LPL’s Arnold Has Settlement Chance as Steinmeier Called Worthy Successor

LPL Financial Holdings Inc. is giving recently dismissed CEO Dan Arnold a chance to settle over allegations of violating the company’s code of conduct in statements he made to employees, while analysts believe the CEO’s successor may already be in place.

LPL’s board did not reward Arnold with severance benefits upon terminating him on Tuesday, but it did leave open the possibility that he could receive some of his equity awards from the company should the parties reach a settlement, according to a filing with the Securities and Exchange Commission.

LPL’s board, on recommendation of its compensation and human resources committee, “exercised its discretion to defer the automatic forfeiture solely of a portion of Mr. Arnold’s vested options to purchase common stock of the Company, subject to the satisfactory negotiation of and Mr. Arnold’s entry into a settlement agreement for the benefit of the Company and its shareholders.”

If LPL and Arnold do not reach a settlement agreement, those options would be forfeited, according to the filing.

Interim CEO Rich Steinmeier, meanwhile, will see no changes to his existing compensation arrangement, according to that filing.

But that could change, according to stock analysts covering LPL.

Steven Chubak, leading analysis for Wolfe Research, expressed confidence in Steinmeier in a note to investors, writing that the chief growth officer has “been instrumental to the company’s success” in growing the business organically and that the Wolfe team does not anticipate any change in strategy. Chubak went on to call for LPL to take off the interim CEO label and give Steinmeier the job.

“Investor feedback on Steinmeier has been consistently positive including following our slate of investor meetings last week where he articulated a clear growth strategy / differentiated value prop,” he wrote. “Despite concerns that the CEO transition could prove disruptive to organic growth, we remain confident LPLA will continue to have recruiting success.”

Analysts from JMP Securities agreed, with a team led by Devin Ryan writing in a note that Steinmeier is the “logical choice” for permanent CEO after LPL’s board runs a search process.

The analysts also noted that CFO and Head of Business Operations Matthew Audette has worked closely with Steinmeier and he “could be rewarded with additional responsibility and compensation.”

J.P. Morgan’s lead analyst for the company, Michael Cho, noted that there may be more short-term disruption for the stock and that the timing of the news was “less than fortunate,” as LPL has either recently firmed up or is firming up a number of acquisitions, including its purchase of Atria Wealth Solutions, which the firm reported finalizing on the same day Arnold was let go.

Overall, however, Cho reacted positively to the LPL Board’s quick action and “do[es] not expect another shoe to drop” from the investigation. Cho also wrote that Steinmeier and Audette may remain at the top of the firm.

“We appreciate that interim CEO Rich Steinmeier and current CFO/Head of Business Ops Matt Audette have been successfully driving LPL’s strategy and execution for many years,” he wrote. “Our view is that the current executive team (interim CEO and CFO) will remain in place and will continue to execute on LPL’s strategic initiatives.”

Chubak also wrote that Wolfe analysts do not believe the firing is part of “pervasive cultural issues,” and it “appears more idiosyncratic.”

JPM wrote that: “We were disappointed to read the disclosure but are also encouraged that the Board moved quickly. We also view these events as an isolated incident.”

LPL stock was up as of market close on Thursday.