Raymond James Warns of Recruiting Headwinds
Raymond James Financial said Thursday that its broker recruiting engine has slowed as a result of the Covid-19 pandemic, despite occasional teleconference presentations and strong technology that has allowed 95% of the company’s employees to work from their homes without disruption.
Raymond James, which has made home-office presentations a hallmark of its recruiting strategy, added a net 88 advisors to its employee and independent broker channels during the first three months of the year, with moves heavily weighted to January and February.
Some prospects postponed their transitions, Reilly said, and despite a “strong pipeline” the outlook for a near-term revival is dim until sequestration restrictions are lifted and people feel comfortable about traveling. Getting people in is “key,” he said, and that process has been disrupted.
“Our top priority is organic growth, primarily driven by retaining and recruiting talent in our private client group,” Reilly said. But he warned that the country is still “in the middle of a global health crisis,” noting that Raymond James is itself going to be “very slow and deliberate about bringing associates back to the office.”
Asked by an analyst if the company’s relatively strong capital position and technology infrastructure puts it in a position to acquire smaller firms struggling with broker attrition, weak technology and regulatory constrictions, Reilly was similarly cautious.
Citing Raymond James’ 2012 purchase of Morgan & Keegan, he said that crises create valuation opportunities. But the pandemic is unpredictable for buyers and potential sellers, and retail brokerage acquisitions won’t happen quickly, he said. Raymond James’ smaller investment banking business is more likely to grow through acquisition if merger-and-acquisition activity among corporate customers picks up, Reilly said.
Pretax income at the private client group, Raymond James largest business sector, grew 29% to $1.5 billion in the January-March quarter due largely to asset management and administrative fees that rose 28% from the year-earlier quarter to $1.0 billion, almost half of its revenue.
Like many of its competitors, Raymond James warned that clients in fee-based accounts were billed on balances at the beginning of the quarter, when markets were soaring. By the end of March, client assets in fee-based accounts and total client assets under administration fell 14% on lower valuations and shifts from investments to cash.
Net revenue in the private client group, the largest of Raymond James’ four business sectors, was up 18% to what the firm said was a record $1.5 billion. Expenses rose 16% in the quarter to $1.3 billion. Advisor compensation and benefits remained by far the biggest expense component, jumping 22% from the year-earlier quarter to $915 million.
Raymond James ended the quarter with 8,148 advisors, a net increase of 286 over the 12 months ending March 31. The recruits had been producing more than $300 million on about $550 billion of assets at their former firms in the year before they joined, according to Riley.