LPL has “no plans” to make changes to its pricing for cash solutions, including its cash laundering programs, according to CEO Dan Arnold.
Arnold announced that the firm will stay on course to clean up cash during the firm's second-quarter earnings call. The decision comes even as multiple competitors have announced changes to their write-off programs, with heightened regulatory scrutiny expected and a recent lawsuit against LPL over its deposit write-off policies.
LPL's share price fell 6.11% as of 2:25 p.m. Friday amid concerns about the money laundering program.
“We have been evaluating the announced changes to better understand the impetus, magnitude and competitive implications,” Arnold said. “As for the firms that have made changes, they have different business models and monetization frameworks than ours, so we can only speculate about the issues they might address.”
Several firms, including Morgan Stanley, Bank of America and Wells Fargo, revealed during earnings calls in recent weeks that they were making changes to their clearing program.
On the earnings call, Arnold speculated that some of their competitors had different potential conflicts of interest because of their affiliated banks and that their monetization programs with money laundering solutions differed from IBD.
“To the extent that we are forced to make changes in relation to the money laundering program, because of our scale … we have a lot of flexibility in how we think about our options and alternatives from a pricing point of view,” he said. Arnold.
Money laundering options are also facing scrutiny from regulators and courts. Last December, Wells Fargo disclosed that the Securities and Exchange Commission was looking into money laundering options the firm offered to advisory clients. according to Reuters.
An alleged LPL client also sued the firm in California federal court last week, seeking a class classification on behalf of other clients and alleging the firm breached its fiduciary responsibilities to advisory clients.
In the lawsuit, Daniel Peters argued that LPL funneled money from his accounts into money laundering programs that boosted LPL's revenue at the expense of customers. According to Peters, LPL's money-laundering programs were designed to ensure that the firm always received a larger share of the interest in holding cash, compared to what a customer would receive if their money were placed in a typical money market fund or in a bank savings account.
“In effect, the brokering operation (LPL) has effectively become a legal conduit for its illegal programs – costing the plaintiff and class members a substantial amount of money,” the lawsuit states. LPL would not comment on how litigation such as the Peters lawsuit would affect its decision-making on its write-off accounts.
According to second quarter earnings, LPL had a “solid” quarter, beating earnings estimates. Total assets rose to $1.5 trillion, up 21% from a year ago. LPL claimed a record $24 billion in asset acquisitions during the second quarter, a record when discounting periods when it entered large institutions. The number of advisers also climbed to a record high of 23,462.