Raymond James CEO Optimistic About DOL Rule’s Demise
Raymond James Financial’s reluctance to dictate commission and product changes in advance of the Department of Labor’s fiduciary rule may work to its advantage since the rule is likely to be delayed, if not abolished, the bank’s chief executive said on Thursday.
Unlike retail brokerage rivals such as Merrill Lynch, which has banned its almost 15,000 brokers from selling commission-based retirement accounts to comply with the rule scheduled to take effect on April 10, Raymond James has been slow to announce changes that could burden its 7,100 brokers and deprive their clients of advice, CEO Paul Reilly told analysts on an earnings conference call.
“All indications are that the [Trump] administration is moving to certainly suspend the rule, delay it and maybe rewrite it,” he said. “Maybe we’re lucky” in having delayed any policy announcements.
Reilly has been a leader among brokerage industry executives in opposing the rule that is aimed at reducing brokers’ conflicts of interest when giving clients retirement advice. He said it could be more expensive for some clients and less profitable for firms and brokers.
“We certainly don’t want our advisors to have to make changes they’ve already made…to go back and undo them,” he said in tacit reference to Merrill and some other of Raymond James’ larger rivals that may regret some of the policy changes they have announced. “We are in analysis mode, as we’ve been for a long time.”
UBS Financial Services is the only one of the four biggest U.S. brokerage firms, which include it, Morgan Stanley, Merrill and Wells Fargo Advisors, that has not yet announced fiduciary rule policy changes. Brokers at UBS say its executives, like Raymond James’ Riley, have told them they may have been smart in waiting for a potential Trump administration policy change.
Executives at Merrill and its parent Bank of America say that no matter what happens under the new administration, they are unlikely to change their DOL Rule policies. Public perceptions of the fiduciary rule have already created structural changes in the retail brokerage business, they have said.
Reilly, for his part, assured analysts that Raymond James will be able to comply with the DOL fiduciary rule in whatever form and at whatever time it may be implemented.
He made his remarks after announcing that pretax net income at the Florida-based company’s private client division jumped 6% to $73.4 million in its fiscal first quarter ending December 31 from the comparable 2015 period. Revenue rose 19% to a quarterly record of $1.0 billion.
Profit was down 31% from the wealth unit’s fiscal fourth quarter that ended on September 30 due to higher litigation costs and to integration costs related to the firm’s purchase of Deutsche Bank’s U.S. brokerage business last year.
The business, which Raymond James has branded Alex. Brown, has raised the company’s subadvisory fee expenses because its brokers use more outside wrap-fee program managers than do Raymond James’ typical brokers who use “our proprietary managers,” said Chief Financial Officer Jeff Julien on the conference call.
The acquisition, which aims to bring Raymond James wealthier clients than those serviced by its average brokers, has been more expensive than expected. Merger integration costs of $12.7 million in the first quarter were up 577% from the previous year due to Alex. Brown and the purchase of a smaller Canadian firm, but are winding down and should be eliminated as an expense line item by the firm’s third fiscal quarter, Chief Financial Officer Jeff Julien said on the call.
Retention packages for the Alex Brown brokers will weigh on Raymond James’ profit margins for some time but the Florida-based firm continues to invest in hiring brokers for the unit and in building digital technology services for its entire brokerage force, Reilly said.
Raymond James ended 2016 with 7,128 brokers, 58% of whom are independent contractors who receive higher payouts than brokers in its employe channels. Its total advisor count was up by 441 from 12 months earlier but down from September 30, 2016 as a result of a revision in the firm’s counting methodology. It no longer includes nonproducing branch managers in its advisory total.
Reilly said that Raymond James continues to enjoy strong recruiting and retention results despite given lower hiring packages than its larger rivals.
Shares of Raymond James, which reported a 38% jump in first-quarter earnings for the whole company to $146.6 million, were up 1.4% in early afternoon trading to $76.63.