Stifel posts record revenue in Q3 despite slower recruiting

Stifel Financial posted record client assets and revenue for the third quarter, even as advisor recruitment slowed relative to the first half of the year.

The St. Louis-based firm's wealth management division ended the third quarter with record net revenue, up nearly 10% year over year to $907 million. That growth was driven primarily by asset management revenue, up 13% from the previous year to $431 million.

"What was once primarily transactional is now largely fee-based. … That shift has made our earnings more stable, our margins stronger and our growth more durable," Stifel CEO Ron Kruszewski said on Wednesday's earnings call.

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The firm also reported record client assets of $544 billion, up 10% year over year. Fee-based client assets outpaced overall growth, up 15% from the previous year to $219 billion.

Improved revenue was partially offset by $565 million in total expenses, up 7.5% year over year. Compensation expenses were the main driver behind that figure, up 9.5% to $442 million. Noncompensation operating expenses declined 1.8% over the same period.

Still, profitability is trending higher for Stifel, with pretax margins of nearly 38% — the firm's highest figure in nearly two years, according to James Marischen, senior vice president and chief financial officer at Stifel.

Advisor recruiting cooling off

Recruiting efforts cooled slightly in the third quarter after Stifel added 134 advisors to its wealth management division in the first half of the year, bringing in over $62 million in total trailing 12-month production.

For Q3, the firm added 33 new advisors, including 16 experienced employee advisors and one experienced independent advisor, with total trailing 12-month production of $18.9 million.

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Kruszewski said during Wednesday's call that recruiting remains an ongoing effort for the firm.

"We have a great alternative for a lot of advisors that are looking for a firm that puts advisors first and has a culture of a wealth management firm with banking and underwriting capabilities," Kruszewski said. "There's not a lot of us out there like that. We certainly are one of them, and we're attracting a lot of people. Now, we just need to execute. So I have been continuing to be optimistic about that part of our business."

A positive view of broader markets

Moving forward, Kruszewski indicated that he is cautiously optimistic about the broader market.

"There's a lot of optimism out there. And I share that optimism," he said. "But we all know markets move in cycles. The best way to navigate them is with disciplined balance and perspective, qualities that have defined Stifel from the beginning."