Raymond James Holds the Line on Pay Packages
Raymond James Financial won’t use savings from the lower corporate federal tax rate to significantly raise recruiting packages but will continue to aggressively hire financial advisors, company executives said Thursday morning.
Laying out a conservative strategy for the Florida-based company’s deployment of excess capital, Chief Executive Paul Reilly noted repeatedly in a conference call with analysts that the company’s strong fiscal first quarter that ended on December 31 was helped in many ways by robust markets that may not last.
As a result, it will not do anything “knee-jerk” with its tax gift, whether raising recruiting bonuses, rewarding shareholders with buybacks or echoing other corporations that have been paying special bonuses to employees.
“We’re digesting it,” he said of the new tax law that will lower Raymond James’ federal rate for the rest of its fiscal year to 24.5% from 35% in the last quarter of 2017. “The markets look very constructive…but we also get concerned when the comments get pretty euphoric because that’s when the bad things can happen.”
The more than 7,500 brokers in the company’s private client group, which fueled 71% of the bank’s revenue last quarter, leveraged rising markets and rates to generate a 16% jump in fees and commissions from the year-earlier quarter. Raymond James boasted that 46% of private client group customer assets under administration were in fee-based accounts, higher than totals at its large wirehouse competitors.
But attracting new brokers who can bring client assets with them remains a priority, said Reilly, expressing his disdain for the recent decisions of larger companies to leave the Protocol for Broker Recruiting. The industry pact, which Morgan Stanley and UBS Financial Services exited last quarter, makes it easier for brokers and their clients to change firms.
The larger firms’ Prexit decisions, which free them to bring lawsuits against advisors who solicit former clients, have not affected Raymond James’ recruiting “pipeline,” Reilly said. “We might be a bit slow getting people under the new ‘rules,’ but so far so good.”
But he waved the flag for what he said were the principles of advisor and client choice embedded in the Protocol, and said Raymond James is pressing regulators to take a stand against the possible demise of the pact.
“Clients have the right to choose their advisors and know where they are going,” he said.
Without mentioning Morgan Stanley, UBS and Citigroup (which also has left the Protocol) by name, he also argued that it’s bad management strategy to restrict advisor mobility.
“When you lock people in, it gives you an excuse to not perform well,” he said, repeating Raymond James’ mantra that advisors rather than the firm own their client books. “The impact of leaving that Broker Protocol in place really forces us to make this the best platform.”
Raymond James’ broker headcount rose almost 6%, or 409 advisors, over the 12 months of 2017.
The last three months of the year were especially strong in the firm’s independent channel, where the company added 194 brokers for a total of 4,499 “contractors.” It lost a net three advisors in its more profitable employee channel over the quarter as a result of people retiring, leaving the business or moving across channels, the company said.
Raymond James last fall lowered grid payouts for the approximately 3,000 brokers in its employee channel, but the change failed to cut compensation expenses because strong commissions and fees, aided by the robust stock market, bumped brokers into higher payout brackets.
“It yielded virtually no benefit to us in this particular quarter,” Chief Financial Officer Jeff Julien said on the conference call. “Bracket creep…virtually ate up the benefit that we would have seen.”
He also said that another part of the private client group, which also includes the high-net-worth Alex. Brown division, is now phasing in the revised grid.