So, there we’ll deploy capital here at about the six times to eight times EBITDA range. These deals are relatively small in the $10 million to $20 million zone, and I would say, skewed toward closer to the $10 million side of it. And then financially, the economics are pretty attractive and that the ROA of these firms effectively doubles when we purchase them. So, if you’re in the think of the 30 basis point zone, we’d be earning 60 basis points once we own the practice. That’s largely a function of the reduced payout to the advisors. That’s where you would see those economics show up. So, those are the economics. So, I think it’s really financially compelling, but I think maybe even more exciting or more compelling is really the strategic value of this solution, maybe, Dan, that’d be better, if you want to jump in there.
Alex Blostein: Hey, Dan. I’m sorry. I don’t think we could hear you unfortunately, I don’t know if it’s my phone or maybe other people having this issue.
Dan H. Arnold: No, no. It was user error on my fault, on my part. Sorry about that. So, let me start over. And again, I think as we’ve discussed before, our opportunity set is really driven by trying to solve that big strategic question of how do we help potentially as many as a third advisors retire and transition their businesses over the next 10 years. And, while there are a variety of options that are available in the marketplace, we think ours is really differentiated and a compelling one and a very elegant way to help these advisors transition their practices to take care of them, take care of their teams, take care of their clients and ultimately create a bridge to the next entrepreneurial leader or owner. And in that spirit, I think since we’ve rolled it out to our advisors, it’s been, which was late in 2022, it’s been very, very appealing for those that are exploring those possibilities.
And as Matt said, we closed roughly 27 deals to-date. And, given the success with our existing advisors, now we’ve extended the question to the external marketplace and in fourth quarter began to explore how we could help those advisors that aren’t on the LPL platform with the same type of solution to that big question of how do they transition their practices. And as we mentioned, we were fortunate enough to close our first deal in Q1, and we’ve got a pretty solid pipeline building there. So, I think we see it as this multidimensional opportunity to supporting and helping our existing advisors, which extends those assets on our platform for another generation of advisors. And then two, also as a catalyst for growth complement the other opportunities that we focus on and have to drive growth.
And, we think it’s a compelling differentiated solution, a little hard to replicate. So, we think it will resonate in the external market. Hope that helps.
Alex Blostein: Great. No, that’s very helpful. So, my second question, kind of related, I guess, to some of the new initiatives. You guys have been super busy in the last few months with a number of deals, Atria obviously being on the larger size. How should we think about the capacity for incremental M&A, call it, over the next 12 months, as we sort of waiting for Atria to close and then obviously you guys have to integrate it? And, then as part of this Atria conversation, maybe you can hit on the competitive dynamics in the bank channel post this deal given that they were a pretty sizable player there? Thank you.
Dan H. Arnold: Yes. So I think, listen, relative to onboarding these programs and making sure that we have the ability to support and scale them, I think, is something that we’ve been working on since the good fortune of onboarding, some of the larger financial institutions, BMO and M&T in 2021. And, so our guiding principle when we explore any growth initiative, whether it’s organic win like the large institutions or even an acquisition like Atria is to ensure that we’re going to continue to deliver an exceptional experience to our existing advisors and that then we provide a seamless transition for advisors that are joining our platform. And, in that spirit, we’ve continued to evolve our transition approach, because we’ve iterated, we’ve improved and gotten a lot better.
Over the last few years, we established a disciplined operating rigor. We used seasoned runbooks and automation, all in the spirit of delivering a high-quality successful outcomes that are repeatable and sustainable. And, with each iteration, as I mentioned, we continue to enhance the efficiency and efficacy of how we execute the onboarding process. Now, the important part about that is that certainly then improves and enhances the quality that we deliver, but also the pace at which we can deliver these. And, I think as we continue to go forward with each iteration, we adopt new ideas, new concepts, new ways of which to do them in a simpler and faster way. And, we’ll continue to work on that and iterate that I think will help us not only deliver an industry leading on boarding experience, but do it in the simplest and fastest way possible in the marketplace.
So, that’s sort of the context of how we think about increasing the capacity to support that ongoing opportunity. I think and then your second question, please remind me what it was.
Alex Blostein: Sorry, just the competitive positioning in the bank’s channel, institutional’s channel after you guys integrated, because they were a sizable player there and now you have obviously more presence in that channel with them eventually under your umbrella?
Dan H. Arnold: Yes. So again, I think we’ve seen that marketplace as sort of an emerging opportunity where we took a novel concept back in 2020ish and began to operate through the marketplace and establish a significant advantage from just having market share, developing and growing IP around how to support and serve those clients, and then ultimately, continuing to evolve our capability set to make sure that we can help them in terms of their risk profile or posture around this business line or service, increase or enhance financial results or financial performance of their programs to create operational efficiency and scalability into their programs and then ultimately, to support them with growth. If we can do that within this value proposition and then have the advantage of the history and the experience of operating and working with these clients, the better practice at onboarding through the change management, a very complex effort.
So, that gives us a distinctive advantage in the marketplace that we think really resonates when we go out and share that with any perspective on new clients. So, I think we feel great about our positioning in the marketplace, the insights and perspectives that we can bring forward that have enriched our value proposition that again is hard to do if you hadn’t had the experience in doing it. So, that’s how we think about that leadership. We think it’s pretty durable and an interesting ongoing growth opportunity.
Alex Blostein: Awesome. Great. Thanks so much.
Operator: Thank you. And, one moment as we move on to our next question. And, our next question is going to come from the line of Steven Chubak with Wolfe Research. Your line is open. Please go ahead.
Steven Chubak: Hi. Good afternoon, Dan. Good afternoon, Matt.
Dan H. Arnold: Hello. So, I wanted to start with a follow-up on just the Liquidity and Succession discussion. Matt, you alluded to some of the limitations on the pace of deployment, but was hoping you could just speak to the cadence now that this has been launched externally that we should be contemplating. And, given the higher year-on-year payout ratio guide for 2Q, when should we expect to see those reductions in the advisor payout rate as some of that Liquidity and Succession accretion really starts to come through?
Matthew J. Audette: Yes. I think on that last point, right. I think when you look at the payout, there’s a handful of things going on. But, I think you’re already seeing it within the payout rate, just based on the 27 deals we’ve done so far. So, maybe if you just looked at payout rate year-over-year for Q1, so just to eliminate kind of seasonal production build. And as a reminder, the Q1 payout for last year had a 40 basis point kind of catch up one timer. So overall, payout was flat year-over-year. And, there’s two things in there that actually drove payout up a little bit. The first is, kind of, building on what Dan was just talking through, the institution channel and the growth in the institution channel, which I think you know has a much higher payout than the average, also has a much lower cost to serve, lower TA rates.
So, when you get down to things, bottom line economics like op margins quite compelling. But, if you’re just looking at the payout rate, you’re going to see that grow as that business grows. And, then we had some pricing reductions or pricing investments on our corporate advisory platform. We had announced those last year. Those took effect in the first quarter. So, yes, those two things that drive payout up, but then liquidity and succession did drive payout down to offset that. So, there are moving parts in there, but you are absolutely starting to see that show up in the payout rate. Maybe not on an individual quarter-to-quarter, just given the size of our overall business, but you are starting to see that over time. I think on the capacity point, and not sure where you’re specifically going with that, so maybe just follow-up if we’re not hitting that.
But, I think overall, when you look at whether it’s internal or external and you think through the process to onboard these teams, make sure we’re putting the proper field management in place, all the complexities associated with it. That’s really where the 30 deals to 40 deals per year comes from, just to make sure that we’re bringing those onboard in a way that really delivers the strategic value that Dan was describing earlier.
Steven Chubak: That’s really helpful color, Matt. And, for my follow-up, just a question on cash levels and expectations around reinvestment. Just given the significant number of fixed rate contracts coming due, I believe roughly $6 billion over the next three quarters, Where are those fixed contracts going to get renewed relative to that 240 basis point back book? And, should we expect that that’s all going to be renewed in fixed rate contracts given that we are starting to see some signs of cash stabilization?
Matthew J. Audette: Yes. I mean, I think on the plans to renew, I think we like being in the center of that range, that 50% to 75% range, which is where we are now. So, we’ll make decisions and judgments about that. But I think with a stable cash balance and being at 65%, I think it’s a fair assumption to assume our plans would be to renew. When you look maybe just to look at the next quarter, so not to go too far out, the maturities that $2 billion of maturities are towards the end of next quarter. And, those specifically are at 200 basis points right now. So, they’re kind of below that average for the year. And, if you look at where we would typically place in the three year to five year range, where that marketplace is, I think in today’s market, you can assume in the 450 basis point range is where we’d place those.
So, of course, things can move between now and the end of Q2. But, where we’re sitting right now, you’d be going from 200 basis points up to the mid-450s on that $ 2billion.
Steven Chubak: Very helpful, Matt. Thanks for taking my questions.
Operator: Thank you. And one moment as we move on to our next question. And, our next question is going to come from the line of Michael Cyprys with Morgan Stanley. Your line is open. Please go ahead.
Michael Cyprys: Great. Thank you. Good afternoon. Maybe just circling back to the enterprise channel, you guys have had a lot of success there over the past couple of years. I’m just hoping you could talk a little bit about the pipeline for new mandates, how those conversations are evolving? And, then on the PRU platform, more broadly on that, I was hoping maybe you could speak a little bit into the platform that you’ve customized and built for PRU, just how that differs from what you’ve done with other enterprise clients and how you might be able to take the sort of capability set into other channels or markets over time?
Dan H. Arnold: Yes. So, with respect to the institution pipeline, we have continued opportunity to, it swings in the batter’s box in the large bank space. Obviously, we’ve had an established series of a number of years of success in bringing those clients on and the success that those institutions are having once on the platform from a financial performance standpoint, from new capabilities and solutions and features, I think, certainly reinforces the value that the model can provide them and thus helps us in those ongoing dialogues with other opportunities within the bank space. That’s about a $1 trillion opportunity or marketplace. And, so there’s a number of opportunities that remain out there, and we’re encouraged by the dialogue that we’re having, in that part of the marketplace.
And, then I think also with the win with PRU, right, we expanded that market to include kind of wealth management solutions that are owned or operated by product manufacturers and specifically insurance companies. And, I think that certainly, that win created the opportunity to have a number of dialogues at companies that are similar in nature to Prudential and certainly exploring the possibilities of outsourcing, an outsourcing solution wasn’t always available in that part of the marketplace. And, so though a longer sales cycle and a sort of longer iterative consultative approach to that, we are encouraged by the emerging dialogue and discussions we’re having in that part of the market. I think that’s your first question. Your second one asked again, please?
Michael Cyprys: Sorry, the first part was just on the pipeline for new mandates and conversations. And, then the second part was just around the PRU custom built platform and opportunities to take that elsewhere to other markets or channels over time?
Dan H. Arnold: Yes. Thank you. Sorry. So I think I answered the first one. So, on the second half, with respect to some of the capabilities that we’re thinking about relative to PRU, part of the opportunity in exploring that and solving for that, was I think creating what I think are two interesting applications that are somewhat novel in the marketplace today. The first one is the expansion of our platform that will enable the product manufacturer and the LPL suite of products to exist in a single experience. And, if you think about that relative to insurance as an example, that can be a really important element and differentiator where you get a really seamless integrated solution set across your entire product offering.
