Analyst cuts Raymond James' rating over "emerging risks"

A stock analyst over the weekend lowered his rating of Raymond James Financial Inc., citing a variety of concerns related to the short-term growth of its brokerage and wealth management business, where more than 8,000 financial advisors work.

Steven Chubak, managing director of Wolfe Research, reduced the firm's rating to "peer perform" from "outperform," in a research note that surveyed the wirehouse, regional brokerage and bank brokerage sectors just days before the large banks begin reporting second quarter earnings at the end of this week.

Trading at $118.18 per share a few minutes after noon on Monday, Raymond James shares, with the ticker RJF, are up 88.5% since January 2021, when Wolfe Research upgraded the company to "outperform." In the research note, Chubak pointed to a general cooling down of the firm's pace.

"RJF leadership has executed well since our Jan. 2021 upgrade, but following a period of outsized gains, we are wary of emerging risks given elevated short-end gearing, slowing [net new assets] and OSJ departures, and comp pressures," Chubak wrote.

He also cited financial advisor "migration to less profitable channels" as another risk; the least profitable business line for the firm and most profitable for the financial advisor is the registered investment advisor channel. Raymond James, like its competitors, is trying to hang onto financial advisors seeking independent business ownership by beefing up its RIA offering.

A spokesperson for Raymond James declined to comment.

OSJ is industry shorthand for office of supervisory jurisdiction, a term used to describe a branch or large network of financial advisors affiliated with a broker-dealer like Raymond James Financial Services Inc., which works with independent contractor financial advisors. Raymond James & Associates Inc. is the workplace for employee financial advisors.

In September 2022, a giant branch office of Raymond James, Concurrent Advisors, with close to $13 billion in assets, said it was leaving the firm. A year later, Raymond James acknowledged it had lost about $4.6 billion of those assets in a conference call with analysts, but declined to name Concurrent Advisors as the firm that left.

Independent broker-dealers across the board are worried about losing their biggest branches and OSJs and have started to buy pieces of those firms or swallow them outright. It's a way for LPL Financial, Osaic and Cetera Financial Group to hang onto those assets and, in turn, keep either private or public investors happy.

"A huge pull is the massive amount of money that private equity firms and other buyers are offering the owners of these OSJs," said Jodie Papike, president of Cross-Search, a third party recruiting firm. "The broker-dealers are countering by trying to keep these branches in place by offering more help and services, including in recruiting to a branch and acquisitions."