Raymond James Keeps Recruiting Gate Open Despite Expense Jump
Despite the potentially chilling effect of the stock market plunge and an explosion of legal and regulatory costs in the last two quarters, Raymond James Financial’s private client group will continue to aggressively recruit brokers, executives said on Thursday.
“The backlog looks very good and we expect recruiting to continue at a robust pace,” Chairman and Chief Executive Paul Reilly said on a conference call with analysts to discuss the Florida-based company’s fiscal fourth-quarter results released Wednesday evening.
Assets under administration in the private client group grew 5% during the quarter that ended September 30, and 15% from a year ago, to $755.7 billion, Raymond James said in highlighting record net revenue in the division that rose 12% from a year ago and 2% over the quarter to $1.3 billion.
Pretax net income in the unit, Raymond James’ largest business, nevertheless fell 8% from 2017 and 1% from June 30, 2018 to $131.2 million on a jump in legal and regulatory reserves and on higher compensation expenses to brokers.
The revenue jump primarily reflected higher fee-based accounts that Raymond James and other major firms are encouraging because they generate billings regardless of clients’ eagerness to make investments. It also reflects new assets from higher-producing recruits who arrived during the calendar year, company executives said.
Fee-based accounts rose 24% in the private client group from a year ago, and 7% over the quarter, to $336.3 billion, the company said. That represents 48% of total client assets—higher than at larger wirehouses—and gives the company a strong start for the current quarter since it bills on the previous period’s fee-based balances, Reilly said.
Raymond James’ broker count rose by a net 94 advisors over the three months ending September 30, and by a net 467 from a year ago, to 7,813, underscoring its position as one of the retail brokerage industry’s more aggressive recruiters. “Regrettable attrition” of advisors who left in fiscal 2018 that the firm hoped to retain is below 1%, executives said on the conference call.
Almost 60% of the firm’s advisors are independent contractors, a population that generates less profit than employees for brokerage firms but that has been growing faster at Raymond James (and other firms with independent channels) than in its employee-broker group.
Raymond James executives are “anxiously” watching the stock market, which after Wednesday’s plummet recaptured most of this year’s gains, Reilly said.
They also are aware of advisors’ historical reluctance to move during a downturn and of customers’ concurrent impulses to pull cash from their brokerage and bank accounts. But though advisors do more client hand-holding than focusing on career moves when volatility hits, Raymond James expects recruiting to continue apace.
“It used to be more sensitive to the economic environment than it is today,” Chief Financial Officer Jeff Julien told analysts, pointing out fears of losing clients in the transition. “It seems to have more to do today with what’s happening at the firm they are at.”
He was referring to Raymond James’s aggressive promotion of itself in recent years as a broker-centric culture. It has contrasted itself privately and publicly with wirehouses such as Morgan Stanley and UBS that have exited the broker-friendly Protocol for Broker Recruiting.
“We’re hiring more successful brokers with more upfront money,” Julien said, noting that average production of recruits last year compared favorably with average brokers in the firm’s Alex. Brown unit for wealthier investors. “They are good expenses because they relate to growth.”
He and Reilly aso acknowledged that legal and regulatory costs in the retail unit have been elevated, even after the firm’s $150-million 2017 settlement over a fraud case.
“We thought the previous quarter’s reserves [for legal and regulatory expenses] were elevated,” Julien told analysts, without specifying the private client group’s tab. “We managed to pass that this quarter.”