Higher rates on cash could cost LPL $380 million: analyst

investmentnews.com:

After a tumultuous week for broker-dealers facing higher yields on client cash, one securities analyst on Friday said that higher interest rates on clients’ cash held in advisory accounts may cost LPL Financial Holdings Inc. as much as $380 million, shaving off $3.80 per share on the company’s earnings in the future.

The analyst, Jeff Schmitt of William Blair Equity Research, wrote the note about LPL in the wake of the company being sued by a client on Wednesday in federal court in San Diego, with the claim alleging that LPL’s cash sweep program allows the company to unjustly enrich itself, which potentially constitutes a breach of fiduciary duty.

Last Friday, Wells Fargo & co. said it expected to take a hit to spread income this year after recently raising sweep rates in client advisory accounts. Morgan Stanley on Tuesday said that, like Wells Fargo, it was raising rates on clients’ cash in advisory sweep accounts.

With LPL, Raymond James Financial Inc. and Ameriprise Financial Inc. all set to report earnings for the quarter ending in June next week, one senior industry executive expressed his concern over how significant the impact the repricing of clients’ cash could be for each firm. “We’re waiting for the other shoe to drop,” said the executive, who asked not to be named.

Shares of LPL Financial Holdings, with the ticker LPLA, declined almost 20% for the week as of trading at 12:30 on Friday, with shares trading at close to $210.

A company spokesperson on Friday did not return a call to comment about Schmitt’s analysis in the wake of this week’s lawsuit.

“We make no claims on the validity of the lawsuit at this stage and await additional information from the company during its earnings call next Thursday,”