Stifel 2022 earnings rose due to higher interest rates

Stifel reaches record wealth revenue after recruiting 150 advisors

January 26, 2023 2:21 PM

Rising interest rates and an influx of advisory assets drove record business for Stifel's wealth management unit last year.

The St. Louis-based wealth and investment management firm added more than 150 incoming financial advisors to its ranks through recruiting last year. But its headcount remained roughly flat after the impact of retirements and other broker exits, according to Stifel's Jan. 25 earnings report for the fourth quarter and a call with analysts.

In remarks on the call, CEO Ron Kruszewski compared Stifel's lower stock price at the prior day's close of $62.97 a share to what he called "two high-quality peers" in Raymond James ($117) and Morgan Stanley ($95.51). In terms of earnings and book valuations from the start of 2018 through the third quarter, Stifel's rate of growth in each metric surpassed those of the other two firms, he noted.

"Our team's goal is to continue to perform consistently, and, as a natural result, close the valuation gap," Kruszewski said.

For the key wealth management takeaways from Stifel's fourth-quarter earnings, scroll down the slideshow. To see analysis of its results from the prior period, click here.

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Note: Stifel only breaks out certain metrics specific to the more than 2,300 advisors in its Private Client Group, which is a part of the firm's Global Wealth Management unit. The figures refer to the entire Global Wealth Management division unless otherwise noted.

Recruiting

The firm's efforts to attract more advisors paid off with a higher volume of recruits but slightly lower overall production in 2022. For the year, the firm recruited 152 advisors with trailing 12-month production of $70 million, compared to 121 incoming brokers producing a combined $77 million in 2021. In the quarter, the number of incoming advisors ticked up by 2 to 36 brokers with $14 million in combined production, or $2 million less than the same period a year ago. Out of the new crop of three dozen advisors, 20 were experienced brokers; 11 out of the tenured group chose Stifel's independent channel, Stifel Independent Advisors.

Financial advisor headcount

Stifel ended the year with slightly more advisors in its traditional employee channel and significantly more in the independent arm. Overall, headcount increased by a net 15 advisors year over year to reach 2,344 by the end of 2022, a gain of less than 1%. Stifel's footprint of branch offices expanded by two locations to 398. The much smaller independent channel's headcount grew 12%, or a net 11 advisors, from the year-ago period to 102.

Client assets

The company has set a goal of amassing $1 trillion in client assets, but slumping stock and bond values in 2022 took a bite out of customers' portfolios. Across the entire wealth division, which includes Stifel's asset management arm, total client assets fell 11% year over year to $389.82 billion in 2022, while advisory assets slipped 11% to $144.95 billion. For the Private Client Group, fee-based advisory assets tumbled 11% to $126.04 billion in 2022 and asset management revenue for the quarter dropped 11% to $240.4 million.

Still, the entire division's asset management revenue grew 5% in 2022 to a record $1.26 billion due to strong inflows. The business line that achieved the most notable expansion from the year-ago period came from the client cash assets in Stifel's bank sweep program, where revenue soared 540% to $5.5 million as investors moved out of stocks and bonds.

Expenses

Provisions for credit losses pushed up the wealth division's costs in 2022, despite roughly flat compensation expenses tied to asset values. Non-compensation costs jumped 24% year over year to $389.7 million, while compensation and benefits increased by less than 1% to $1.37 billion. In total, the unit's expenses rose 4% to $1.76 billion.

Bottom line

The higher asset management revenue and substantially larger interest income tied to rising rates made 2022 a profitable year for Stifel's wealth unit. Net interest income surged 72% year over year to a record $879.8 million, helping to drive up the division's pretax profit margin by 260 basis points to 37.8%. The unit generated pretax income of $1.07 on record net revenue of $2.83 billion. Profits grew 17% and revenue climbed 9%.

Remark

Last year marked Stifel's second best results as a company, according to Kruszewski, who noted that the board's approval of a 20% boost in its common dividend was Stifel's fifth annual increase in a row.

"Simply stated, Stifel performed as we expected," he said in a statement. "The breadth of our franchise helped to offset much of the impact of the difficult market environment in 2022."