RJ unit takes internal heat

NEW YORK — Thomas James clearly is displeased with the growth at Raymond James Financial Services Inc.
During an April 24 conference call about earnings for the fiscal second quarter ended March 21, the chairman and chief executive of Raymond James Financial Inc. of St. Petersburg, Fla., was asked about the stagnant head count — about 4,600 — of the unit’s reps and advisers across all business channels since 2001.
Mr. James — who routinely preaches a goal of 20% return on equity — said: “We are not happy not to have net additions on the RJFS side.”
In fact, Raymond James Financial Services, in recent years the No. 2 independent-contractor broker-dealer behind Linsco/Private Ledger Corp. of Boston and San Diego, slipped last year, according to InvestmentNews rankings. With $890 million in gross revenue, it fell to fourth, growing at a pace of 7.4% compared with the level of the prior fiscal year.

By contrast, the top-25 independent-contractor broker-dealers had an aggregate annual growth rate in 2006 of more than 16%.
Executives with Raymond James Financial Services wouldn’t say how much gross production has left the firm in the past year.
Although they admit that the firm hasn’t had the overall 20% growth that Mr. James wants, they stress that, since 2002, production by current advisers has met expectations of generating half that goal.
“It is revealing that during this period, our fee and commission revenue has nonetheless increased at over 10% per year,” Richard G. Averitt III, Raymond James Financial Services’ chairman and chief executive, wrote in an e-mail message.
And that increase occurred as the firm has cut significantly its number of offices because of the increased production requirements and better supervision that forced some representatives to leave, he said.
Communication gap
Still, one executive admitted recent mistakes that alienated some reps and advisers, specifically over changes in policies that affect the sale of variable annuities. Last August, the firm cut and capped commissions on variable annuities, taking into account how costly and complex many had become.
“About VAs, the reality is, I think we could have done better communicating to advisers,” said Raymond James Financial Services national sales director William C. Van Law III, a newcomer to the firm.
“As a result, we lost some people,” said Mr. Van Law, who until last September was a division director at Raymond James & Associates Inc., the employee firm that recently has seen successful results.
Nevertheless, something changed at the independent-contractor arm of Raymond James over the past couple of years that made some reps and advisers look to leave, current and former reps and recruiters say.
Two years ago, it almost was unheard of to convince a rep to leave Raymond James Financial Services, industry observers say.
Now, as a result of tighter compliance and complaints about fees and service, some advisers find the culture heavy-handed and are looking at other firms, they say.
“The recent decision to cap the payout on variable annuities is a mark of an organization that says [to its advisers], ‘You are going to play by our rules,’” said John Rooney, managing principal in San Diego with Commonwealth Financial Network of Waltham, Mass.
He said that in the past year or so, Commonwealth has recruited about a half dozen advisers with $1.5 million in fees and commissions from Raymond James Financial Services.
Cambridge Investment Research Inc. of Fairfield, Iowa, for example, has recruited nine offices from Raymond James Financial Services with $5 million in fees and commissions over the past 15 months, said chief executive Eric Schwartz.
And he feels that the pipeline of advisers looking to change is strong. “Over the next nine months, it could be another $5 million,” Mr. Schwartz said.
According to reps and recruiters at competitors, other firms that have had success in taking Raymond James Financial Services’ advisers include AIG Financial Advisors Inc. of Phoenix, FSC Securities Corp. of Atlanta and Securities America Inc. of Omaha, Neb.
Regulatory issues
The increased burden on reps of compliance is in reaction to the firm’s recent problems with securities regulators, observers said.
In a case that lasted about a year, the Securities and Exchange Commission in September 2005 ordered the firm to pay a $6.9 million fine for its failure to supervise a rogue broker, Dennis Herula, who stole $13 million from investors.
Earlier that year, NASD of Washington fined Raymond James Financial Services $750,000 for violations stemming from a failure to supervise the firm’s fee-based brokerage accounts.
And this past February, NASD fined the firm $2.75 million for lax supervision of producing branch managers, based on activity from early 2000 to September 2004.
“With all the compliance systems, they’re taking away all your free time,” said one adviser affiliated with Raymond James who did not want to be identified. He said he is actively looking at other broker-dealers.
Along with the complaints of compliance supervision becoming heavy-handed, some reps and advisers are complaining about the firm’s nickel-and-diming them on fees and service that sometimes is spotty.
Concerning disgruntlement over fees, Mr. Van Law said, “That’s the first I’ve heard of it.”
‘Compliance hoops’
He conceded that there are “more compliance hoops” than five years ago, but those are changes taking place across the industry.
However, Mr. Van Law is convinced that Raymond James Financial Services is moving in the right direction.
For example, a team of fresh recruiters is ready to hit the Street and tell the firm’s story, he said, and the focus for executives this year is on service. Visits to the home office from potential recruits are up, Mr. Van Law said, and many of the firm’s advisers remain happy, reps and recruiters say.
And though the number of advisers and reps who the firm saw leave last year increased by about a third from 2005, it still was slightly less than 1% of the sales force, he said.
Mr. Van Law added that the firm also isn’t losing million-dollar producers — the most-coveted advisers in the industry — but actually has seen the number of such heavy hitters almost triple since 2001, now reaching 89.
“We are absolutely committed to improving the level of growth at Raymond James Financial Services,” he said. “I’m banking on it.”