The first quarter was positive, but not stellar for the stock markets. While the Dow Jones managed to produce a 0.3% gain, the S&P 500 had a slightly more favorable rise of nearly 1%.
Meanwhile, the Financial Select Sector SPDR ETF (XLF) traded down about 2%, but the iShares U.S. Broker-Dealer ETF moved up about 0.5% during the first three months of 2015. Year to date, the broker-dealer ETF is up about 2%, while the financial-sector fund is off about 1%.
As for the financial group’s earnings and sales growth, the industry boosted sales 32% on average in Q1’15 vs. Q1’14. On top of that revenue growth, earnings expanded 53% year over year, according to analysis done by Reuters.
(Check out the previous quarter’s list: 12 Best & Worst Broker-Dealers: Q4 Earnings, 2014.)
Read on to see which of these 12 broker-dealers’ profits grew fastest, and which ones underperformed in terms of earnings per share.
RCS Capital (RCAP)
RCS Capital, which includes the Cetera Financial Group of independent broker-dealers, said its adjusted net income fell 54%, to $17.4 million, or $0.19 a share, from $38.4 million, or $0.44 a share, in the first quarter of 2014.
On a pre-adjusted basis, the company reported a net loss of $13.5 million, or -0.14 a share, vs. a net loss of $7.4 million, or -0.09 a share in the year-ago period — representing an 82% decline from a year earlier.
Equity sales dropped 54% in the first quarter of 2015 from last year to $1.1 billion, and its total revenue was down 8% year over year to $625.6 million in the period ending March 31.
The number of advisors in the Cetera network of independent broker-dealers stands at 9,539, up 4% from a year ago, while retail assets under administration grew 15% year over year to $240.3 million. Retail assets under management improved 32% to $46.5 billion
Realty Capital Securities’ distributed non-traded REIT programs – including American Realty Capital Trust Global, American Realty Capital Trust V and American Realty Capital Healthcare Trust II – were hurt by news in late October that American Realty Capital (ARCP) had $23 million of accounting errors, which prompted a number of broker-dealers and other entities to stop selling American Realty Capital products.
Stifel Financial (SF)
Stifel Financial (SF) reported that it had first-quarter net income of $43.1 million, or $0.56 per share, down 9% compared with net income of $47.4 million, or $0.63 per share, last year. Its non-GAAP earnings, which excluded acquisition expenses, were $49.9 million, or $0.65 a share, down 3% from the year-ago period.
These results missed analysts’ estimates of $0.73. Revenues of $561 for Q1’15 were up 3% year over year, but fell short of estimates of $590.7 million.
Global wealth management total sales were $329.4 million, up 11% from a year earlier. They produced profits of $98.9 million in Q1’15, a 24% jump from the prior year.
Its wealth-management operations include 2,097 advisors vs. 2,103 in the prior quarter and 2,081 a year ago.
LPL Financial (LPLA)
LPL Financial, the largest independent U.S. broker-dealer, reported a 4.6% drop in net income for the first quarter to $50.7 million from $53.1 million a year ago, but revenues and assets rose.
Net revenues rose 2% to $1.1 billion and assets increased 9% to $485 billion.
On an adjusted basis, net income fell 11.1% to $63.2 million from $71.0 million a year ago and earnings per share fell to $0.64 from $0.69.
In a statement following the earnings release, LPL Financial President Dan Arnold said regulatory-related costs plus costs for two advisor conferences and a decrease in cash sweep revenues more than offset benefits from business growth and reduction in the number of outstanding shares.
LPL Financial paid $11 million in regulatory charges for the quarter, including fines and legal and regulatory consulting fees, and, according to its earnings statement, expects such costs will remain elevated for the rest of the year but not as high in subsequent quarters.
The IBD continued to add advisors during the first quarter, ending with 14,098, or 62 more than the previous quarter and 372 more than year ago. Advisory assets grew 16.3% to $183.7 billion and accounted for almost 38% of the firm’s assets under custody.
Assets under custody on LPL’s Hybrid RIA platform – for RIAs who may also be registered as broker-dealers– grew 51% to $104.8 billion and net new advisory assets, which exclude the impact of changes in the market, grew $5.2 billion. Total payouts for advisors, however, declined 75 basis points to 85.64%.
Ameriprise Financial (AMP)
Ameriprise reported a 1.75% drop in first-quarter earnings despite growth in its advice and wealth management operations. The company also increased its quarterly dividend to $0.67 a share from $0.58.
Net income fell to $393 million from $401 million in the first quarter of 2014, to $2.08 a share. Operating earnings per share rose 7% to $2.18. Analysts were expecting $2.33 a share.
Operating net revenues, however, rose 3% to $2.9 billion, but growth was partially offset by the negative impact of foreign exchange effects, a drop in net investment income and lower activity due to market volatility.
Total assets under management jumped 4% from a year ago to $815 billion, driven by net inflows from advisor clients, which grew 8% to $453 billion. Wrap account assets increased 13% to $180 billion.
Among advisors, average yearly fees and commissions per capita rose 11% to $505,000 from $454,000 a year ago. Total advisor headcount as of the end of the first quarter, however, fell slightly to 9,691, down from 9,704 for the same period a year ago. That reflects a slight decline in retention of advisors in both the employee channel, which accounts for 22% of financial advisors, and in the franchisee channel, which comprises the rest, to 91% and 94.3%, respectively.
Wells Fargo (WFC)
Despite a healthy jump in its wealth-management operations, Wells Fargo reported that its net income dropped 1.70% to $5.8 billion, or $1.04 per share, in the first quarter vs. $5.9 billion, or $1.05 per share, a year ago. These results beat analysts’ estimates of $0.98 a share.
Total revenue for the San Francisco-based bank was $21.3 billion, a 3% improvement from a year ago.
Its largest business segment, community banking, saw its revenue grow slightly from last year to nearly $12.8 billion, which was a small drop from the fourth quarter. The segment’s net income, though, was about $3.7 billion compared with $3.8 billion a year earlier (and $3.4 billion in the prior quarter).
The wholesale banking unit had total revenue of about $5.9 billion and net income of $1.8 billion vs. year-ago results of $5.6 billion and $1.7 billion, respectively.
The company’s third unit — Wealth, Brokerage and Retirement — reported revenue for Q1 of $3.7 billion, a 6% improvement from $3.5 billion last year. Net income jumped 18% to $561 million from $475 million in the year-ago period.
These operations include 15,314 financial advisors. The retail brokerage operations include $1.4 trillion of client assets under management, of which $455 billion are in managed accounts – a 12% year-over-year increase, representing both net flows and increased market valuations.
Raymond James Financial (RJF)
Raymond James posted a 7% year-over-year gain in profits for the quarter ended March 31, as revenue rose 9%. In the most recent quarter, net income was $113.5 million, or $0.77 per diluted share, on $1.3 billion in revenues, vs. profits of $104.6 million, or $0.72 per diluted share, on sales of $1.2 billion a year earlier.
The company announced a record number of advisors in its Private Client Group, which includes both its employee FAs and independent contractor registered reps: 6,384.
In an interview following release of its quarterly results, Raymond James CEO Paul Reilly credited an 11% drop in pretax income from the period ended Dec. 31 to several seasonal and onetime factors, including an increase in advertising for the quarter, higher FICA expenses and the firm’s decision in February to reimburse some advisors’ end clients for certain mutual fund fees.
Looking at results for the first two quarters, Reilly said “it’s the best first half we’ve ever had,” including “record net assets” along with the record advisor headcount. In the first six months of its fiscal year, Raymond James Financial posted $240 million in net income, or $1.64/diluted share, on net revenues of $2.54 billion.
Reilly played down the fear that Raymond James was “getting too big,” saying that since 2009 through 2015’s second quarter, advisor headcount increased at a CAGR of 3.9%, while Private Client Group assets under administration had increased at a CAGR of 15.1%. “We bring our advisors in one by one — that’s our desired growth,” he said, joking that Raymond James only makes acquisitions, like with Morgan Keegan, “every 20 years.”
Speaking during Raymond James’ national conference for its independent contractor reps in Las Vegas in late-April, he pointed out that “a record number” of advisor prospects—72—were attending the conference. “Recruiting is robust,” he said, while existing RJ “advisors choose to stay here; our turnover is very low.”
JPMorgan Chase (JPM)
JPMorgan Chase, the biggest U.S. bank, said profit climbed 12%, beating analysts’ estimates, as first-quarter revenue from trading stocks and bonds increased for the first time since 2010.