Higher market values are allowing at least one broker-dealer to sing a merrier song.

For the first time in a few quarters, Raymond James beat analysts’ earnings estimates for the first quarter of 2024, ended Dec. 31, logging adjusted quarterly net income of $2.40 per diluted share against the analyst consensus estimate of $2.26—a 14 cent surprise. The firm reported $3.01 billion in net revenues for the quarter, an 8% increase over last year’s fiscal first quarter, based on what CEO and Chairman Paul Reilly said in an earnings call were record client assets. The company hasn’t beat estimates in the past three quarters.

However, at the same time, the St. Petersburg, Fla.-based broker-dealer, one of the country’s largest IBDs, has seen flat recruitment and it has suffered losses in its cash sweep programs—bank accounts that make money on short-term brokerage account cash sitting idle—as clients shifted into higher-yielding accounts to take advantage of higher interest rates, an activity known as cash sorting.

“Quarterly net revenues increased 8% over the prior year’s fiscal first quarter primarily driven by higher asset management and related administrative fees,” said Raymond James in its earnings statement. “Sequentially, quarterly net revenues decreased 1% primarily due to lower asset management and related administrative fees and investment banking revenues which were partially offset by higher brokerage revenues.”

For most broker-dealers, including Raymond James, the economy of the past two years has been a double-edged sword: Lower stock market prices until last year's fourth qaurter have hurt assets (and thus management fees) while higher interest rates for a time allowed these companies to earn interest on money they were sitting on in brokerage accounts.

But clients like higher interest rates, too, and started to show it. Last summer, Moody’s Investors Service said all four of the independent broker-dealers were seeing their bottom lines crimped by cash sorting. Pretax earnings and revenues were hurt as clients sought higher-yielding alternatives.

Raymond James launched its Enhanced Savings Program last March; it allows clients from the firm’s Private Client Group to park money in high-yield bank accounts. The program raised $2.7 billion in its first month, and stood at $14.5 billion at the end of 2023. However, in total, the company’s balances from that program and its domestic cash sweep balances were at $58 billion, a 4% decline from December 2022 (though it was up 3% over September 2023). Much of the trouble was in the bank segment.

At the same time, advisor recruitment has been disappointing: The total advisor count was 8,710, just a hair above the 8,699 count at the end of 2022. The struggles of the advisory industry are well known, as many advisors are aging out of the industry and companies have struggled to replace them, competing against deep-pocketed RIA aggregators ravenous for talent.

Still, CFRA analyst Michael Elliott said in an email that he rates Raymond James a “hold.”  

After reaching a share price of $123.40 in November 2022, Raymond James’s price cratered last year to around $84. Many firms tied to banks were scarred by the regional banking crisis that caused Silicon Valley Bank, Signature Bank and First Republic to founder. But those banks’ problems were fairly particular, and many analysts said that otherwise healthy broker-dealers were getting tarred unfairly with the same brush. In fact, Raymond James said that its new Enhanced Savings Program had benefited from the collapse of other banks. Raymond James traded at closer to $114 Friday afternoon.

As far as the recruiting issues, Reilly, said that the company's fit for advisors has always been more important for recruiting than cutting bigger checks. “We rarely match the highest offer,” he said in the earnings webcast. But he conceded transition assistance has gone up. He added that the flat recruitment numbers were misleading because the company had been acquiring larger teams whose businesses keep growing even as people retire. “We had a lot of retirements … but the retirements, almost all of them have transition plans.” He also says some people aren’t counted when they move to the company’s RIA channel.

The RIA world has challenging the broker-dealer model in other ways in its thirst to pick away advisors, Reilly hinted, pointing to aggregators backed by the deep pockets of private equity.

“Probably the biggest change in the competitive landscape has been RIA roll-ups that pay prices [for advisory firms] that we can’t quite figure out, and it’s a bet on aggregating and being able to go to market at some point even though those higher multiples are much bigger than public multiples. So that’s a new competitor that’s kind of led price.”

Reilly, the company chairman, turned heads in early January when it was announced his total compensation had doubled for 2023, rising to $34.9 million from $17.6 million in 2022.