Stifel wealth management earnings rise in Q1 on recruiting gains

Stifel more than doubles its recruits and reaches record revenue

April 29, 2022 3:11 PM

Despite the equity volatility in the first quarter, Stifel Financial’s wealth manager generated record overall revenue and asset management fees.

The St. Louis-based firm reached a new high in net interest income for good measure, with rising interest rates poised to help its bottom line along with those of Stifel’s rivals in coming months, according to the company’s April 27 earnings statement and a call with analysts.

Tumbling stock values that also leave a mark on wealth management earnings offset much of the company’s gains in business and notable recruiting additions, however. That impact and substantially higher expenses linked to the record revenue left Stifel with a small increase in profit and a steep decline in margin for the first three months of the year.

“The market environment has not been exactly what we had initially projected, and 2022 is shaping up to be very different from 2021,” CEO Ron Kruszewski said in his prepared remarks, according to a transcript by investing website Seeking Alpha. “This is why we've consistently emphasized the importance of the diversification of our business model.”

To see the key takeaways for financial advisors and other wealth management professionals from Stifel’s first-quarter earnings statement and call, scroll down our slideshow. For coverage of the firm’s results from the prior quarter, 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 gains

Stifel more than doubled the number of incoming recruits from the same period a year ago, when the wealth manager sustained a slowdown in broker hiring. The firm added 39 advisors in the first quarter, with 36 employee brokers including 13 experienced ones plus 3 independent registered representatives. Collectively, the new employee-branch teams generated $14.9 million in trailing 12-month revenue, while the independent advisors had $3 million with their respective prior firms.

“The remaining advisors were added through Stifel's training program, as well as advisors that achieve minimum productivity standards,” Kruszewski said in his prepared remarks. “Although market volatility was a bit of a headwind in terms of overall recruiting, we continue to see extremely strong interest in our platform, and we anticipate increased additions as the year goes on.”

Advisor headcount

In terms of headcount, Stifel’s total number of advisors rose 2% year over year, or a net 47 reps, to 2,321 in the first quarter. The ranks of independent advisors remained flat at 92 reps, but Stifel’s branch location footprint picked up a half dozen offices on a net basis to expand by 2% to 395. The “productive financial advisors” joining the firm helped drive up the firm’s overall business, Kruszewski said.

Client assets

The holdings of Stifel’s clients surged by 11% year over year to $421.4 billion in the first quarter, with advisory accounts in the Private Client Group growing by 15% to $138.2 billion. Bank loans issued by the wealth manager’s parent climbed by 6% from the end of the previous quarter to $17.9 billion. The firm’s shift to advisory services maintained its momentum. Recurring revenue from asset management services and interest income comprises 73% of the unit’s business, compared to 47% at the end of 2015 and 66% at the end of last year.

Expenses

Costs in the Global Wealth Management unit jumped 12% year over year to $456.3 million in the first quarter, with compensation and benefits up 8% to $365 million. As a share of the segment’s net revenue, compensation and benefits increased by 20 basis points to 53.5% due to the larger level of business in the quarter driving up pay, according to the firm. Non-compensation operating costs as a share of net revenue soared by 200 basis points to 13.4% after the impact of higher provisions for credit losses on the larger loan portfolio.

Bottom line

In the first quarter, the Global Wealth Management unit earned pretax income of $225.4 million on net revenue of $681.7 million for a margin of 33.1% before taxes. The profit ticked up by 1%, the revenue rose 8% and the margin slipped by 220 basis points. Within the Private Client Group, asset management revenue shot up by 25% as a result of the Global Wealth Management unit’s “strong fee-based asset flows and higher asset values from a year ago,” according to the firm. Across the full segment, transactional revenues fell by 12% to $176.3 million after a decrease from the higher levels in the first quarter of 2021. The rising bank lending pushed up the firm’s net interest income by a third to $156.8 million.

Remarks

With its quarterly revenue and earnings per share across the whole company reaching their second highest amount for the first three months of any year in Stifel’s history, Kruszewski took the opportunity to “to highlight the diversity and balance of our business model, which has proven over time to generate consistent growth despite ever-changing market conditions,” he said, according to the Seeking Alpha transcript.

“Simply, all else being equal, rising short-term rates are good for most banks and very good for Stifel,” Kruszewski said. “As I look to the remainder of 2022, the expected benefits from increases in short-term interest rates will be substantial to our net interest income.”

In a note after the earnings call, analyst Devin Ryan of JMP Securities maintained a “market outperform” rating for Stifel and boosted its stock price target and projected earnings per share.

“We would characterize management’s tone as constructive and believe that both the respectable results against a difficult operating backdrop and the company’s updated guidance reflect the diversity of Stifel’s business model and revenue streams,” Ryan wrote. “Taken as a whole, management’s updated guidance suggests that the mix of revenues will evolve a bit in 2022, but under the current market scenario, Stifel will be exiting the year with a higher level (and higher quality) of revenue and earnings than anticipated heading into the year.”