INDUSTRY TALK

The RJ Indy Channel Exodus

Raymond James Financial on Wednesday ceased reporting broker headcount in its quarterly earnings reports, a move that follows a trend that started several years ago when large brokerages, including Merrill Lynch, Morgan Stanley and Wells Fargo Advisors, also halted the practice. 

Raymond James’ decision to end headcount reporting is a first among regional and independent firms such as Ameriprise Financial and LPL Financial that have long touted their recruiting strength as driving revenue growth. 

The RJ independent channel has been affected in the past two years by the departure of some large practices. Most recently, a Nashville, Tennessee-based group that managed $6.5 billion in assets shifted late last year to only operating as an advisory firm that custodies with Fidelity Investments. 

That move appeared to weigh on net new assets, which fell 35% to $14 billion from $21.6 billion one year ago. Reilly blamed the dip on the departure of one branch of advisors, which he did not name. Reilly quantified the impact of that exit as about $5 billion in assets. 

OUR TAKE:

As many of you know, RJ has 3 channels that advisors can work in…W-2 employee, Independent Broker-Dealer (IBD), and RIA Custody. For at least the past 5 years, the largest advisors in the RJ IBD channel have been moving to the RIA channel and it’s forced an ultimatum for Raymond James leadership…allow these advisors to continue to move from the RJ IBD channel to the RJ RIA channel without significant re-papering or risk losing the assets altogether to another custodian.

This is a tough decision for RJ since obviously they don’t want to lose the assets, but they also don’t want to make considerably less money when the assets move to the RIA channel. I’ve heard that RJ used to make the switch relatively seamless from a paperwork perspective but now they are actively discouraging their IBD advisors from moving by requiring them to fully re-paper accounts…basically playing a game of chicken betting the advisor won’t want to do that and will just stay put. But as it turns out, many advisors are tired of the burdensome compliance and lack of service offerings and feel the move to RIA is no longer a “nicety” but a “necessity” for their business. They feel this way because it’s true…the wealth management landscape is shifting and to stay competitive you need to offer more services and investments to their clients.

Look at what happened with the $6.4 billion SageSpring Wealth Partners that recently left RJ IBD. That firm re-papered their 10,000+ accounts to Fidelity instead of move over to RJ’s RIA channel. I can only assume RJ was going to make them re-paper accounts to make the change, and they decided to shop around if they had to re-paper anyways. RayJay is in a very precarious spot and at some point will have to address this IBD exodus. My bet is they shutter their IBD channel and only have the W-2 employee and RIA channel options.

This trend of IBD advisors leaving for the RIA channel should make anyone that is interested in going independent consider skipping the IBD option and go full RIA from the beginning. The goal being to stay competitive and go where the industry is headed instead of moving your book twice to do it!

 INDUSTRY TALK

RIA Valuations Are Going Back to Normal

RIA valuations increased less than 2% in 2024 as M&A activity heated up, according to a new study from Succession Resource Group.

 Analyzing 176 M&A transactions completed in 2024, representing more than $13 billion in assets under management, the Tigard, Ore.-based consultant firm found that “valuations appear to have returned to historical norms, increasing a modest 1.83% over 2023.”

 This modest increase was noteworthy, the study said, partly because it showed that valuations weren’t particularly affected by modest adjustments to interest rates or the national election, the report said.

 “There is a lot of noise out there around the value of an advisory practice,” said David Grau Jr., president of Succession Resource Group, in the firm’s just released ninth annual review of advisor acquisition activity.

 For valuations, the study found that nearly 63% of the M&A transactions were completed at between 2.5 and 3.5 times recurring revenue. “For the first time on record,” the study said, “none of the deals received a multiple below 1.50” times recurring revenue.