The wealth management arm of Raymond James reached records in six different metrics, but CEO Paul Reilly says it’s still under pressure due to compensation costs affecting all firms.
The St. Petersburg, Florida-based firm’s Private Client Group spans hundreds more advisors than a year ago after incoming teams brought a level of client assets and trailing 12-month production comparable to many midsize firms’ entire businesses,
“The pressure that we're really seeing is on the admin support, whether it's operations, tech, risk, branch professionals,” he said,
Record recruiting: Reilly began the call by apologizing that he would “sound like a broken record, using the word ‘record’ over and over again.” The Private Client Group topped its previous highs across several key figures, including financial advisor headcount, client assets, net revenue and pretax income. The wealth manager has added a net 243 advisors to boost its headcount by 3% year-over-year to 8,482. Within those ranks, its number of employee representatives increased 2% to 3,461, while independent contractors rose 4% to 5,021. In the past 12 months, the firm has recruited teams with $330 million in annual production and about $54 billion in client assets.
Other records: The group’s total client assets under administration jumped by 26% from the year-ago period to $1.12 trillion. Fee-based advisory assets surged by 32% to $627.1 billion. In terms of profit, the group generated pretax income of $222 million on net revenue of $1.80 billion. The profit expanded by 78% year-over-year, and the revenue grew by 29%. For the recently completed fiscal year, the pretax income of $749 million and net revenue of $6.61 billion represented records as well. The firm derived the record results in its wealth management arm from rising asset management and administrative fees on the higher assets from the incoming teams and equity value appreciation. In addition to the other new highs, the company set a record with domestic cash sweep balances of $66.7 billion.
Rising expenses: The record business in the quarter came with higher costs. Total non-interest expense climbed by 24% year-over-year to $1.58 billion in the third quarter. Financial advisor compensation and benefits drove up the costs, with the pay soaring by 32% to $1.15 billion. Other compensation and benefits increased 5% to $255 million as well. Business development expenses tied to recruiting and retention have come back up after tumbling last year during the coronavirus, Reilly said. The firm has a major conference in early November after its hosting smaller conferences and award trips earlier this year. The higher costs are just “business as normal” because the conferences and trips are “highly valued by advisors,” Reilly told analysts. “They're a great cultural tool to reinforce the value of Raymond James or great training,” he said. “These aren't just fun trips to people. They're fun because we get together, but it's work. There are classes, training and teaching. So they're very important to the long-term business, both teaching practice management and sharing best practices, as well as explaining new regulations or new technology tools they need to learn. So they're very, very valuable.”
