From the Chairman

As I reflect on the past year, I am proud of the many positive ways LPL Financial-in partnership with our employees and the financial advisors and institutions we support-is making a difference by enriching the lives of millions of investors. Our success is a testament to our overarching mission: to enable our clients to focus on creating the personal, long-term relationships that are the foundation for turning life's aspirations into financial realities. This sense of purpose is the primary reason why we are the nation's premier independent broker/dealer* and a leader in advisory and custody services today.

Over the last several decades, we have repeatedly demonstrated the ability to grow our business through market cycles by concentrating on our long-term drivers of growth. This financial strength and resiliency have allowed us to continue to make ongoing investments in capabilities to support our clients, our employees, and our business. Today, we are more focused than ever on enhancing our business model, being an employer of choice, and delivering services that add real value for our advisors and institutions and their clients.

Driving efficiencies in our core business

Following several years of considerable growth and expansion, created both organically and through acquisitions, we turned our attention in 2013 to improving our operational performance by achieving greater efficiencies in our core business. This enabled us to further differentiate our business model while also enhancing advisor productivity by introducing new technology and systems. We also leveraged recently acquired properties in the retirement and high-net-worth markets to deepen our position in those areas and to serve a broader range of advisors and institutions.

At the same time, we invested in our operations to create a more efficient infrastructure. We enhanced our technology platform and capabilities, as well as our regulatory and risk management functions. We outsourced some non-core functions while investing in other areas, including advisor-facing support services. And, we did this while achieving further operational efficiencies made possible through our size and scale. We expect the investments we made this year in our people and technology will enable us to realize benefits in 2014 and beyond.

The result is a smarter, simpler, and more personal LPL, and our goal is to deliver on this promise every day: working smarter by using data and analytics to drive business decisions; making work simpler by streamlining processes and reducing paperwork for our advisors and their clients; and becoming more personal by delivering our services in a more tailored and targeted manner. By reducing complexity for our advisors and institution partners, we enable them to devote more time to serving their clients and growing their businesses. These are all steps in a longer journey to further strengthen our competitive leadership position.

2013 results

Our ability to drive efficiency into our core business positioned the company for financial success in 2013. For a fourth consecutive year, we increased revenue, generating 13 percent year-over-year growth to a record $4.1 billion. Adjusted earnings per share grew for the fifth consecutive year, up 20 percent year-over-year to a record $2.44 per share, benefiting both from strong growth in profits and our decision to repurchase 5.8 million shares in 2013.

Our revenue growth was driven by strong investor reengagement-which was sustained over the course of a full year for the first time since the market break in 2008-and by strong market appreciation. Our results were further aided by our continued success in retaining and recruiting advisors. We believe our 97 percent annual production retention continues to lead the industry. We also benefited from a rebound in advisor recruiting. Despite a slow start, we finished strong in 2013, adding 321 net new advisors, putting us once again among the top firms in the industry in terms of attracting new clients. Our pipeline remains strong, and we are optimistic about our momentum heading into 2014.

Building on our track record to add value to shareholders

One of the unique features of our business model is the ability of our capital-light structure to generate significant free cash flow. We have established a track record of reinvesting in the business to sustain long-term growth while possessing the flexibility to return capital to shareholders. We believe there is an additional upside to the value of LPL in its current model, driven by long-term industry trends, our leadership position in a consolidating marketplace, and a rising interest rate environment. As a result, we see opportunity for continued share repurchases and dividend growth. Since our initial public offering, we have invested $507 million in capital to repurchase 15.2 million shares at a weighted-average share price of $33.25 and declared $317 million in dividends.

Significant opportunities ahead

We are proud of the progress we are making to achieve our long-term goals and encouraged by our growing reputation in the industry as the place to be for advisors seeking independence. In 2014, we will expand our commitment to create a smarter, simpler, more personal LPL by driving further efficiency into the business, supporting the growth of both our advisors and financial institutions, and continuing to streamline our operations.

While the business continues to achieve many milestones, we have more opportunities before us to add value to advisors' practices and make a difference in the lives of their clients. We will continue to offer our perspective and experience on issues that are reshaping our industry-from regulatory matters to addressing the growing need for financial advice and guidance here in the U.S.-as our population matures and prepares for a longer retirement. The success of the equity markets in 2013 and the impact of rising long-term interest rates on the fixed income markets present a new set of opportunities and challenges for investors. In addition, the array of products available to meet various investor goals continues to expand in both quantity and complexity. These factors place a growing premium on independent advice.

As we begin 2014, I am optimistic about the opportunities we have created at LPL to deliver positive results and win in the marketplace. We are well positioned to drive sustained future growth and create value for our shareholders, our employees, and our advisors who are helping their clients turn life's aspirations into financial realities.

Mark Casady
Chairman and CEO
LPL Financial

* As reported by Financial Planning magazine, June 1996-2014, based on total revenue.