Understanding LPL Cash Flows in Morningstar Office

How does cash flow work in Morningstar Office?

For most custodians, when a security transaction is imported into Morningstar Office, the system automatically generates an offsetting cash transaction. For example, a buy will generate an offsetting withdrawal from cash and a sell will generate a deposit into cash. These automatically generated transactions indicate cash flow within a client’s portfolio, i.e. from cash to a security or vice versa. Imported transactions without corresponding automatically generated offsetting cash transactions will be marked as out of pocket, indicating that cash movement into or out of the portfolio. Click here for more information on cash flow.

How is LPL cash flow different?

While most custodians only send down transactions of the original security, LPL sends down transactions of the original security AND its own offsetting LPL:Cash transactions.

The following table compares transaction codes taken from an LPL data file that has the additional cash flow versus a TD Ameritrade data file that has the typical cash flow. The transaction is a distribution from Verizon into the Money Market.

 

Transaction Type

Transaction Type

Distribution from Verizon Communications Inc.

Distribution from Verizon Communications Inc.

Deposit into LPL Cash

Purchase of the money market FDIC INSURED DEPOSIT

Purchase (deposit) of INSURED CASH ACCOUNT

Withdrawal from LPL CASH

Morningstar Office generates an offsetting CASH transaction for each of LPL’s transaction codes.

 

Typical Cash Flow for a Distribution that Moves to the Money Market

Transaction in Data File

Auto-Generated Transaction

Distribution in original holding

Deposit into Cash holding

Buy into Money Market

Withdrawal out of Cash holding

LPL Cash Flow for the Same Scenario

Transaction in Data File

Auto-Generated Transaction

Distribution from original holding

Deposit into Morningstar Cash

Deposit in LPL Cash

Withdrawal out of Morningstar Cash

Withdrawal out of LPL Cash

Deposit into Morningstar Cash

Buy into Money Market

Withdrawal out of Morningstar Cash

Therefore, a total of 8 transactions are created in the import blotter. The 4 highlighted transactions come directly from the LPL transaction file and the rest are automatically generated.

 

How does LPL Margin work in an account?

A margin account is a brokerage account in which the brokerage firm lends the customer cash with which to purchase securities. Unlike a cash account, a margin account allows an investor to buy securities with money that he/she does not have, by borrowing the money from the broker. The Federal Reserve limits margin borrowing to at most 50% of the amount invested. Some brokerages have even stricter requirements, especially for volatile stocks. People usually open margin accounts to take advantage of an opportunity to leverage their investment, rather than because they don't have the money to make the full purchase. Brokerage firms charge a relatively low interest rate on margin loans in order to entice investors into buying on margin.

The movement of a Distribution Paid in an Account with Margin Activity

Security Name

Trade Date

Number of Shares

Transaction Type

Amount

Price

Cash Security Name

SPDR S&P 500

1/4/2016

 

Distribution

12.49

 

CASH

CASH

1/4/2016

12.49

Deposit

12.49

1.00

SPDR S&P 500

LPL: MARG

1/4/2016

12.49

Deposit

12.49

1.00

CASH

CASH

1/4/2016

12.49

Withdrawal

12.49

1.00

LPL: MARG

LPL: MARG

1/5/2016

12.49

Withdrawal

12.49

1.00

 

LPL: CASH

1/5/2016

12.49

Deposit

12.49

1.00

 

LPL: CASH

1/5/2016

12.49

Withdrawal

12.49

1.00

CASH

CASH

1/5/2016

12.49

Deposit

12.49

1.00

LPL: CASH

INSURED CASH ACCOUNT

1/5/2016

12.49

Deposit

12.49

1.00

CASH

CASH

1/5/2016

12.49

Withdrawal

12.49

1.00

INSURED CASH ACCOUNT

 

The example above demonstrates the cash flow necessary for a distribution in a margin account.

  1. Money is moved from the Money Market:

  2. Movement between Margin Cash and LPL Cash:

  3. Movement into Money Market: