Stifel's CEO says shrinking wirehouses recruiting deals are giving a competitive advantage to regional firms like his, which typically offer smaller transition packages.
"My sense is that the overall recruiting numbers [for deals] are coming down, especially at the large firms, and that benefits us competitively," Ronald Kruszewski told analysts during an earnings call Tuesday morning.
Kruszewski, whose firm reported profits surged 141% year-over-year, said the recruiting landscape has shifted in response to the Department of Labor's fiduciary rule. Stifel has 2,282 advisers, up by two from the prior quarter.
The department's regulation, which goes into effect April 10, has been upending how firms operate. But the Labor Department created a new ripple effect in October when it issued additional guidance targeting back-end awards common in many recruiting deals as potential conflicts of interest.
"Trying to structure recruiting around those regulations was a Rubik's cube, if nothing else. I think it muted the recruiting while people were trying to understand it," Kruszewski said. "I think some of the large firms have tried to use this to become more rational with the size of the recruiting deals."
Indeed, several firms, such as Morgan Stanley, quickly cut the size of their recruiting deals. In recent years, some deals had reached about 350% of production.
Stifel has been aggressively recruiting wirehouse teams, picking up a number of advisers in the past year. For example, in December, the St. Louis-based firm recruited a Wells Fargo team that managed over $600 million in client assets.
However, Kruszewski cautioned that the history of the business suggests that "it doesn't take a long time for those rational numbers to become irrational again."
Plus, he anticipates that the rule could be delayed or reversed by President Trump, changing the business environment once again.
"The Department of Labor… should it really be in the investment markets? That is the purview, in my opinion, of the SEC. I think the new administration shares that view. But that's my speculation," the chief executive said.
Kruszewski's firm is coming off a strong quarter. Companywide, fourth quarter net income rose to $26.8 million, up 141% from from $11.1 million for the same period a year ago.
Stifel's wealth management unit reported that pretax profits surged 33%, reaching $122 million from $92 million for the year-ago period.
Commission revenue dropped to $114 million from $128 million, a 10% decrease. However, net interest income offset that, rising to $78 million from $42 million, an 86% increase. Kruszewski cited this as an important growth area for Stifel.
Wealth management firms such as Morgan Stanley and UBS have also made greater efforts to offer clients securities-based loans and other lending products in a bid to grow net interest income.
Stifel reported non-interest expenses increased 11% year-over-year to $284 million.
Client assets grew to $236 billion from $219 billion, a 7.8% increase, according to the firm.
In recent years, Stifel has completed several acquisitions, including Sterne Agee, Barclays' U.S. wealth management business and City Financial, a small broker-dealer. Kruszewski said that the firm will continue to look at new opportunities, but its current scale serves Stifel well.
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