RJFS' new CEO talks about growing the business and building better advisors.
These days, growing a successful broker-dealer that can keep its head above water at the same time it attracts top-flight advisors is no easy task. Richard G. Averitt III (Dick to friends and colleagues), a 25-year veteran of Raymond James Financial Services, has spent his freshman year as chairman and CEO of the financial services firm seriously courting top-flight advisors while trying to staunch losses. Investment advisory assets at the company were down 9% for the first half of fiscal 2003, ended March 31, and commissions were down 8%, though there was an 11% increase in pre-tax profits, according to financial statements the company released April 15.
Averitt, who took over from renowned brokerage legend and industry leader M. Anthony Greene last May, has his work cut out for him, but the former U.S. Marine Corps helicopter pilot and Vietnam veteran seems up to the task. He's been with Raymond James (then Investment Management and Research) since 1978, when he joined the company as a financial advisor. He quickly rose through the ranks into senior management, first in business development and most recently as the executive vice president and national sales manager for RJFS' Investment Management Division.
In this sagging economy it's a tall order to grow a business the size of Raymond James, one of the leading sources of brokerage services for independent planners, but Averitt says he is determined to turn Raymond James into the gold standard for planning and advisory services. To get there, the brokerage veteran says he's fully prepared to make tough calls on issues ranging from ways to help advisors shore up their business to dealing with chronic underperformers.
FA: It's your one-year anniversary as CEO. What's the toughest lesson you've learned this year?
Averitt: It's been a tough year for more reasons than one. We moved the executive offices of the company from Atlanta to St. Petersburg, which also meant a personal move for us. It was an appropriate and effective step I think to align all of our operations. That said, clearly any discussion about challenges has to deal with the market and economy. I have some advisors in the field who have become shell-shocked. They're weary and in some cases have been telling clients, "Hold on. This can't last forever."
In fact, I believe that we have a very different market today. I don't want to be classified as a bear; I'm not one. I'm fully invested. But I believe that we could have a long, pretty painful trading-range market that produces no real gains. I'm not sure where the bull market is. That's going to be tough for advisors and investors. I'm afraid that's the hand of cards that we have to play. So yes, if you ask me what's tough about my job, boy that is right up there. Tougher than the last 20 years. It's hard on firm revenues, hard on employees. I've had employees ask if we'll have layoffs and I said, "Not today." We're working hard to avoid that.
FA: Let's look at your advisors in the field and revenues and where you want to go.
Averitt: Right now there are 3,600 producing financial advisors. Our total registration is 4,900, but that includes professional partners and registered staff. There are 1,600 branches with 600 additional sites. While revenues are off for individuals, our revenues are essentially flat because we continue to grow the number of firms and individuals.
I'm putting a lot of energy into developing and continuing growth for this company. We've added two new recruiters and are talking to others. Our goal has been to try to grow internally at 10% and branches at 10%. That's a daunting task and not being achieved in this marketplace. But the firm of Raymond James has tremendous depth and strength. Right now, when we look out my window, we see Bell Tower Number 4 being built. We have a nice campus and good planning. This construction was planned for years.
FA: You were a top-flight advisor yourself when you started in this business. What do you think advisors are doing wrong and right in this market?
Averitt: Let's use the doctor analogy. Some advisors are sitting by the bed sides of patients post-op and saying, "Hang in there." They may not be giving the right advice. I don't think holding on to sectors that led us in the bubble will lead us out of the pit. Some advisors have to get out of the ward and back into the emergency room with investors who need their time and talent.
We're trying to do more things to help advisors do that. We're working with the American College to find a way to provide CFP modules efficiently. We can't undertake the business of educating directly [advisors at Raymond James are independent contractors and cannot receive employee benefits], but we can encourage, incentivize, recognize and reward. We want advisors to continually be in the business of improving their education so that as their knowledge base increases, their judgment continues to improve and they have historical perspective. We're also ramping up high-level sales and marketing programs, including three regional meetings, that will help advisors who need it.
FA: Are you broadening your product offerings into alternative investments?
Averitt: We are and we think that's another effective way for advisors to serve clients who need these types of alternatives, especially higher-end investors. Mutual funds are fine for asset gathering, but they're not very tactical. Sometimes, for instance, certain investors might want to be in energy, and sometimes not, whether that's a 5% or 25% allocation. It can make sense in a trading-range market to take a tactical position, say to buy defense, for example, when it's trading at a cyclical low. So we're doing a lot of exchange-traded funds and, in some instances, using hedge funds where appropriate. We're also making Raymond James award-winning research more useful to our own advisors. It's used broadly by others; now we want to get it into advisors' consciousness, which will also help them from a tactical perspective. Private asset management can also make sense.
FA: So what are advisors doing right? I thought the job of a good advisor-what investors pay them for-was to keep investors invested. Is that happening at your firm?
Averitt: Our advisors tend to be financial planners and use a planning methodology and asset allocation. They favor a deliberate, goal-oriented approach and are not opportunity snatchers. So they have kept clients in the market much more than I think overall industry statistics might indicate. We really do not see a flight to cash, nor do we support timing, though we do think being tactical can add value. The advisors who are successful continue to spend time with clients to address their goals and fears. Those who practice planning as I believe it was intended to be practiced have a very high client retention rate and in some cases no losses. When investors set goals based on their own objectives, rather than what was on TV in the late 1990s, their expectations aren't dashed nearly as much and good advisors make that happen.
FA: You're a big proponent of fee-based planning. What percentage of Raymond James business is fee-based now, and where do you want to see that number go in the next five years?
Averitt: We're hearing a lot about the FUD Factor-shorthand for fear, uncertainty and doubt. Investors can become numb and are unable to make decisions, and sometimes advisors share that sentiment. We know that when clients become uncertain, they put their hands in their pockets and back away from the table That said, today roughly 40% of our revenues are recurring, either fee-based or trails, which has been very helpful to advisors. Though their revenues have gone down, they haven't dropped off the page. I'd like to see fees grow. We think it's a natural evolution. I would expect it to hit the 60 % mark in the next five years.
FA: Let's talk about the advisory force. I saw you quoted fairly recently as saying your field force had better double their production or else. Is that accurate?
Averitt: (Laughs) I can't imagine those words coming out of my mouth. But we have had minimum production standards since 1989. We've continued to increase them during this period, which is an affront to some, but part of a good business model. For advisors operating below those production levels, we charge maintenance fees. These fees aren't designed to raise revenues, but to help advisors make a choice-to reorganize their time and behavior to deliver a better result to their families and the firm-or decide this isn't really the business they want to be in.
There are still some advisors who are in a cocoon of comfort, even as the maintenance fees they're charged increase. After several years of this, we've gone to these advisors and said: "This is not intended to be a life model." So yes, said as nicely as I know how, we've communicated that "This makes no sense for the company. We don't think it makes sense for you. How much time will you need to find something else?"
That is new after two or three years. There are specifics I prefer not to get into for competitive reasons. For some, there are opportunities working for the company in something that fits them.
FA: What percentage of the field is getting shaved out of your maintenance fee program?
Averitt: It's not a very large percentage. Right now it's a few percent, and it will grow to be a few percent more. We've gotten some negative comments, but we've also gotten positive feedback from those who said, "It's about time."
FA: At the end of the day, what are you hoping to achieve at Raymond James? What will your legacy be, if you get to write it your way?
Averitt: Frankly, we want to be the gold standard. We're developing a real brand recognition. Now it's time to set our objectives higher. We really need to become the firm that investors think of when they want to get good service from people who care about them. That means hiring quality people and insisting on integrity. There is no room for dishonesty here. We want to be able to bring big advisors on. We're also developing a framework so that people can choose here between the independent contractor model and employment with some flexibility. You should be able to come to Raymond James and find a fit the way you want to do business, and this is another step toward that.