Raymond James Chairman & CEO Paul Reilly

Raymond James Financial missed analysts’ earnings expectations, though net income grew 36% year over year to nearly $263 million, or $1.76 per share, for the period ending Sept. 30. Revenues jumped 12% to almost $1.9 billion.

The company said results benefited from growth in Private Client Group assets in fee-based accounts, as well as higher net interest income and investment banking revenues.

Results were pulled down by roughly $12 million of unrealized losses on private equity investments and a jump in other expenses, mainly tied to higher legal and regulatory reserves.

“Our focus on attracting and retaining client-centric financial advisors and providing them with industry-leading tools and resources continues to produce record results,” said Chairman and CEO Paul Reilly.

Private Client News

The firm has 7,813 advisors. That’s up 467 from a year ago and 94 from the prior quarter. Of the total, 4,646 advisors are independent, and 3,167 are employee reps.

Assets under administration grew 15% year over year to $755.7 billion. Fee-based assets soared 24% to $366.3 billion.

Overall, the unit had sales of $1.31 billion, a 12% jump from a year go. Pretax net income, though, dropped 8% to $131.2 million.

“Fiscal year 2018 was a record year for financial advisor recruiting, and retention of advisors remained excellent,” added Reilly. “Our focus on serving advisors and their clients continues to resonate with high-quality financial advisors across all of our affiliation options.”

The ‘Good Kind’ of Expenses

On a call with equity analysts, Reilly highlighted higher costs tied to business development, which he referred to as the “good kind of expense,” including spending on conferences and recognition events; they also include recruiting and expenses tied to the onboarding of advisors.

These are lumpy as to timing, and they’re really investments for the long term,” he explained.

The “not as positive” expenses for the firm are tied to legal and regulatory costs. “They were lumpy and hopefully not recurring,” the CEO said.

Some of these expenses involved consulting and audit fees, for instance.

Chief Financial Officer Jeff Julien pointed out that legal and regulatory reserves for the PCG were “out of whack here this quarter.” Year to date, this expense has averaged about $72 million a quarter, he says.

According to Reilly, the firm has been investing in new supervision and compliance systems. It’s also brought on consultants “and look[ed] at the structure of those [systems]. And so we’ve had elevated professional fees this year also that are driving some of that.”

As for spending on conferences, marketing and advertising, the firm is allocating between $45 million and $50 million on average per quarter, Julien says. The quarter ending in June is the biggest period for costs, due to “the concentration of events,” while the period ending in September is next.