(St. Petersburg, Fla.) Speaking at the 16th annual Women’s Symposium on Oct. 7, Raymond James Financial CEO Paul Reilly said the firm is tackling issues, including auction-rate securities, and positioning itself for further growth. He also told the audience of over 100 female advisors that expected regulatory changes should not have much impact on how Raymond James does business.
“These are interesting times,” Reilly said at the symposium sponsored by Raymond James and held where the company is based. “We’re in an amazing position to really grow and establish ourselves in this industry.”
The balance of auction-rate securities held by Raymond James clients has fallen from $2 billion to $580 million. “We were not able to redeem $2 billion,” Reilly said. “But the balance is moving down, and we should be able to do more. Between our work with Nuveen and other solutions, we should be able to solve the problem soon.”
While the larger banks could borrow money to pay clients back for these holdings, Raymond James was not able to do so, given its smaller size. Raymond James has 5,300 financial advisors worldwide, 625 of whom are women.
Reilly, along with other Raymond James and industry executives, has met recently with regulators in Washington and Atlanta. “We see very little impact on us from the new regulations. Most of it just pushes the industry to do what Raymond James has always done,” he explained. “We put the client first, do don’t do proprietary trading, are well capitalized, low leveraged and look long term.”
He acknowledged that with the many laws being drafted, the company would be experiencing some change. This is why the company is actively involved with the SEC, SIFMA and other groups in the writing of the legislation. “But this will impact us much less than others,” Reilly said.
In terms of the changes to 12b-1 fees associated with mutual funds, the SEC “doesn’t see trailing fees as fair,” Reilly says. As a result, the regulatory body wants to cap these fees, break them up and spread them out over the first four years of a mutual fund’s life (or ownership period). However, since the average life a fund is three years, this plan could prove difficult.
“We want to disclose the fee and not eliminate it,” said Reilly, who took over as the firm’s chief executive officer from Chairman Tom James in May.
While Raymond James continues to top a survey as the firm advisors would most like to join, it has seen some decline in its client-satisfaction rating with J.D. Power & Associates. “And we want to drive this again to be the clear leader,” Reilly said.
The company remains very focused on recruiting and retaining advisors, he said, and is getting especially active in some markets.
Some advisors at other firms who want to move to Raymond James are locked into retention programs, so the firm wants to “find more ways to extend loans to people to overcome this,” said Reilly. The company should make an announcement about this issue in the next few weeks, he adds.
In terms of the compensation grid for existing advisors, Raymond James is evaluating a “flat grid,” Reilly says. “We look very carefully at being fair on a cost basis. And we would like to move to a flat grid, which is easy to say and very hard to implement.”
Reilly added that “while I hoped to announce something for next year, I still feel we are not ready.”
“There’s nothing more disruptive than changing pay and bonuses,” he explained.
In the investment banking arena, Raymond James is expanding its activities in municipal finance, he says. Plus, Raymond James Bank is rolling out a mortgage program and has plans to introduce non-purpose loan accounts.
“The firm has fought from being an unknown to being a player, and it would be a shame not to take advantage of it,” Reilly explained. “You will see more things coming out through focused-driven programs.”
When asked about adding more banking products and services for high-net-worth clients, Reilly acknowledged that the firm has its limits. “We are a retail brokerage firm with a bank and not vice-versa,” he said. This has advantages in terms of putting clients’ interests first, Reilly added, but it also “is a challenge for us.”
The firm is considering what products and services, like credit cards and other lending programs, it can outsource. “We are trying to hit things one at time,” said Reilly, an avid tennis player. “We are trying to get into products that we know we can do well with, but, honestly, we are not going to do what all the big banks are going to do.”
Likewise, Reilly said that when it comes to serving high-net-worth and ultra high-net-worth advisors, the firm wants to move ahead, but “we don’t believe in penalizing the small investor.”
Thus, Raymond James and its advisors had to strike a “hard balance,” Reilly said. “We want to stay true to our core values and yet strive to deliver new services, as we are doing through the alternative investment group, which is getting more resources.”
Finally, Reilly acknowledged that the firm believed in diversity in the work place and wanted to do more in terms of the diversity of its senior management. “It is an issue we have to address, and we know it’s important,” he said.
On Oct. 8, Chairman Tom James and two other executives outlined the firm’s competitive advantages over rivals and said it would, at least in the independent channel, like to boost annual sales 15 percent a year over the next five years.