Raymond James closes another record quarter for wealth revenue

April 27, 2023 7:20 PM

Raymond James notched another record quarter for its wealth management unit, despite stalled advisor headcount growth after an impressive recruiting run last year.

The St. Petersburg, Florida-based firm reported record first-quarter revenues for its wealth business, the Domestic Private Client Group, and said it added $21.5 billion of net new assets in the quarter, according to an earnings release Wednesday.

The strong wealth unit results helped firmwide profits of $427 million jump 32% over the past year, though they were down 16% from the past quarter.

"With our continuing focus on retaining, supporting and attracting high quality financial advisors, PCG consistently generates strong organic growth, which is evident again this quarter," Chairman and CEO Paul Reilly told an earnings call.

However, the firm's net addition of 27 advisors over the past quarter translated to only a 0.3% growth in the number of total advisors. That sluggish record follows a quarter during which the firm added only 18 net new advisors. The regional brokerage and wealth advisor, which closed the quarter with 8,726 advisors, is still a hair below its year-ago level of 8,730.

Reilly said that the advisors recruited in the past year had managed almost $38 billion of assets at their old firms, and that "in our current advisor recruiting pipeline, we have several commitments from teams with $5 million to $20 million of annual production."

The company missed expectations with diluted earnings per share of $1.93, which was 18% below the analyst consensus of $2.36.

In addition, domestic cash sweep balances of $52.2 billion were 32% down from a year-ago level of $76.5 billion and down 14% from last quarter's $60.4 billion. The firm's bank arrived late to the game of keeping customer cash with competitive yield products, but attempted to make up for lost time with its recent introduction of an Enhanced Savings Program, which offers a 4.5% yield for qualified accounts — which require at least $100,000 to open, among other conditions.

The program added $2.75 billion to deposits last month, and as of this week, had reached a total of $4.5 billion in deposits, Reilly said.

"A good portion of these new balances were derived from brand-new clients to the firm, following the Silicon Valley Bank collapse, highlighting the attractiveness of this product and Raymond James being viewed as a source of strength and stability," Chief Financial Officer Paul Shoukry said on the call.

Neil Sipes, an analyst at Bloomberg Intelligence, said the results seemed in line with those yesterday at Stifel, a competitor regional firm that also logged record revenues in its wealth unit.

He added that recruiting slowdowns in the near-term don't necessarily reflect the bigger-picture story of "modest" growth in the firm's advisor ranks and steady adding of net new assets — an arguably more important metric. The nearly $22 billion of net new assets was "pretty strong" for Raymond James in representing 8% annualized organic growth, Sipes said.

"Clients are continuing to either add funds to Raymond James accounts, or they're garnering new clients," Sipes said, adding that "part of that can be that volatile times can lead to people seeking more advice."

Industry News

Raymond James' recent advisor hiring slows, but 'very large teams' soon to join

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To see the main takeaways from Raymond James's first-quarter earnings, scroll down the slideshow. For coverage of the firm's fourth-quarter earnings, click here. For a look at the results from the third quarter, click here.

Note: Raymond James' Private Client Group includes independent brokerage Raymond James Financial Services, employee wealth manager Raymond James & Associates and the firm's custodian, Registered Investment Advisor & Custody Services.

Financials

Net income of $427 million, including $2 million in preferred stock dividends, rose 32% year over year from $323 million, but were down 16% from last quarter's $509 million.

"The extremely challenging market environment, particularly for investment banking, has strained the near-term profitability of the segment," Reilly said. "However, we are focused on managing controllable expenses as near-term revenues are depressed."

Revenue of $2.87 billion was up 7% over the past year and 3% over the past quarter. This was "largely due to higher net interest income and RJBDP fees from third-party banks," the firm said in the release.

In the Private Client Group, pre-tax profits of $441 million spiked 107% over last year's $213 million and were up 2% from $434 million in the past quarter.

Revenue for the segment reached $2.17 billion, up 13% year over year and up 4% over the past quarter.

Total interest income, a key driver of financial institutions' profits, was $915 million, up a whopping 278% from the past year and up 11% over the past quarter. PCG revenue from fees in the Raymond James Bank Deposit Program totaled $311 million, a growth of 535% over the past year's $49 million and up 16% from the prior quarter's $268 million, according to the earnings supplement.

Financial advisors

The firm reported a virtually flat advisor headcount for the second straight quarter, with 8,726 total advisors. That number was 4 less than the 8,730 it reported a year ago, but reflected a net gain of 27 advisors over the past quarter's 8,699.

Raymond James reported 3,628 employee advisors, up 1% year over year from 3,601 but virtually unchanged from last quarter's 3,631.

Independent contractors, which totaled 5,098, were also up 1% over the past year's 5,129 but down 1% from last quarter's 5,068.

Expenses

Total non-interest expenses of $2.32 billion rose 3% over the past year and 9% over the past quarter. Of these, around $496 million were non-compensation expenses — which grew 28% over the past year and 25% over the past quarter.

"This increase was largely driven by higher legal and regulatory costs, including an unfavorable arbitration award totaling $20 million, along with higher communication and information processing expenses which reflect continued technology investments and the seasonal impact of year-end mailings," Shoukry said, alluding to a February FINRA decision to fine the firm for allegedly "raiding" Wells Fargo of employees at an Arkansas branch.

Financial advisor compensation and benefits of $1.12 billion fell 9% year over year as asset valuations remained down from year-ago levels, but were up 4% over the past quarter.

Raymond James closes another record quarter for wealth revenue

Financials

Financial advisors

Client assets

Expenses

Remark