From the May 2010 issue of Research Magazine • Subscribe!

Raymond James Makes Leadership Transition: Reilly Becomes CEO; James Remains Chairman

The leadership team of Raymond James Financial shares its thoughts on having a new CEO, Paul Reilly, and how it can build on its record '09 recruiting efforts.

Raymond James Financial hosted its National Conference for Professional Development April 26-29 in Nashville, Tenn., just before Paul Reilly moved into the CEO slot.

Reilly became president of Raymond James in May 2009. And though he has just succeeded Tom James as chief executive, James continues to work for the firm full time as executive chairman of the board.

To best grasp how this transition is going, Research spoke with several members of the Raymond James' leadership team, including James, Reilly, COO Chet Helck and Dick Averitt, chairman and CEO of Raymond James Financial Services, the independent-advisor division of the company.

How much change will there be at Raymond James with the passing of the CEO baton to Reilly?

James: We planned to have Paul be here for a year full time, so that he'd be fully familiar with everything that's going on. So, he's been running around meeting everyone and attending all the meetings that I usually attend. That part of the experience has gone extremely well, and he's done an excellent job in terms of his reception on the part of the firm's associates and advisors. He's got a firm grasp on the major issues and has most departmental activities well in hand.

I think he is ready -- if anyone ever can be -- to go through this transition. Such transitions are always hard. I'm very pleased so far and expect things to go very well on May 1, when the transfer happens.

Helck: For financial advisors, they've just been through a period in which firms we all held in the highest regard in our industry have literally crumbled before our eyes, and many advisors who've joined us have come from these firms.

This turmoil has led to a loss of confidence in the industry, in the systems, in the institutions and, in some cases, in the people they'd really held a lot of respect for. This has shaken their confidence.

It's important for us at Raymond James to help advisors see an alternative to that --- to offer a firm with long-standing stability, which we continue to demonstrate. And this transition is a visible demonstration of that stability.

Instead of throwing an entire team out in disgrace or selling the firm to a company with a different plan or in other ways disrupting advisors' lives or their clients' lives, we continue to do what we do, and we do that well and respectfully for our clients' need for security.

This means we've had an opportunity to distinguish ourselves, and we've come out of this by going through a change that was done by design and not out of desperation in a period in which people are looking for stability. We are emerging in a far stronger position relative to others in the industry -- stronger than where we were going into the down market cycle.

Averitt: Tom James has built the parent company in ways that I've been following at RJFS. You find if something works, you do it as best as you can today and even better tomorrow. It's slow and methodical, but that means you don't invest in subprime loans, for example.

For 2010, we plan to improve on what's working and generally strengthen our service offerings ... to make it easier to do business with us and for our clients.

Financial advisors will see very little change with respect to Paul in the first year or two. There might be some new ways in how we do things at the home office, but no dramatic shift. Tom is just taking off one hat and giving it to Paul. Tom is still chairman and should be deeply involved in product development, how we are servicing clients and other steps that ensure we are not taking any unreasonable risk.

Paul will hold us very much accountable and responsible for what we do, though any and all changes will be subtle. I see this as a two-for-one deal, in essence, and it's all good.

What are your views on Raymond James, its size and its growth prospects?

James: We recruited 758 advisors in our last fiscal year on a base of 4,800. We are now at about 5,300 advisors worldwide. We couldn't physically transition more people than that over to Raymond James in the past. The platform will demonstrate, this year and going forward, that our growth rate can be higher than you've seen with our average 15-20 percent growth range.

We are growing well. From the stand-point of where we are, we still have a very strong commitment to our culture and values, and that's important -- no matter what your size is. Unfortunately, a lot of organizations change their cultures and values with a change in the CEO.

We have navigated a steady course over the years, and I think we'll continue to navigate a steady course going forward.

The size we have, while we still maintain the family values we always have had, represents a critical mass that allows us to provide all the IT services, products and services for our advisors to compete with all the major firms in terms of brand recognition, etc. And you do not find this at small firms. I'd say this is the best of all possible worlds. It is, of course, part of a continuum, so we have to work very hard to maintain this balance.

Reilly: I think the unique thing about the firm is that we still feel like a family-founded, smaller firm through our culture. We're also very people-oriented, and people are very loyal to us as a firm that's grown within this environment. At the same time, we offer the same services as the wirehouses, with an investment-banking department, a fixed-income department and an asset-management department, which are all very good. We have a retail brokerage and all these resources that we bring to our advisors, which smaller firms have a more difficult time providing.

Thus, we're at a size at which we have enough critical mass to compete, and yet we have the feel of a firm that is much more family-oriented than some larger rivals.

Helck: We've always grown by recruiting, and as we recruit people, they're coming mainly from the very large firms, because that's all that is left. Many of these people have been with firms that originally were a lot like we are today -- Legg Mason, Wheat First, JC Bradford, E.F. Hutton and A.G. Edwards. Advisors were very happy at those firms, because they mattered and were treated as a person with real relationships between them and their colleagues. They remember this.

Advisors feel this is how firms ought to be, but many have lost this culture. And they're also very demanding about the resources and products they've gotten used to at the big firms.

What advisors find at Raymond James is a firm that's large enough to be competitive with the best firms in the business and yet we're still of a size that we can be responsive and enjoyable to be in business with. It's the best of both worlds.

Averitt: We are currently recruiting, in general, fewer advisors than in 2009 -- which was a record year -- but advisors with greater assets. Another trend from October 2009 through February 2010 has been strong recruiting in the West. For an East Coast firm, this is a big deal.

We have hired recruiters in the West, knocked the cover off the ball in '09 and continue do to so in 2010. We are pleased to see the growth there for lots of reasons, and it's an area with plenty of opportunity.

Well over half of our new recruits are coming from the wirehouses. Advisors who come to us are asking, 'What are you like?' rather than 'How much will you pay me?' They want a home like they had once before.

And many of these advisors do not want to be employed any longer; they want to own their own business and have more control over their own destiny.
We see our stability as an advantage; we are not owned by a bank that may be in trouble or by speculators looking to make a return on their investment. We've had a tremendous boost in recognition within the industry for our conservative judgment.

People want to come and appreciate the same things -- financial integrity and strength -- that no one thought would be as important as they are today. You have to want this, and when you get it, you are able to trust your firm and know that it is stable. Overall, I feel very positive about our recruiting prospects.

What does Raymond James' status as a public company do for it?

James: Over the years as a public company, we've had three great benefits. One, you can use the markets to raise money more easily than you can as a private company, as we did recently raising $300 million in the midst of a tough market environment.

Second, you can reward people with stock, and there's a market for the stock. Thus, people can participate in the growth of the firm. We have an ESOP, so all our employees are shareholders. And it's important to continue that tradition.

Third, and unlike with a partnership, at the end of your career, you have something you can sell to support your retirement.

Reilly: When some people discuss public vs. private companies they think that public means having a short-term focus on profitability and being bureaucratic. I ran a public company with 100,000 employees before this and that firm really felt like a partnership.

If you look at Raymond James, this is really a company that's had a long-term orientation since first going public and for over 80 subsequent quarters. So, to us, being a public company isn't about having a short-term focus, it's about building long-term value for clients and shareholders. And also, people feel they have a voice in our corporate culture.

Helck: In this environment, what scares people most is what they think may be happening, but what they can't really see or find out about. At a public company, we are bound by disclosure, and it's all out on the table -- our finances, our priorities, and all we do.

Today, with so many people running scared, this is a very valuable component in their decision regarding who they want to do business with - as a retail investor, financial advisor, investment banker or anyone else who is looking to do business with us.

What themes are most important to the firm and are part of the national conference?

Reilly: The focus isn't really on [my] transition; the main theme is looking forward to the future. Chet, Tom, Dick and I and the other leaders are there to talk about where we're going and what exciting opportunities there are for us as a company and for our advisors.

James: We are so focused on the future, both in terms of our advisors and also in terms of institutions. We added a lot of institutional salespeople and public investment staff; we bought a boutique investment banking firm in Massachusetts; we've added a lot of investment bankers.

We have grown all of our platforms during this recent period, because we have been in a position from which we could invest in the future when it was most profitable to do so -- if you have the nerve to do it. We consciously made a decision that we would take advantage and be opportunistic in this environment to grow the firm and move forward.

I feel comfortable that with this baton exchange Paul is left with a very strong firm benefitting from an up-lift. I told him that his timing was extraordinary. And that if he's as good at everything else as he is at the job timing, we were really going to do well. This growth engine of ours should really show what it can do as the economy recovers.

Do you have any more thoughts on the May 1 leadership change?

Reilly: May 1 does not represent a major change in strategy or a change from the values that Tom and his father have built the firm on over the past 45 years. Our direction will be more of the same; [just as] our styles are just a little different, the things we accentuate will differ slightly. Raymond James will continue to prosper afterwards, and you really won't see a lot of difference in the firm.

I think it's a tremendous opportunity for the firm -- with advice from financial advisors becoming more valuable than ever.

Helck: We want to do all we can to allow our advisors to keep focused on the clients.

If you look at the opportunity going forward, there are fewer firms, and there are tens of thousands of fewer people in our industry now than before with many more clients. It's a demographic opportunity of a lifetime. So we are now able to distinguish ourselves at Raymond James in more ways than, frankly, we used to be able to do, when the markets were going up and things were more competitive.

Averitt: Advisors don't pick us because we might survive another sale but because of our culture, our service and more. The best is yet to be. That's the title of my speech, and it's true for this firm and for RJFS -- which is celebrating 35 years in the business at our national educational conference.

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