Stifel Financial: Increasing Our Moat Rating to Narrow and Fair Value Estimate to $86 From $81

We are increasing our Morningstar economic moat rating for Stifel Financial to narrow from none. The main source of the company’s moat is switching costs in its wealth management and related customer deposits business that often compose over 60% of revenue and over 70% of pretax earnings. The wealth management business is healthy with about an 11% compound annual growth rate in client assets and a 1.5% compound annual growth rate in advisor headcount since 2010. Of the company’s 2,386 affiliated advisors at the end of 2023, about 95% of the advisors are employee advisors and 5% are independent contractor advisors. After selling much of its independent contractor advisor business that came with its Sterne Agee acquisition in 2016, the company has mentioned that it’s hoping to increase its independent contractor headcount. Given the general trend in the wealth management industry to more advisors choosing the independent contractor business model, we believe diversifying its advisor headcount toward more independent contractors is a positive as long as it doesn’t detract management attention from its core employee advisor business.