And, again, that’s kind of a novel concept and a hypothesis of a lot of folks thinking, wow, that would be a really interesting thing to solve for. And, I think inside this opportunity, we’re solving for that. So, we’re really encouraged about that. And again, once you do that, that can be valuable to any a number of other different larger institutions that might value that. Second one would be an integrated operating platform within that workflows connectivity not only to our systems, but to the parent and third-party systems. And, so it’s kind of a cool operational efficiency, again, across the landscape business they do. It makes it easy for them to collaborate, operate and work with us in a very integrated way. So, those are just two things.
I think we think are really, again, interesting and differentiating for them, but also a foothold to other potential prospects. Hope that helps. Thanks.
Michael Cyprys: Great. Thank you. Just a follow-up question, if I could, just on client cash. Just curious what you’re seeing in terms of underlying client behavior. I realize the cash allocation a bit lower today versus historical. But, when you look at the customer behavioral trends under the hood with cash going in and out of the account. Just curious, is there anything different now that you’re seeing relative to historical? And, as you kind of look out from here, is there certain macro or rate environment that you think would be helpful in terms of catalyzing cash allocations to [Grind Tire] (ph)?
Matthew J. Audette: Hey, Michael. Yeah, I think, I mean, the headline is and I think you can see it in our metrics. I think we’ve seen stability in the category of near full deployment for quite some time now, right. Look at Q1 results and cash balances kind of remained in that just above 3% zone, largely coming down just by fees in the quarter. So, I think you’re starting to get to that place where you’re really at full deployment. And, I think from an environment standpoint and where things could go, I think history is the best guide. I think we’re in a place where clients are fully deployed, the equity markets are rising, interest rates are high, and they’re fully deployed in the market. And I think when we’ve seen environments that are the opposite of that, where they’re in more of a defensive position, you see cash balances come back up, right.
That doesn’t feel like that, of course, in the moment, but I think that is the behavior we’ve seen time-and-time again. And, I think that’s the dynamic we would expect to continue. All that being said, I’d just emphasize we are seeing that stability where cash is really coming down for things like paying fees and things as opposed to deployment in the marketplace has gotten pretty stable in the last quarter or so.
Michael Cyprys: Great. Thank you.
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 Dan Fannon with Jefferies. Your line is open. Please go ahead.
Dan Fannon: Thanks. Good afternoon. Matt, I was hoping you could talk to the factors that are going to get us or get you towards the low-end or the high-end of your G&A growth for this year and now that we’re four months in kind of where you think you’re tracking based upon current trends?
Matthew J. Audette: Yes. I mean, I think when you look at just the first quarter, right, from an annualized rate, we’re at the low-end of that guidance. And, I think when you look ahead to Q2, we’d probably be something in a similar zone. So, I think we feel good that we are tracking towards our guidance overall. I think the things that can move us within that range are similar to things that are in the prior years, which is more about our levels of organic growth opportunities that we see during the year that really drive whether it be variable costs, variable compensation or the costs associated with that growth. But, the headline I would give is, we feel comfortable of landing within that zone. And, just a reminder that it’s prior to expenses associated with PRU and Atria. And, to the extent that those impact core G&A, we’ll give updates later in the year on that. The headline is we feel good.
Dan Fannon: Understood. And then, Dan, I was hoping you could provide some updated thoughts around the DOL rule. Obviously, we got the full proposal last week. Any, changes to how you were thinking about it and what you said previously?
Dan H. Arnold: Yes. So, as you said, been a hot topic over the last week since the release. But look, the headline is that I think the final rule reflects some hopeful changes from the original proposal and generally better aligns with the SEC’s Reg BI, which we believe is a good thing for investors. And, as you probably have seen, the rules are scheduled to become effective in September. Although there is a one year transition period for firms that acknowledge fiduciary status and comply with specified conduct standards. So, that’s probably a long winded way to say there’s probably a year time line in and around getting any changes that need to be required or made in your compliance programs in place, such that you can fill those new responsibilities.
That said, our team is working to finalize the design and implementation of our compliance program. And again, we feel good about that preparation and the ability to execute around the effective framework effective dates and framework that we’ve seen thus far. We’re able to leverage some of the work we did in 2016, which ultimately wasn’t implemented. In addition to some work that we’ve already done connected to Reg BI. So, at the same time, there are a few areas like around rollovers where we’ll have to deploy new approaches and solutions. Again, we think they’re solvable for us, I think all that said, it’s safe to assume that there will be litigation challenging the rule, as there was the case with successful litigation we saw back in response to the 2016 rule.
So, all of that could potentially impact both the compliance approach that any of us take in the time line. So, the jury is out on that, but we do think it was a better landing spot than we originally used.
Dan Fannon: Great. Thank you.
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 Bill Katz with TD Cowen. Your line is open. Please go ahead.
Bill Katz: Thank you very much for taking the questions. So, just going back to cash for a moment. To the extent that we follow the forward curve from here and I appreciate your comments, Matt, that there’s some cyclicality longer looking on this. But, just sort of using your current AUM base, even if I have sort of apply an 8% growth rate against that and sort of assume a 3% allocation and I adjust for quarterly billings. Should we be thinking of a scenario of sort of flatter client cashier until a more strident change of interest rates as we sort of think through our models?
Matthew J. Audette: Well, I think you’re walking through your model there, Bill. I think the headline point is that if you’re assuming the environment remains the same, I think assuming cash is fully deployed in the market, I think it’s a good assumption. I think the point you’re making as we continue to grow, that growth does come with cash. So, I think modeling that versus the fees we pay and things of that nature, I think, is a good way to look at it. And, maybe the bottom line, I think when you look at the cash as a percent of AUM where we are in that low kind of 3% zone, you’re certainly getting the point of friction from going below that when you’ve got to have certain amount of cash to manage rebalancing, paying fees, facilitating withdrawals.
So, just a natural resistance when you get down to the levels that we are. So, I think that was where you were probing, but those levels would be what makes sense to us and there’s certainly cash that comes along with growth if that’s what you’re trying to confirm.
Bill Katz: Okay. Thank you. That’s helpful. And, then just one clarification and one question. You mentioned that your ICA yield might be down a couple of basis points quarter-on-quarter. And, I guess I’m a little surprised just given the high reinvestment rates and you’re getting more favorable growth spread on the Fed Fund on the variable side. So, can you just maybe explain that? But the broader question I have is going on to just the liquidity and services opportunity success, excuse me. Could you talk a little bit about maybe the external one, Dan, you sort of highlighted that you sort of secured your first one, so congrats on that. What’s the shape and size of that look like? And, then just from a devil’s advocate perspective, if you’re getting 60 basis points on that incremental deployment, why not ratchet that up and slow some of the lower gross profit ROA, but larger transactions in the enterprise side?
Maybe help me understand the puts and takes as you think about capital allocation? Thanks so much.
Dan H. Arnold: All right. I’ll start with part one of your seven part question there. I think on the ICA yield, just the timing. So, I think when you at the decline quarter-over-quarter, the fixed rate maturity that I think we would reinvest at from 200 basis points to 450 basis points, that comes at the very end of the quarter. So, if you just look at where cash balances are at the moment, you would just have a movement of those variable ones. I think the point I would hit is it’s really that maturity just coming at the end of the quarter. So, you’ll see that benefit pull through assuming it comes in at the rates that we talked through. They’re in the marketplace right now. You just see that come through in the third quarter.
I think on the L&S economics, and maybe I’ll just give a comment there and then turn it over to, Dan. I think it’s not necessarily about pure decisions on capital allocation where to put it. I think it’s about these advisors and finding a succession offering that works for them and doing in a way that is very thoughtful and helpful and lands them on our platform and really hits the marks of the really strategic benefits of the transaction itself. And, I think that’s what leads to our thoughts on the capacity of 30 to 40 a year as opposed to just some financial choice. And maybe, Dan, if there’s anything you want to add to that.
Dan H. Arnold: Yes. So Bill, you were speaking to the opportunities set again, it goes back to in many cases, what we’re solving for is the succession for these advisors. And, I think given the size of that need has driven the proliferation of maybe innovation in that area to try to solve for it. And, so if it’s there’s 300,000 advisors in the marketplace and a third of them are going to retire over the next 10 years, that would be your total opportunity set. I think for now, a lot of these transactions have been targeted for a little larger practices, because to do these transactions, it’s just it could be a complex administrative process to work through it. And, so it’s probably not fair to say then it’s all 100,000 that are retiring in the next 10 years as the opportunity set.
That said, the constraints around the administrative complexity to do these deals will certainly get easier as everyone in the marketplace learns, iterates, evolves, how to do that. And, that constraint then will allow that capacity to go up. And, as firms learn how to onboard these folks and do it in a highly successful way, then again, I think that constraint will go up. And, you’ll see increased number and sizes of these over time. And, so that’s how we think at least about, how we think about the opportunity set and make sure that we have the compelling value proposition to support these folks once they transition over and once we serve them in the context and capacity that they are being served in as an employee of LPL and thus as a part of a transition of a succession plan over probably the five year period of time.
We’re delivering value and capabilities that we’ve built in a lot of our affiliation models that will enable us to do that really efficient and effective way. So, we can scale that, where we couldn’t have if we didn’t have the three years or four years of experience in building those capabilities. And so, I think it’s just that front-end administrative operational work of doing these deals. And as again, if we get more efficient at them, we’ll scale it up. We do think, again, it’s compelling opportunity that is some relevant for folks that are in traditional employee based models. It’s relevant for anyone that has their own independent business. It’s trying to explore how to transition to business and create a succession outcome that’s good for them.
