Ladenburg’s Indie Businesses Thrived in Q3, But Overall Results Languish
The independent brokerage business thrived in the third quarter at Ladenburg Thalmann Financial Services Inc., with pretax earnings from Securities America and its four other broker-dealers growing 13-fold to $8.4 million from $607,000 in the comparable 2016 quarter.
The Miami, Florida-based company, whose quarterly profit of $3.4 million compared with a loss of $7.5 million in last year’s quarter, issued other signs on Wednesday of confidence in the thin-margin business of selling brokerage services to independent contractors.
Advisor recruiting expenses jumped 44.7% in the three months ending September 30 to $744,000 from the 2016 quarter. Through the first nine months of 2017, Ladenburg spent $2.18 million on recruiting brokers to Securities America, Triad Advisors, Inc., Securities Service Network, Inc., Investacorp, Inc. and KMS Financial Services—82.7% more than in the comparable 2016 period.
The company also upped its transition and retention bonuses as it spends to offset attrition of experienced brokers. Expenses for amortizing retention and forgivable loans rose 28.9% in the quarter to $1.8 million from $1.4 million a year earlier. For the first nine months of 2017, the bonus expenses are up almost 16% to $5.1 million.
Ladenburg’s brokerage force across its five independent firms remains flat at about 4,000, according to a spokesman, who said the company does not break out explicit growth numbers.
The independent brokerage businesses contributed 89% of the company’s total revenue of $322.3 million in the third quarter, while its pretax net income of $8.4 million offset what would have been another overall corporate loss. After payment of preferred dividends to shareholders, including Chairman and principal shareholder Phil Frost, Ladenburg recorded a loss of $4.8 million, or two cents a share. (The company’s shares outstanding increased 6.6% despite a share buyback program.)
The retail brokerage business offset pretax losses of $6.9 million in Ladenburg’s life insurance brokerage and corporate operations.
“Strong market conditions and higher interest rates are positively impacting the company’s independent advisory and brokerage and capital markets businesses,” Frost said in a prepared statement. “We believe that these factors, coupled with successful recruiting efforts, position us well for continued growth and success over the coming year and beyond, as Ladenburg remains committed to generating strong returns and driving sustainable growth.”
Frost three weeks ago exercised a warrant to purchase an 2 million shares of common stock at $1.91 per share, a substantial discount to Ladenburg’s closing price on Tuesday of $3.05 a share.
Total client assets at Ladenburg’s independent broker-dealers grew 16.1% as of September 30 from a year earlier to $152.8 billion, with advisory assets under management up 21.5% to $66.2 billion. The jump in advisory account money fueled by market growth and inflows led to a 23.2% jump in advisory fee revenue for the quarter, the company said.
Overall third-quarter revenue at the company grew 217.5% from a year earlier to $322.3 million while expenses rose at a slower 13% to $317.6 million. Profit of $3.39 million in the quarter contrasted with a loss of $7.5 million in the year-earlier quarter.