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Will global headwinds upset volatility-tested BDs?

After weathering fourth-quarter volatility, publicly traded broker-dealers appear to be on a path right into more global headwinds.

While 70% of the S&P 500 beat analysts’ expectations for earnings per share and the firms’ earnings surged by 13.4% in the quarter, the forecast looks grim for the first period of 2019, according to FactSet Senior Earnings Analyst John Butters.

The stronger U.S. dollar, slower global economic growth and trade difficulties led Butters to predict S&P 500 earnings will slip by 3.4% in the first quarter.

Prior to open on March 11, the NYSE Arca Securities Broker-Dealer Index had grown by more than 7% in the year-to-date to $255.01 per share. The index nearly regained its price before its steep December decline, though it was 2 percentage points behind the S&P 500 for the year.

The index includes Raymond James, Stifel Financial, Morgan Stanley, Ameriprise, Charles Schwab and LPL Financial among its top 30 components. Nearly all wirehouses, independent firms and employee brokerages have announced fourth-quarter earnings.

Wealth management firms and online brokerages have been “slow to react following the December Fed hike” to interest rates, according to a Feb. 14 note by Devin Ryan, an analyst with JMP Securities.

Just three out of seven firms covered in the note increased their deposit rate on cash holdings in brokerage accounts, with only modest upticks of 4 basis points each at Schwab and TD Ameritrade and 6 bps at LPL. The cash deposit rates affect firms’ earnings each quarter.

“Prior Fed hikes have seen more immediate response by the industry,” Ryan said in the note, adding it appears the firms are “still evaluating both the competitive landscape and market expectations for the future path of short-term rates.”

Ameriprise, Raymond James and LPL still outpaced the combined stock value growth of other BD sectors discussed in a Feb. 7 note by Keefe, Bruyette & Woods written the week after the firms announced their earnings. LPL led all 17 BDs in the report with a 9% jump in price that week.

Buoyed by LPL’s stock value, the three retail wealth management firms’ stock value rose 2.6% for the week, compared to a slight increase of only 0.1% for the S&P 500.

Publicly-traded wealth management firms’ stocks are picking up much of the value they lost in the volatile fourth quarter. However, their earnings announcements contain several other metrics more specific to the wealth management space — like the number of advisors and client assets.

For a list of the top-performing brokerage stocks since the financial crisis, click here. Scroll down to see the main takeaways from the fourth-quarter results of wirehouses, independent firms and employee brokerages.

Raymond James headcount growth slows
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Raymond James has been so good at attracting new advisors in recent years that the firm’s name has almost become synonymous with recruiting success. But during the fourth quarter of 2018? Not so much.

Headcount rose just a net two advisors from the prior period to 7,815 (it was up 278 from the year-ago period). The slowdown comes after the firm announced at the end of September that it hit a record 7,813 independent and employee advisors, a net increase of 467 from the year-ago period and 94 from June.

“Recruiting was down a little bit [this quarter] after last year’s record pace,” CEO Paul Reilly told analysts during an earnings call.

Fewer new hires and an uptick in broker retirements and deaths — 65 in total — dampened growth.

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Wells Fargo headcount drops below 14,000 advisors
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Advisor headcount slipped again at Wells Fargo, which has suffered from attrition since a phony accounts scandal came to light in 2016.

The firm’s advisor ranks declined to 13,968 from 14,544 for the same period a year ago. That represents a 4% decline — or a net drop of 576 brokers — according to Wells Fargo’s fourth quarter earnings report. Headcount has dropped a net 1,118 brokers since the third quarter of 2016.

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Can LPL live up to its new mission statement?
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LPL Financial hopes to build the best advisor service in wealth management under a slew of new digital offerings and a new chief customer care officer set to join the firm this month, CEO Dan Arnold says.

The No. 1 independent broker-dealer “took an important step in this journey” in late 2018 by adopting its new mission statement: “We take care of our advisors, so they can take care of their clients,” Arnold said on a call with analysts after the company announced its fourth-quarter results.

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Record Merrill Lynch growth as firm christens new crop of $1M, $5M advisors
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Merrill Lynch is not just hanging onto more of its advisors; brokers are also achieving record levels of growth and client acquisition, according to the company.

About 500 Merrill Lynch advisors reached $1 million or $5 million in production for the first time last year, a record number to have passed those benchmarks, the firm says.

That boost in production propelled the firm to notch its highest ever full-year revenue, reaching $15.9 billion for 2018, up from $15.3 billion for the year-ago period.

“The thundering herd is on the move,” says Andy Sieg, head of Merrill Lynch.

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Morgan Stanley client assets fall 3%, mirroring declines at rival firms
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Market volatility hampered the performance of Morgan Stanley’s wealth management business, pushing revenue and asset levels down for the fourth quarter.

Rival firms Wells Fargo and Merrill Lynch also saw a downward trend.

At Morgan Stanley, net revenue for wealth management fell 6% year-over-year to $4.1 billion for the fourth quarter, according to the company's earnings report. Client assets, at $2.3 trillion, were down 3%. Fee-based assets were flat from the prior year.

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What’s driving Focus’ growth?
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Acquisitions continue to be Focus Financial Partner’s primary growth engine — a strategy the RIA aggregator intends to employ through 2019.

Focus, which went public last summer, added eight new partner firms last year and closed on 17 mergers for existing partner firms. The holding company now has 58 partner firms altogether.

The emphasis on M&A will continue in 2019, according to Focus CEO Rudy Adolf.

The rapid consolidation of the industry “plays to our strength,” he said in a conference call with analysts, following the release of the company's 2018 fourth quarter and full-year earnings results.

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UBS warns of headwinds after clients pull $13B in quarter
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UBS warned the worst may not be over after clients pulled $13 billion in assets during a market meltdown in the final months of 2018.

Increased volatility, rising protectionism and geopolitical tensions are still weighing on investors, which will hit wealth and asset management revenue in the first quarter, the Zurich-based bank said. Withdrawals at the key global wealth management unit totaled almost $8 billion in the fourth quarter, with clients removing another $5 billion from asset management.

The firm also said it had outflows from ultrahigh-net-worth clients of $3.5 billion compared to net inflows of $13 billion from the year-ago period.

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Stifel aims for another aggressive recruiting year
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Coming off an aggressive recruiting year in which Stifel bumped up headcount a net 57 advisors, CEO Ron Kruszewski expects the firm will see similar results in 2019.

“As I look at our pipeline and the people visiting the firm, I feel good about this,” Kruszewski told analysts during a fourth-quarter earnings call.

Stifel’s headcount rose to 2,301 advisors at the end of 2018 from 2,244 advisors for the year-ago period, the company reported. The firm also opened 13 new branches last year, staffing those new locations with hires primarily from the wirehouses.

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Edward Jones hits record advisor headcount, elevates 2 execs
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Edward Jones’s new leader is putting her mark on the firm, promoting two managers as the growing brokerage notches a record number of advisors, according to recent company filings with the SEC.

Managing Partner Penny Pennington tapped Tom Curran, 58, and Chris Lewis, 52, for the executive committee. Its members represent the “senior-most leadership of the firm” and are is responsible for the company’s strategy, governance and performance, a spokesman said.

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HD Vest confronts ‘uncertainty’ amid dramatic changes
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Dramatic shifts at tax-focused independent broker-dealer HD Vest Financial Services are taking place over varying stages of progress on multiple fronts, according to the CEO of its parent firm.

“The degree of change we achieved cannot be overstated, and with change comes a degree of initial variability and uncertainty,” said Blucora CEO John Clendening on a fourth-quarter earnings call.

Admitting service problems, he described an ongoing three-pronged custodial and platform switch as “a big change for advisors, one that has taken longer to adapt to than we, and they, anticipated.”

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Waddell & Reed advisors lead revenue spike amid IBD overhaul
Waddell & Reed Grabs Advisors with $275M
The overhaul of an 80-year-old mutual fund company’s independent broker-dealer is winning support from its smaller but much more productive force of 1,060 advisors, Waddell & Reed Financial’s CEO says.

Executives visited most of the firm’s markets in December and felt “the overwhelming sense” that advisors “understand and are enthusiastic about the direction we are taking the business,” Philip Sanders said after the Overland Park, Kansas-based firm announced fourth-quarter earnings.

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Client assets dip but profits rise at Ameriprise
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Client asset levels at Ameriprise fell, mirroring declines at rival firms and reflecting the impact that fourth-quarter market volatility had on the wealth management business.

Ameriprise said client assets for its wealth management unit dropped 4% year-over-year, landing at approximately $538 billion. Assets in wrap accounts inched up 1% to reach $249 billion.

The firm reported net flows of $4.5 billion for the quarter compared to $5 billion for the year-ago period.

“While [equities] come back a bit, we are managing the business in light of this uncertain backdrop,” CEO Jim Cracchiolo said during an earnings call.

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