Raymond James Financial’s wealth management business has been spending substantially on advisor recruitment and infrastructure improvements in the hopes that the higher expenditures will lead to overall growth for the company.
The higher compensation, commissions and benefits expenses for Raymond James’ Private Client Group in the first quarter of its fiscal year 2020 were due in part to the cost of recruiting high-performing advisory teams, according to the company.
But the company expects the expense to boost the overall growth prospects of the wealth management business.
Raymond James’ Private Client Group reported Wednesday total compensation, commissions and benefits expenses of $1.1 billion in the first quarter, which for the company ended on December 31. That’s a 4% increase from the previous quarter and a 7% rise over the year prior.
Financial advisor compensation was the biggest portion of the total at $857 million in the first quarter, up 3% from the prior quarter and an increase of 7% over the year before.
“We are attracting very large, high-quality practices ... over the past four quarters,” Raymond James chairman and CEO Paul Reilly said Thursday in a call with analysts.
Those teams included financial advisors with more than $300 million in 12-month trailing revenues production and a total of more than $40 billion of assets at their prior firms, Reilly added.
While recruitment in the advisory industry is “competitive” and costs tend to add up quickly, the transition assistance Raymond James provides those advisors who move from other firms is “probably the lowest in the industry,” he said.
Transition assistance and retention amortization alone was around $265 million in 2019 or 3.5% of net revenues — $100 million more than four years prior, he noted.
Reilly said almost all the expenses of Raymond James’ businesses — including expanding the wealth management advisor roster and their support staff — are associated with growth.
The Private Client Group’s advisor headcount reached a record 8,060 in the first quarter, a net increase of 49 over the previous quarter and 245 over the previous year. Reilly said 69 advisors retired or left the business in the last three months of 2019, but the company managed to retain a substantial portion of their assets.
Scroll down to see historical chart of Raymond James' wealth management advisor headcount.
Meanwhile, other expenses included the cost of supporting branches, expanding the branch footprint and paying internal and external recruiters, according to Reilly.
“Growth is expensive, but we believe it represents a very good long-term result for our shareholders,” he said.
Reilly is confident of a strong recruitment pipeline in 2020. He said both national and regional firms have been the “beneficiary” at the expense of wirehouses, where most of his firm’s recruits come from. He doesn’t expect the movement of advisors from wirehouses to slow.
The bank-affiliated wirehouses have tightened their payout structures, “and a lot of advisors feel like there’s less flexibility,” he said.
Spending on technology infrastructure
Raymond James has also been spending on technology, anti-money laundering and compliance and supervision systems upgrades for the past three years, according to Reilly.
All that work is expected to pay off, especially with the SEC’s Regulation Best Interest kicking in this year, he said.
“If we had not made those significant investments over the past few years … we would have struggled more in our implementation efforts for Regulation BI,” Reilly said. “I believe we’re in the late stages of that infrastructure and personnel build out.”
Once the improvements are completed, the firm “will be able to support a much larger number of financial advisors and clients on our infrastructure, which should result in scale economies over time,” he said.
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