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Loans to Wealth Management Clients Lift Raymond James’ Earnings

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Lending to wealthy clients lifted yet another brokerage firm’s revenue.

Raymond James Financial reported that a 82% year-over-year surge in interest income boosted revenue during the second calendar quarter and offset declines in other revenue lines.

Raymond James headquarters

Courtesy of Raymond James

Wealth management firms have increasingly leaned into selling their wealthy clients mortgages, securities-based loans, and other lending products. Doing so enables advisors to serve clients’ lending and investing needs. At the same time, wealth managers’ bottom line is now benefiting from the rising rate environment.

Raymond James said interest income rose to $374 million for the quarter from $242 million for the same period last year. Total revenue increased 11% year over year to $2.8 billion. 

The company looks set to grow its lending business. During the quarter, Raymond James closed its acquisition of TriState Capital Holdings, a Pittsburgh-based bank and asset manager that specializes in lending to high-net-worth clients. Whereas Raymond James makes securities-based loans to clients of its advisors, TriState does so via other intermediaries, such as RIAs, trust companies, and other financial institutions. 

Total bank loans, including Raymond James and TriState, soared 75% to $41.8 billion, according to the company. CEO Paul Reilly said that even if interest rates rise, securities-based loans will remain a popular option and cheaper source of credit for certain clients.

“SBL loans are in demand and growing,” Reilly said during an earnings conference call July 28.

Raymond James reported that net income available to common shareholders fell 3% to $299 million due to elevated expenses. Business development costs, for instance, soared 87% to $58 million.

CFO Paul Shoukry, speaking during the call, said the company hosted an advisor conference and other events. Employees are also traveling more for business compared to last year. In addition, Raymond James paid a one-time bonus to lower-paid staffers to help employees cope with inflation.

“It’s about taking care of associates who have done a great job,” CEO Paul Reilly said during the call. “Our turnover is up, but it’s lower than the industry.”

Raymond James’ client assets under administration slipped 10% from the first calendar quarter of this year to $1.125 trillion, reflecting down markets. Other wealth management firms experienced similar declines during the second quarter. 

The transfer of independent wealth management firm Steward Partners from Raymond James’ broker-dealer to the company’s RIA custody unit caused overall advisor headcount to decline. Raymond James doesn’t include advisors associated with the RIA custody business in its headcount. The company said it had 8,616 independent and employee advisors as of June 30, down 114 compared with March 31.

Write to Andrew Welsch at andrew.welsch@barrons.com