Stifel Advisor Count Dips But Wealth Profit Soars
Despite a slight dip in its advisor account, Stifel Financial said Tuesday that its core wealth management business ended 2017 with a 16% jump in fourth-quarter revenue and a 38% boost in operating profit from the previous year’s quarter.
“[A]n improving economy provided a better operating environment than we experienced in the past few years,” Chief Executive Ron Kruszewski said in a prepared statement.
The St. Louis based parent of the Stifel, Nicolaus retail brokerage unit said rising fees sparked by strong markets and growing fee-based accounts combined drove the strong quarter, along with improved interest revenue from rising rates and growing sale of bank products and services to investment customers. Stifel includes its bank within its global wealth management results.
The St. Louis-based company ended 2017 with 2,244 brokers in 391 offices, 36 fewer advisors in five fewer locations than at the end of 2016.
Kruszewski told analysts on the company earnings call that the firm had recently ramped back up its recruiting efforts after slowing it down last year in anticipation of the Department of Labor’s fiduciary rule.
“Our recruiting pipeline is healthy,” Kruszewski said, noting that recruiting also tends to drop off when markets are good.
“People are very busy in good markets and that tends to be a dampening effect on recruiting,” he said. “Why leave when things are good or put that in the mix of your client discussions?”
Stifel also said in a regulatory filing that just under one-third of the net headcount loss occurred at Century Securities, its small independent contractor unit.
Total client assets under administration of $272.6 billion were up 15% as of December 31, with 32% of wealth assets held in fee-based rather commission accounts— up from 29.6% one year earlier. Fee revenue jumped 24% from a year ago to $186 million.
Broker-dealers have been promoting fee-based accounts as less volatile sources of revenue than commission-based trading, and some large firms like Morgan Stanley now house more than 40% of their customer assets in fee-based accounts.
Stifel’s total wealth management commissions and fees in the quarter were up 13% from a year ago and 3% from the third quarter to $350.0 million, with $163.4 million of that coming from commissions. Brokerage revenue, reflecting commissions and principal transactions, were up 2% from a year ago and 3% from the third quarter to $163.4 million.
Stifel’s net interest revenue rose 43% to $112 million in the quarter, reflecting what it said was increased banking services and products used by brokerage customers and wider net interest margins.
Stifel Financial reported an overall net quarter loss for the quarter of $4.3 million, despite a 13.6% jump in net revenue. The loss primarily reflected a previously announced $101 million charge related to the new tax law as the company accelerated deferred executive compensation payouts and revalued some tax-loss assets before the lower rates for 2018 took effect.
The company’s compensation expense for the quarter represented a high 77.1% of its revenue, reflecting the accelerated deferred payments. Excluding the one-time charges, the compensation ratio would have been 60%.
Stifel’s total quarterly profit excluding the tax activities and some litigation- and merger-related charges of $120.6 million was more than double the $54.2 million it reported in the fourth quarter of 2016.