Paul Reilly, Chairman & CEO of Raymond James

“We do not see fee compression on our financial advisors,” Raymond James Chairman and CEO Paul Reilly said in an interview Thursday during the firm’s national conference for independent advisors.

“Clients say, ‘We will pay for what you do for me,’” Reilly explained. “Part of that is product selection, [though] asset allocation is almost a free giveaway.”

There’s the other side of the business, however, that supports advisors’ businesses. “Estate planning, financial planning, planning around kids … [and] next generation planning,” the executive said. “This is valued and really not under pressure.”

Such holistic planning and dynamic relationships between clients and advisors are critical to the business. “Not just work done as an investment advisor, but as a life planner [and] a trustworthy” source of information and advice, he explained.

“Those types of advisors are not under fee pressure,” Reilly said.

Recent Results

During the firm’s annual event in Orlando this week, Raymond James reported a nearly 20% jump in revenues to about $1.6 billion for the quarter ending March 31 vs. last year’s figure. Its net income, though, tumbled 10% to $113 million, or $0.77, from the year-ago period.

The firm’s private client results had a similar bifurcation. Sales soared 23% year over year to $883 million, but pretax profits dropped 65% to about $29 million.

Reilly says the firm had “a record start for the past six months, record client assets …, advisor headcount, and our recruiting is still at the top of market and retention, too.”

The firm’s attrition, 0.6%, is especially impressive, Reilly explains, acknowledging that a positive market environment and rising interest rates are helping too: “It’s really the best six-month start we’ve had, and we are continuing to” see positive results from these trends in the current quarter.

The attrition level, he says, “reflects our commitment to service.”

The firm’s 7,222 advisors work with client assets of $611 billion, up 26% from a year ago. Fee-based assets stand at $251 billion, a jump of 33%. 

In terms of the advisor headcount, Raymond James has been growing at a compound annual rate of 3.4% for the past five years.

While acknowledging that the firm has had to slow down some technology and service upgrades due to the Department of Labor fiduciary rule and anti-money laundering compliance issues, “We are investing in support” so the growth can continue “as other [broker-dealers] are cutting” such expenses, the executive said. U.S.-based staffing for back-office support is up 33% over the past four years and 12% this fiscal year, he adds.

About 2,000 of its roughly 4,200 independent advisors met in Orlando this week for the channel’s yearly gathering, along with other guests. More than 85 prospective advisors from across the industry attended as well.

Compliance Bumps, Costs

In the latest quarter, the firm agreed to pay $150 million and settle all claims tied to an EB-5 foreign investor program in which funds were solicited for a Vermont ski resort in exchange for green cards; the Jay Peak deal, though, turned out to be a Ponzi scheme.

In addition, the firm says it had acquisition-related costs and accelerated unamortized expenses due to the extinguishment of senior notes that affected net income in the period.

“In any population [of advisors] there could be someone doing the wrong thing,” Reilly said. With investments made to its anti-money laundering (AML) systems, “We’ve [since] run the data and would have caught it.

Raymond James is using Oracle Mantas, technology also used by JPMorgan, for its AML focus. “And their business is a bit more complicated than ours is,” Reilly quipped.

As firms grow in size and scope, it can be tough to catch everything. “You have to get really good, ethical advisors …,” he explained. “We believe it was a one-off outlier, though we cannot guarantee it won’t ever happen again.”