Raymond James Keeps Recruiting without Raising Deal Terms: CEO
Raymond James Financial continues to have a “robust” pipeline of advisor prospects across its private client brokerage and advisory channels, despite its resolve to avoid raising signing bonuses to match competitors, its chief executive said on Thursday.
“A lot of firms have upped their front money, and we just have not followed suit,” CEO Paul Reilly told analysts on a conference call to discuss the company’s fiscal first-quarter earnings.
He did not name specific competitors, but Wells Fargo Advisors last week internally announced a hefty new deal package to replenish its diminished brokerage force while Stifel Financial’s Stifel Nicolaus last year upped its recruiting offer.
Raymond James’ private client group, its largest business, reported a 6% jump in fiscal first-quarter pretax income over the prior year to $164 million and a 10% hike in net revenue to $1.36 billion. The increases reflected higher assets in fee-based accounts and $16 million of record-keeping fees for sweeps into Raymond James Bank that the retail unit booked for the first time due to internal revenue accounting changes.
Like Morgan Stanley, Merrill Lynch and other competitors, the Florida company warned that it bills fee-based accounts primarily on assets at the beginning of the quarter. Because of the steep market declines in late November and December, asset management fees booked in the current quarter will be “negatively impacted,” Raymond James said.
Raymond James experienced an unusually high number of 65 broker departures in the October-December quarter that just ended, due primarily to retirement, Reilly said. Most of the brokers’ client accounts remain with the firm due to transfer deals the advisors made with team members or other RayJay brokers, and the company’s recruiting pipeline is robust, he said.
Raymond James ended 2018 with a total advisor force of 7,815, up 278 from a year earlier but only two more than it reported on September 30, 2018. The bulk of the new hires—148—occurred in its independent contractor channel, where payouts that average more than 80% are about double the compensation to the company’s employee brokers. Independent contractors comprise 59% of Raymond James’ brokerage force.
“Recruiting is very good there,” Reilly said, “and production is accelerating on the contractor side.”
The company is unlikely to match its record calendar year of recruiting in 2018, he said.
As at other firms, private client group customers transferred investment account money to cash in response to market pressures. Assets administered by the private client group fell 9% from September 30 to $690.7 billion, which was slightly under the year-earlier total.
Money in the fee-based accounts that retail brokerage firms prefer over traditional commission accounts because they generate revenue irrespective of trading was down 8% in the last three months of 2018 to $338.8 billion, but up 7% from a year earlier.
In response to a question from JMP Securities analyst Devin Ryan as to whether Raymond James remains interested in using its excess capital to acquire other retail brokerage firms, Reilly repeated that it will make opportunistic purchases but said that if rivals are overpaying “we are going to hold back.”
Ryan referenced Baird Financial Group’s plan to buy J.J.B. Hilliard, W.L. Lyons, but Reilly said he was not alluding to any particular recent deal.
Raymond James has been an aggressive acquirer of retail firms—paying top dollar in 2016 to buy Deutsche Bank’s wealth unit (which RayJay rebranded as Alex. Brown) following its 2012 acquisition of Morgan Keegan. It also purchased Canadian independent broker-dealer MacDougall, Macdougall & MacTier in 2016 and on Wednesday said it is buying wealth-management advisory investment bank Silver Lane Advisors for an undisclosed sum. The deal is set to close in April, Reilly said.
Raymond James Financial as a whole said that its fiscal first-quarter net revenue rose 12% to $1.93 billion from a year earlier while net income fell 5% to $249 million. Excluding a loss on the sale of a European equity research business, net income would have been flat with the previous year’s quarter, the company said.
The private client group contributed 70% of the Florida firm’s net revenue in the quarter and 49.4% of its pretax income.
Shares of Raymond James Financial, which reported its results after the market closed on Wednesday were trading relatively flat at around $79.90 in late morning trading on Thursday. Shares closed Wednesday at $79.95.