Stifel Recruiting Fuels Record Quarterly Revenue, Higher Expenses
Stifel Financial hired 46 experienced brokers producing $36 million in the second quarter, and is eager to continue recruiting in spite of its short-term depression of profit margin, Chief Executive Ron Kruszewski said on Tuesday.The St. Louis-based firm ended June 30 with 2,193 brokers, up a net 75 from a year earlier. More than 80% of recruits to Stifel this year came from Merrill Lynch, Wells Fargo Advisors and Morgan Stanley, and the average production of hires in the second quarter was $782,000 (and $982,000 for those with five or more years of experience).
“We’re very pleased with our recruiting, and especially pleased with the reception and enthusiasm that we have…in this environment,” Kruszewski said on a conference call with analysts after Stifel reported a 22% jump in second-quarter net income to $103.8 million. “In many ways, the advisor [is] being marginalized across many of these large platforms.”
Net revenue in Stifel’s wealth management unit, its largest business, rose 7.1% to a quarterly record of $532.4 million but was outpaced by a 9.9% jump in operating expenses to $340.1 million. Compensation costs in the division rose 150 basis points from 12 months earlier to 49.3% of net revenue.
The wealth division’s pretax net income inched down to $36.1 million from $37.8 million in the year-earlier quarter, while its pretax profit margin fell by 170 basis points to 36.1%.
“It’s the cost of recruiting, and ACATs fees [for transferring client assets] and all of that,” Kruszewski said in explaining the rising expenses.
Stifel generally offers advisors producing $1 million and higher about 200% of their trailing-12-month revenue production, including deferred compensation tied to hitting certain asset and production targets.
Its typical offer is less than current deals from Ameriprise Financial and Wells Fargo, according to recruiters, but higher than Raymond James Financial, another firm that says it attracts advisors with a culture of relative autonomy that can be as important as a paycheck.
Culture “truly does matter” in attracting brokers, Kruszewski said, noting that the firm also is benefiting from its investment in asset-aggregation, digital and other sales and presentation tools (which wirehouses have been rolling out). Stifel, like Wells, also offers a 50% payout after a monthly production hurdle is reached, a grid alternative formula it says appeals to some brokers.
The company lost three advisors who were producing $1.8 million during the second quarter and whose departures Kruszewski termed “regrettable.”
Stifel’s broker count excludes those producing under $300,000, who Kruszewski earlier this year said he is easing out. (Many work in Stifel’s Century Financial unit for independent contractors, which has 96 of the 2,193 brokers included its June 30, 2019 count.)
The company last quarter also licensed five advisors from its training program who are now on teams and were not included in the 46 recruits the firm underscored.
Stifel’s brokers work out of 413 branches, up 15 from June 30, 2018.
The wealth management unit ended the second quarter with $305.2 million of client assets under administration, up 10% from a year earlier and 2% from the end of this year’s first quarter. It generally takes six to nine months for brokers to transfer assets of clients who are willing to follow them from their previous firm, Kruszewski said.