RayJay Private Client Profit Dips 8%, Employee Channel Recruiting Slips

Paul Reilly, Chairman and CEO of Raymond James Financial.

Raymond James Financial reported record revenue and earnings in its capital markets and asset management sectors in its fiscal first quarter, but pretax profit in private wealth management—its biggest business—slipped 8% from the comparable quarter a year ago.

“Even our regional competitors have significantly enhanced their recruiting packages,” Chairman and Chief Executive Paul Reilly said on an earnings conference call Thursday with analysts. “We dug down and [realized] we had a lot of room to move up…We’re a hard choice for advisors when someone is willing to pay them 50% more.”

He did not give specifics of the new deal package, but assured analysts that RayJay will be able to get a good return on its upgraded recruiting packages once rate spreads come back to normal levels.

Raymond James ended 2020 with 8,233 financial advisors—59% of whom are on contracts in its independent channel and the remaining 3,387 who are employees. Total advisor headcount grew by a net 173 in calendar year 2020, but the employee channel lost a net 17 advisors since September 30 while the independent channel gained 11.

Raymond James also is putting more emphasis on its registered investment advisor custody business, Reilly said, attracting internal and external advisors as the sector consolidates. (Charles Schwab last year bought TD Ameritrade, a large RIA custodian.) RayJay does not include RIAs in its total advisor count, but amalgamates their client assets in reporting private client group metrics and is considering breaking out headcount, executives said.

The private client group generated 66% of Raymond James’ $2.2 billion of net revenue in its fiscal first quarter ending December 31 and 35% of its pretax income of $399 million. (Like many of its larger competitors, the company’s capital markets business thrived in the quarter, with revenue up 69% versus 4% for the private client group. Net interest income for the firm as a whole fell 33% to $165 million compared with $246 million in the comparable 2019 quarter.)

Expenses in the wealth unit rose 5% to $1.32 billion (including $931 million in advisor compensation that was up 9% from the previous year’s first quarter), despite lower travel, conference and other costs that fell because of Covid-19 restrictions.

Net revenue in the private client group was up 4% to $1.46 billion—fueled by a 13% year-over-year quarterly gain in asset management and related administrative fees.

Customer assets in fee-based accounts that Raymond James and many of its rivals promote rose 20%, on rising markets, to a record $532.7 billion. Assets in fee as opposed to transactional commission accounts comprised more than half of the private client group’s $1.02 billion of client assets under administration as of December 31, 2020.

Mortgages and non-investment loans collateralized by private client group customers’ securities portfolios also helped Raymond James Bank make a record $22 billion of net loans during the quarter, the Florida company said.

Pretax income in RayJay’s private client group declined 8% to $140 million from $153 million in the comparable 2019 fiscal first quarter.

Separately, Ameriprise Financial said Wednesday that its broker headcount inched up by a net 51—including a net 17 in the fourth quarter—to 9,922 as of year end. The majority are independent contractors in its “franchise” channel, which reported a net increase of 65 advisors in 2020 to 7,805.

Like RayJay, Ameriprise fared less well in its employee channel. It had 2,117 employee brokers as of December 31, down a net 14 from the end of 2019.

Fourth-quarter revenue at Ameriprise’s Advice & Wealth Management unit increased 4% from the year-earlier quarter to $1.8 billion, but profit dipped 9% to $352 million. Like RayJay, it attributed the decline to near-zero short-term interest rates.

Total client assets in the retail client wealth business grew 14% year-over-year to $732 billion that Ameriprise CEO James Cracchiolo attributed to net new assets from clients and positive markets.