Stifel’s sale of independent unit delivers a Q1 revenue boost

Boosted by the sale of its division for independent advisors in February, Stifel logged its second-highest quarterly revenue total in its history.

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Stifel reported Wednesday that its net revenue rose by nearly 18% year over year to $1.48 billion in the first quarter. Much of that increase came from the St. Louis-based firm’s sale of its former Stifel Independent Advisors unit to the financial services firm Equitable in February.

Stifel has not reported a purchase price for its independent unit, which had more than 110 advisors working as independent contractors and $9 billion in client assets at the time of the deal. For the first quarter, the sale proceeds were recorded in an “other income” line item that was up more than 425% year over year to $55.7 million.

But the deal also removed assets and clients that were generating revenue for Stifel. Even with the departure of Stifel Independent Advisors, net revenue for the firm’s global wealth management unit was up more than 9% year over year to $932.1 million. That was the highest Stifel has ever recorded for a first quarter.

“These results are particularly strong given the sale of [Stifel Independent Advisors] reduced our transactional and asset management run rate for two months during the quarter,” Stifel Chief Financial Officer Jim Marischen told analysts in a call Wednesday.

Stifel CEO Ron Kruszewski had long favored his firm’s more profitable employee channel and previously deemed the independent unit “immaterial” to Stifel’s growth plans. In joining Equitable, Stifel’s former independent unit moved to a firm with $100 billion in assets under administration and roughly 4,500 financial professionals in the U.S. 

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Costs rising for compensation, falling for litigation

Even as the global wealth unit’s revenue was up in the first quarter, so were many of its expenses. Costs related to employee pay rose by nearly 12% year over year in the first quarter to $472.5 million, mainly because of “higher variable and deferred compensation costs.” Helping to offset that was a nearly 57% decrease in noncompensation expenses, which fell to just over $129 million. 

Stifel reported that a big contributor to that decline in noncompensation operating expenses was a reduction in litigation-related costs. Stifel has been embroiled in a series of court cases and arbitration disputes over investment recommendations made by a former star broker named Chuck Roberts, who was barred from the industry last year.

Stifel reported that clients assets in its global wealth unit were up 11% year over year to $538.7 billion, even with the sale of its Stifel Independent Advisors unit in February. Of those assets, nearly $220 billion were in fee-generating accounts, which are particularly prized for their ability to generate steady streams of income.

The global wealth unit ended the first quarter with a pretax margin — the amount of revenue left over minus expenses other than taxes — of 35.5%. That was up from roughly 15% a year ago.

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Stifel’s recruiting success and desire for better brand recognition

Over the past year, Stifel reported it had recruited advisors with roughly $80 million in annual revenue production. Kruszewski has said that Stifel takes a conservative approach to recruiting and said Wednesday that recruiting deals seemed to move at a slower pace throughout the industry in the first quarter.

“What I’m mostly pleased about is our ability to compete, attract and recruit large teams, which is relatively — being in the last, say, 10 years — new to Stifel,” Kruszewski said. “We have that, and we’re talking to a number of large teams, and that to me is encouraging.” 

Stifel no longer provides a quarterly advisor headcount but has previously said it has more than 2,400 advisors. Kruszewski said Stifel may need to do better at ensuring its name is widely recognized. He said he sometimes is discouraged when he hears people say, “Oh, I didn’t know that much about Stifel.”

“We’re really trying to fix that,” he said. “We’ve done that with a lot of our brand advertising and a lot of things we’re trying to get out there. That’s still an area that we can improve.”