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

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

January 26, 2023 9:45 PM

Raymond James reported steady growth and record profits in its first-quarter earnings Wednesday, boosted by strong net interest income and robust expansion of its financial advisor business.

Although the independent broker-dealer saw slower advisor recruitment and a nearly flat headcount in the quarter, it expects to have more feet in the door soon.

"We are at a very strong backlog," CEO Paul Reilly said on an earnings call Wednesday with analysts, referring to a pipeline of "very large teams" who are set to join the brokerage later this year.

Reilly noted that recruiting in the firm's employee channel saw robust growth over the past year but that the past quarter was slower in the independent division, where advisors are independent contractors. Still, he said that the expected recruits would be "very, very strong in both divisions."

"The only thing new in the last year is there are some third-party RIA aggregators that have paid more than the other firms competing for people in the adviser space," Reilly said.

The St. Petersburg, Florida-based brokerage largely met expectations with adjusted earnings per common share, diluted, of $2.29 for its first fiscal quarter in 2023, which ended Dec. 31, 2022 — a penny more than the Wall Street analysts' consensus of $2.28, according to J. P. Morgan analysts led by Devin Ryan in an earnings note.

The analysts, who rate the stock as "Market Perform," noted that the company's revenues were "slightly better than anticipated" but "likely more a result of timing dynamics than anything else," given the expectation that expenses not related to compensation will grow in the coming quarters.

Still, they remained optimistic that the company "is well positioned in the current market environment" given its recent record results in both fiscal years 2021 and 2022, "very different operating backdrops," and its strong organic growth.

The stock was down 4% late Thursday and underperformed the market as investors reacted to the news.

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To see the main takeaways from Raymond James' first-quarter earnings, scroll through the slideshow. For coverage of the firm's fourth-quarter and full year 2022 earnings, click here. For a look at results from the third fiscal year quarter, click here.

Financials

The firm reported a 14% bump in net income year over year to $509 million from $446, according to its earnings supplement. The firm said this figure, excluding preferred stock dividend of $2 million to arrive at $507 million of net income available to common shareholders, was a quarterly record.

Net revenue was flat year over year at $2.79 billion from $2.78 billion. It fell 2% from the previous quarter's $2.83 billion, as interest expenses rose 42% from the previous quarter.

The wealth advisor business, the Private Client Group, and bank lending programs reported record net revenues, making up for a dismal showing by the investment banking and asset management sides as deal-making activity remained very sluggish across the industry.

Financial advisors

Advisor headcount was flat in the quarter, following an active prior quarter and a year of recruiting in which the company drew its largest advisor teams ever.

The total number of financial advisors was up to 8,699 as of the end of the quarter, from 8,681 at the end of the previous quarter — representing a 3% bump year over year from 8,464.

The employee channel saw a net outflow of 7 advisors over the quarter, although it was up overall 5% year over year to 3,631 employee advisors.

The independent channel picked up a net 25 new advisors, though its growth year over year was slower, at 1%. The channel ended the quarter with 5,068 advisors.

Client assets and lending

Total client assets under administration fell 7% year over year to $1.2 trillion as portfolio values fell in tandem with depressed markets, though it was up 7% from the prior quarter.

Financial assets under management also fell 9% year over year, to $185.9 billion, and grew 7% quarter over quarter.

Net bank loans grew 69%, and net interest income grew 177% as the firm benefited from higher short-term interest rates. Revenue from fees in its third-party bank program grew 706% year over year.

Advisors in the Private Client Group added $23.2 billion of net new assets in the quarter, for a healthy growth rate of 10% year over year.

Raymond James announced a new high-interest savings program for clients of its brokerage unit, part of its effort to diversify revenue and keep or attract client funds in the pressured economy.

Expenses

Total non-interest expenses fell 4% to $2.1 billion from $2.2 billion the prior year and prior quarter. Financial advisor compensation and benefits fell 9% year over year as the value of client portfolios dipped 1% over the previous quarter. Total firm compensation and benefits fell 8% year over year and 1% from the last quarter.

"In the second quarter, we do have the impact of the payroll tax reset as we enter the beginning of the calendar year," chief financial officer Paul Shoukry said on the call. He added that compensation expenses were projected to grow in the second quarter as "significant" salary increases for advisors went into effect on Jan. 1.

Update on acquisitions

"In just a short period since the closing of the acquisition of TriState Capital, I am very pleased with their performance," Reilly said.

He added that he intended to let the bank retain its "independent operating model, including remaining a separately chartered bank with its own client relationships. This model, coupled with our strong capital, should foster its ongoing growth."

Asked by an analyst if the firm was planning any new acquisitions, Reilly said it wasn't a priority at the moment as he was focused on buying back $1 billion of shares in the 2023 fiscal year. But that could change, if the right acquisition opportunity came along.

"We like organic growth the best," Reilly said. "It's been our focus because it's sustained, it's large, consistent net new assets."