Stifel steadily grows advisor count with record Q3 wealth revenue

October 31, 2022 6:46 PM

Stifel Financial added to its advisor headcount in the third quarter, bolstering its burgeoning wealth business even as it saw profits drop 21% compared to a year ago.

Despite an earnings miss that saw earnings per share come in 11% below analysts' consensus, weighted down by its investment banking unit, the St. Louis-based brokerage reported record revenue in its global wealth management business, which has seen a steady growth in advisors over the past three years.

"Recruiting activity remains strong, but we've seen throughout the year that the pullback in markets slow[ed] the actual transition of advisers while also accelerating the retirement of others," Chairman and CEO Ron Kruszewski told analysts in an earnings call on Wednesday. "As we look forward to more stable markets, we anticipate meaningful increases in recruiting levels." Like many competitors, the regional brokerage is snapping up talent as advisors jump ship from wirehouses.

Kruszewski touted Stifel's "platform and culture that enables financial advisers to grow their business without the bureaucracy that plagues many other firms." He added that "we are encouraged by the traction we are gaining in the independent channel."

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To see the main takeaways from Stifel's third-quarter earnings, scroll down the slideshow. For a look at the results from earlier this year, follow this link.

The big numbers

Net income as reported by GAAP standards fell 21% year-over-year to $151.2 million, from $192.3 million, according to an earnings supplement on the company website.

Net revenue overall fell to $1.0 billion, down 9% from $1.1 billion the same time last year. The decline was driven by a 31% drop in the investment banking division, which suffered from a slowdown in deal closings and delays from regulators, Kruszewski said. "While we believe these deals should close in the fourth quarter, of course, [we] cannot be certain."

"In terms of equity underwriting, Stifel's activity is really no different than what's happening industry-wide. However, I do believe that this business will rebound as many transactions are delayed as opposed to being canceled, and we have seen some green shoots from the technology and health care verticals."

Revenue in the global wealth management unit rose to a record high of $701.8 million, up 7% from $655.5 million a year ago.

The firm reported record net interest income for the third quarter of $242 million, up 86% year-over-year, and record loan balances, according to an earnings presentation.

Financial advisors

The total number of advisors rose to 2,337, a growth of 1.5% year-over-year from 2,302, according to the earnings supplement. That number is up by seven from last quarter's 2,330.

Stifel reported 2,235 employee advisors, up 1% from 2,212 the year before, and 102 contractor advisors, up 13% from 90 advisors the same time a year ago. Since the start of 2019, Kruszewski said, Stifel had "recruited nearly 500 advisers to our platform, a total trailing 12-month productivity of more than $350 million."

Kruszewski said the firm had added 36 advisors in the past quarter. Among them, 16 were "experienced advisors" who had chosen the firm, he said, "because of our friendly culture, expansive products, industry-leading yet simple and fair compensation plans and excellent technology."

Client assets

Total client assets fell to $364.8 billion down 10% year-over-year from $407 billion. However, net new assets increased 6% in the third quarter, Kruszewski said.

Expenses

Total non-interest operating expenses fell to $827.4 million, down 5% from a year ago. This was largely driven by compensation-related expenses which fell to $605.8 million, down 9% from $666.6 million year-over-year, in line with the fall in client assets — since advisors are frequently paid in proportion to the amount of assets they manage.

Guidance

"We continue to invest in our wealth business through recruiting and improving our technology," Kruszewski said, adding that hundreds of thousands of accounts have launched on the firm's user-friendly Wealth Tracker app, which organizes all client assets in one place and provides some investment portfolio analysis as well as phone access to advisors.

"Our advisors are using Wealth Tracker to not only deepen their relationships with existing clients and to review relationships holistically, but also to attract new clients to Stifel."

Kruszewski added that going forward, given the challenging current market conditions, "it is likely that our capital deployment will focus more on dividend increases and share repurchases and, if appropriate, acquisitions."

"The market[s] so far this year haven't rebounded as much as we had expected," said CFO Jim Marischen on the call. "And as a result, we now forecast net revenue to come in at the low end of last quarter's guidance for 2022, despite continued strength in our net interest income."