RF Capital reports Q3 revenue drop on market turmoil

RF Capital Group Inc. posted revenue of $85.9 million for the third quarter, down 5% from $90.8 million the previous quarter, but up 8% from $79.7 million year-over-year, the Toronto-based firm reported Friday.

RF Capital posted a net loss of $724,000 in the third quarter, a decline from the previous quarter when it reported net income of $58,000, but an improvement from the same quarter last year, when the firm posted a net loss of $8.5 million. Adjusting for transformation costs and other provisions, as well as amortization of acquired intangibles, adjusted net income was $3.2 million in Q3, down from $4.0 million in the previous quarter, but up from $2.5 million in the same quarter last year.

Operating expenses were $36.4 million for the quarter, down from $37.5 million in the previous quarter and $41.5 million in the same period last year.

Assets under administration (AUA) at the end of the third quarter were $33.6 billion, down 1% from $33.9 billion from the previous quarter, and down 2% from $34.4 over the same period last year, on market declines.

In a conference call, president and CEO Kish Kapoor said RF Capital remained committed to its overall growth strategy anchored on technology transformation and expanding its Richardson Wealth advisory force, which was 161 advisory teams as of Sept. 30. Kapoor said that the firm’s goal is to add 14 to 15 new advisors and $2.5 billion to $3 billion in AUA to Richardson Wealth annually.

“If we see signs that we have greater demand, greater interest, we’re not going to say no,” Kapoor said. “We will add to our staffing, because it takes a big team to assist with onboarding.”

Kapoor said that Richardson Wealth had offers out to 11 to 12 advisors, with about eight expected to come aboard in either Q1 or the early part Q2 of 2023, after the firm had completed its transition to Fidelity Clearing Canada’s advisor technology platform.

Revenue growth year-over-year was driven in large part by interest revenue — up 201% to $12.1 million in Q3 from $4.0 million in the same period last year — earned on cash balances and margin loans, CFO Tim Wilson said.

“Even though margin loans decreased by 32% year-over-year due to client deleveraging amidst volatile markets, as you would expect, the rate increases have been so significant that margin lending [revenue] was still up,” Wilson said.

Insurance revenue for the quarter was $2.0 million, an increase of 70% over the same period last year due to a growing pipeline of insurance deals, the firm reported. “We expect to continue building our insurance business more broadly in the remainder of 2022 and into the new year,” Wilson said.

Interest and insurance revenue growth was partially offset by a 46% decrease in corporate finance revenue from Q3 of last year, due to an industry wide slowdown in new issue activity, and a 5% drop in client trading commissions, Wilson said.

Fee revenue was $62.0 million for the quarter, down 0.5% from the previous quarter, and unchanged from the same quarter last year.

“It is unlikely that markets will recover substantially this year, so we believe that fee revenue will be flat into Q4,” Wilson said.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.