LPL Reviews Cash-Sweep Revenue as AI Raises Risk

LPL Financial is reviewing its pricing options and considering reducing its reliance on revenue from client cash sweeps while it evaluates risks tied to artificial intelligence, legal and regulatory pressure and rising costs.

Chief Executive Rich Steinmeier told analysts in an April earnings call that the firm is ‘doing the work to properly assess the opportunities and risks of reducing our reliance on cash sweep economics over time.’ Cash sweeps move uninvested client cash into banks or other instruments; broker-dealers typically pay clients a lower return and keep the difference.

In the second quarter LPL reported $443.5 million of income on about $57 billion of client cash.

Executives and analysts have raised concerns that AI-driven tools could steer client cash into higher-yielding accounts automatically, reducing the spreads firms earn on uninvested balances. Some rivals have described AI’s impact as limited; Schwab reported nearly $3.4 billion in net interest revenue on about $485.7 billion in sweep balances, and Raymond James reported $656 million on about $42.2 billion.

Legal challenges are also affecting the business. Several broker-dealers, including LPL and Raymond James, face lawsuits alleging clients did not receive a fair share of cash-sweeps revenue. Raymond James reported higher professional fees tied to cash-sweeps litigation, an increase of about $27 million.

Steinmeier noted the firm’s scale constrains how quickly it can change pricing: LPL works with more than 32,000 advisors, roughly 1,000 institutional clients and about 8 million end investors. He added any pricing changes must work for those groups.

Analysts have suggested shifting revenue toward platform or custody fees to reduce sensitivity to client cash balances and interest-rate swings. Devin Ryan at Citizens JMP wrote that a shift toward platform-based economics could broaden revenue and lower sensitivity to cash balances and rates. Industry observers have long called for clearer custodial fees.

While the broader review continues, LPL is making smaller adjustments. Chief Financial Officer Matthew Audette said the firm will change how it pays yields in insured cash accounts, paying interest only on actual cash balances rather than on clients’ total asset holdings in those accounts. Audette noted the average client holds about $5,000 in cash and that pricing tiers mean smaller balances earn lower yields.

LPL has not announced any final decisions; the company stated larger pricing changes would take time and involve consultation with advisors and clients.