Diego Grove of LRZ Capital presented his investment thesis on LPL Financial (US: LPLA) at Wide-Moat Investing Summit 2025.
Thesis Summary
LPL Financial is the largest independent broker-dealer in the US, providing essential front-, middle-, and back-office support to ~29,500 advisors managing over $1.8 trillion in assets. Formed from the merger of Linsco and Private Ledger in 1989, the company serves the expansive $31 trillion U.S. advisor-mediated marketplace. LPL’s scalable business model, characterized by robust incremental returns, has allowed the company to capture significant market share from competitors, with notable penetration in both independent and institutional channels. The firm recently traded at a market capitalization of approximately $29 billion with net debt of $5 billion.
LPL operates an asset-light model with a favorable financial profile, characterized by EBITDA margins nearing 47%, high 30s return on equity, and incremental ROIC ranging from mid-20s to mid-30s. Revenue growth is underpinned by organic growth of 7%-13%, market-driven returns of 2%-4%, and incremental contributions from strategic M&A or share buybacks. This model has enabled mid-to-high teens EPS CAGR, supported by a historically high retention rate of 98%+. Despite significant past performance — including an eight-fold increase in stock value over the past decade — the company remains poised for growth, especially given its undermonetized gross profit ROA of just 29 basis points.
The strategic leadership of CEO Rich Steinmeier and CFO Matt Audette has substantially transformed LPL’s operations, emphasizing capital efficiency, prudent acquisitions, and operational leverage. Recent strategic acquisitions such as Commonwealth Financial Network and prudent expansions in the enterprise channel underscore management’s disciplined capital allocation framework. These acquisitions not only expand the firm’s asset base but also solidify its competitive advantage through economies of scale, improved compliance capabilities, and enhanced advisor retention.
A critical variant view articulated in the thesis is that LPL Financial’s superior business model and competitive positioning within the advisor-mediated space remain significantly undervalued. Market concerns, primarily revolving around cash sorting and regulatory scrutiny on client cash balances, appear overstated. The management’s proactive measures and strong treasury management capabilities significantly mitigate these risks. Furthermore, LPL’s diversified revenue streams and fee-based advisory services continue to demonstrate resilience, presenting potential valuation upside.
Given its compelling earnings trajectory, prudent management, and robust competitive moat, LPL Financial offers an attractive risk-reward profile. Management’s clearly articulated earnings growth algorithm forecasts EPS growth of 11%-27%, with potential for higher valuation multiples. Conservatively projected, investors may achieve a ~15% IRR over the next five years, assuming reasonable exit multiples. Thus, LPL Financial represents a high-quality, high-convexity investment opportunity benefiting from sustained structural tailwinds in the independent advisor space.
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Latticework 2025 will be held in New York City on October 7th. In fireside chats with audience participation, the summit will explore intelligent investing in a rapidly changing world. Keynote speakers include:
Chris Bloomstran, President of Semper Augustus Investments Group
Tom Gayner, CEO of Markel and Director of The Coca-Cola Company
Saurabh Madaan, Managing Member of Manveen Asset Management
Scott Miller, Founder of Greenhaven Road Capital
Bob Robotti, President and CIO of Robotti & Company Advisors
Tom Russo, Managing Member of Gardner Russo & Quinn
Will Thomson, Managing Partner of Massif Capital
Christopher Tsai, President of Tsai Capital Corporation
Ed Wachenheim III, Chairman of Greenhaven Associates
Disclaimer
Wide-Moat Investing Summit 2025 was held from June 24 through July 9, 2025. The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.
Slides
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