While Raymond James Financial posted record net revenues of $1.29 billion for the fiscal second quarter, up 9 percent from a year ago, the firm’s pre-tax income of $180 million was down 11 percent from the December quarter due to elevated expenses, which the firm says are non-recurring. Pre-tax income was also up 9 percent from the year-ago quarter.
“We have a lot of expenses that hit—some seasonal, some self-inflicted wounds—that should not play a part going forward,” said Jeff Julien, chief financial officer, during an analyst call.
For one, the firm is continuing to clean up from the mutual fund issues it disclosed earlier this year. The issue was related to some mutual fund share classes running specials, which were buried deep in prospectuses and were easy to miss, Julien said.
“In the December quarter, we took a $10.5 million reduction of revenues, and a corresponding $6 million reduction of comp expense, assuming that that would be the amount recouped from financial advisors on commissions that would be reimbursed to clients,” Julien said.
But in February, the firm backtracked from previously stated plans to require its advisors to pay the rebates to clients who were incorrectly sold more expensive classes of mutual funds over the past five years. That has resulted in an additional $6 million expense this quarter.
At the same time, the $10.5 million estimate in the fiscal first quarter has been refined downward to $8 million. The firm will start sending out reimbursements checks to clients this week.
The firm’s profit was also affected by fewer days in the quarter, so investment advisory fees were down.
The b/d also added $6 million to its compensation expenses due to seasonal FICA (Federal Insurance Contributions Act) costs.
There was also some seasonality related to information processing expenses, due to the annual printing and mailing of its statement for cash management accounts, 1099s for clients, and annual reports and proxies, all of which added $2.5 million.
Business development expenses were also high, with the firm increasing its advertising airtime during the quarter, and ramping up recruiting activity.
The increase in expenses also challenged the firm’s private client group, with pre-tax income of $75 million, down 2 percent from a year ago and 19 percent sequentially. The segment posted record quarterly net revenues of $870.6 million, up 7 percent year-over-year and 3 percent over the last quarter. Assets under administration grew 9 percent from a year ago to a record $471 billion.
“These records have been driven by our long-term focus on recruiting and retaining a great group of financial advisors,” said CEO Paul Reilly.
Advisor headcount grew to 6,384, up 182 over last year and 48 over the fiscal first quarter.