Raymond James Q2 earnings rise despite Steward’s exit

Steward Partners leaves Raymond James but retains it as custodian

July 28, 2022 4:52 PM

Nearly 200 financial advisors with Steward Partners have technically left Raymond James’ brokerage, but most of their assets are remaining with the giant wealth manager’s custodian.

An expected move by the independent firm from Raymond James Financial Services to Steward Partners Investment Solutions, a brokerage it rebranded following an acquisition last year, left a mark on the St. Petersburg, Florida-based firm’s July 27 earnings statement and its call with analysts the following day. Other practices have made similar moves to leave a brokerage but retain the same firm’s custodian. The Raymond James Private Client Group still generated record revenue and profit for the quarter, thanks to higher interest rates and client service fees.

Steward Partners is “really one big firm whose business model has changed,” and its exit has been in the planning stages for a year, CEO Paul Reilly said, according to a Seeking Alpha transcript. He noted that the firm can no longer count Steward’s 188 advisors among its ranks.

“Strategically we've set up and really bolstered our RIA offering, just because it was and it has been the fastest-growing segment in the industry,” he said. “The good news is, when people have switched to RIAs, they haven't gone to any of our custodian competitors. They've mostly, almost virtually 100%, stayed at Raymond James. So it's been a good retention tool.”

Industry News

No longer its brokerage, Raymond James remains custodian to $795M RIA

January 24, 2022 9:56 PM

The independent firm made the change in May, according to material changes listed on New York-based Steward’s SEC Form ADV brochure. The firm has 30 offices, 375 employees and $25 billion in client assets. It and Raymond James “will continue to have a strong partnership going forward,” spokeswoman Michaela Morales said in an email.

“While we expect a majority of Steward partner teams will continue to custody with Raymond James, we are excited to also offer a multicustodial option for the Steward Partners advisor teams, which will give them a wide array of options to serve clients with state-of-the-industry tools that will be a benefit to both their practices and clients,” she said.

Scroll down the slideshow to see the other key takeaways for financial advisors and other wealth management professionals from the firm’s second-quarter earnings. For coverage of the prior quarter’s earnings at Raymond James, click here.

Note: Raymond James’ Private Client Group includes independent brokerage Raymond James Financial Services, employee wealth manager Raymond James & Associates and the firm’s custodian, Registered Investment Advisor & Custody Services.

Financial advisor headcount

The 200 brokers joining Raymond James in the U.K. under its acquisition of London-based Charles Stanley enabled the company to avoid net losses to its advisor headcount after Steward’s departure. Instead, the company gained a net 203 advisors, or a 2% increase, from the year-ago period to reach 8,616 in the second quarter.

Over the last 12 months, the company has added advisors with $300 million in annual production and about $47 billion in client assets at their prior firms, Reilly noted in his prepared remarks. The number of independent contractors ticked up by 11 to 5,001, while the ranks of employee brokers grew by a net 192, or 6%, to 3,615.

Client assets

Slumping stocks took a toll on the client assets managed by Raymond James as investors moved into cash. Client assets under administration fell 3% year over year to $1.07 trillion, while fee-based advisory assets dropped 2% to $606.7 billion. Over the same span, clients’ domestic cash sweep balances soared by 20% to $75.8 billion. In an illustration of the impact of the stock market, the company has otherwise picked up $98 billion worth of net new assets.

Expenses

Expenses surged in the second quarter due to much higher compensation for advisors and corporate employees. Advisor compensation and benefits jumped 18% year over year to $3.6 billion, while that of administrative staff rose 16% to $878 million. Other expenses climbed 23% to $577 million. Advisor recognition events and conferences, as well as higher bank loan provisions, drove much of the overall higher expenses across the firm.

Bottom line

Significant gains in business from asset management, account and service fees and interest income more than offset the rising expenses. The Private Client Group earned pretax income of $251 million on net revenue of $2 billion, with the profit figure up 29% over the year-ago period and the revenue growing by 15%.

Remark

Raymond James gave its employees a one-time bonus totaling $15 million across the firm, with most of it going to the Private Client Group as the largest segment of the company, according to Reilly and Chief Financial Officer Paul Shoukry. The firm gave an “off-cycle bonus to our lower-paying associates to help them cope with the inflationary costs of gasoline, housing and everything else,” Reilly said in response to an analyst’s question about compensation expenses.

“It really is taking care of our associates doing an unbelievable job,” he said, according to the Seeking Alpha transcript. “We've been great. Our turnover [has] certainly been up, but it's been lower than the industry. They've been doing a good job for us. And we felt we owed them to do this, which should take them to the year-end until we get to our normal cycle adjustments.”