RayJay, Ameriprise Diverge in Recruiting Success—and Comp Costs
Raymond James Financial and Ameriprise Financial’s wealth management arms dominate their corporate profit and revenue, but the companies diverged last quarter in hiring the brokers who drive the wealth businesses.St. Petersburg, Florida-based RayJay’s advisor force grew by 107 to 8,011 brokers in the three months ending September 30, a 2.5% increase from 12 months earlier. The company will continue to swallow higher recruiting expenses to fuel its core franchise, Chief Executive Paul Reilly said during the company’s fiscal fourth-quarter earnings call on Thursday.
Minneapolis, Minnesota-based Ameriprise ended its third quarter with 9,930 brokers, down a net 21 from three months earlier and off by 3 from September 30, 2018. The company hired 96 advisors in the quarter, but its retention rate fell to 92.8% in its independent channel and to 91.8% in its smaller employee channel, their lowest levels in at least four quarters.
Raymond James did not report retention rates, but Reilly said the firm ended its fiscal year with “fantastic” retention and recruiting rates, adding 118 advisors in the past year, net of those who left. Independent contractors represented 78% of Amerirprise’s brokerage force and 59% of brokers at Raymond James at quarter-end.
The Florida firm’s private client group contributed $1.4 billion, or 68.3% of its $2.0 billion of revenue in its just-ended fiscal fourth quarter and 40% of its $354 million of pretax income.
Revenue at the wealth unit was up 6% from the year-earlier period to $1.39 billion, largely from fee-based accounts that represent just over half of client assets. But compensation expenses were also up 6% to $1.07 billion. (Ameriprise does not break out comp expenses for its wealth unit, a company spokesman said.)
Raymond James could make the numbers look significantly better by pulling back on recruiting, particularly if markets decline and interest margin continues to compress, but has no plans to do so.
“We believe that the franchise value of recruiting great advisors is key to what we do,” Reilly said. “I don’t want to hand over the business some day to a successor” if it is not growing.
Pressed on how Raymond James would be able to increase the wealth unit’s 10.4% profit margin when expenses are proliferating through recruiting and expansion into California and other new retail geographies while revenue is pressured by Fed interest-rate cuts, he mentioned improvement in back-office efficiencies and the possibility of broker-payout grid reductions.
“If we have to do that we will,” he said, but cautioned that such a move is “not a short-term issue” and would be a “major effort.” Raymond James cut its payout “grid” to advisors two years ago by an average of 1%, and did not make an adjustment in its fiscal 2020 grid.
Meantime, he lauded Raymond James recruiters’ robust pipeline of prospects for its employee and independent channels, including a “number of teams” that he said are producing $5 million to $10 million annually. There are “still a lot of good [prospects] in the half million range, “ he said, “but we are getting much bigger, at least for the time being.”
Raymond James did not break out the average production of its 8,011 brokers, but multi-million-dollar prospects would be well above average for a force that was overseeing $798.4 billion of assets under administration (including $409.1 billion in fee-based accounts as of September 30. (Private client assets under administration were up 6% from the year-earlier quarter, and Raymond James’ “financial assets under management” were up 2% from 12 months earlier, and flat with June 30, 2019 numbers.)
The Florida company overall reported that net income in its fiscal fourth quarter rose 1% from a year earlier to $265 million.
Ameriprise’s “advice and wealth management” sector contributed 52% of its pretax third-quarter operating earnings, or $396 million (adjusted for corporate allocations and insurance accounting)—up from 48% and 42% in the third quarters of 2018 and 2017. Its average advisor as of September 30, was producing $650,000 of net revenue on a trailing 12-month basis, up 5% from a year earlier, Ameriprise said.
Its wealth unit’s revenue of $1.68 billion fueled just under 80% of Ameriprise’s adjusted net revenue and was up 7.5% from the third quarter of 2018. Net inflows into its advisory wrap accounts fell 27% from the year-earlier period to $4.10 billion, which the company still characterized as “strong” organic growth.
Expenses climbed 6.3% to $1.29 billion in the wealth unit and its pretax adjusted operating earnings rose 12% to $396 million. Its pretax operating margin rose to 23.5% from 22.7% in the year-earlier quarter.
Overall, Ameriprise reported net income in the quarter of $543 million, up 8% from the year-earlier period. Revenue increased 1% to $3.31 billion and expenses were aso up 1% to $2.67 billion.