Stifel Q4 earnings rise on record client assets

Slower recruiting year for Stifel still brings record results

January 27, 2022 6:17 PM

Despite headwinds from inflation and low interest rates, Stifel’s wealth management unit reeled in record revenue and client assets last year.

The company doesn’t plan to slow down anytime soon. In fact, CEO Ron Kruszewski has set a goal of reaching $1 trillion in client assets from its current level of around $435 billion, he said in an earnings call with analysts after the St. Louis-based firm disclosed its fourth-quarter earnings on Jan. 26. While the number of incoming brokers declined last year, Kruszewski told an analyst who asked about the Global Wealth Management division’s organic growth rate that the target “isn’t a projection” because the business is boosting its assets under management by around 5% to 6% a year, according to a transcript by the website Seeking Alpha.

“That's what we're focusing on,” Kruszewski said. “And we're going to get there by organically growing with our existing clients, getting new clients and by recruiting. And those always sound, like, hugely aspirational. But they're really not. There are things that we can do. When I started, our AUM was $8 million. So we can do that, and we will. AUM growth is a core foundation to our growth forward, as it has been for the last 25 years.”

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To see the key takeaways from the earnings announcement and call, scroll down our slideshow. For coverage of Stifel’s prior quarterly earnings, click here.

Recruiting

Stifel added 34 advisors in recruiting for the fourth quarter, including 16 experienced employee brokers and seven independent advisors, with total annual production of $16 million. The number of incoming advisors ticked up from 32 in the year-ago period, although their combined production slipped from $22 million. For the year, Stifel recruited 121 advisors with annual production of $77 million, which are lower amounts from each of the two prior years following a slowdown in hiring in the first half of 2021.

CEO on recruiting in future quarters

“In Global Wealth Management, we have focused on enhancing our advice model through aggressive recruiting of entrepreneurial advisors, combined with a robust product offering and technology platform,” Kruszewski said in his prepared remarks. “The result of this approach has been solid growth in both the number of financial advisors on our platform, as well as the amount of client assets. As I look forward, our recruiting pipeline is robust and the traction we are gaining with Stifel Independent Advisors will further enhance our growth prospects as we look to leverage cutting-edge technology with our advice-driven model.”

Client assets

Client assets and fee-based client assets reached record levels by the end of last year on the strength of higher equity values and fee-based flows. Fee-based advisory assets under management rose 26% year-over-year to $162.42 billion, while total client assets jumped 22% to $435.98 billion. In addition, secured client lending in the firm’s Global Wealth Management unit surged by 38% to $3.89 billion.

Changes over the past 7 years

Transactional revenue made up 51% of the revenue generated by the unit in 2015, compared to just 32% in 2021, Kruszewski noted. During that span, the wealth manager’s annual revenue has expanded by nearly 90%. “The increase in fee-based revenues has been the result of recruiting high net worth advisors that typically have more of a fee-based clientele as well as the growth of net interest income as we expand Stifel Bank,” he said. “While I’ve always said that Stifel is product agnostic, given the trends in the industry and the growth of our balance sheet, I would expect the percentage of recurring revenue to increase in the years to come.”

Bottom line

Stifel’s wealth manager boosted its revenue by 18.6% year-over-year to a record $2.60 billion, due to recruiting of incoming teams, increased client activity and higher asset values. The unit’s pretax income soared by 26% to $915 million. Its pretax margin of 35.2% came in 210 basis points above that of 2020. The expected rising interest rates will prove beneficial this year, to the tune of about $200 to $225 million in pretax income for the parent firm if the Fed raises rates by 100 basis points, according to the company’s estimates.

Kruszewski’s long-term vision

Overall, Stifel posted its 26th straight year of record revenue and fifth year in a row with record earnings per share. “Stifel has been and continues to be a growth company,” Kruszewski said. “Our history of growth over the past 26 years, and more specifically, over the past decade, has been a function of our continued focus on reinvesting in our business. This has not only led to an impressive streak of annual revenue growth, but also substantial improvement in our profitability.”