* Adjusted earnings $0.63/share vs est. $0.58
* Advisory revenue up 12 pct at $308.9 mln
* Raises quarterly dividend to 24 cents per share from 19
* Shares fall as much as 4 pct
(Adds CEO and analysts' comments, background and share move)
Feb 11 (Reuters) - LPL Financial Holdings Inc, the largest U.S. independent broker-dealer, reported a higher-than-expected 20 percent rise in quarterly profit, and said it was dropping its plan to turn itself into a bank-holding company.
LPL's shares fell 4 percent despite the strong results and a 26 percent dividend increase. Analysts said the decision not to pursue its banking plans may have dragged down the company's stock.
"Given the complexity of operating a bank in today's environment, we took a thoughtful approach to our review to insure the full impact of the capital and operational commitments were understood," Chief Executive Mark Casady said on a conference call on Tuesday.
The company said in July that it was considering starting a bank, citing the revenue potential of keeping 100 percent of the investment income from deposits.
Casady had then said the company had about $6 billion in deposits invested in money funds that could have gone into bank sweep programs.
"Many investors have looked at LPL and said that if they go into the banking side, it is going to substantially increase their revenue," said Sanford Bernstein analyst Brad Hintz.
If LPL had turned into a bank-holding company, it would have added up to $1 per share in earnings, Hintz estimated.
UBS analyst Alex Kramm said in his morning note that the company's shares could take a pause partly due to the update on the bank strategy.
LPL, which offers financial products and operational services to independent stockbrokers, said net profit rose to $44.4 million, or 43 cents per share, in the fourth quarter from $36.9 million, or 34 cents per share, a year earlier.
Net revenue rose 16 percent to $1.09 billion.
On an operating basis, LPL earned 63 cents per share.
Analysts on an average had expected earnings of 58 cents per share on revenue of $1.07 billion, according to Thomson Reuters I/B/E/S.
The company's advisory revenue rose 12 percent to $308.9 million in the quarter ended Dec. 31, driven by strong net new advisory asset flows and buoyant stock market.
Commission revenue rose 19 percent to $556.2 million as LPL hired new advisers.
LPL said its adviser headcount rose by 110 to 13,673 during the quarter.
The Boston-based company also raised its quarterly dividend to 24 cents per share from 19.
LPL's shares were down about 2 percent at $51.49 in afternoon trade on the Nasdaq.
(Reporting by Avik Das and Anil D'Silva in Bangalore; Editing by Kirti Pandey and Sriraj Kalluvila)