12 Best & Worst Broker-Dealers: Q4 Earnings, 2017

Many broker-dealers, especially those that are part of larger banks, reported the impact of the tax overhaul in their fourth-quarter 2017 earnings.

As a result, many financial-services companies posted “kitchen sink” results, research analysts with Keefe, Bruyette & Woods, said (KBW is owned by Stifel Financial).

“Banks recorded sizable one-time gains and losses owing to deferred tax assets and liabilities, and [they] accelerated other expenses to utilize 2017’s higher tax shield on spending,” said Melissa Roberts and Pell Bermingham in a KBW report on Feb. 6.

“Despite all this ‘noise,’ Q4’17 results were mostly in line to modestly better than forecasts,” the analysts explained. “Operating earnings-per-share growth along with operating income and net-interest-margin results were stronger than our forcest. Credit quality overall remains solid.”

The largest institutions reported significant adjustments due to the Tax Cuts and Jobs Act (TCJA), which Congress passed on Dec. 22.

KBW analyst says that earnings estimates for 2018 have been “mostly cut” and are a “mixed bag” for 2019.

Read on for more details on the 12 best and worst broker-dealers of Q4 2017, based on actual (not adjusted) results — including one-time impacts of the TCJA.

WORST BROKER-DEALER

Citigroup (C)

^{12th Place}

Citigroup said it had a fourth-quarter net loss of $18.3 billion, or $7.15 per diluted share, vs. a gain of $3.2 billion, or $1.14 per share, a year ago. Revenue, though, improved about 1% year over year to $17.3 billion in the period.

The net loss included an estimated one-time, noncash charge of $22 billion, or $8.43 per share, tied to the Tax Cuts and Jobs Act.

For the full year 2017, Citigroup reported a net loss of $6.2 billion on revenues of $71.4 billion, compared with net income of $14.9 billion on revenues of $69.9 billion for the full year 2016. Excluding the impact of tax reform, Citigroup’s net income was $15.8 billion, up 6% from the prior year.

The company says its share buyback and dividend plans should continue.

“Tax reform does not change our capital return goals as we remain committed to returning at least $60 billion of capital in the current and next two [Comprehensive Capital Analysis and Review] cycles, subject to regulatory approval,” CEO Michael Corbat said in a press release.

Goldman Sachs (GS)

11^th Place

Goldman Sachs reported a fourth-quarter net loss of $2.14 billion, or -$5.51 billion per share, vs. a gain of $2.15 billion, or $5.08 per share, a year ago. The company said the results factored in a tax hit related to moving overseas profits back to the U.S.

Quarterly revenue fell 4% to $7.8 billion, but full-year revenue grew 5% to $32.1 billion.

“Last year, we delivered higher revenue and stronger pretax margins despite a challenging environment for our market-making business,” said Chairman and CEO Lloyd Blankfein, in a statement.

Fourth-quarter Investment Banking revenues were $2.14 billion, 44% higher than a year ago. In the Financial Advisory segment, sales grew 9% to $772 million.

Investment Management revenues grew 4% to $1.66 billion in the quarter, mainly due to higher management and other fees, as well as higher assets under supervision.

In a news release, Goldman said the trading environment was a challenging one, “characterized by low levels of volatility and low client activity.

“With the global economy poised to accelerate, new U.S. tax legislation providing tailwinds and a leading franchise across our businesses, we are well positioned to serve our clients and make significant progress on the growth plan we outlined in September,” Blankfein added.

Goldman’s investment banking unit had $2.14 billion in net revenue for the quarter and $7.37 billion for the year, its second best ever.

Investment management produced sales of $1.66 billion for the quarter, a 4% gain from the year-ago period, with a full-year total of $6.22 billion.

UBS Group

10th Place

UBS Group AG said it had a net loss of about $2.39 billion (2.22 billion Swiss francs), or -$0.65 a share, in Q4 vs. a gain of $685 million (636 million Swiss francs), or $0.18 per share, a year earlier. Its sales, though, grew slightly to $7.66 billion from $7.60 billion. The loss, the bank said, was tied to the recent U.S. tax reform.

UBS’ Wealth Management Americas improved net income before taxes 9% year over year and 11% consecutively in the quarter on an adjusted basis to $390 million. Its full-year profit was almost $1.4 billion.

In the Americas, UBS’ advisor headcount was 6,822 at the end of the 2017, down 1% from the earlier quarter’s 6,861 and off 3% from 7,015 in the year-ago period. Loans to recruited advisors fell 14% to $2.6 billion in the quarter versus $3.0 billion a year earlier.

These advisors had average yearly fees and commissions of $1.23 million and $180 million in average client assets.

Net outflows were $500 million in the final quarter of 2017. When interest and dividend income are included, net inflows totaled $9.4 billion. Client assets expanded 11% year over year to nearly $1.3 trillion.

Wealth management outside the Americas — which includes 3,794 financial advisors — had 14.2 billion Swiss francs in net new assets in the fourth quarter. Total client assets grew 16% year over year to 1.34 trillion Swiss francs, or roughly $1.4 trillion.

On Feb. 1, UBS merged its FAs in and beyond the Americas, creating a Global Wealth Management unit with about 10,600 FAs and close to $2.7 trillion in client assets worldwide.

(Related: UBS to Merge Wealth Units)

Stifel Financial (SF)

9th Place

In the quarter, Stifel had a net loss of $4.3 million, or -$0.06 per diluted share, vs. a gain of $24.5 million, or $0.31 per share, in the year-ago period.

Revenue, though, improved 12% to $804.1 million in the period ending Dec. 31.

“We are pleased to announce that 2017 was our 22nd consecutive year of record [full-year] net revenue of $2.9 billion that increased 14% from 2016,” said Chairman & CEO Ronald J. Kruszewski, in a statement.

In the fourth quarter, wealth management brokerage revenues were $163.4 million, up 2.1% from the year-ago quarter. For the full year, though, these results dropped 1.4% to $661.3 million.

The broader wealth management unit had a 16% quarterly jump in revenues to $474 million. For 2017, its results improved 17% to $1.82 billion.

Its financial advisor headcount is 2,244 vs. 2,252 in Q3’17 and 2,280 in Q4’16 — with total client assets of $273 billion.

“Wealth management benefited from the further expansion of our bank balance sheet and growth in our fee-based assets,” he added.

Morgan Stanley (MS)

^{8th Place}

Morgan Stanley’s net income fell 59% to $686 million, or $0.29 per share, from $1.67 billion, or $0.81 per share, a year earlier, due to tax-related items.

It has 15,712 advisors, down 51 from the prior year and 47 from the prior quarter. These advisors had average 12-month trailing production of $1.12 million as of Dec. 31.

Morgan Stanley Wealth Management had sales of $4.4 billion in the fourth quarter, up 10% from a year ago, and net income of $404 million, a decline of 24%. Its pretax margin was 26% in the quarter.

For the full year 2017, Morgan Stanley’s advisors had $16.8 billion of revenue.

Morgan Stanley, which reports only its fee-based flows, said these incoming assets were $20.9 billion in the quarter, with loans totaling $80 billion as of Dec. 31.

The firm’s advisors had about $2.37 trillion in client assets — up 13% from a year earlier.

(See Morgan Stanley vs. Merrill Lynch Q4’17 Wealth Results.)

Ameriprise Financial

7th Place

Ameriprise Financial had fourth-quarter 2017 net income of $181 million, or $1.18 per share, compared with $400 million, or $2.46 per share, in the year-ago quarter, representing a 55% drop.

Results included a $320 million, or $2.08 per diluted share, impact from the enactment of the Tax Cuts and Jobs Act.

Revenues for the period were $3.2 billion, up slightly from $3.1 billion in Q4’16.

“Ameriprise had an excellent fourth quarter and a strong 2017 as we served more clients and experienced good asset growth across the firm,” said Chairman and CEO Jim Cracchiolo. “Our strong growth, driven by our wealth management business, reflects the value of the advice and solutions we provide, and we are increasingly being recognized for high client satisfaction, loyalty, trust and forgiveness.”

Advice & Wealth Management client assets increased to a $560 billion, including fee-based investment advisory (wrap) net inflows of $5.0 billion in the quarter. Total wrap assets stood at $248 billion.

Nearly 100 veteran advisors joined the firm during the quarter. The firm has 9,896 advisors vs. 9,675 a year ago; about 7,700 are in the franchise channel, and roughly 2,200 are in the employee channel.

Average annual fees and commissions per rep were $558,000 as of Q4’17.

(See Ameriprise continues to like live human advisors.)

Bank of America (BAC)

^{6th Place}

Bank of America’s net income fell 48% to $2.37 billion, $0.20 per share, from $4.54 billion, or $0.39 per share, a year earlier; the company cited tax issues as the main reason for the decline. Revenues rose about 2% to $20.4 billion.

Assets for clients with the Bank of America Global Wealth & Investment Management group total $2.75 trillion, a 10% jump from the year-ago quarter. Those with Merrill Lynch, specifically, had $2.31 trillion, a 10% year-over-year increase.

There are 14,953 financial advisors with Merrill Lynch. If Merrill’s consumer banking/Merrill Edge advisors — which number 2,402 — are included, its ranks swell to 17,355. BofA also has 1,714 U.S. Trust registered reps. Merrill says its advisor force grew by 231 from a year ago, while its Thundering Herd decreased by one from the third quarter.

Trailing 12-month fees and commissions total $1 million for Merrill. Its veteran advisors (i.e., excluding those in its training program) had average yearly production of $1.31 million in the fourth quarter.

Merrill Lynch had quarterly sales of $3.8 billion (up 7% from the year-ago quarter), while the broader wealth unit reported revenue of $4.7 billion for BofA Global Wealth and net income of $742 million. For the full year 2017, BofA’s wealth group had revenues of $18.6 million, $15.3 billion of it tied to Merrill Lynch.

(See Merrill Lynch vs. Morgan Stanley Q4’17 Wealth Results.)

Raymond James (RJF)

5th Place

Raymond James Financial said its net income dropped 39% year over year in the final period of 2018 to $118.8 million, or $0.80 per diluted share, due to the impact of the Tax Cuts and Jobs Act, estimated at $117 million. Its net revenue, though, rose 16% year over year to $1.73 billion.

“Record client assets and the benefit from higher short-term interest rates enabled the Private Client Group, Asset Management and Raymond James Bank segments to generate record net revenues and pretax income in the fiscal first quarter,” said Chairman and CEO Paul Reilly, in a statement.

“Our continued success in attracting and retaining financial advisors, the reduction in the corporate tax rate, and the increase in short-term interest rates in December should provide significant tailwinds for our results going forward,” he explained.

The firm now has 7,537 advisors, aided by strong recruiting of independent contractors during the quarter, it says; it had 7,346 reps in the prior quarter and 7,128 a year ago. Independent advisors account for about 4,500 of the total headcount.

Fee-based accounts represent 46% of total Private Client group assets under administration, which are $692 billion. Assets under management are $130 billion.

“While a few large firms in our industry exited the Protocol for Broker Recruiting during the quarter, Raymond James remains committed to supporting the agreement, as we believe the integrity of the advisor-client relationship is integral to putting clients’ interests first,” said Reilly. “We also believe our ability to attract and retain advisors is strengthened by our recognition of the relationship between financial advisors and their clients.”

JPMorgan Chase & Co. (JPM)

4th Place

JPMorgan’s net income declined 37% to $4.23 billion, or $1.07 per share, from $6.73 billion, or $1.71 per share. The bank took a $2.4 billion charge in the fourth quarter related to the Tax Cuts and Jobs Act; adjusted earnings were $1.76.

Total revenue of $25.45 billion rose 5% from the prior year.

“2017 was a record year on many measures for JPMorgan Chase as we added clients and customers and delivered record EPS …,” CEO Jamie Dimon said in a statement. “Commercial Banking and Asset & Wealth Management generated record revenue and net income.”

The Wealth Management group has 2,605 advisors, up from 2,581 on Sept. 30 and 2,504 a year ago. Revenue for the group was $1.67 billion in Q4’17 vs. $1.54 billion a year earlier.

Assets in the private banking, institutional and retail segments of the Asset & Wealth unit were $2.03 trillion as of Dec. 31, up 15% year over year. With custody, brokerage and administrative assets included, they total $2.78 trillion, up 14% from the year-ago quarter.

(See Jamie Dimon Extends Reign as Best Paid Wall Street CEO)

Waddell & Reed (WDR)

3rd Place

Waddell & Reed said its net income rose 3% in the fourth quarter to $29.8 million, or $0.36 per diluted share, vs. $29.0 million, or $0.35 per share, during the fourth quarter of 2016. It took a tax charge during the quarter of $5.4 million, or $0.07 per share.

Operating revenues were $294.5 million during the fourth quarter of 2017, up 1% from the year-ago period.

Total assets under management were $81.1 billion, while net outflows were $2.7 billion during the quarter.

The broker-dealer had total assets under advisement of $56.7 billion, with fee-based assets representing $21.6 billion.

Its advisor headcount stands at 1,367 — down from 1,481 in September and 1,780 a year earlier.

Total average fees and commissions per rep were about $77,000 in the quarter and totaled $272,000 for the year.

“Over the past year, we have made solid headway in strengthening our investment management capabilities and increasing the competitiveness of our broker-dealer,” said CEO Philip J. Sanders, in a statement. “Despite this progress, work remains to be done to continue to improve our investment performance across our product lineup, advance our broker-dealer initiatives and improve our sales execution in all of our distribution channels.”

Wells Fargo headquarters in San Francisco. (Photo: AP)

Wells Fargo & Co.

2nd Place

Wells Fargo & Co. said its fourth-quarter net income of $6.2 billion, or $1.16 per share, grew 17% from $5.3 billion, or $0.96 per share, a year ago. Revenues were up 2% year over year to $22.1 billion.

CFO John Shrewsberry said in a statement, “Wells Fargo reported $6.2 billion of net income in the fourth quarter, which included a net benefit from the Tax Cuts & Jobs Act and a gain on the sale of Wells Fargo Insurance Services, partially offset by litigation accruals.”

As for the Wealth Management unit, which has 14,544 advisors, net income grew 1% from a year ago to $654 million. Total assets stand at $1.9 trillion, up 11% from Dec. 31, 2016.

In early February, outgoing Federal Reserve Board Chair Janet Yellen announced that Wells Fargo was banned from growing until it shows that it has resolved certain shortcomings. According to Wells Fargo, this could cost it as much as $400 million in profits this year.

“While operating under this constraint, we are open for business, and we will continue to serve our customers’ financial needs, including saving, borrowing and investing,” said CEO and President Tim Sloan in a statement at the time.

According to the bank, the cap affects assets on Wells Fargo’s balance sheet and not assets in brokerage or related accounts.

(See Wells Fargo Advisors Walloped Again)

BEST BROKER-DEALER

LPL Financial (LPLA)

1st Place

LPL Financial reported a 54% jump in net income to $64 million, or $0.69 per share, in the fourth quarter of 2017 vs. $42 million, or $0.46 per share, in the year-ago period. Revenues grew 11% to $1.16 billion.

“We delivered another solid quarter capping a year of consistent business and financial results,” said Dan Arnold, president and CEO, in a statement.

“We onboarded the first group of advisors from our NPH acquisition in December and the second group of advisors will join us in February. As we look forward to 2018, we remain focused on our strategic priorities of growing our core business and executing with excellence,” he explained.

In the latest report, LPL says it has $615.1 billion in total assets, up 21% from Q4’16. Excluding assets brought in via the National Planning Holdings acquisition, the total was $580.7 billion — a difference of $34.4 billion.

Net new assets totaled $37.5 billion in the quarter. Without NPH, the new assets were roughly $3 billion.

“As we look ahead to 2018, the combined benefit of a strong macro environment, tax reform, and onboarding of NPH is likely to increase our cash flow generation and provide more flexibility to deploy capital,” said Chief Financial Officer Matt Audette.

According to the independent broker-dealer, LPL onboarded $34.4 billion in total brokerage and advisory assets in the fourth quarter, representing 953 advisors as of year-end. Expenses tied to this process totaled $17 million in the period and $20 million for the year.

LPL expected the total NPH onboarding costs to be between $40 million and $60 million.

It provided financial assistance of $44 million to reps in the quarter, including $32 million provided as forgivable loans and $12 million as cash; it expected this expense to reach $100 million in total.

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