Raymond James Financial, Inc.
Analysis
Raymond James is growing by recruiting advisers, and the client assets they bring are compounding into recurring fees. But the cost of winning them lands years before the payoff, and the profit from client cash and dealmaking is not showing up. How much of the recruiting pipeline reaches fee-based accounts?
- Recruiting, not the market, is what is growing this firm.
Advisers recruited over the past year brought about $69 billion of client assets, and net new assets so far this year have more than doubled last year's record. Those assets pay a recurring fee in any market.
- The cost of winning those advisers now shows up on its own.
Compensation ran above its 65% target, and management broke out recruiting and retention payments for the first time. That money goes out up front while the fees build over years, so profit lags the growth. How long do recruited advisers take to repay their upfront cost?
- Dealmaking and client cash are both running below normal.
Management set a $380 million bar for Capital Markets revenue; it has since beaten that, but the unit still earns below its own margin goal. Rate cuts also shrink what client cash earns, so the firm only partly controls its own margin. Which sectors are still holding back the investment banking pipeline?
- Recruited advisers keep landing their clients' assets. The fee on that money keeps arriving long after the signing payment is spent.
- Short-term rates stop falling, or rise. Clients pay more to borrow against their portfolios and the firm keeps more of the spread on their cash.
- Dealmaking returns to a normal level. Advisory fees carry little extra cost, so more of every completed deal falls to the bottom line.
- Recruiting payments keep growing faster than the assets arrive. The firm pays for growth years before it earns it, so the profit margin stays stuck below its 20% goal.
- Further rate cuts keep shrinking what client cash earns. Clients move into investments the firm earns less on, so the wealth business earns less even as revenue grows.
- Dealmaking stays below normal for another year. That unit is where extra revenue normally falls straight to profit, so the whole firm's margin stays capped.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Sale | ≥$1K | Mar 26 | May 13 |
Donald Trump Republican · Executive | Purchase | ≥$15K | Mar 25 | May 13 |
Donald Trump Republican · Executive | Purchase | ≥$1K | Mar 23 | May 13 |
Donald Trump Republican · Executive | Sale | ≥$100K | Mar 17 | May 13 |
Ro Khanna Democratic · House · CA-17 | Purchase | ≥$1K | Jun 30 | Jul 6 |
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How Raymond James Financial turned $15.9B of revenue into $4.6B of operating income.
| Revenue | ||
|---|---|---|
| Private Client Group | $10.3B | ▲ 7.35% YoY |
| RJ Bank | $3.4B | ▼ 5.01% YoY |
| Capital Markets | $1.9B | ▲ 18.67% YoY |
| Asset Management Segment | $1.2B | ▲ 15.68% YoY |
| Total revenue | $15.9B | |
| Gross profit | $14.0B | 88.2% |
| Operating income | $4.6B | 28.7% |