advisors in the practice, and really help them with their business planning and support, so they’re growing, but doing so in profitable areas along with us.

They’ve been incredibly helpful and provide a great local touch, and feel, and value proposition in their marketplace. So, we feel good about being able to work with them to have the effect that Dan mentioned. So it really is completed and Dan mentioned that it was effectively slow the rate of growth of production bonus by about half going into next year. So, we’re pleased with that and very thankful to our customers for working with us on this issue.

Chris Harris – Wells Fargo Securities

Okay. That’s great. And then the $12 million decline in expenses, you guys are budgeting now for the fourth quarter, just to be clear is that from GAAP expense or is that a $12 million decline from the non-GAAP expense level?

Dan Arnold

Hey, Chris. It’s Dan. It actually will be from both. It’s a conference related expense. So you’ll get the adjustment both up at the GAAP line as well as post adjustments.

Chris Harris – Wells Fargo Securities

Okay, great. Thanks for clarifying that. And then last question from me, real quick on the activity levels. I don’t think anybody is really shocked here that they’re down. Mark you mentioned, I guess lack of clarity on the election and fiscal cliff as drivers, just wondering as you speak with your advisors, is Europe playing a role – a significant role in the lower activity levels? And the reason I ask that obviously Europe isn’t going to be resolved by the end of the year. So, just wondering if Europe is having a really outsized impact, maybe, we won’t see a big recovery in activity levels as we head it into the next year.

Mark Casady

Yeah, it’s a great question, Chris. And with some of it, we certainly have talked to advisors about, we don’t think that Europe and issues in Asia that we all know were there, really make as much difference. I think this issue is quite simple. People do not know what tax rates they’re going to pay. They don’t know what tax changes are going to go into effect, so how do you position your portfolio or state planning without knowing that. Secondly, you’ve had a significant market run-up in equities. And generally retail investors not wanting to be in equity, so they’ve missed the run-up. And I think everyone would feel that we’re somewhere near the turnover of rates that are there. So, imagine how difficult that is to say to a client who has come into either their regular savings or maybe extraordinary savings from selling a business, where would you tell them to put the money today?

Yes, you’d go to high yield bonds, yes, you would go to some alternative investments, there’s plenty of things to do, but it’s not so obvious exactly how they should allocate those resources. So, I think you’ve got such a lack of clarity or fog if you will over tax and market direction, that at this stage it’s prudent for advisors to say to their clients, let’s dollar cost average in and let’s go slowly and let’s see what we learn in the next – it could be as soon as next week, in terms of where some of those changes may become more evident. I think if we were to see, well, we will see the election results and we will see the fiscal issue dealt within the U.S., one way or the other. So let’s assume that we get in the January and we know those things. I think Europe and Asia will fade to the background as they typically do for our types of clients.

Chris Harris – Wells Fargo Securities

Okay. Thanks a lot, guys.

Operator

Thank you. Our next question comes from the line of Ken Worthington with JPMorgan. Your line is open.

Ken Worthington – JPMorgan

Hi, good morning. I’m going to take sort of the other side of this, it was a generally a slow quarter, your commissions held up really well. So, maybe can you help us understand, why they held up well and maybe some insight into what products or the mix of products that help support the commission line?

Mark Casady

Well, it’s – this is Mark. This is a little bit more the same Ken in terms of what we see our advisors do. So while activity is subdued in terms of same-store sales, we use that term. And we would like to see it to be higher, and we know, that there’s a nice amount of cash building up for people to make commitments. We also know that people retire every day. We also know that advisors are doing things like positioning portfolios for long-term risks, by buying annuities. They’re seeing good opportunities in the alternative space, it’s just not a huge line item for us, in terms of getting some yield there.

And there’s certainly are good opportunities in the corporate bond and high yield bond markets, that again are small slices of people’s portfolios. So, while we see everything as subdued, I completely agree with you it’s correct to characterize that we’ve had nice activity. Of course, also remember we have new stores coming online, so those are advisors over the last three years building their practices as they come aboard and we’ve had wonderful levels of recruiting over the past 12 months and we see that only getting stronger, the pipeline of new leads is stronger and so forth.

So, I think what you are seeing is just sort of day-to-day activity and this to us looks very typical to a slow period that we’ve seen before, in fact, internally we’re talking about the fact that 2003 was a lot like this. You had an equity run that no one really participated in, the business was generally subdued as it is now and that passed too. When we went then went into several years of really nice growth of retail investor activity.

Ken Worthington – JPMorgan

Thank you. And then, one of your big clearing customers was able to get the business re-priced, maybe how were they able to do this if it was not impacted your numbers, looks like there was a big re-pricing, what are your expectations for other customers to see this and to seek changes for them as well?

Mark Casady

The simple answer is none, not because we don’t respect our customers and believe that they have an ability to understand their choices, but you have to understand the unique nature of our relationship with that client, they are the only clearing client we have, where they are operating their own broker-dealer and we’re providing all the clearing and technology and support services to them. That contract unlike nearly everything else we do was a five-year contract, it’s been renewed for multiple years, they’ve asked us not to disclose how long, but it’s longer than five years.

And basically, these are once in a while events and not unusual in the clearing business. I wouldn’t describe the – I would describe it as impactful, but I wouldn’t describe it as a significant change in profitability. Remember several things are happening, you’ve got absolute price, you see it quite clearly through the advisory side of the business, but that tends to take us down and reset the price on January 1 of this year, then what happens is they grow as this business tends to do, and the faster they grow, which obviously this year isn’t a great example of, but they’ll grow even more future years of the contract. We’ll actually well outgrow the price discount that’s there and we think it was an appropriate way to price the business with that client and feel good about the outcome of it for them and for us in terms of that long-term relationship.

Again just to remind you every independent advisor here is on a 30 day contract, so there’s not essentially a pricing structure that way and everyone has exactly the same contract and opportunities on the banking side of our business, which is about 20% of our revenue. There you do have multiple-year contracts, but essentially there is a standardized payout structure for those organizations as well and as you know, other than this one very large clearing client, we don’t have anybody else who has even above I believe its 3% of revenues.

So it is unusual event but one that we feel was absolutely right thing to do for the client and the right thing to do for the business.

Ken Worthington – JPMorgan

Thanks, and then lastly on the tax side you got the NOLs, how long do they persist, I thought it was maybe through year end, but what’s the outlook for the tax both for kind of 4Q, and then as we go into 2013.

Dan Arnold

So that net operating loss associated with Concord will be extended over a five to six year period of time, and so you’re seeing just that that portion integrated in in this current reporting period.

Mark Casady

I think what is important to understand is the tax rate for the quarter was at – adjusted tax rate was at 38%. The GAAP tax rate was 36.8%, so there was a £0.01 benefit in our report due to tax just as there was a £0.01 subtraction from last quarter. So, all of us know rates move around based on the net operating losses, acquisition activity, the normal things that happen, even the company. But we are targeting – we think the best way to model this is a 40% tax rate used just as a general rule.

Ken Worthington – JPMorgan

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Alex Kramm with UBS. Your line is open.

Alex Kramm – UBS

Hey. Good morning.

Mark Casady

Hi Alex.

Alex Kramm – UBS

Just on this, on the advisor growth, can you give us a little bit more detail I guess what happened this quarter, obviously you talked about this big bank loss and maybe to start there, how often does something like that happen, you only give us the net advisor growth every quarter? So, obviously you called it out this quarter, but I don’t have much of a history of how often you lose some of these clients and how much of it is the driver quarter-over-quarter so maybe you can talk a little bit more about what happened here, general? Thanks.

Mark Casady

Yes. So, this is the first time, we lost our large client, which is a moment in time, but we are a large firm and it’s something that is the normal flow of business. There’s really two ways to look at it, one is by head count, which is what you’re seeing in the numbers. Second way is by retention of revenues. So, let me start with head count and then I’ll move to retention of revenues. The head count of that program was 181 producers. So, obviously if we’re down negative for the quarter we would’ve been about – I can’t do math.

Dan Arnold

166.

Mark Casady

Thank you. Well. Thank goodness, I have a CFO. 166 head count for the quarter which is a very good quarter by all accounts, given that we’ve indicated generally in that 400 per year and we’ve said earlier this year we feel like we’re trending closer to net 500 for the year. And so while I don’t want to adjust my way to glory, I would say that that tells us that the underlying strength of the franchise is quite good and this is an unusual situation. What makes it unusual is that the bank did not make a decision to go to a competitor, what they made a decision to do is to take a subsidiary they own prior to the acquisition of the U.S. bank and merge its broker-dealer operations with the broker-dealer operations we were serving, and we were serving those operations for many years, but that bank was owned as a U.S. public company, and then was purchased by an international bank.

They then made the decision as they’re certainly able and should make the decisions that are best for their business to merge those operations together. So in essence, they were insourcing those activities from a bank they own previously with the bank they acquired during the financial crisis. So that made sense to me, and can’t disagree with their decision-making process. We do believe that they will continue working with us on the insurance side, which is an important part of our relationship with them over time, so an unusual activity both in size and amount.

And in a typical year, what you might see as 1,400 to 1,500 new advisors coming in and approximately 800 to a 1,000 of them going out. So this will be no different a year than that. We have extraordinary moments like we did with the U.S. conversion, what we knew that we weren’t making a change to the clearing platform, which would by definition put business at risk. But it was a better financial outcome as you can see in our operating results this quarter by making that decision. So I put those down as unusual and atypical.

Then as the last thing I talk about is the actual retention amount, which is typically for us when I joined the firm 10 years ago was about 92%, last year we ran at about 96% even with this change we’re at about 95%. So, we’re right in the zip code of where we’d like to be – I prefer to be at 96% to 95%, but I don’t think 95% or even 94% is going to make a material difference to our long-term and even near-term profitability and growth prospects. So, in a typical year, you’re going to see anywhere from 3% to 5% of production leave the organization and we’re obviously going to replace that with more than that amount in any given year. We can’t disclose the amount we recruit because it’s not an audible number, but we absolutely have years and year’s worth of data. So, we know that that retention holds up it quite well over time. Does that answer your question?

Alex Kramm – UBS

I think that’s more than answered my question. Thank you.

Mark Casady

Sorry.

Alex Kramm – UBS

That’s all good. And then just a little bit of a detailed question I think for Dan here, on the advisory fees I think you gave some detail on the year-over-year change and kind of what drove that. When I look at it on a sequential quarter-over-quarter basis, now advisory fees went down a million, and I don’t think you commented on that why given that you grew assets under management, you had net advisory flows, markets were up, but still you got a million decline here, so unless I missed it maybe you can give us a little bit more color here.

Dan Arnold

Yes, and some of that is impacted by the performance in the market in the prior quarter as you know many times the market valuations and as they change throughout the prior quarter drive a good bit of the ultimate revenue that’s recognized in the following quarter because we’re pricing off of those violations in the prior quarter and so some of the impact that occurred in second quarter had an influence on the overall pricing of and rather the valuation and ultimately then the pricing and translation to revenue inside of this quarter and that’s probably the biggest driver of that sequential difference.

Based on that if you look at then the market performance in third quarter which was up 6% inside the quarter much of which came in the August and September timeframe that would tell you looking forward into fourth quarter that some 70% of that increase in market will flow through to the fourth quarter and be translated into higher revenues because of that in the fourth quarter.

Alex Kramm – UBS

All right. Helpful. And then just I guess lastly, what are the questions we’ve been getting more and more or scrutiny we’ve been getting on you guys is on the products that you and your advisors sell in particular things like non-traded REITs and some other things? So the question I just have is do you feel like there is more risk now than they used to be in terms of the litigation and things like that coming to you, I mean, it was just, I think last week, one advisor got, I think like $40 million fine or something like that, for some of these like, selling of some of these products? So just wondering what you are doing to make sure that the advisors are complying, that they’re selling the things they should be selling and that you don’t open yourself up to massive litigation? Thank you.

Mark Casady

Yes, this is Mark and let me set an overview and then Robert is going to add some detail to it. There’s a distinct difference between what happened to that advisor and his firm and their actions that led to that extraordinary action by FINRA. Those products that he sold were not reviewed or diligent as I understand it. And a completely different process from the one that we used, and a completely different sales process, and oversight process. There is no comparison between what happened to that broker-dealer and LPL. We have a very thorough process for reviewing. Every product that comes through the door has been reviewed with FINRA. It’s mentioned as a best practice for how we do it. I’d like Robert to add some more color to both the process and your general question.

Robert Moore

Okay. Hey, Alex. It’s Robert. So, these products are complex. They do require additional attention, which as Mark says, we are well positioned to provide our research group, which has about 50 people in it, 23 CFAs, a group specifically dedicated to alternative investments, which includes non-traded REITs, fund of funds, BDCs, other types of instruments, which again overall comprise less than 10% of our total activity, but are very important, particularly during a period of caution and search for yield.

So, the scrutiny at the frontend around due diligence is exceptionally deep and consistent. Importantly, we don’t grant exceptions. We look – look to a very well established process and we adhere to that process. And we have a very experienced team that does that. In addition, advisor training education, certification, of course, is required on many of these products. And again, we don’t look for any exceptions in that process.

We strictly adhere to that process. And then finally, of course, we diligent the end customer, and their sophistication level, level of assets, et cetera to make sure that it is an appropriate investment in their overall financial plan. So, that is the full watershed of activity that you can do to mitigate, and help to reduce the level of risk. You’ll never empty it altogether, but our track record is exceptionally good and we continue to believe that these products have an appropriate place and appropriate use against that kind of construct.

Alex Kramm – UBS

Okay. So, I guess just put it to rest, we shouldn’t get too worried about some of these headlines and some of the FINRA warnings and things like that impacting you any time soon here.

Mark Casady

That is correct.

Alex Kramm – UBS

All right, thank you.

Mark Casady

Thank you.

Operator

And our next question comes from the line of Thomas Allen with Morgan Stanley. Your line is open.

Thomas Allen – Morgan Stanley

Hi, guys.

Mark Casady

Hi, Thomas.

Thomas Allen – Morgan Stanley

Given the strong advisor growth this quarter backing out the loss of the bank program. Just wondering, what kind of feedback you’re receiving from existing advisors and push back from newer advisors given the selloff and the stock after the last earnings or last quarter. I mean – I know a lot of your advisors own – have stock in the company, obviously new advisors it goes into that decision cycle. So I was just – yeah what kind of feedback you guys are receiving? Thanks.

Mark Casady

Near zero, it’s not really something that I think they much tend to do, it’s not something that we pay a lot of attention too, our view is that our job is to create very happy clients as measured by net promoters score as measured by retention and so forth. And that part of what we are try to do is make sure that we focus on creating profitability for the ongoing growth and ability to reinvest in the business and obviously for shareholders and so given that we can’t affect stock price, but we can affect customer satisfaction, we can affect profitability, that’s where our focus is.

The second thing I’d say is that the stock that we grant both to employees and to advisors is important to them, and it’s not to say that’s it’s not, but I think they understand it in context, remember, they’re investment professionals like the rest of us. And understand that that market’s value stocks in different ways, and they’re long-term believers in the business, because they’re long-term customers of ours as well. And I think, the last point I’d make is, we don’t offer any stock to new advisors who join us. Stock here is basically earned on ongoing relationships, based on productivity, so it’s a meritocracy and in terms of that, but we do not use the stock for recruitment of new advisors.

Thomas Allen – Morgan Stanley

Okay. Thanks for a very detailed answer. It’s very helpful. And then just on, now that you gave out the breakout on the RIA assets, can you just remind us how the economics work for you both on the advisory side and the brokerage side for RIAs?

Mark Casady

Yes. Let me give you global info and then Dan will give you a detailed. Yes, so just remember on the RIAs side, generally they’re hybrids, so they have both brokerage and they have their own registered investment advisor. On the brokerage side, it’s no different than any other affiliated person within the broker-dealer. So, whether they were using our corporate RIA or they didn’t use any advisory activities, on the commissionable side the economic impacts the P&L and its profitability is exactly the same, no matter what the business model is chosen, but Dan will describe the advisory side of the equation.

Dan Arnold

Yes. And I – I think what Mark said is the most important element of all in that. It is structured, so that it drives the same gross margin contribution regardless of which platform they choose. And I think the big difference on the corporate RIA side, as Mark said, it’s treated just like any other commissions revenue, so, we generate the top line revenue from those advisory fees, and then take, have a participate in revenue share and then the other attachment revenue that comes with that on the hybrid RIA platform. It’s actually the advisor’s revenue not ours so we never record that top line revenue and then don’t have a payout associated with it and that’s the difference we’re really just recording attachment revenue or miscellaneous revenue that comes associated with that hybrid RIA platform. And that’s why you get that different recognition of revenue on the advisory fee line.

Thomas Allen – Morgan Stanley

Okay, great. And then final question, you said that you had 2,500 advisors at your conference this year. Was that up or down from last year and any feedback from the conference you want to share with us? Thanks.

Mark Casady

Yes. It was flat year-over-year in terms of attendance, very positive feedbacks particularly the breakout sessions we do over 250 breakout sessions to do specific training on products, do specific training on software, do specific training on building businesses. That’s a very successful in business consulting, business succession, those areas. So I’ve gotten lots of positive comments from advisors both at the conference and post that, so really one of our better ones in terms of that activity particularly around training.

Thomas Allen – Morgan Stanley

Okay, great. Thank you.

Operator

And our next question comes from the line of Devin Ryan with Sandler O’Neill. Your line is open.

Devin Ryan – Sandler O’Neill

Hey, good morning, guys. How are you?

Dan Arnold

Good morning Devin.

Mark Casady

Good morning.

Devin Ryan – Sandler O’Neill

Just with regards to the compression of the yield on the ICA balances over the next year. Is that being driven by the renegotiation of some additional bank contracts like you did with one or all in the year or is there something else driving that decline?

Dan Arnold

Yes. There is three principal drivers of that, I think one is certainly re-pricing and that probably contributes to about 50% of that overall projected change. The other just comes from new asset balances being allocated to, to lower priced banks and then the third one is really the uncertainty caused by Basel III and the resolution of Basel III, which we anticipate to occur in the first quarter of next year and because of that uncertainty and lack of clarity of how these types of deposits will be treated on the capital reserve calculation, you just have – you have banks waiting in queue to determine how the price and how much of these types of assets they’ll support in the future. So, just that lack of clarity is creating a temporary lull if you will in moving forward with new prospective banks.

Devin Ryan – Sandler O’Neill

Got it, thank you, and then just on the loss of the one bank relationship in the quarter appreciate the color, but can you give any more detail in terms of actually one that occurred during the quarter and to try get a sense of whether the full impact of that reduction is or was included in the third quarter results.

Mark Casady

Yes, it happened in September and so effectively it’s in the quarterly results that they’re there, but I would describe it as not material in terms of the change – it’s a material head count amount I suppose, but in terms of the financial impact it will be watched through basically. The types of business that they did to the mix of business that they had with typically fixed annuities, low reoccurring revenue, low attachment revenue associated with the type of business that they conducted. So relative to other customers, they would have had a much lower profitability profile.

Devin Ryan – Sandler O’Neill

Okay. Great. And then just within the EBITDA adjustments with respect to the a little over $10 million in acquisition and integration expenses, was all of that captured within the G&A line up above or how should we think about how that was allocated to the different expense line items.

Dan Arnold

I’m sorry, would you ask that question one more time, I just want to make sure that we’ve got clarity on it.

Devin Ryan – Sandler O’Neill

Sure, so there is a little bit over $10 million in the EBITDA adjustments. There is a little bit over $10 million in acquisition and integration expenses, so just want to know how that was allocated to the expense base – that EBITDA adjustments that were essentially backed out?

Dan Arnold

Yes. So, if I understand your question the route or derivative of those were the adjustments and the earn out associated with the two entities that I mentioned in my commentary. You had a $15 million adjustment associated with NRP and that was driven based on better-than-expected recruiting results post that acquisition that has driven to an increase in the value of that earn out. And then that was offset by the adjustment made in Concord. Those net out to be about $9 million, and consequently drive the majority of what’s on that line item.

Devin Ryan – Sandler O’Neill

Okay. All right. Thank you very much.

Operator

Thank you. And our next question comes from the line of Alex Blostein with Goldman Sachs. Your line is open.

Alex Blostein – Goldman Sachs

Great. Good morning, everybody. You guys got through most of my questions. So, one thing I did want to follow up on is on expenses. So a bunch of adjustments this quarter, maybe just you kind of think about what the core expense number is this quarter? And maybe you can provide us some color on how you expect that to track, I know you said down $12 million so GAAP and non-GAAP, so, if I basically look at your GAAP 2010 and we back out sort of all the one-offs, I think you’re left with $187 million. I guess the question is, A, is this the right number, and B, should we think about that $187 million going down by $12 million next quarter?

Dan Arnold

Yeah. This is Dan. That’s correct. I think if you look at total expenses and you back out your production expense and depreciation and amortization, you’re left in the $192 million range and then if you back out those one-time adjustments if you will that we’ve made, that reduces you down to an expense base that is in that $160 million to $170 million range and that’s where you really look at more of the core expenses that would tend to be reflective of our operating conditions and results. And I think we do expect to get that $12 million adjustment from third quarter to fourth quarter inside that number. Now the nature of that expense, you’ll see that adjustment all the way back up the expense base that I just described to you, but that’s kind of the range of the operating expenses that we think reflect more our operating performance and strength.

Alex Blostein – Goldman Sachs

Got it, makes sense. And then on the buyback, clearly where the stock price where it is, can you guys give us a sense on the pace of how quickly you expect to go through the authorization?

Dan Arnold

Yes. So this is Dan again. I think relative to what we’ve done up in fourth quarter of this year we’ve disclosed to you, we will continue to monitor the stock price. We’ll continue to monitor other options relative to the utilization of our capital and ultimately if we believe that the stock is valued in a way that’s not reflective of the future growth potential of the model then certainly we’ll view that as an opportunity to continue to extend our buying. That said it’s something that we’ll continue to monitor and watch the trend in the stock price and then look at our other options and alternatives relative to use of that capital going forward.

Mark Casady

And the only thing I would highlight to that Dan is just that we’ve clearly indicated everyone that we have taken share countdown which before what we’re saying is we will buyback enough shares at these lower prices to mitigate options issuance and such, we’ve gone beyond that now we’re saying we’re taking share count down, we indicated an amount of shares that we think is the new level you ought to use, and then as Dan said from here forward, we look at opportunistic buying opportunities.

Alex Blostein – Goldman Sachs

Got it, and then the last one from me if you look at recruiting this year obviously pretty strong trading closer to kind of 500 number for the year. When you think about how long it takes I guess for those producers to kind of ramp up. How should we think about the I guess the total production rate heading into 2013, given that a lot of these FAs probably weren’t as productive as they will be next year assuming that kind of flat markets, flat activity rates or no change to sort of macro backdrop, but just from a kind of your terminology same-store sales perspective, what should we think about for next year.

Mark Casady

Let me just give you an overview and Dan may want to add color is that basically there is a fairly formulaic way over three years that a new advisor or new bank program coming into the system basically builds their production and through extreme market movements only at extremes like 2009, you see that number affected, so we don’t anticipate that for 2013. So basically they will build the way they always have. There’s not really much effect in the near term because they’re effectively building back their business. So that’s what we would call ramp, so those are new store ramp and they – and someone’s introduced our category for three years, then they fall over to the same-store sales number that are there. The weakness in this quarter is in same-store sales, and that’s generally what we’re saying but ramp to us looks normal as we’d expect for the last three years’ worth of classes. Dan would you add other color.

Dan Arnold

And then on the embedded existing clients and you mentioned same-store sales certainly through the balance of this year. We’ve seen that same-store sales number be relatively flat as Mark said earlier the belief that some clarity post tax policy resolution, the election, et cetera we think creates a better environment for advisors to support their clients. And consequently we would expect some lift in that same-store sales, but again not knowing exactly what that will be, we look at that as a modest lift if you will relative to what’s occurred this year.

Alex Blostein – Goldman Sachs

Okay, helpful. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Chris Shutler with William Blair. Your line is open.

Chris Shutler – William Blair

Hey, guys. Good morning.

Mark Casady

Good morning, Chris.

Chris Shutler – William Blair

You mentioned spending a couple million bucks on Accenture and Bain and with more spending to come in Q4, so obviously a way for the finding in that next quarter, but can you just give us a little bit more color on exactly what the specific objectives of the spending are, is it more revenue related or expense?

Mark Casady

It’s more expense related. It’s basically with Bain, it’s about evaluating our IT opportunities for a broader strategy over the next several years. I think we’ve mentioned before that this is a year that we used – have used to reevaluate our five-year plan. We do five-year plans and have a process of thinking about where the business is going, that obviously drives our behavior, our investments and so forth. Tied to that we want to make sure we have an extensive and well thought out technology strategies. So Bain is helping with that. And there’s two aspects of that, one is we actually increased spending in technology as a result of some of the recommendations they’re giving us, which we think will lead to greater productivity and lead to better tools and more tools for advisors so that will ultimately drive revenue.

And then with Accenture for a fairly classic look, as we’ve mentioned before and what we call the service value commitment which is looking at lean processes, how to do things better as they exist today and at outsourcing which we’ve already experimented with over the past 18 months, where we’ve partnered with a number of vendors who have just excellent results in terms of turnaround times, quality, and costs. So what we’re able to do in the areas that we’ve undertaken as so far, is we’ve been able to basically speed up turnaround times significantly, new accounts for example went from seven days to three days turnaround. We’ve had the quality be it the 98% to 99% level and that’s up from 93% – 94%. And we’ve been able to do it at costs that are less than 50% of the costs that we were operating under. So we’re finding lots of opportunities to think about the cost basis, of that which is important to shareholders, but also the quality and speed, which is important to our customers and the future growth.

Dan Arnold

And the only color that I would add to that is, as Mark said it’s an acceleration of that service value, commitment, strategy, and so associated with that work and with that effort would be obviously cost benefits in the future, that would incur some type of restructuring charge in the near-term. And so more to come on that as we – as we work through that strategy.

Chris Shutler – William Blair

Okay. Thanks, guys. And then my second question is actually on NestWise. I know it’s early days there but, could you maybe just walk us through where you’re at today, what metrics you’re going to be looking at over the next year or two, to gauge your progress there, and then what kind of incremental headwinds should we expect to adjust the EBITDA next year from NestWise? Thanks.

Mark Casady

Yeah. So first of all I’d point to any listener to that Wall Street Journal article from yesterday, that just a great job of essentially mystery shopping NestWise along with two other opportunities in the marketplace. And we thought NestWise did quite well in it which is exciting. We have the first 14 advisors, who were there, who came just through the acquisition of Veritat. They’ve been through retraining now in the NestWise way, and they are starting to use their capabilities that essentially LPL brings to their activities and we feel very good about their ability to be successful in growing the business.

So we’re in the market a bit sooner than we thought we would be originally. We didn’t think we’d have advisors in hand until early next year but we have them because of the Veritat acquisition. So we’ll look at number of advisors being trained, which is a number that we’ll be happy to disclose as we go forward. We’ll look at activities that you’d expect number of people drawn to the website, leads generated, number of customers who sign up for the ongoing advise for a fee, who sign up for financial planning and then ultimately we’ll look at assets under management in the NestWise portfolios that are there. So fairly fundamental in terms of what we’re trying to do.

Remember that what we’re doing is attracting customers in the mass market, prospect, excuse me, to allow them to then work with advisors who have been trained by NestWise, who will then build a book of business for themselves, and with those clients, they will then decide whether they’re going to set up their own practice, whether they will join maybe a financial institution practice or whether they’ll join at an independent practice at LPL. So it’s a way for us to train and make a profit doing so.

Chris Shutler – William Blair

And then the headwind to profitability next year that we should think about?

Mark Casady

For NestWise specifically?

Chris Shutler – William Blair

Correct.

Mark Casady

Yes. Dan can give you a little more the numbers but it’s basically still a business in early stages and it’s relatively not a large number.

Dan Arnold

Yes. And it will reach its peak and the impact on EBITDA in the fourth quarter. You’ve got the expense growth from third quarter to fourth quarter as Mark said as they launch in their two new markets that will cause some near-term impact on EBITDA from third quarter to fourth quarter. And then the next year they begin to generate revenue associated with that expense, and we don’t expect them to turn EBITDA positive as Mark mentioned more to the 2014 to 2015 timeframe.

Chris Shutler – William Blair

Okay. Thanks, guys.

Mark Casady

Thank you.

Operator

Our next question comes from the line of Ed Ditmire with Macquarie. Your line is open.

Ed Ditmire – Macquarie

Good morning.

Mark Casady

Good morning, Ed.

Dan Arnold

Good morning.

Ed Ditmire – Macquarie

I have a question on the guidance around the cash yields, can you expand a little bit on the timing of the 2013 compression projections, i.e., will it be front loaded and then steady for the year or is that a something more of a gradual decline that could have a significantly lower 2013 exit run rate?

Mark Casady

Yeah. We think that it will occur, Ed throughout the balance of the year. As many of new assets come on and they’re placed at new banks that will occur over the span of the full year. Those that are related – or the change that’s related to pricing adjustments will occur mainly in the first half of the year, so net-net you get about a 60% if you will impact on revenue associated with that rate change throughout next year.

Ed Ditmire – Macquarie

Okay. Thank you.

Mark Casady

You’re welcome.

Operator

Thank you and our final question comes from the line of Joel Jeffrey with KBW. Your line is open.

Joel Jeffrey – KBW

Good morning, guys.

Mark Casady

Good morning.

Dan Arnold

Good morning.

Joel Jeffrey – KBW

I’m just looking at your – I apologize if I missed this early, but looking at your net new asset growth in the last few quarter, it seems to be running at about 10% on an annual basis. Is this a run rate you guys feel comfortable with going forward or is there anything that would change that materially one way or the other?

Dan Arnold

Yes. This is a – this is a function of our advisory assets and again it’s really is just a reference to our advisory flows, which is both a function of, obviously the assets we gather, and then those assets that would be transitioned out, as an advisor may leave or as a client changes their relationship with one of our advisors. And so, we have seen good, consistent, strong growth in both the inflows of those assets as well as the retention of those assets.

So, we think because of the trend in the advisors in using more advisory solutions, because of the appeal and the capability set of our advisory platforms, we expect the inflows to continue and as the end client desires, at least as we’ve seen to demand more of an advisory type relationship with our advisors, we think that has a suppression on the outflows. So, we would expect to see this type of business, or this type of flow continue going forward. Certainly that could be impacted by recruiting of new advisors bringing in new assets. It could be lumpy on that number from quarter-to-quarter, or perhaps an advisor leaving who takes some assets with them, that just creates some lumpiness in that trend. But, I think the consistent flow over time, we certainly expect going forward.

Joel Jeffrey – KBW

Okay. And then just lastly, given the share repurchase, looks like cash levels were down a little bit lower. I mean, what level of cash are you comfortable running at the corporate level going forward?

Dan Arnold

Yeah. So, I think from a cash flow standpoint, again we have a good consistent ability to produce and deliver cash flow as the business models demonstrated over time, I think we typically look at that and have a balance somewhere in the $200 million range as just a low watermark for ourselves. Internally, it’s not a hard and fast rule as much as it’s just a quality check for us if you will. So that tends to be the number we managed around.

Mark Casady

And I have two things that one is of course excess capital in broker-dealer, which we think is good for customers and smart from a cash management strategy as well. And we also of course refinanced our entire debt portfolio six months ago and we’re able to create both very attractive rates and also a good revolver with a $250 million for the capacity on it. So, we’re in great shape in terms of overall availability. Should we need it for either large acquisitions or other activities in the business and as Dan says lots of free cash flow to come because the business just does not require us extensive amount of use of that cash flow for growth.

Dan Arnold

And the utilization of the revolver is zero.

Mark Casady

Yeah, that’s the point. Available and unused.

Joel Jeffrey – KBW

Great. Thanks for taking my questions.

Trap Kloman

Thank you.

Operator

Ladies and gentlemen, that concludes our question-and-answer session. Thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

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