Profits rise for Stifel, but brokerage revenues dragged down by Sterne Agee sale

Stifel's wealth management business saw profits rise 12% this past quarter, at the same time global wealth management brokerage revenues declined modestly, according to the firm's latest earnings.

Global wealth management pre-tax income rose to $109 million, up from $97 million a year ago, the firm reported in third quarter earnings on Wednesday. Net revenues for global wealth management grew to $390 million, up 9.2% from $357 million a year ago.

Global wealth management brokerage revenues, however, dropped to $165.5 million, down 2.3%, from $169.3 million from the same period a year ago. Non-interest expenses rose to $281 million, up 8% from $260 million during the same period a year ago.

Adviser headcount dropped slightly to 2,280, a decline of about 1% from 2,298 in the second quarter.

DRAGGED DOWN
Stifel attributed the revenue drop to its sale of Sterne Agee's independent broker-dealer earlier this year. Without Sterne Agee, revenues in global wealth management would have jumped 8.7% from the same time period last year, according to the firm.

Ron Kruszewski, Stifel's chairman and CEO, explained that the Sterne Agee sale weighed on the firm's overall year-over-year balance sheet. The wealth management and advisory business lines, otherwise, were seen as chief drivers of growth at the company, he said.

Kruszewski still suggested that prevailing market conditions and increased scrutiny from regulators -- inclu­­ding the Department of Labor's fiduciary rule -- are dampening growth at the firm and in the broader industry.

"Despite the progress we continue to make in our growth initiatives, the industry continues to face headwinds from lower trading volumes and subdued issuance markets as well as from heightened regulatory oversight," Kruszewski says.

Kruszewski is hardly an outlier in the industry in his concerns about mounting regulatory and compliance challenges. The fiduciary rule, which aims to crack down on conflicted advice within the retirement sector, has firms scrambling to retool their policies and procedures to ensure compliance. Already, it has become clear that the rule represents a significant disruption in how firms pay out adviser recruiting bonuses and structure their compensation grids.

One of the most dramatic responses to that regulation, so far, has come from Merrill Lynch, which ended its commission-based retirement business. Stifel has said that the fiduciary rule compelled it to drop Sterne Agee, just a year after purchasing the Birmingham, Alabama-based brokerage and bank, one of a string of acquisitions Stifel has made under Kruszewski's tenure.