Raymond James Riles Some Recruiters with Pay Policy
If your friendly headhunter has begun omitting Raymond James as a potential landing spot, there’s a reason for it. The fast-growing Florida-based broker-dealer last week sent some outside recruiters a brusque notice announcing that it is halving their guaranteed fees.
Instead of paying the standard 6% of revenue that a new broker produced in the previous 12 months at his or her former firm, Raymond James told some search firms they will receive 3%. It will add a second 3% “look-back” fee if the new recruit at the end of 12 months has retained at least 70% of client assets from the former firm.
While five recruiting executives said they were taken aback by the change, people with knowledge of the company’s policies said the firm has simply winnowed its “premier” list of headhunters to about 10 that will continue to get the upfront 6% fee while imposing discipline on less successful recruiters.
The policy has nevertheless spurred predictable outrage from affected recruiters, even as it draws applause from executives at other brokerage firms.
“No recruiter is going to work for them,” said Rick Peterson, who runs an eponymous 35-year-old broker headhunting firm in Houston. “We will do our best to talk people out of going to Raymond James.”
The company is failing to recognize search firms’ cash-flow needs as small businesspeople, and is ignoring their hard work in vetting candidates and acclimating them to a new culture after they are hired, he and some others said.
Internal recruiters at rival firms, as well as an outside recruiter on the “A” list, however, said the policy is long overdue.
“They are trying to reset and reprice the search business, and I applaud them for it,” said the head of recruiting at a rival regional broker-dealer, who spoke on condition of anonymity. “It’s the first real attempt to put some of the burden on the search firm for better quality, to add accountability, and if it works others will use a preferred list and back-door policy, too.”
Even if some headhunter egos and wallets are hurt, Raymond James’ recruiting success of recent years can continue, according to analysts, firm executives and even recruiters.
The Florida-based company ended calendar year 2016 with 7,128 brokers across its employee and independent broker networks, up a net 441 from a year earlier (excluding non-producing branch managers from the count).
“Forgivable” loans on its balance sheet to brokers, representing signing bonuses, almost doubled to $845.8 million as of Dec. 31, 2016, from $489 million on September 30, 2015, according to regulatory filings.
The firm has burnished its reputation as a broker-centric company that is more flexible than larger competitors, flying prospects to its St. Petersburg headquarters to meet with top executives and publicly proclaiming that it will eschew hard-ball tactics of rivals such as suing brokers who leave to prevent them from contacting former clients.
“Raymond James has unequivocally won the recruiting wars over the last few years by selling its culture, and will still do well,” said a regional recruiter who works primarily with a small southeastern rival.
Few headhunters can afford to turn their back on Raymond James, despite the challenge of ensuring that brokers retain 70% of client assets, said another recruiter relegated to the standard list.
The back-end target is achievable and firms routinely boast of 70- 80% asset-retention rates for transferred veterans, one said. However, she added, hitting the bogey within a year is often challenging.
Spokespeople at Raymond James, which despite heady recruiting success offers signing bonuses lower than most wirehouses, did not respond to a request for an explanation of the change.
The policy runs counter to higher recruiter pay of about 7% of a recruit’s trailing-12 that Ameriprise Financial and a few other firms eager to fill in salesforce gaps have been offering, recruiters said.
A person close to Raymond James said the company is not worried about turning off recruiters, who generally supply about 15% of new blood. External headhunters will be motivated because they can move on and off the premier list based on performance, the person said.
As recently as January, Raymond James Chairman and Chief Executive Paul Reilly flaunted the firm’s recruiting and broker retention records. “Results are continuing to be very strong as we’ve been kind of a destination for the people this last couple of years,” he said in an earnings conference call with securities analysts.
But he also has acknowledged challenges, which could be exacerbated if recruiters turn their back on the firm. Keeping net growth headcount to last year’s level without acquisitions “would be a little bit of a stretch for us,” Reilly said in the January call, noting that it’s done through “brick-by-brick recruiting and training programs.”
The alternative of building by buying companies has proven expensive. Raymond James’ 2015 decision to buy the U.S. brokerage business of Deutsche Bank broke its budget estimate even before the deal was complete in 2016.
Retention bonuses to Alex. Brown brokers will reach about $35 million in fiscal 2017, the company said in January, supplementing $350 million that Raymond James spent on its private client group’s retention and recruiting incentives last year.
Alex. Brown, whose advisors serve wealthier investors than the average Raymond James broker, has turned out to be something “of a break-even business,” Reilly said in a recent analyst earnings call. “We have every one of those advisers on the retention package…(and) with that you really stop the margin.”
Alex. Brown, meanwhile, is recruiting and Reilly in the January conference call said efforts to fill its offices with high-net-worth brokers are a “key future revenue driver.”
Spurned recruiters say he shouldn’t hold his breath.
The Alex. Brown name, which memorializes the venerable Baltimore-based firm that Deutsche Bank bought in 1999, is meaningful only to older brokers, Peterson noted. “It was our job to introduce people to it,” he said.
—Mason Braswell contributed to this story.