The Quick & Reilly Group, Inc. Business Information, Profile, and History
Palm Beach, Florida 33480
History of The Quick & Reilly Group, Inc.
The Quick & Reilly Group, Inc. is the holding company for Quick & Reilly, Inc., one of the three largest discount brokerage houses in the United States in the 1990s, with 13 percent of the market in 1996. Another subsidiary, U.S. Clearing Corp., was the third largest in its field, maintaining accounts and clearing securities transfers for hundreds of banks and brokerage firms. A third, JJC Specialist Corp., was engaged in softening price volatility for hundreds of stocks on the New York Stock Exchange. It was the second largest firm in this field. Quick & Reilly was an industry leader in efficiency and profitability; in 1995 it ranked second on a list of the 10 most profitable brokerage houses by profit per employee.
Private Company, 1974--83
Leslie Quick, Jr. ran an unsuccessful money-management firm before teaming with Kevin Reilly in 1974 to form a small New York City brokerage house, mainly with borrowed money. When the federal government eliminated fixed commission rates in 1975, Quick & Reilly, with a staff of only four, was the first company with a seat on the New York Stock Exchange to offer a significant discount to the public--40 percent below the standard rate--for its no-frills service. Like full-service houses, the company assigned each customer a particular broker, but these officers did not receive commissions nor offer investment advice.
Major Wall Street brokerage houses were already offering discounts to institutional investors, but they were so angered by Quick & Reilly's action that one threatened to withdraw new issues from a firm that was merely processing trades for Q&R. In a 1984 speech to the annual meeting of the Securities Industry Institute, Quick told brokers that they had "created the discounters" by "a lack of concern for your customers." He said clients who had come over to Quick & Reilly had spoken of "bad experiences" with other firms after stocks these companies recommended fell in value "and there is no one there to tell them what to do."
Although Quick & Reilly was first on the discount scene, the public did not immediately beat a path to its door, and before the year was out Reilly had left the firm. The situation changed after the company received a mention on television news. In Quick's words, "people walked in with shopping bags loaded with stock certificates." But vital to increased business, Quick found after taking a short-term lease on a Palm Beach, Florida, office, was an accessible place for customers. "You need branch offices," he told a Forbes reporter in 1982. "National 800 numbers don't bring in very big business. People want to feel they can walk right in." Establishing branch offices set Quick & Reilly (and Schwab & Co.) apart from run-of-the-mill discounters.
By 1979 Quick & Reilly was doing so much business that it had to assume processing trades itself under the newly formed subsidiary U.S. Clearing Corp. That fiscal year (the year ended February 28, 1979) the company earned $948,000 on revenues of $14 million--up from $6 million the previous fiscal year. Three years later the totals had swelled to $5.9 million and $40.5 million, respectively. By then the company had found a major revenue source--38 percent in fiscal 1982--in interest, mostly earned on margin accounts.
Quick & Reilly had 18 offices in nine Eastern seaboard states and the District of Columbia by 1980. That year it opened its first Midwest branches, in Chicago, Cincinnati, Cleveland, Detroit, and St. Louis. In 1983 the firm established itself west of the Mississippi River for the first time, opening five California offices as well as branches in Denver, Phoenix, and Seattle.
Quick & Reilly entered a new field when it bought the assets of Colin, Hochstin Co. for $2.8 million in 1982. Among its activities Colin, Hochstin functioned as a specialist--a market maker--for 27 stocks on the New York Stock Exchange. As a specialist, the company had an effective monopoly in the trading of these stocks, dampening price volatility and maintaining orderly markets by selling when the public was buying and buying when the public was selling. Quick & Reilly's new operation was named JJC Specialist Corp.
Growing in the 1980s
A holding company was established in 1981 for the Quick & Reilly brokerage subsidiary (which the following year began underwriting and dealing in tax-exempt bonds issued by states and their subdivisions), JJC Specialist, and U.S. Clearing (which in 1983 was clearing securities transactions for 18 brokerages besides its own and 9 banks and banking groups). In 1983 the parent company had 38 offices in 20 states and the District of Columbia. That year it became a public company, raising $16.8 million for the firm and about the same for its existing shareholders by offering common stock at $18 a share. Quick, his children, and a family trust retained about 62 percent of the shares.
Quick & Reilly began offering clients research reports by the firm's securities analysts in 1984, for an annual fee. The following year the company started taking orders by computer for subscribers to the CompuServe Information Service, months after it had become the broker for Citibank customers who had on-line accounts. It was only the second broker to allow customers to fill in an application electronically. "If he's cleared by Quick & Reilly, he can start trading the next day," said an executive of the company furnishing the link between the brokerage firm and CompuServe.
By 1986 Quick was presiding over a family empire. One son was chief operating officer, responsible for the holding company's day-to-day operations. Three other sons ran the three subsidiary units, and a daughter was editor of the company newsletter. The Quicks were known as cost-control obsessives, initialing each bill from each branch--roughly 500 a month--before payment. Quick & Reilly maintained a staff of only 15 at headquarters and bought all its office furniture used. Brokers started out making only $18,000 a year, but they--and other employees, including clerks--received bonuses allotted from 30 percent--later one-third--of each branch's profits. True to its founder's maxim, "We don't have to be the biggest, we just have to be the most profitable," the company was opening only five to six new branches a year. During fiscal 1986 Quick & Reilly had net earnings of $11.8 million on revenues of $73.3 million.
The stock market crash of October 1987 put an end to Quick & Reilly's unbroken string of annual record profits and earnings. Because of its reluctance to make acquisitions the firm had accumulated a $60 million cache, mostly invested in municipal bonds. This enabled it to ride out a drop of 20 percent in sales and about 60 percent in earnings. Quick & Reilly's cash holdings also enabled it to acquire specialists undermined by the crash. After the firm acquired the specialist unit of Drexel Burnham Lambert in 1990, it was the market maker for 82 New York Stock Exchange stocks. Quick & Reilly also bought five discount brokerages during fiscal 1989 and 1990, bringing its total of branch offices to 64 in 27 states and the District of Columbia. And it was clearing trades for 81 banks and brokerages, an activity responsible for nearly half the holding company's revenue of $106 million in fiscal 1990.
Booming in the 1990s
Quick & Reilly held 12 percent of the discount brokerage market in 1992. That year a New York Times study found that it was charging less in commissions than Schwab or Fidelity Brokerage Services Inc., the two companies in the field larger than Q&R. However, the firm did not offer as many services as its two larger rivals. To narrow the gap, Quick & Reilly began making it possible for customers to call and get help researching financial information on publicly held companies, including Standard & Poor's latest earnings estimates. And the company announced, as part of a $5-million advertising campaign, that it would refund commissions to customers who complained in writing, within 45 days of a trade, about any aspect of the broker's service. The guarantee did not apply to declines in stock prices. Two years later the firm said only .01 percent of its trades had resulted in refunds.
Quick & Reilly moved its headquarters to Palm Beach in 1992 and acquired the specialist operations of Stokes, Hoyt & Co., bringing its roster to 123 companies listed on the New York Stock Exchange. Although a risky operation during selling panics, specialist-trading was yielding 40 percent pretax earnings for Quick & Reilly. The firm acquired the brokerage and specialist business of Spears Rees & Co. in 1993 and by late 1994 had the second largest specialist operation on the New York Stock Exchange. The firm's U.S. Clearing Corp. also was a major source of business, accounting for about 40 percent of revenues. By late 1994 it was the fourth largest clearing firm in the United States, and by 1997 it ranked third.
Quick & Reilly increased its marketing budget to as high as $8 million in 1994 in order to keep up with Schwab and Fidelity and fend off competition from dozens of discounters offering even lower rates than the Big Three. Its services now included 24-hour touch-tone access to account and stock information. The company had 825,000 clients in 1995. That year it opened its first office in a bank branch, in Palm Beach. Within a year this office had brought in over $20 million in business. Thomas Quick, president of Quick & Reilly, said, "This is allowing us to experiment in smaller communities where it might not make sense from an overhead point of view" to open a stand-alone office.
Quick & Reilly began clearing transactions in 1996 for institutional investors in Great Britain and Switzerland, establishing its first overseas branches in London and Zurich. In November of that year the company introduced QuickWay Net, its Internet trading service. In addition to offering stock, options, and mutual-fund transactions for $26.75 a trade, lower than its standard minimum fee of $37.50, QuickWay Net offered unlimited free quotes and portfolio management tools and was a marketing aid for U.S. Clearing, which offered banks and brokerages software to give their customers Internet access to portfolios, market and company news, and real-time stock quotes. Certain national publications called QuickWay Net the most user-friendly link of this type. In January 1997 Quick & Reilly greatly expanded the specialist segment of its business by agreeing to purchase Nash Weiss & Co., a specialist for 2,500 over-the-counter stocks on the NASDAQ exchange.
From 1992 through 1996 the revenues and profits of discount brokerages grew twice as fast as those of full-service brokers. Quick & Reilly's revenues and net income rose for the fifth consecutive year in fiscal 1994. The following year net income dipped slightly, a development the firm blamed on rising interest rates and adverse market conditions. In fiscal 1996 net income soared to $69.4 million on revenues of $443.9 million, for a pretax profit margin of 37.7 percent, compared to the industry average of 16.4 percent. In fiscal 1997 the company earned $82 million on revenues of $507 million. Quick & Reilly had no long-term debt in 1996. The Quick family held about 35 percent of the stock that year, with the senior Quick continuing as chairman and chief executive officer.
Quick & Reilly had 116 offices in 34 states and the District of Columbia at the end of fiscal 1997. It represented more than 2,100 mutual funds provided by outside vendors. U.S. Clearing was clearing all securities transactions for 330 correspondent firms. JJC Specialist was making markets in 278 New York Stock Exchange issues. Nash Weiss & Co. became a subsidiary for the firm's specialist activities in the over-the-counter market. Clearance commissions and income accounted for 48.6 percent of company revenue in fiscal 1997, while interest came to 36.8 percent and trading to 11.8 percent.
Principal Subsidiaries: JJC Specialist Corp.; Nash, Weiss & Co.; Q&R Capital Corp.; Q&R Charter, Inc.; Quick & Reilly, Inc.; Quick & Reilly Tara Corp.; U.S. Clearing Corp.
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