FOCUS Report Lincoln Financial Advisors Corporation

X-17A-5 [Paper] - FOCUS Report

Published: 2010-03-09 19:04:29
Submitted: 2010-02-26
Period Ending In: 2009-12-31
scanned.pdf Scanned paper document


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                                                                           SE                                                                                  IMMISSION                                          February 28 2010
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                                                                                ANNUAL AUDITED RER5Q                                                                                                              1i1LE               NUMBER
                                                                                     FORM X-17A5                                                                                                                  1s14685

                                                                                        PART UI

                                                                                                       FACNG PAGE
                          information                   Required                  of      Brokers and                           Deaers                        Pursuttto                   section             17 of the

                                           Securities Exchange                                   Act of 1934 and                                         Rue i1aS                    Thereunder

                                                                                                 O1O1O9                                                                                            1231O9
  REPORT               FOR THE PERIOD                     BEGINNING                                                                                    AND ENDING
                                                                                                     MMD                                                                                             MMLDYY



                  _________________
                                                                                       REGSTRANT                                 IDENTHCATON                                                       _______________
  NAME OF BROKERDEALER

                  Lincon           Financa             Advisors             Corporation

  ADDRESS               OF PRINCIPAL PLACE OF BUSINESS                                                    Do        not      use       P0              Box    No
                                                                            1300         South Cflnton Street                                    Suite         150

                                                                                                               Ni    and     Street


                             Fort         Wayne           ndiana                       468O23506

                                    Cdy                                                              Stile                                                                                           Zip   Code




  NAME AND TELEPHONE                                  NUMBER OF PERSON                               TO CONTACT                                 IN      REGARD                TO THIS REPORT
                  Keith            Ryan                                                                                                                                                  2604556244

                                                                                                                                                                                     Area     Code         Tslephone    No



                                                                                      ACCOUNTANT DENT1RCA11ON

  INDEPENDENT PUBLIC ACCOUNTANT                                                       whose     opinion              is      contained                  in    this    Report
                  Ernst          Young LLP

                                                                                         Name        ndv1      ja    slate    last         st   usd5    end   nt

  Two Commerce Square                                 Suite    4000 2001                  Market          Street                                Phfladphia                      PA                                     191037096

      Adaress                                                                                             ty                                                         State                                                      Zip   Code




  CHECK           ONE
                       Certified        Public        Accountant
                        Public      Accountant
                        Accountant           not resident              in   United         States         or    any of               its
                                                                                                                                            possessions


                IIII_                                                                                FOR 0FflCAL USE ONLY




  Clainls        for   oxemption          from   the     requirement              that    the   annual              report       be        covered            by     the     opinion     of   an   independent         public         accountant

  must be supported                by      statement          of   facts    and circumstances                       relied       on        as    the     basis       for the     exemption See              section    240.1     7a5e2

SEC     1410     700                             Persons           who re         to   respond        to the         collection                 of information               contained

                                                 in    this   form are          not    required      to    respond             unless             the        form    displays

                                                      currently      valid       0MB       control        number


OATH OR AFFIRMATION

               Keith           Ryan                                                                                                                                                                                                the best
                                                                                                                                                                                   swear or affirm that                      to
     __________________________________________________________________________________

                          and                   the      accompanying                               statements                      and supporting                     schedules        pertaining          to   the    firm      of
of   my knowledge                    belief                                            financial


              Lincoln        Financial             Advisors            Corporation                                                                                                                                                      as    of


       December         31                                             09
                                                                20                       are    true   and          correct                further       swear or affirm                  that      neither      the    company               nor
______________________________

                                                                                            has any proprietary                                                                       classified                     as     that       of
any    partner   proprietor             principal         officer      or    director                                                  interest         in
                                                                                                                                                              any account                                  solely



customer       except     as follows




                                                                                                                                                            Z/ 7%r                         ignatu

                                                                                                                                                   Chief Financial                   Officer

                                                                                                                                                                                                 Title




                        Notary         Public




This    report    contains           check         all    applicable             boxes
              Facing      page
              Statement           of    Financial          Condition

              Statement           of   Operations
              Statement           of    Cash       Flows

              Statement           of    Changes            in   Stockholders               Equity      or      Partners               or    Sole       Proprietors             Capital

              Statement           of    Changes            in   Liabilities       Subordinated                 to   Claims            or Creditors

              Computation              of    Net    Capital

                                       for    Determination                 of   Reserve         Requirements                       Pursuant           to    Rule        15c3-3
              Computation

              Information            Relating        to    the Possession                  or   control        Requirements                      Under Rule               15c3-3

                                                                                         explanation                of        the   Computation                   of    Net    Capital     Under          Rule      15c3-1         and       the
                 Reconciliation                 including            appropriate

                                       for    Determination                 of   the    Reserve        Requirements                        Under         Exhibit              or   Rule     5c3-3
              Computation

                 Reconciliation               between            the audited            and     unaudited                Statements               of   Financial              Condition      with        respect       to   methods            of   con

              solidation

              An Oath        or      Affirmation

                 copy     of    the     SIPC       Supplemental                  Report
                                                            material                                   found                  exist        or   found        to    have       existed     since          the date      of   the previous             audit
                 report      describing            any                       inadequacies                                to



              Schedule          of     Segregation              Requirements               and     Funds            in    Segregation                  for   Customers             Trading         on     U.S Commodity                      Exchanges

              Statement           of    Secured           Amount         and       Funds Held             in   Separate               Accounts               for       Foreign     Futures         and      Options         Customers               Pursuant   to


              Commission               Regulation               30.7




For      conditions     of     confidential              treatment          of   certain      portions         of    this filing                see section             240.1      7a-5e3


     SECIJRITIES        AND EXCHANGE COMMISSION

                        WASHINGTON D.C


                   ANNUAL AUDITED REPORT

                   DATE      DECEMBER          312009



  LINCOLN          FiNANCIAL ADVISORS              CORPORATION
                        Name    of Respondent




   1300    South   Clinton   Street Fort     Wayne      IN 46802-3    506

              Address      of principal executive       office




                             Keith      Ryan
                             Vice President

              Chief Financial Officer        and Controller
             Lincoln    Financial Advisors      Corporation
                       1300 South    Clinton   Street

                    Fort   Wayne     IN 46802-3 506



Name      and Address of person      authorized    to   receive   notices   and
communications from the         Securities    and Exchange        Commission


                                       Lincoln      Financial      Advisors Corporation


                 Consolidated           Financial      Statements       and Supplementary           Information



                                         Years    Ended December         31 2009 and 2008




                                                               Contents


Report         of Independent        Registered     Public   Accounting      Firm


Audited Consolidated                 Financial Statements



Consolidated            Statements     of Financial Condition

Consolidated            Statements     of Income

Consolidated            Statements     of Changes in Stockholders             Equity

Consolidated            Statements     of Cash Flows

Notes     to    Consolidated         Financial Statements



Supplementary Information


Schedule               Computation of Net Capital Pursuant              to   Rule 15c3-l   of the Securities        and

  Exchange             Commission                                                                                          12

Schedule         II     Computation      for   Determination      of Reserve     Requirements Pursuant         to

  Rule l5c3-3           of the Securities      and Exchange       Commission                                               13

Schedule         III    Information      Relating     to   Possession   or Control Requirements Pursuant              to

  Rule          5c3-3   of the Securities      and Exchange       Commission                                               14

Statement         Pursuant      to   SEC Rule       7a-5d4                                                                 15



Supplementary Report


Supplementary Report                 of Independent        Registered   Public   Accounting    Firm on
  Internal        Control Required        by SEC Rule         17a-5gl                                                      16




1001-1125633


                                                       sli     FRISISTYO                             UPsIG
                                                                                                                                                 Suite    4000
                                                                                                                                                 2001     Market             Street

                                                                                                                                                 Philadelphia                Pennsylvania                  19103-7096

                                                                                                                                                 Tel        215             448 5000
                                                                                                                                                 Fax           215 448               4069

                                                                                                                                                 www.ey.com




                              Report of Independent                                Registered                 Public             Accounting                           Firm

The      Board of Directors
Lincoln         Financial Advisors                        Corporation


We      have         audited           the    accompanying                   consolidated               statements               of    financial                  condition                       of Lincoln

Financial            Advisors               Corporation               an      indirect           wholly             owned           subsidiary                    of           Lincoln                     National

Corporation the                        Company                 as    of December               31 2009              and      2008 and                     the         related                    consolidated

statements               of income             changes          in    stockholders               equity           and cash            flows              for     the          years              then          ended
These          financial          statements                are      the     responsibility                 of      the
                                                                                                                            management                          of           Lincoln                   Financial

Advisors            Corporation                 Our       responsibility            is    to    express           an      opinion           on these                   financial                    statements

based      on our audits


We       conducted               our         audits       in    accordance               with        auditing             standards                generally                        accepted                    in    the

United                        Those standards
               States                                               require      that    we     plan and perform                         the        audit             to      obtain              reasonable

assurance            about       whether            the     financial        statements              are     free      of material misstatement                                              We            were not
engaged             to   perform             an     audit      of    the     Companys                  internal           control        over             financial                      reporting                    Our
audits     included              consideration                 of internal         control over               financial                                   as                basis for designing
                                                                                                                                 reporting
audit    procedures               that       are     appropriate            in    the circumstances                       but not           for        the purpose                         of expressing

an opinion               on      the     effectiveness                of    the     Companys                  internal           control                 over          financial                     reporting

Accordingly                we      express             no such            opinion        An      audit         also       includes               examining                           on             test         basis
evidence             supporting               the      amounts            and     disclosures                in     the     financial                  statements                         assessing                   the

accounting               principles           used and              significant          estimates           made by management and                                                      evaluating                   the
overall        financial          statement             presentation              We     believe           that     our audits           provide                       reasonable                          basis      for

our opinion


In our opinion the                      financial           statements            referred        to    above present                   fairly            in      all         material                     respects
the consolidated                  financial            position           of Lincoln           Financial             Advisors               Corporation                             at   December                     31
2009 and            2008         and    the consolidated                    results      of    its   operations             and       its   cash          flows for the years then

ended          in
                    conformity               with      U.S      generally accepted                     accounting            principles


Our      audits          were          conducted               for    the
                                                                              purpose           of      forming             an      opinion               on           the           basic                 financial

statements               taken     as             whole             The     information              contained              in     the       accompanying                                    schedules                 is


presented            for                          of    additional                             and      is    not                                              of the                    basic             financial
                            purposes                                         analysis                                       required              part

statements               but      is    supplementary                     information             required             by     Rule                7a-5           under                   the         Securities

Exchange             Act of 1934                   Such      information            has        been subjected                 to      the    auditing procedures                                            applied
in   our   audits          of the       basic          financial          statements           and      in    our opinion                   is                        stated             in      all       material
                                                                                                                                                  fairly

respects
                in relation            to    the    basic financial               statements            taken        as      whole


                                                                                                                                                                             ci




February232010




1001-1125633




                                                                                                                                                   member      firm    of   Ernst        Young    Global    Limited


                                            Lincoln               Financial               Advisors Corporation


                             Notes         to Consolidated                       Financial           Statements                 continued




      Organization and Accounting                                 Policies          continued


Deferred            Compensation


Certain        LFA      employees           participate             in        deferred      compensation                plan         sponsored      and administered

by    LNC LFA            is   allocated          appropriate              expenses         related      to   the    plan by           LNC LFA            reports         current

period                     on the Consolidated                       Statements            of Income           with       the   liability      on the Consolidated
           expense
Statements            of Financial Condition



Stock-Based Compensation


Certain         LFA      employees               participate              in     stock-based            compensation                  programs          sponsored            and
administered            by    LNC LFA                 is     allocated          appropriate          expenses           related        to   the
                                                                                                                                                   program by              LNC
LFA      reports        current      period        expense               on    the    Consolidated                Statements           of Income             with    the     non-

exercised           portion on       the   Consolidated                  Statements          of Financial Condition



Loans      to       Registered        Representatives



In mid-2007             LFA       began          loan program to attract                      top-producing                representatives              to   join the sales

network             Assuming        the    producers              could        generate      gross dealer            concessions              GDC            in   excess     of

contracted            amount         LFA        would            advance            the   representative                  specified           dollar     amount           which

would          be    forgiven       over    the       life       of the       loan                           to      years            The     executed            contract    for
                                                                                      typically
each      loan        stipulates      annual            GDC          requirements              that     must         be     met        in   order       for       that    years
proportion            of the      loan     to    be        waived             Alternatively            if at      the     end        of the    contract           period      the

cumulative            GDC      production              is    equal       to    or    in   excess     of the        aggregate           contract        requirement            the

entire    balance        of the      loan will              be    waived         The       net loan receivable                  is   reported      in   other assets           on
the    Consolidated            Statements          of Financial Condition



Reclassification



Certain amounts                in    the    2008           financial           statements       have         been       reclassified          to   conform with               the

2009 presentation                 These         reclassifications                had no       effect     on stockholders                    equity       net income               or

net capital          previously reported




1001-1125633


                                           Lincoln               Financial            Advisors           Corporation



                              Notes      to Consolidated                    Financial             Statements            continued




   Federal Income                  Taxes


Income         tax expense          consists     of the following



                                                                                                                      Year Ended December 31
                                                                                                                           2009                       2008


      Federal                                                                                                           3106426                     5675430
      State                                                                                                            3495283                      1090333
                                                                                                                        388857                      6765763


The    2009 income tax benefit                       is   primarily generated                   from adjustments              on     state     tax related     to   prior

periods         The     2009       effective     tax rate          is    not     meaningful           as      result    of the         state      adjustments          The

Companys               effective      tax rate        is   expected         to      differ      from    the   federal     tax        rate    of   35%      and ranges

between         40%      and    45%      due    to    the inclusion            of state         taxes



Significant        components            of    LFAs         deferred           tax    assets     and    liabilities     are     as    follows



                                                                                                                           2009                       2008

      Deferred          tax   assets

               Pensions postretirement benefit                           liabilities

                and other employee                   benefit      liabilities                                           4121547                     3214139
               Accrued        liabilities                                                                               1611747                       638875
               Other                                                                                                      824249                      336646
      Total deferred            tax assets                                                                              6557543                     4189660


Income         taxes paid amounted                   to    $2695943              in   2009 and          $5109607         in     2008 Income                tax expense

includes          deferred         income       tax expense              benefit of             $2762892               and $89544              in   2009 and        2008
respectively            The     deferred        income           tax     asset       consists     principally          of tax benefits              associated       with

retirement benefit              accruals        and other              currently        nondeductible            accrued        liabilities         Current     federal

income          taxes     payable        receivable               of     $2424296               and     $303457            at    December            31      2009      and

2008      respectively             are   included           in    amounts            due   to   affiliates       In   connection             with    the    transfer    of

certain        post     retirement        benefit          liabilities         to     an   affiliate       the   Company               received       $341572          for

related        deferred       tax assets       during       2009




1001-1125633


                                                 Lincoln          Financial               Advisors                   Corporation



                             Notes          to    Consolidated                   Financial                 Statements                 continued




      Agreements             and Transactions With                            Affiliates




In    order     to     be     compliant             with         the    Financial              Industry              Regulatory          Authority            F1NRA                rules


regarding        proper            expense         recognition                and        expense-sharing                      agreements          and       to        better     match

expenses        with        related        securities         revenue           LFA           has    entered           into      various      cost    sharing           agreements
with    affiliates   Commencing                        in   January           2009        salary           benefit         and     travel    HR           costs       for      number
affiliate      employees who provide                          substantial            service          to      LFA      have       been      identified       and        allocated         to

LFA LFA              employees have                    also      been    identified             who           provide        substantial        service          to   affiliates      for

which      HR costs           were allocated from                      LFA      to   those affiliates                      The    net impact         to    LFA        in this effort

was    additional           expense         of    $7179909               in   2009 which                   is   included         primarily       in   salaries              wages and
benefits                      on the consolidated                      statement              of income
               expense


Service        charges         are    allocated             to    LFA         by     certain             affiliates         under       common             LNC          control       for

                 and        administrative                services            and     for       certain           securities-related              and product
corporate                                                                                                                                                                      specific

expenses         pursuant             to     Master              Services            Agreements                      Service          charges         for        corporate            and
administrative               services            include          but     are        not       limited            to       costs      related        to     human              resource

administration               print    and distribution                   legal       services                 compliance              and communication                      services

Total      affiliate        corporate             and administrative                      service             charge        allocations         were         $4385362                 and

     141466     in   2009 and 2008 respectively


Service        charges         for    securities-related
                                                                          expenses                  are       allocated          pursuant       to          Master             Services

agreement         and include               but     are     not    limited to cost related                            to    officer    compensation and benefits
compliance           services         home and                field     office       as       well       as     administrative           expenses            These expenses

are    identified       and charged               to    LFA       on          monthly           basis           by   the    affiliated
                                                                                                                                             agency companies                      LFA
incurred       $71697792               and $88980301                      of allocated securities                          related     service        charges          in   2009 and

2008       respectively



LFA     also    has          similar       Master Service Agreement                                 with        LNLs         Employer Markets division                           EM
Costs related          to    the    sale     of   EM        products          that   result         in LFA revenue are identified and allocated                                           to

LFA     as service           charges        on         monthly          basis       by    EM         LFA incurred $8549584 and 514661635                                               of

EM-related           service       charges         in   2009 and 2008 respectively


In    2009     the     Company              transferred            $878465               in    post retirement                   liabilities    to    an     affiliate          and   no

longer      records         any changes            in
                                                        post retirement obligations                               related        to   these plans




1001-1125633                                                                                                                                                                           10


                                                   Lincoln             Financial               Advisors Corporation


                             Notes            to Consolidated                         Financial            Statements                continued




     Contingencies



LFA      is     involved          in    various            pending            or threatened             legal       proceedings              In some        instances               these

proceedings            include          claims            for    unspecified              or    substantial         punitive         damages and            similar
                                                                                                                                                                              types       of

relief    in    addition to amounts                        for                     contractual                         or requests           for                                    After
                                                                 alleged                               liability                                   equitable relief
consultation           with       legal        counsel           and          review           of available           facts    it    is   managements               opinion          that

these     proceedings                  ultimately               will     be     resolved             without        materially affecting                   the     consolidated

financial        position of            LFA

Based          on guidance             provided             by     LNCs             legal       counsel         LFA         has     established        legal        contingency

reserves        of    $4116482                and $1825358                      for    2009 and 2008 respectively                             This    reserve           is    reported

as     component             of other              liabilities     on        the    Consolidated            Statements              of Financial Condition



In    September          2008            LFA           entered           into             loan       agreement with                       select    group          of    registered

representatives              in    which             the    principal              balance        loaned       is     determined            by specific            agreed-upon

operating                              incurred by the                                while       conducting           business           over      period       of 36 months
                  expenses                                              group
from     the
                 agreement date                        Under           the
                                                                              agreement the borrower                           may        obtain    advances             to    pay       for


expenses          incurred         up         to     but    not        exceeding            $3000000                  The     principal          balance      of        the    loan       is


$2257574               and        $633403                  at    December              31        2009      and        2008           respectively           The          remaining
commitment             by    LFA         to    advance            funds       is    $742426


     Net Capital         Requirements


LFA       is     subject          to     the         Securities              and      Exchange             Commission                 Uniform         Net        Capital            Rule

Rule           5c3-      which           requires           the    maintenance                  of   minimum           net capital          and    requires
                                                                                                                                                                   that       the   ratio

of aggregate           indebtedness                  to    net capital             both    as     defined    by Rule 15c3-1 may not exceed 15                                       to

The      minimum             net       capital            requirement               for    LFA        at   December 31 2009 was $3344694                                                 At
December          31 2009 LFA had net capital of $24147599                                                       which was                $20802905           in   excess           of   its


required        net capital LFAs net capital ratio was 2.08 to



     Subsequent          Events


We     have evaluated                  subsequent               events        through          February        23 2010              the date at which              our financial

statements            were    available              to be       issued         and       determined           that    there        were    no matters           required to be
disclosed




1001-1125633                                                                                                                                                                             11


                  Supplemental Schedule




1001-i   125633


                                     Lincoln         Financial       Advisors Corporation



                                                               Schedule



                           computation of Net Capital Pursuant                       to   Rule 15c3-1
                                   of the Securities           and Exchange         Commission


                                                          December        31 2009




Net capital
Total stockholders                equity                                                                63760445
Deduct         total   nonallowable        assets    and other deductions                               39612846
Net    capital                                                                                          24147599


Computation              of aggregate       indebtedness

Total aggregate            indebtedness                                                                 50170385


Ratio     aggregate        indebtedness       to    net capital                                         208   to




Computation              of basic net      capital       requirement
Net    capital     requirement        greater       of   $250000     or

      2/3%       of aggregate       indebtedness                                                         3344694


Excess         net capital                                                                              20802905


Excess         net capital   at    1000% net        capital   less   10%   of                           19130561
   aggregate           indebtedness




1001-1125633                                                                                                       12


                                      Lincoln Financial        Advisors     Corporation



                                                           Schedule    II




                         Computation         for Determination        of Reserve Requirements

               Pursuant     to    Rule      5c3-3    of the   Securities    and Exchange   Commission


                                                         December   31 2009




Credit         balances

Free credit        and    other credit    balances                                                 871930
Total credit        items                                                                          871930


Debit balances
Secured         customer     debit    balances

Lessl%
Total debit        items



Excess         of total credits      over total debits                                             871930

Required         deposit                                                                           871930




1001-1125633                                                                                                13


                                       Lincoln       Financial          Advisors       Corporation



                                                               Schedule       III




                       Information           Relating     to Possession           or Control       Requirements
               Pursuant       to   Rule      15c3-3     of   the   Securities        and Exchange             Commission


                                                          December        31 2009




Market valuation and number                    of items



     Customers           fuiiy     paid securities    and excess         margin     securities   not in

     LFAs        possession         or control as of December             31 2009 for which
     instructions        to   reduce    to   possession      or control    had been      issued    but for

    which        the   required action        was not taken        by   LFA   within     the

    time frames          specified under         Rule 15c3-3


           Number        of items



     Customers           fully     paid securities    and excess         margin     securities   for   which

     instructions        to   reduce    to   possession      or control    had not been issued           as   of

     December           31 2009        excluding     items arising        from temporary          lags   which
    result      from normal business operations                    as   permitted under        Rule      5c3-3



           Number        of items




1001-1125633                                                                                                               14


                                        Lincoln       Financial           Advisors Corporation


                                      Statement       Pursuant          to     SEC   Rule     7a-5d4

                                                              December         31   2009




There      were     no material         differences        between       the   Computation        of Net      Capital Pursuant          to   SEC
Rule       5c3-      and     the   Computation          for    Determination         of Reserve    Requirements             Pursuant    to   SEC
Rule      15c3-3      included        in    the   accompanying            supplementary       information          and      the    computation
included       in   the    LFAs       corresponding           unaudited      Form X-17a-5         Part   II   filing   as   of December       31
2009


The      audited          financial        statements      are       presented       on     consolidated           basis          however     the


accompanying               net   capital     calculation        is   presented      based   on    LFAs        unconsolidated           financial

information




1001-1125633                                                                                                                                  15


                                                         LIERPSISTYOLJPsIG                                                              ErnstVoungLLP

                                                                                                                                        Suite      4000
                                                                                                                                        2001       Market        Street


                                                                                                                                        Philadelphia             Pennsylvania               19103-7096

                                                                                                                                        Tel         215 448 5000
                                                                                                                                        Fax          215         448 4069

                                                                                                                                        www.ey.com




      Supplementary                         Report of Independent                              Registered                 Public           Accounting                             Firm on

                                            Internal            Control        Required              by       SEC         Rule             7a-5



The     Board of Directors
Lincoln          Financial Advisors                      Corporation



In    planning            and        performing             our      audit      of       the    consolidated                   financial            statements                     of        Lincoln

Financial          Advisors             Corporation               LFA          as     of    and      for       the    year          ended          December                   31 2009                     in

accordance              with      auditing          standards            generally          accepted           in    the       United           States             we      considered                    its


internal         control        over        financial       reporting          internal           control            as         basis      for      designing                     our auditing

procedures              for    the     purpose           of expressing             our     opinion         on       the    consolidated                     financial              statements

but not          for    the    purpose            of expressing           an opinion            on      the    effectiveness                  of    LFAs                 internal             control

Accordingly                we do       not express              an opinion          on the effectiveness                       of    LFAs           internal              control



Also        as    required by               Rule         17a-5g1              of the       Securities           and       Exchange                 Commission                        SEC                we
have made                 study        of the practices              and procedures                followed               by    LFA        including                     consideration                   of

control          activities          for     safeguarding               securities          The      study           included           tests        of          such       practices                   and

procedures              that    we     considered               relevant      to    the     objectives             stated       in    Rule              7a-5g              in      making               the


periodic computations                        of aggregate               indebtedness           or       aggregate           debits            and net             capital          under               Rule

17a-3a11                       and          for      determining                compliance                    with          the         exemptive                         provisions                     of

Rule 15c3-3 Because                          LFA         does    not carry securities                accounts             for       customers               or perform custodial

functions              relating        to    customer             securities          we       did      not        review            the      practices                  and procedures
followed          by     LFA      in    any of the following


               Making           quarterly           securities           examinations counts                          verifications                     and          comparisons                        and
               recordation             of differences required by Rule                               7a-      13


               Complying               with       the    requirements              for                                         for    securities                 under            Section                of
                                                                                          prompt payment
               Federal         Reserve            Regulation              of the Board of Governors of the Federal                                                 Reserve                  System


The     management                of       LFA      is   responsible          for    establishing              and maintaining                      internal              control             and       the


practices          and procedures                  referred        to    in   the preceding              paragraph                  In fulfilling                this      responsibility
estimates          and        judgments by management                           are      required to            assess         the    expected                benefits             and         related

costs       of controls           and of          the    practices        and procedures                 referred          to       in the      preceding                 paragraph                     and

to    assess whether                 those practices               and procedures                 can     be       expected           to   achieve                 the     SECs above
mentioned objectives                         Two of         the    objectives            of internal          control and the practices                                   and procedures

are    to   provide           management                 with    reasonable          but not       absolute           assurance               that       assets           for      which               LFA
has     responsibility               are     safeguarded                against      loss      from unauthorized                        use        or       disposition                      and       that




1001-1125633                                                                                                                                                                                             16



                                                                                                                                           member    Firm   of   Ernsf    Young    GlobaF     Umifed


                             ff1TM

                                                         LIERNSTYOUNG




transactions             are         executed            in    accordance               with     managements                        authorization               and recorded                            properly

to     permit           the       preparation                  of        financial            statements               in     conformity                with            generally                       accepted

accounting              principles                    Rule         7a-5g             lists    additional          objectives                of the       practices                   and       procedures

listed in the           preceding                 paragraph


Because           of inherent limitations                                in    internal        control and the                     practices           and      procedures                      referred                 to


above           error    or fraud                may      occur          and not be detected                Also projection                             of any evaluation                                of them

                                                                                                                                                                                         of changes
to    future      periods              is   subject           to    the       risk    that     they     may become  inadequate                                  because                                                  in

conditions or that                     the effectiveness                       of their design              and operation                 may      deteriorate



     deficiency              in      internal           control exists                when       the    design          or operation               of           control               does         not         allow

management                   or       employees                    in    the     normal         course           of     performing                their         assigned                    functions                    to


prevent           or    detect              and        correct          misstatements               on           timely            basis               significant                   deficiency                     is



deficiency              or        combination                  of deficiencies                   in internal            control that              is   less      severe than                            material

weakness            yet important                      enough            to    merit attention              by those charged                     with        governance


     material weakness                           is      deficiency                 or combination               of deficiencies                   in internal                   control                such        that

there      is      reasonable                    possibility             that         material         misstatement                  of the        entitys             financial                 statements

will      not be       prevented                  or detected             and corrected                on        timely basis



Our       consideration                     of    internal              control        was      for    the       limited
                                                                                                                                    purpose            described                    in      the         first       and

second          paragraphs                  and        would            not     necessarily identify                        all    deficiencies              in        internal               control               that


might be           deficiencies                       significant             deficiencies            or    material              weaknesses                 We        did not identify                             any
deficiencies             in internal                  control and               control activities                for       safeguarding               securities                   that      we        consider

to   be    material weaknesses                            as   defined              above


We        understand                 that
                                             practices
                                                                    and procedures                  that        accomplish                the     objectives                  referred                  to    in    the

second          paragraph                of this report are                         considered         by        the    SEC          to     be    adequate                  for       its     purposes                   in

accordance              with          the Securities                    Exchange             Act of 1934 and                      related        regulations                  and          that         practices

and procedures                    that      do not accomplish                         such      objectives in                all    material respects indicate                                          material

inadequacy              for       such           purposes Based                       on     this   understanding                    and on our study we believe                                                    that

LFA             practices              and procedures                          as    described             in    the        second          paragraph                  of     this            report               were

adequate          at    December                  31 2009                to    meet     the     SECs            objectives



This report             is   intended                 solely       for the       information            and       use of the Board of Directors                                            management
the    SEC        and other regulatory agencies                                        that    rely    on Rule                7a-5g          under           the       Securities                  Exchange
Act of 1934                  in their            regulation             of registered            brokers           and        dealers            and    is    not           intended               to        be     and
should          not be used by anyone                              other than these specified                           parties




                                                                                                                                                                            Cf




February          23 2010



1001-1125633                                                                                                                                                                                                             17



                                                                                                                                                       member   Firm   ef   Erest     Yesng    Global    Limited


                                           Lincoln        Financial   Advisors   Corporation



                                 Consolidated              Statements    of Financial   Condition




                                                                                                  December   31

                                                                                           2009                   2008

Assets

Cash and cash           equivalents                                                      76306723            70446391
Receivables

  Commissions and                   fees                                                 32984668            28677815
  Affiliates                                                                                791560                 707968
Deferred        income        tax    benefit                                               6557543            4189660
Prepaid        expenses                                                                     991058                 947469
Other     assets                                                                           4466916            2115949
Property        and equipment

  Computer           and software            costs                                         1287451             1307672
  Furniture and equipment                                                                  2308192            2308192
                                                                                           3595643            3615864
  Less     accumulated              depreciation                                          3010873             2576281
Net property and equipment                                                                  584770             1039583
Total assets                                                                            122.683.238          108   124.835



Liabilities         and stockholders equity

Payable        to   vendors                                                                 604366                 350176
Payable        to   affiliates                                                           21661203             18101120
Deferred        revenue                                                                    3022060            3087948
Accrued        commissions                                                                19963013            16985318
Accrued        compensation and                benefits                                    9554572            7728767
Other     liabilities                                                                      4117579            3982837
Total    liabilities                                                                     58922793            50236166


Stockholders            equity

  Common            stock     $100 par value

      Authorized issued                 and outstanding        shares   135000              500000                 500000
  Additional          paid-in capital                                                     14727048            13864482
  Retained          earnings                                                             48533397            43524187
Total stockholders                                                                                           57888669
                                    equity                                               63760445
Total    liabilities      and stockholders                equity                        122683238            108124835


See   accompanying               notes




1001-1125633


                                          Lincoln     Financial     Advisors   Corporation



                                             Consolidated         Statements   of Income




                                                                                      Year Ended December 31
                                                                                           2009          2008

Revenues

  Commissions and                  fees   from   third parties                        209939218        236953572
  Commissions and                 fees    from   affiliates                           107865569        135901461
  Interest                                                                                   318077     2361160
Total revenues                                                                       318122864         375216193


Expenses
  Commissions and agency expenses                                                     201590604        231858007
  Service        charges      from       affiliates                                    84632738        103783402
  Salaries wages and                 benefits                                          18213438         14022541
  Licenses           and   fees                                                            1540727       1684896
  Legal        and   professional                                                          3936945      2541018
  Office expenses                                                                          2109180      2178593
  Other        general     and administrative                                              1478879      2059228
                                                       expenses
Total expenses                                                                       313502511         358127685
Income         before      income     taxes                                                4620353      17088508
Income         tax benefit expense                                                          388857      6765763
Net income                                                                                 5.009.210    10.322.745



See   accompanying                notes




1001-1125633


                                           Lincoln   Financial   Advisors Corporation



                         Consolidated          Statements   of Changes   in   Stockholders     Equity




                                                                                    Year Ended December          31

                                                                                        2009              2008

Common          stock

Balance        at    beginning       and    end of year                                 500000             500000


Additional           paid-in capital

  Balance           at   beginning        of year                                    13864482           12423642
  Share-based                                                                           862566           1440840
                           payment        expense
Balance        at    end of year                                                     14727048           13864482


Retained        earnings

  Balance           at   beginning        of year                                    43524187           61201442
  Net income                                                                          5009210           10322745
  Dividends              paid                                                                           28000000
Balance        at    end of year                                                     48533397           43524187
Stockholders               equity    at   end of year                                63760445           57888669


See   accompanying              notes




1001-1125633


                                             Lincoln              Financial        Advisors Corporation



                                             Consolidated                    Statements   of Cash Flows




                                                                                                    Year Ended December 31
                                                                                                      2009           2008

Operating         activities

Net income                                                                                                5009210   10322745

Adjustments         to     reconcile       net      income        to   net

  cash provided            by   operating           activities

     Deferred income              tax      expense/benefit                                            2421321           89544
     Loss      on disposal        of furniture             and    equipment                                                 1649
     Depreciation                                                                                          465842      558120
       Share-based         payment         expense                                                         916004    1476205
     Changes        in   operating         assets         and    liabilities


        Receivables

           Commissions               and     fees                                                     4306853       11789063
           Affiliates                                                                                   83592         707968
        Prepaid     expenses                                                                            43589           89178
        Other assets                                                                                  2350967       1598321
        Payable       to    vendors                                                                        254190    581311
        Payable       to    affiliates                                                                    3560083    1579610
        Deferred revenue                                                                                   65888     502258
        Accrued          commissions                                                                      2977695   7540499
        Accrued          compensation               and    benefits                                       1825805   3263014
        Other     liabilities                                                                              134742    238740
Cash    provided by operating                      activities                                             5871361   11474003


Investing activities
Proceeds       from      sale   of furniture            and      equipment                                                  9297
Purchase       of property         and equipment                                                           11029      281578
Cash    used in investing             activities                                                           11029      272281

Financing         activities

Dividends       paid to stockholders                    from retained          earnings                             28000000
Cash    used in financing              activities                                                                   28000000

Increase       decrease         increase           in   cash and       cash equivalents                   5860332   16798278
Cash    and    cash equivalents               at    beginning of year                                 70446391      87244669
Cash    and    cash equivalents               at    end    of year                                    76306723      70446391


Noncash transactions
Executive stock             option     tax    expense                                                      53438       35365

See accompanying                notes




1001-1125633


                                        Lincoln             Financial           Advisors             Corporation


                                    Notes           to Consolidated                    Financial            Statements



                                                                  December             31 2009




      Organization and Accounting                          Policies



Description            of Business



The      accompanying             consolidated               financial          statements               include        Lincoln       Financial          Advisors

Corporation            LFA    and      its    wholly owned             subsidiary             LFA         Management               Corporation        LFAMC
the     Company LFA               is     registered broker-dealer                      and investment                 advisor       engaged principally                  in

the    distribution       of securities         including          certain      mutual        funds        limited
                                                                                                                         partnerships         and equity and
fixed      income       securities       LFA          is   licensed       to     engage        in       broker-dealer          and investment                 advisor

activity       throughout     the      United         States      LFAMC           is         management               company        incorporated         in    2004
for     the
                purpose      of     providing              LFA      with        executive               management             services       and       corporate

governance             All intercompany             accounts        and      transactions           are     eliminated in consolidation                       LFA        is


  wholly owned             subsidiary of The                Lincoln       National           Life Insurance             Company            LNL        which         is


wholly owned subsidiary of Lincoln                             National        Corporation               LNC
The     financial        statements          have          been    prepared            in    conformity               with    U.S         generally      accepted

accounting        principles        These       financial         statements           comply with              the    requirements          of the     Securities

and     Exchange          Commission                SEC           pertaining          to     the    Financial           and     Operational           Combined
Uniform         Single     FOCUS             Report         However            the     financial         information          in    the    FOCUS        Report           is


presented        on an unconsolidated                 basis



The Company and                other         affiliated        entities        that    provide           services        to   the    Company            are    under
common ownership               and management                     control         The        existence          of this control could             result       in    the

Companys           operating        results      or financial          position             being       significantly         different      from those             that

would have been obtained                     if the   Company were autonomous


Use of Estimates


The     preparation         of consolidated                financial       statements              of    LFA       requires management                   to     make
estimates        and    assumptions          that     affect      amounts        reported           in    the    consolidated         financial       statements

and    the     accompanying         notes        Such       estimates        and assumptions                    could    change      in the    future     as    more
information        becomes known                which could            impact          the    amounts reported                and disclosed        herein




1001-1125633


                                                Lincoln                Financial             Advisors              Corporation


                                Notes        to Consolidated                          Financial             Statements               continued




      Organization and Accounting                                      Policies        continued


Cash and Cash                    Equivalents



Cash and            cash       equivalents           which             are     carried       at    cost        include      all    highly           liquid          debt instruments

purchased                with            maturity            of        three      months            or     less       and      therefore                 the        recorded              value

approximates                  fair    value      Cash             of    $3400000               as     of       December           31      2009           and        2008            has    been

segregated           in         special      restricted           bank account               for     the       benefit of customers                      under       Rule 15c3-3                of

the Securities             Exchange             Act of 1934


Commission Revenue                           and Expense


Commission revenue                        for   customers                 securities         transactions             and     related          commission expenses                             are

recorded            on        settlement-date basis                       which does                not    deviate        materially from                           trade-date            basis

Asset-based               revenue          and    related               commission                expenses          are       recorded              as    earned           based           on
contractual              percentage          of customer                 deposits            Wrap         fee    income           also    referred             to    as    assets         under

management                 fee       income       is      received             one       quarter          in    arrears       on          number            of       programs              LFA
participates             in     An    accrual      is     recorded              for    fee    income            and       corresponding                    accrual             is   recorded

for   the    commission expense                      to      be paid           based     on the       fee       income


Income         Taxes


LFA         files        consolidated            federal               income          tax    returns           with      LNL            and        LNC             Pursuant              to    an

intercompany                  tax-sharing         agreement with                       LNL LFA                  provides       for       income           taxes           on         separate
return filing basis The                      tax-sharing agreement                           also    provides          that    LFA         will      receive          benefit         for      net

operating           losses         capital      losses            and     tax     credits          which may not be                      usable          on                               return
                                                                                                                                                                     separate
basis to the             extent       such      items        may        be     utilized       in    the consolidated                federal          income            tax      returns         of

LNC

Property and Equipment


All    fixed         assets          including          furniture              and      fixtures           leasehold           improvements                         data       processing

equipment                and computer software                          are    carried       on the        basis    of cost         and depreciation                       is   computed
thereon        based       on      the    estimated          service           lives    of the assets using                the straight-line                   method


Deferred            Revenue


Cash received                 in   advance        for     financial             planning            contracts       is    recorded             as    deferred             revenue          until


delivery        of the financial              plan      to    the respective                 customer




1001-1125633


CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION

Lincoln    Financial     Advisors   Corporation
Years Ended December            31 2009 and 2008
With Report        and   Supplementary Report of
Independent        Registered   Public   Accounting   Firm




 Ernst    Young   LLP




         ERNST YOUNG


Ernst          Young               LLP


Assurance                  Tax         Transactions                     Advisory



About      Ernst           Young

Ernst       Young          is      global       leader     in   assurance

tax     transaction             and   advisory        services

Worldwide          our          130000          people     are    united

by   our   shared        values       and       an   unwavering

commitment            to        quality     We make              dilFerence

by   helping    our        people         our    clients        and   our   wider

communities           achieve          potential




www.ey.com




                                                                                    Ii



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