Okay, I think we're ready to get started. It's right at 9:00 A.M. Good morning. I'm Kristie Waugh, Senior Vice President of Investor Relations. Welcome to Raymond James Financial's 2024 Analyst and Investor Day. We're so happy to host many of you here in person, and we know there's many, many more joining us virtually as well. I know it's been a really busy week and maybe some difficult travel for a few of you with many investor days. So really, it does mean a lot that you made the trip out here to spend the next couple of hours with you. Over the next couple of hours, you will hear from a lot of our key business leaders about their businesses, about our strategic growth initiatives, and many of the key focus areas.
We do have a lot planned, so I will just go ahead and get things started. First, I want to call your attention to the safe harbor statement shown on the screen. Certain statements made during this presentation may constitute forward-looking statements. Forward-looking statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated timing and benefits of our acquisitions, anticipated results of litigation and regulatory developments, or general economic conditions. In addition, words such as believes, expects, plans, will, could, and would, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Please note that there can be no assurance that actual results will not differ materially from those expressed in these statements.
We urge you to consider the risks described in our most recent Forms 10-K and subsequent Forms 10-Q, which are available on our investor relations website. We also use certain non-GAAP measures to provide information pertinent to the management's view of ongoing business performance. These reconciliations to the non-GAAP measures, to the most comparable GAAP measures, may be found in the appendix of this presentation. Now, turning to the agenda. In a minute, Paul Reilly, Chair and CEO, will kick things off to provide a strategic overview. Following Paul, we'll have Scott Curtis review our largest business, Private Client Group, and Horace Carter to review our fixed income and public finance businesses. At that point, we will take a short 15-minute break, and when we resume, Steve Raney will be here to review the bank segment, and we'll end with Paul Shoukry financial review.
The presentation is now available on our investor relations website, and it does include biographies of each of our presenters and the non-GAAP reconciliations I mentioned a moment ago. We will have Q&A following each presenter. We will prioritize those in the room first, but we will be gathering Q&A as well on the web portal. If those joining virtually could just use the QA button at the bottom of your screen, we'll see those and be able to bring those up as there's time. For those in the room, we do have mic runners, so please wait, and we'd ask you to identify your name, firm, before stating your question, and we will limit it to one question until we make sure we get through everybody. Now, I'd like to introduce our first speaker, Chair and CEO, Paul Reilly.
Paul joined Raymond James in 2009, and became CEO in May 2010. He served on Raymond James Board of Directors since 2006, and became Board Chair in 2017. Paul, please welcome to the stage.
Well, good morning, and we really appreciate everyone making the trip here. Thanks, Kris.
You're welcome.
And as you know, well, you've seen the presentation before. For those who have followed us, you'll see a lot of similarities. First, I'd like to welcome Cecily Mistarz, who's our newest director, and she wanted to stay and see, you know, what we did here. So she has an extensive banking background, which we thought would be a great add on our board. And also, on the other side, we talk about Raymond James being a family, and we lost a member of our family yesterday. A longtime friend, director, former CEO of Tech Data, was with us Monday and Tuesday at the board meeting, and passed away in his sleep Wednesday morning, very surprisingly. So it's a personal impact on us and the community, where his wife, his kids, his grandkids, all live here.
And he's been a longtime leader, so, it's taken a while for us still to recover from that surprise, but, we've got a great board, and, people like Cecily will, I'm sure, will join and continue, you know, the great board and the support of Raymond James. So I know when you come to, you know, Investor and Analyst Day, you expect these big, huge announcements from Raymond James changing everything. So I don't wanna disappoint you too much. You're gonna hear a lot of the same messages. And what is unique is you see a lot of announcements from Raymond James on the change, the transition from me to from Paul to Paul. That'll make it easy on you.
But also, a lot of announcements yesterday, where you're seeing just in Raymond James, people taking a half a step up. I mean, they've been in these jobs a long time. They've gotten promotions and filling the domino effect of one person leaving and everyone coming up. But the team, which I'll talk about later, is still committed, and it's the same really leadership and talent that you've seen here for many, many years. All formed by this, taking our client first, which is really, sincere here. We really do put clients first. All of our debates, all of our products, we don't just say it, we focus on it. We treat advisors like clients. And we take a long-term view, which some of you like at times, some of you don't. But it is kind of in our DNA, and we will talk about capital.
I know that's one of your questions today, as you'll have many others. You know us, Fortune 400, but, you know, lot of equity on the balance sheet, a lot of liquidity on the balance sheet, and continue our path for long and steady growth. Our mantra has been, you know, starting about 10 years ago, we used to say the premier alternative to Wall Street, not a slam on Wall Street. But we're saying what we wanna be is the best of both worlds, large enough and having the scale to give advisors tools, capital, support, that they could get at a wirehouse, but still feel like a regional family firm, which we do in every way, and we work very, very hard at it.
Our multi-faceted businesses, sometimes we get compared to pure Private Client Group businesses, in cycles like this, that do extremely well. Sometimes we get to the compared to more capital markets client, private client group businesses. But the truth is, we love the mix, and they are synergistic and even areas and it continues to grow. Areas like Capital Markets, where Jim put out a program to really interface with advisors to help them monetize the largest asset many of their clients had, which were closely held businesses. And that relationship has made a difference in the lives, in the lives of our clients and our advisors.
Certainly, the research in capital markets that we have, the asset management products, the bank, who gives lending to our clients, and we fund the balance sheet through client sweeps. During different cycles, they have different contributions. We don't have the slide, but you've seen it many times up this time, that in different cycles, difference of those businesses contribute to that profitability mix, but we're profitable in all cycles. We had records at zero interest rates, followed by, you know, records right before, with high interest rates, and records with recovering interest rates, and through the first six months, records again. Looking ahead, we're still focused on growth. Growth is critical to our firm for a number of reasons. If you grow profitably, you can invest.
You can invest in technology, in areas where we've had an eightfold increase since I've been here in that investment. Products and Services, and if you do that well, that helps you improve margins, helps you improve your business, and you have that growth cycle. The firms that struggle are the ones that can't grow. Especially in an inflationary environment, costs are gonna go up, and if you can't grow, your costs go up, your margins get squeezed, and it's a cycle that's hard to break, especially in this environment of increasing regulatory, increasing costs, increasing services demanded by our clients. So it's still our focus is to have that reasonable growth, as we've defined, as about a 3% net increase in advisors. And then with the market and with productivity, continue the double-digit growth that we've experienced for a long time.
So we're focusing on still driving organic growth, expanding our technology investments more, and focusing on strategic M&A and their integrations, and we'll get into a little bit of that more later. And on the advisor side, the retention's really driven by best-in-class services, our respect for advisors and their clients and their business, the closeness to executives, which is very unusual in most firms, that advisors know us. We go on all these trips and conferences and travel to see them because we care about their business. They have personal relationships with us, and if you ask them in firms our size, that doesn't exist. We've had a lot of people said they were on the same floor as a CEO for 10 years and never met them.
Here, they all know us, and they can walk up to our offices unencumbered once you're in the building. So it is a very, very different culture, which has led to the strong retention and recruiting that we've had for so many years. Our technology, since we recruit from every firm, every advisor, whether they join us or not, tell us that we have leading technology. So it's not just the awards, it's not what we say. Time after time again, they say it's the best wealth management platform in the industry. So we focus on financial advisors. We'll continue our technology investments, our service excellence, and we'll talk a little bit about how we're operationalizing some of that more through technology and process.
Our focus is still, in capital markets, to expand our M&A platform, expand a lot of our market capabilities, and attract and develop leadership. You know, Jim has, brought on some 17 advisors in healthcare. Fixed Income brought on 10 Citibank public finance advisors. So in downturns, most people aren't doing that. We're doing it because we have the capital and longevity to position those businesses that we like for the upturn. We know it's coming. Doesn't mean we're not managing the costs. It doesn't mean that we haven't downsized some of the underpinnings, but we're making sure that the people that drive the business are here and adding to those platforms, just like we did in 2009, which really paid off for the next 5 years when other firms were afraid to do that.
Our growth, this long-term driver and investment banking revenue, you can see the mix. Jim was on a great pace, but if you take out the two biggest years, despite, you know, the downturn, we're still making a good comeback, and we believe this business will return.... and investments we made years ago, like a $10 million acquisition in Europe, is now $100 million. Some of these firms that joined us in the last few years doubled and tripled since being here. So we believe in the platform. We're gonna continue what we believe is a long and steady annualized growth. Yeah, we've entered into a downturn, but we still see that if you look over this period of time and take out these big years, we still have a steady growth. In the asset management business, we're enhancing our solutions.
We announced a partnership with J.P. Morgan Asset Management, installing 55ip, adding tax rebalancing, tax harvesting and rebalancing, and all the enhancements that we put in our products. We're adding new products in asset management demanded by our advisors. So we continue and expect growth, and what's been a good driver for us is our internal asset management business. The bank segments, SBLs, are our focus, not just with Raymond James Bank, TriState, actually funding our competitors, with SBLs, but we like the SBL business. We like the risk profile. Certainly, during the interest rate rise, those balances dropped, those utilizations dropped, but we see them coming back now as people have gotten used to the interest rate environment. We're selectively growing corporate loans. It's becoming a smaller and smaller percentage of the balance sheet. We don't plan to get out.
We just plan to stay disciplined because it's a good earnings driver, and more importantly, we think given our balance sheet, we still have great credit metrics because we look at balancing and managing those all the time. Technology has made a difference in the life of our advisors, and frankly, in our ability to recruit and retain people. We made a bet almost 10 years ago that if we invested our money on the advisor's platform first, that we would win the recruiting and retention battle. That was a cost of a little slower rollout for the client end user. We knew if we empowered the advisor with the best technology, they would be able to provide more value to their clients than just their clients having a cool app.
The technology now that we've embedded for the advisor's desktop is being rolled out to the client desktop. We did the first release, which is what I'd call very competitive to a banking app, but the releases coming at the end of this year and beginning of next year, we think will put us in a unique position for that advisor connection. The reason it will be different is most firms are trying to go direct to their clients and manage their clients, or in banking apps, they're worried about cash movement and solutions. We're worried about the client-advisor relationship, and how do we bring them better together? The design is very, very different. Functionality will be similar on a lot of the banking cash movement apps, but the real focus is how do they communicate with their advisors? How does the chat function?
Calendar scheduling between advisors and clients for those who want to use it. And a lot of the functions that help bring them together, access to what they're doing, we think will be unique, but more to come as we roll out. We also, as capital deployment, people have known us for recruiting, retention, and kind of organic growth because of that. But M&A hasn't been an insignificant part of that business, and it goes some very, very many years. Some of them are more longer term payoffs, like in Canada, where our metrics in the Private Client Group are very similar to our metrics and profitability in the U.S.
And we're right at the bottom—we're just bumping up now to the sixth largest banks in the Canadian system, and we have become a significant player with the Raymond James model of employee independent, and they call platform. And so we're seeing that growth as we hope to get to the U.K. over time, but it takes time to do that. The other thing is capital deployment. I can still remember in 2021, the pushback we were getting. "Why was Tier 1 getting up to 12%? What are you doing?" And we said we were looking, you know, we were positioning ourselves because we believe there would be acquisition opportunities in the market. It took us a while until we got Charles Stanley, SumRidge and TriState, all within months, but sometimes these deals take years. You don't know when they'll close.
We believe today there's that same opportunity in the market. Can't tell you something's gonna close tomorrow, but we think the opportunity is there, and we want to position the balance sheet to be able to execute. And if we hadn't, you'd hear big stories on buybacks. We don't want to hoard capital to hoard capital. We want to have a balance sheet strong enough that we can execute quickly. And one of our advantages over time is because of our capital, because of our liquidity, and both from a regulatory standpoint and from a business standpoint, we can execute really quickly and commit really quickly. If it wasn't for that, we wouldn't have gotten Morgan Keegan versus private equity. If it wasn't for that, we wouldn't have gotten Alex. Brown, but we could almost guarantee very quick execution.
Our reputation in the market is, yeah, we're conservative, but once we commit, we get it done. We think we're seeing a market where we see those opportunities, you know, potentially becoming available for us. One thing about our industry is regulation, more regulation, and it's hard to imagine when I started, where my job was percentage points spending time with regulators, what a big part of that job it is today. It's hard to believe that there's a bunch more regulation still coming. It's some of that regulation, we believe, that the courts have been favorable. We beat the DOL twice in court, and then they came out, as you know, recently with their fiduciary law, and that you will see industry litigation again.
We think that the same principles and premise the new rule was written was the same rule that the Fifth Circuit said, you know, that they did not have the authority to do it. The new rule changes are just tweaks different, and we didn't have Regulation Best Interest, which covers a lot of the stuff they're trying to cover already. So again, I think the industry is looking to push back on some of those rules. Like, you could see, you know, staying of a number of the rules, like the SEC climate rules. To us, independent contractor rule, the first draft, we were really worried about. What came out as a rule, we thought is very workable. Others, like FSI, didn't and is suing.
If it stays or goes away, we feel real comfortable, but we are fighting with the industry—you know, fighting where we believe the regulatory agencies are overstepping. You can see the impact of that on Basel, right? You're seeing people slow down. It looked like a freight train that was gonna get past. You see pals and others saying, "Let's slow down. Let's measure it. Let's make sure we know what we're doing." And, you know, hopefully, this last rush of regulation will end up in a net kind of neutral position for us, but we're actively involved in spending our time in that. This is a picture of the second, the third, and soon-to-be fourth CEO of Raymond James in 64 years. We should have taken it with a picture of Bob in the boardroom. And yes, it's a change.
Everyone worries about change, except Tom and I. We have the utmost confidence in the team here, and the team's not Paul. It's him and the team that's with him. You all know Paul. You know his thoughtfulness, his, his, candor, his integrity, being straightforward. You know his business acumen. He has that same respect here inside of Raymond James that he has with you. And he's not alone. He has a team of people who, frankly, we had options, for CEO, very strong people in this organization. They've all committed to stay. They're all friends. They're all working together hard to continue to drive Raymond James' growth. Most of these kind of, contests, I'll call, people fight, they leave, you know, they're- they beat on each other. Here, it's just very different at Raymond James. They get along. They work together.
That's our culture. And so, yes, some people were disappointed they didn't get the top job, but they all understand it. They're here, they've all got bigger jobs, and I believe we'll continue to grow it. So that's why I describe this isn't this big change, it's half a step up. Now, will things change under Paul? They better. Some things better change. I mean, they certainly changed when Tom was running it versus when I was running it. The market's changing, right? Times change. But the team together has the wherewithal, the ability, and the commitment, really, to continue the great growth, the great long-term story, and with that same conservative bias, maybe not as conservative as I had it, but still compared to almost any competitor will be. We'll let Paul answer those questions. That transition was announced for a year, sometime next year.
We said it roughly a year. So, you know, whether that's December or February or, you know, it doesn't really matter. We're giving Paul the same blessing that I think I had of spending a year working under Tom. It was the greatest job in the year. I was president with no direct reports, so I had all the authority and no responsibility. I just had my assistant reporting to me. So I could go and spend time getting to know people, spending more time in the businesses. We want to give him some of that runway, so he has that luxury before he's charging full time. And so sometime in fiscal 2024, we said to give us a range, that transition will happen, but we're working closely together. We have for a long, long time, so I really...
You know, it's minimal disruption, and we're most firms. This is a big deal. So we start where we ended. The culture will carry on. Paul's committed to it, we're committed to it, and I believe that with our positioning, our capital, and the people we have, we just have a great opportunity in the market. In a good market or in a soft to hard landing, as everyone's been arguing about for a few years, if it occurs, we tend to outperform in those markets because of our balance sheet and our positioning and our long-term view. So with that, I think we're taking questions now, Kristie, is that the-
Yes.
Devin, you were first. That was quick. It's like a call, right? Who's dialing in first? Yeah.
Devin Ryan, Citizens JMP. Paul, thanks, so much for having us again this year, and obviously, for a great career here at Raymond James. So maybe the first kind of big picture question, being in the seat for, you know, nearly 15 years, there's been a lot of change at Raymond James, but at the same time, the company still looks and feels, very similar, you know, I think more mature, but similar. As you look out over the next 15 years for the industry, I know that's a long period of time, but do you expect there to be significant change from here, or do you think we'll just kind of evolve in the similar pace? Like, I guess the question is really: Is the pace of change accelerating?... where is it accelerating?
For Raymond James as a firm, you know, does the benefits accrue to the larger firms, and so therefore, you can kind of accelerate your growth relative to maybe what you even saw over the prior 15 years? I know that's probably more for Paul, but love to get your perspective as well.
Yeah. I believe there's lots of change, and, you know, we've changed significantly since I've been here. Our technology, our technology investment certainly has been a big differentiator. We didn't have an RIA platform. We had one, but nobody was in it. And that was, you know, kind of the fastest-growing segment, and we've positioned that for growth. We could go on and on, Jim, has really made us a non-factor to a player in the M&A space and capital markets. You know, Horace and SumRidge and the technology that we hope to really leverage and integrate across our whole fixed income business. So yeah, there's been lots of changes, and there's macro changes. The entry of private equity into, the RIA space has had an impact. So you'll see our reaction, where we'll start investing in some of those businesses.
We've had businesses that left us, frankly. They didn't want to, but they wanted capital. We didn't have an RIA capital program, which we're rolling out now. And they said, "We wanna stay, just do it." And the returns are great. We just didn't wanna be part of other people's practices, and we think we've come up with a mechanism where we can stay out of their business, be the investor, let them have the capital, have better returns. You've seen our competitors do it. We've been working on this for 18 months. I think we were the first, but in a Raymond James way, we just step by step. And so that's gonna be different, investing in our own businesses. I don't know the sustainability of the capital pricing that private equity has put into RIAs. I mean, numbers-wise, we don't get it.
Doesn't mean we're right, but it's a reality, whether that sustains, and it's put pressure on deals that we still can make good returns on, but the pricing's gone up. Or if that subsides because there's so many players, it gets down to a few because they all aren't gonna make it, you know, in that same model. But we'll see, and that's something that Paul will have to measure, grow. It's certainly a changing dynamic. He has a big push on, you know... I'm not speaking for him, but just talking to him, you can ask him all the questions. We've used AI, put it in our back office last three or four years.
It was more machine learning, and now it's AI, but we're having a back office system we call iKnow, where everyone in the back office is using AI to find when an advisor calls in, is what are the answers to some of the complex questions, or where do you find them, or who is the expert. After it's back there for a few years, we plan to roll it straight out to the advisors, where they don't have to call the back office unless through AI, they're told they need a clarification or permission, or a-- That'll greatly increase service and productivity. There's gonna be trends like that that'll continue, and you've got to stay on top of. Luckily, we were early adopters.
We didn't talk about AI, 'cause when, you know, ChatGPT came out, everybody thought it was invented, and everybody was becoming an AI company. I mean, it's been a long progression, and he's going to have to navigate, and them, them and the team, all those different trends. But we feel really good on where we are. And maybe it'll have to move a little quicker than our steady approach on making some of those investments as the world turns quicker. But I don't think fundamentally... I know what won't change is this, and that's really been why people stayed with us. That's why we don't have the turnover, either in management or in the advisors that everybody else has experienced. Now, having said that, we've had to, you know, we are in the midst of repositioning some of our independent practices.
Super OSJs are in the news. Some are great partnerships and work well for us. Some, the economics just don't work for us or them, and, you know, so that may affect a little bit of the net new assets or advisor counts in the short term, I mean, just in the next quarter or two. But fundamentally, you know, recruiting's at a very high level. RJ will have a record recruiting level, probably this year. RJFS will hit its goal, we'll have a good recruiting year.
We're recruiting in the RIA channel, but there may be a little disruption that you've seen a little bit in the numbers, but as we just. You know, we've had. We had a firm that we mutually parted ways with last year, and then we're actually making more money over the 60% that stayed than having 100% of the advisors on the platform. So we, we, we don't wanna grow for growth's sake, we wanna grow for earnings. And, and you'll see some of those adjustments, and they'll have to manage, I'm sure, things we haven't even thought of yet.
Great. Thank you.
Yes, Brennan. Sorry for the long answer. I covered a few topics in one, I guess, but,
15 years long. Thanks, Paul-
I don't wanna start sounding like Tom too much. I'd like to sound like him on a lot of things, but not, not always on the length of the stories, so...
Thanks, Paul. Brennan Hawken, UBS. Similar vein, so, you know, when you go through transitions, it often inspires reflection.
Mm-hmm.
And, you know, from my perspective, I always feel like the mistakes you make, you learn more from. So when you reflect back on your 15-year career as CEO, you know, what big mistakes jump out to you, and more importantly, you know, what did you learn from, and how did you adjust accordingly?
I think there are, if you look back, a few things. There was a lot of debate on RIA Channel. And, I kid, I said when I got here, I think I had one supporter on the EC, but I think he was lying, just, you know, to say he was backing me. And I wish I was more aggressive on that because the trends were clear. If we even had invested more, a lot earlier, we would have been good competitors, and I—we are now, but it's taken a long time. And the trend was clear. I mean, you go look at the last 15 years, you look at it now, it hasn't subsided. So it's, you know, moving. We had a period, you remember, when expenses went way up, when we built our regulatory structure out as we've gotten bigger.
You know, the message there, it's better to stay ahead of it than play catch up. Now, it didn't hurt us, but, you know, in an environment, it could. So how do you stay ahead and move aggressively on those trends? If you look at our private equity investments and that we'll be looking at in some of our practices, you know, we knew it, we worked on it early. And again, you know, reflecting on our values more, we don't we tell advisors they own our, their business, and if we own part of it, you know, what's that story to everyone? Because it's their business. And so we had to come up with a model where they're gonna still own it and run it, but we'll participate in it.
So, you know, some of that, I say I wish we'd done it quicker. And outside of the RIA space, I don't look back and I say, "Yeah, we could have done it," but it wasn't a big changer. On that one, we could have positioned it much better, been there five years earlier and maybe have had a smoother transition and been a leader in a multi-custodial platform. The management complexity of having an employee, an independent and RIA channel is very complex, right? And that's why most firms don't, or they announce they're having one, but can't build it. I mean, it is hard, and I give, you know, Scott, Tash, you know, and all the people in the past, their ability to do that. So, but I really don't have any regrets.
I almost didn't take the job. Tom convinced me that I should. I told him I didn't wanna work for a publicly traded company again because it's too regulated. Look where, look where we are today, but it's been great. It's been the best experience of my life. The people are fantastic, and, you know, I'll miss that probably more than the business, although I'll be on the board for at least the foreseeable future after Paul takes over. And... Steve?
Steven Chubak, Wolfe Research. Paul, I did wanna ask you on M&A, just given you highlighted a number of compelling opportunities to maybe grow inorganically. At the same time, you also acknowledge PE valuations, at least in the RIA space, pretty frothy, rates at highs, markets at highs. Where do you see the most compelling opportunities to grow by M&A or inorganically? And just speak to your ambitions, specifically outside the U.S., since you highlighted some of the potential benefits, even if it's a longer timeline to scale, that you saw—you've seen at least success in Canada and early stages in the U.K.
I think in our M&A strategy, we've taken, we've had people, what we call join the family, that were under-scaled, had similar cultures, and could benefit by, you know, coming to a similar culture, even though you feel like you lose your independence. But we're really good about not saying, you know, a lot of firms will say, "We bought you. Here's the platform. Here's what we do." We say, "We brought you into the family. You do things well. We do things well. Let's talk about this so we can agree on what we can do better." It's not just been in the Private Client Group, where the pressures of regulation and cost and technology are going up. So I think smaller scale firms struggle with that.
Doesn't mean they're all gonna run to the market, but I don't think that's going to relent, that scale matters. Jim has done that brilliantly in a number of the M&A acquisitions, both here and in Europe. We've had the same success in Canada. In fact, 3Macs was almost a virtually, not only do we tell the story about Alex. Brown and Morgan Keegan, Key and Keegan, 90% of the advisors when they joined us two years out, which is unheard of. I think 3Macs, literally outside of three advisors that were in a kind of a different business that left, it's been a 100%, you know, seven years out. I mean, except people that have retired or... And I think those kind of things are what make the acquisitions work, or most of them don't.
So you have to find them, and they have to be ready. Jim has found a lot of opportunities there. Scott, under his leadership, has been, you know, careful and thoughtful in talking to people, and I think over time, they just pay off when there's opportunities. I can't tell you they're tomorrow. We talk to people all the time, just... I think in 2020, you didn't believe us, that we were really gonna buy something, and three hit like that, but, you know, they take time. The focus will be North America first. Jim has a little wider mandate for M&A, but we don't plan any near term to middle term, acquisitions and, and wealth in Europe. So, you know, we wanna grow in both Canada and here, where we have mature platforms.
Over there, we need, although we're close to top 10 in the U.K., we need that to mature a little bit more in the changes. Very different regulatory environment with the FCA than it is here, so we've had to adapt to that, too. And they have to get to know us better, even though we've been operating there 20 years. We're at scale now, where they're really getting to know us. And it's, you know, it's all fine. So, anyway... Okay, Kristie, I'm, I'm getting off. Great to see you guys, and I'll, I'll talk to you later. So thanks.
Thank you, Paul.
All right, next up, Scott Curtis. He is currently serving as President of the Private Client Group, our largest business. And a role that he has actually held since 2018. He joined the firm in 2003, and prior to his current role, he was serving as President of Raymond James Financial Services, our independent advisor business. Please welcome, Scott.
Thank you, Kristie. Good to see everybody this morning, and, thanks for making the trip. I understand that, for some of you, travel was a little disrupted. Having traveled quite a bit recently, I'm familiar with that. It's not fun, but I'm glad to see everybody made it safely. What I'm planning to do this morning is take you through where we are today, where we've been, and we can also talk about, as Paul did, a little bit about how we think about the future and, and where we're headed. So as you look on the slide here, hopefully, none of these numbers are surprises to you. I think you're all familiar with this.
Private Client Group, total assets under administration at about $1.4 trillion, which represents about a 13% compound annual growth rate over the last 5 years, right around 8,760 advisors. That's globally, including the U.K., including Canada, and clearly here in the United States. And then, when you look at net new assets over the trailing 12 months at around $60 billion, and as I get into it, I'll take you through how that number can be a little bit lumpy quarter to quarter, but we still feel good. We still feel really good about where we are and where we're headed with that number. So, good growth numbers.
And here, in a little more detail, how we've done in terms of assets under administration and growing that, since 2018, a 10% five-year, five-year CAGR of 10%. Then you can see, as I said, right around $1.4 trillion. Fee-based accounts growing at a faster clip over that five-year period. But what I've noticed more recently, as fee-based assets have become more than 60% of total assets, is those numbers are starting to grow more and more in lockstep. Where, historically, as more of the brokerage relationships were transitioning to fee-based, and as we were recruiting advisors who are more heavily fee-based, the fee-based assets were growing more quickly.
That's now tending to grow at about the same rate, and you can see that's right around $800 billion in total across the organization. As we compare how we've grown assets in the one year, three year, five year, 10-year period versus our peer group median, we've outperformed pretty materially in each one of those periods. So, it's nice to see, but we tend to focus really on where are we headed more so than where we've been, and how do we continue this track record going forward. If you look at net new assets, actually, I thought it was a little unfair of Kristie to start with a quarter that was an outlier in terms of growth relative to the average at around 7.5%.
I said, "Can't we back it up another year and maybe show a little more normalized?" So, we have an outlier at the beginning, at 13.7, and then the most recent quarter, I would say, is also a bit of an outlier at 3.2. But as we look at this, over a longer period of time, around 7.5% net new assets, which is clearly faster than what we've seen amongst many of our competitors in that peer group. And when you compare that to number of financial advisors growing at a much slower rate, around 2%, and there are a number of factors here.
One of those that Paul touched on is when advisors transition from our Independent Contractor Division or our W-2 model, Raymond James and Associates or Alex. Brown, and move into our custody business, their head count falls away. So probably the largest of our firms that's in the RCS model today is Steward Partners, which many of you are probably familiar with. When Steward transitioned from the Independent Contractor Division or RJFS over to RCS, 160 advisors dropped out of the headcount, but 100% of the assets stayed at Raymond James. So we've had a couple of those types of moves, where the assets stay at the firm, but the advisor headcount drops away.
We also had, in the fourth quarter this past year, fourth calendar quarter this past year, you may remember from our first quarter earnings release, a higher than historical, normal, or historical average number of advisors retire, in that quarter. So a number of, different factors here, but, that's, that's a number that we track, but it's not, a number where we really have an objective to have a certain number of advisors by a certain year in the future. we, we really focus on asset growth, more so than... And quality of advisors, more so than number of advisors, which I think we've really benefited from. When we look at net revenues, you can see five-year compound annual growth going back again, around 11%. More recently, year-over-year, 9%.
Interest rates playing a factor there, equity markets, interest rates, all, all factors in, in that number. And then, when you look at pre-tax, you can see the benefit last year of interest spread and, and how dramatically that increased over that five-year period at 25%. Most of that occurred in the last, last year or so. And then, when you look at pre-tax this year, at up about 1%, that's frankly, ahead of where we thought we would be. And again, that's largely attributable to a couple of things. One, the interest spreads, that have, gotten smaller, gotten tighter versus where we were a year ago, as well as some increases in expenses that I think we've talked about on earnings calls, and, Paul Shoukry is gonna dig deeper on, expenses in, in his comments.
Paul mentioned our strategic growth initiatives. These have really not changed a whole lot. The one that is new is Private Wealth , that I'll, that I'll dive into. But recruiting continues to be our primary, our primary focus in terms of growth when we think about growth. But as we're, as we're looking forward and thinking about the number of advisors in our business, and that number, if you look at FINRA records, that number has actually not increased over the last few years. It's been relatively flat to slightly down in terms of number of registered reps. We believe organic growth will become a more and more important contributor to our overall growth.
So as we focus more on organic growth, which is really around helping advisors utilize the resources of the firm, the technology tools, and other resources to broaden their offering to their clients, hopefully bring in new clients, and be able to compete with those high-net-worth clients, which takes me to the Private Wealth space. A couple of years ago, we looked at our market share of overall wealth in the U.S., and we looked at our market share of higher net worth clients, and there was a pretty big delta between the two. We were around 2.5% share of what I'm gonna call mass affluent, and when we looked at the high-net-worth space, we were under 2%.
So we thought that looks like an opportunity, knowing that we have all the resources to support those high-net-worth client relationships, whether it's lending through the bank, the trust company, investment banking to assist business owners with liquidity events, interest rate swaps, when appropriate, for a client who's borrowing to help fund their business. That was more popular, as you can imagine, when interest rates were lower, but that will come back. So we have the full suite of tools, alternative investments, unique investment opportunities. We have all the tools for those high-net-worth clients. We've done a much better job of packaging those in the last year or two, as well as putting together a formal educational program for advisors who elect to participate in that program.
We actually had a group of them here earlier this week in this classroom, and it has helped them with competence, confidence in being able to compete for the business for those clients who have more than $10 million in assets. And then finally, when we look at the RIA custody business, which has grown pretty materially, I'll show you that in detail in the coming pages. As Paul said, we identified that as an opportunity, not without some controversy inside the organization. How would it disrupt our existing core businesses in the Private Wealth space? Nevertheless, we felt like we needed to be in that business. We had the capability. We just needed to build out some of the capabilities in that space to really be competitive with some of the others. We're not trying to become Schwab or Fidelity or Pershing.
We're trying to stay true to who we are as an organization, but be able to support those advisors who choose to drop their FINRA registration and operate as a fee-only advisor and remain affiliated with Raymond James. So I'll go a little deeper on that. So when it comes to recruiting, one of the things that is still unique about Raymond James is we have and support multiple affiliation options. If you, if you're interested, your primary interest is being a W-2, continuing as a W-2 advisor, operating in a, in a more traditional branch setting, we have that, and we've expanded our branch locations. One of the changes I think that's occurred in, in Paul's tenure over the last 15 or so years is the number of locations where we have traditional Raymond James and Associates, Alex. Brown offices around the U.S.
We have many more of those today than we had 15 years ago, which creates more potential recruiting opportunities where we have an office, and we can bring somebody in to an existing office. Our independent contractor business, which also includes our Financial Institutions Division , that represents about 20% of our independent contractors. That business has continued to grow, and it is attractive still to many advisors who are in that traditional either national firm, wirehouse firm model, and they'd like to move to a firm that has the full suite of resources of a full-service firm as we do, and that differentiates us again a little bit from some of the other competitors in that space. And the philosophy of how we operate that business, we're here to support you.
You are our clients, your clients are yours, and we want to do everything we can to help you be as successful as possible. The RIA custody business, as I mentioned, that's another way for advisors to affiliate with us. However, it is different because they're running their own business, and they have responsibilities that are different versus the other two models, where we still have a FINRA supervisory responsibility for them and for their clients. So I'll go into each of those. Now, the good news is, as we look at the growth of each one of those models over the last five years, each one of them is growing. Now, if you look at that RIA custody business, the RCS as...
RCS, as we call it, that's growing the fastest, but it's also on a percentage basis, but it's also the lowest base. When we look at that in terms of dollars, absolute dollars, it's not the fastest growing, but percentage-wise, it is, now at about $160 billion out of that total of $1.4 trillion. And our expectation is going forward, that will probably... Its, its growth, on a percentage basis, will continue to outpace the others. But when we look at absolute dollars, expectation is, they will all continue to grow. But, on a percentage basis, it's harder when you're at, roughly $500 billion or $600 billion to grow at the same rate as a business that's at $160 billion. Advisor recruiting?... We've really, I would say, increased our focus on this.
You probably saw the announcement that we made last year that Jodi Perry, who was the head of Raymond James Financial Services, was going to step into the role as head of national recruiting domestically for Raymond James, and she's already made a significant difference in that space for us. In having all the recruiters who were previously focused exclusively on the Independent Contractor Division , and now they're working more collaboratively with the Raymond James and Associates branch managers and the other people who are involved with recruiting, and thinking about doing that without bias, and helping advisors get to the right affiliation option, depending on what their interest is. We've really strengthened our relationships with external recruiters, and our internal cold callers have really upped their game in terms of referrals.
So our expectation is that with that, stronger pipeline of prospective advisors, that our overall recruiting results will continue to grow. What we've seen this year, Paul referenced it a little bit, this year, in terms of advisors who have already joined Raymond James and those who are committed, we're well ahead of where we were last year at the same time. So I think that bodes well for us going forward. That recruiting process is fairly standard, but customized for each team or each advisor, and typically, that includes a visit here to Raymond James to really get a feel for who are the people who are going to be supporting you, and what are our capabilities. We customize those. We don't bring people into a room like this, and it's one size fits all.
It's customized depending on what your interest is in terms of how you run your business. And, ultimately, once someone does join us, there's a commitment, and then ultimately, when they do join us, it does take a little bit of time for them to transition their client assets over, and that process repeats over and over again. I will say it's easier if you're already independent and you join us in the independent side because you don't move your office. The clients are used to walking into the same location, and meeting with you. It's really a change of where your account is custodied, so it does still take some time.
It's a bigger change when you transition from a large national firm in a W-2 model or a wirehouse firm and come over to Raymond James & Associates because the brand is different, the office is different, and it just takes a little bit more time. But ultimately, we've seen a high level of success as we look back and we track these, the success of advisors transitioning over to us, and usually after 18 months, they've transitioned at least, a hundred percent of their assets that they had prior to joining us over to Raymond James. When we talk about organic growth, there are really only two ways, and this is a slide that, frankly, I've used with advisors. There are only two ways you can grow, organically and not spend more money if you're an advisor.
The first, leverage the technology and resources of the firm, and then the second is expand your value proposition. If there are areas of the firm that you're not utilizing, we wanna make sure that you're aware of how to utilize the trust company, how to utilize the bank. And what we've seen, the fastest growers, the top third of the growers, perhaps no surprise, they are the best at leveraging the entire resources of the firm. Those who are in that bottom third or growing the slowest, those folks are much more narrow, in their focus.
We have a number of measures or a number of variables, and this has been part of my presentation that I've shared with advisors this year, about if you really wanna grow and you don't wanna spend more money and add to your staff, you really need to think about expanding your value proposition and tapping into different parts of that client relationship that you have that you haven't tapped into previously. Frankly, it leads to a higher level of client satisfaction, which leads to more referrals from them to your business. Private Wealth is a very busy slide, but in essence, we have now had 200 advisors go through this program with a target by the end of next year of having over 400 advisors go through this program.
And if you were to talk to any of the advisors who've gone through the program, they would tell you it's not easy. It's not sitting in a classroom and just listening and checking a box and saying, "Okay, I went through the program." There's a lot of case study, and at the end of it, there is a real test. There's a real exam. It is in person, and it's a hypothetical client situation where you're sitting across from a client and you are graded. And, the most recent class, we actually failed three advisors, and you have to prepare. But at the end of it, you are allowed to hold yourself out as a Private Wealth advisor at Raymond James.
It does also, if you wanna become a certified Private Wealth advisor through the industry designation, it sets you up very well for that. So, we now have a waiting list of advisors trying to get into this program based on the feedback from the advisors who've already gone through it. So what we've seen, these advisors who've gone through the program are now leveraging the entire firm's resources at a much higher level than they did before they went through the program. So benefits for the advisors, and I think as well, ultimately, benefits for the organization as we're in a much better position to service those high-net-worth clients. All right, shifting gears to the last growth area, which is RCS or our RIA custody business. You can see the growth here, 20%-24% compound annual growth over the last five years.
Roughly half of that, I expect this question was gonna come up, roughly half of that has come from internal transfers from Independent Contractor Division or Raymond James and Associates, and the other half has come from recruited advisors who have elected to custody client assets with us, move from wherever they are now and move those assets over to Raymond James. No surprise, probably 84%-85% of those assets are fee-based. We also have a very small number of correspondent third-party broker-dealer relationships, and, as I shared with Kristie kind of reminded as we were talking about this, we have exited 45, almost 50 relationships over the last three years. We hired Greg Bruce to run this business. He was a 20-year Schwab veteran.
We brought him in to run this business about five years ago, and we wanted to focus on quality firms, and firms we had a high level of confidence if something went wrong, that they had the financial wherewithal to take care of whatever that was, even if it was a large trade error. If we look back over the last three years, that is roughly 50 relationships, including RIAs and including some small broker-dealers. So we really like our position now. If we look at average assets per RIA firm, we're right around $400 million, which is much higher than some of the other competitors in the custody space.
From my perspective, again, it's a different value proposition if you elect to, to do business with Raymond James versus some of the, some of the other custody options that are out there. So this is a little basic, I think, but for those of you who are not clear on what are the differences here, as I mentioned already, the advisor count, however many advisors are affiliated with those RCS client firms, they are not in our head count. They drop out of the head count. There is no production revenue that's recorded. That is their production. It's, it's not Raymond James, and therefore, there's no payout expense associated with it because the production is not running through Raymond James. Where do we make money?
You can see the list of, the list of numbers here, but it, it comes from our cash sweep. It comes from mutual fund revenue sharing, networking fees, omnibus fees, lending, asset management, all those together, create revenue, revenue for that business. And in, in transitions, when we recruit teams to come over, there is not upfront money paid. If there is any money paid, it's on the back end, and it's a very small number. It's basis points of assets. And, honestly, a number of the RIA firms would rather not receive transition assistance money. They don't want to disclose it in their ADV, and they don't want to have a conflict of interest that they have to discuss with their clients about why did they make the move.
They're making the move because they think it's good for their business and good for their clients. These firms are responsible for compliance, technology, cybersecurity. They have to have their own programs. Because the majority, a vast majority of our firms are 100 million +, most of them are regulated by the SEC rather than their state, wherever their business resides. So they have to have all these programs in place, and when the SEC comes knocking on the door and does an exam, you better make sure that you demonstrate that you can have all these things. Now, we still have cybersecurity responsibility to a certain extent. We still have anti-money laundering responsibility to a certain extent, as do the other firms in the custody space.
So it's a lighter touch from a supervision standpoint because we don't have that same FINRA responsibility that we do in the other businesses. A few years ago, our senior leadership team, I think I shared this with you before, we put a stake in the ground, and we said, "Okay, it's taken Raymond James almost 60 years to get to 1 trillion in assets. Let's see if over the next 10, we can exceed 2 trillion in assets, by leveraging the total firm's resources to help advisors deliver the best client experience possible for their clients and continue to manage their businesses the way they want to, leveraging the full suite of resources and, the great service that you get at Raymond James." So, we put that stake in the ground and we continue to stay focused on that.
I'm optimistic that we'll exceed that 2 trillion before we get to 2030, but we'll see. As Paul wrapped up with the focus on culture of the organization, I like to do the same and remind people, what truly differentiates us as an organization is how we operate, the caring philosophy, putting clients' interests first, treating advisors as our clients, staying focused on the long term rather than what's next quarter, what's next year, but truly believing that what we do today and how well we execute today will benefit us three years, four years, five years from now, creating that environment that advisors don't want to leave. So far, we've had great success doing that.
This, this culture, or these proof points of our culture, to me, are the things that all of us have to make sure at a senior leadership level and mid-level management level within the organization, that we stay true to this, and I'm highly confident that we will. We talk about it just about every day. With that, why don't I stop, pause, and we'll take questions? Lots of questions.
Thanks so much, Devin Ryan, Citizens JMP. Scott, thanks for the presentation.
Yeah.
Just a quick one on the RIA solution. So I heard you say you don't wanna be some of the largest firms-
Right
That you mentioned in the market. So I guess I'm curious why, 'cause you're seeing... Obviously, there is some internal migration, but you're seeing really good external growth, and it would seem like you have a differentiated solution to the market. There is really good secular growth into this market, so why not fully lean in and yeah, maybe exploit the opportunity that Raymond James has?
Yeah. Yeah, a great, great question, Devin. Nice to see you again, and thank you for that. I would say where we compete the best is for an advisor who is either independent with another independent broker-dealer operating a business, or for a traditional W-2 advisor in one of the large national firms or in one of the Wirehouse firms. When those advisors are interested in dropping their FINRA registration and becoming fee-only, they're used to an environment where they have a full integrated suite of solutions and technology tools, which is what we have available at Raymond James. So you don't have to go put together the different components, that's what I call middleware, to connect a number of different technology applications to manage your business.
And so when we recruit advisors over to custody with us, those are the advisors who tend to have the most interest, rather than someone who is already custodying their assets with one of the large custodians, Schwab, Pershing, Fidelity, saying, "Okay, we're gonna take $200 million and move it over to Raymond James." That's unlikely. What's more likely in that sort of a scenario is that they establish a multi-custody relationship and decide that there are certain features, certain products available at Raymond James, resources, capabilities that maybe they don't have through their existing custodian, and for that reason, they elect to open a custodial relationship with us.
So, we want to continue to leverage the capabilities and the resources of the firm and have a differentiated offering versus what you would find if you go to a Pershing, a Schwab, or a Fidelity for custodial services. If we try to be like them, given their scale, given their size, that's gonna be tough to compete. So it's a different value proposition.
Kyle Voigt, KBW. So Paul spoke earlier about the complexity of operating an RIA channel alongside the employee and independent contractor models as well. Can you just talk about how the RIA custody business is positioned to your existing advisors from a visibility perspective, and whether Raymond James is agnostic as to whether those advisors move into that RIA channel or not from a business and economic perspective?
Thank you, Kyle. Another great question, and I would say on the last question of does Raymond James care? It depends on your perspective. If you're, if... And I say that seriously as well. If you are a branch manager in Raymond James & Associates managing a branch with 20 financial advisors, and there's a team that says, "Hey, we think we're we love Raymond James. We wanna stay affiliated with the firm, wanna drop our FINRA registrations. We're 90%+ fee-based, we wanna open an RIA." If you're the branch manager, that's a tough message to receive. But at a firm level, if that's their interest and they're committed to staying and keeping their client relationships at Raymond James, we welcome that conversation to walk them through what are the differences.
Same is true if you're an existing independent advisor. We'll walk you through what the differences are, not just financially, but also what are the additional liabilities you're going to take on in going down that path. And some decide to continue down that path, and others say, "That's not for me. I don't wanna become the CEO of my business, and the employees are now my employees rather than the firm's employees, the benefit plans, the real estate, and on and on. I'm not ready to take that on." So, advisors are certainly aware. We don't try to hide it. It's out in the open.
If an advisor asks to have a pro forma run and really understand what are the questions that I need to answer, as we've gone down that path with hundreds of advisors over the last few years, the majority of them elect to stay where they are, or perhaps some of those will say, "Okay, I don't wanna go all the way there now. Maybe I'll transition to the Independent Contractor Division .
Down the road, maybe my successors, if they wanna go down the path of dropping that FINRA registration and going fully RIA, I'll let them decide that, but for me, I don't think that makes sense." But the most advisors who transition, if it's from another firm, or industry statistics that are born out year after year, if you're an employee advisor, W-2, for those who transition, roughly 2/3 of those who transition transition to another W-2 model. They go to another firm, and roughly 30%-35% will make that move toward independence. I don't know what the subset is now that are transitioning to fully RIA, but my guess is it's a smaller percentage, it's the smaller percentage of 35.
Maybe 25 go independent, and maybe 10% or less actually drop their FINRA registration and go fully RIA.
Steven Chubak, Wolfe Research. Good to see you, Scott.
Hi, Steve.
Did wanna ask on the competitive landscape. Sorry about that. Some evidence of more aggressive behavior from some of your industry peers, whether it's upfront or just higher TA packages. I was hoping you could just speak to what you're seeing, across the industry, how you're responding, and how it informs at least your expectation around the sustainability of that 7%-8% organic growth rate.
Yeah. Another, another great question, Steve, and, and thank you. We absolutely have seen higher deals out there for advisors who choose to transition or are thinking about transitioning. And whether you're an employee advisor making a move to another employee firm, or you're an independent, or you're an employee moving to independent, certain of our competitors have really increased what they're willing to pay. Having said that, while we have increased our deals to be competitive, if you look at, and we look at, industry studies, McLagan in particular, we remain well below where a number of our competitors are. And so the value of that culture that I talked about, the value of the full suite of resources and capabilities of a full-service firm, there's value in that, and advisors recognize that.
It's not just about the money. Money is clearly an important factor, but we've remained competitive, and even though our deals are higher than they used to be, as Paul indicated, and as I'm well aware, we will have a very good recruiting year this year. Where it has become a little more challenging in certain instances, for advisors who perhaps don't have a succession plan, and they're thinking about, "If I retire in the next few years, is that something I want to do at Raymond James, or do I want to go external, and maybe maximize the value of my business by going externally?" We have seen a little bit of that.
Thankfully, it's still very small, but we've seen a little bit of that, in particular in cases where advisors don't have a succession plan. So the economics, the PE-backed firms in particular, as well as some of our other firms, as that number of advisors is flat or slightly down, that trend, there's more competition for those advisors who are moving, and, thankfully, we're still, we're still winning our fair share.
Next.
Thank you. Michael Cyprys of Morgan Stanley. Maybe just sticking with recruiting, I was hoping maybe you could unpack some of the recruiting trends across the three channels, the independent contractor, employee, and RIA. Any figures you're able to share with us, and then you could elaborate on the pipeline as you see it here looking forward.
Yeah, when it comes to recruiting, and you've probably heard Paul and Paul talk about this in the most recent earnings call, the advisors, the teams we're talking to now are bigger than I can remember in our history. We had a $20+ million team join our independent business last year. We had a $20+ million team join Raymond James and Associates the year before. And I can think back 10 years ago, if we were in conversation with a $5 million team, we probably all would have stopped what we were doing and focus on helping get the $5 million team over. So, we are having success with these very large teams. Most of those teams are probably no surprise, associated with the wirehouse large national firms.
They have the largest number of advisors, and they have the largest number of high-quality, large teams. In some of those organizations, there's a level of frustration that has just built up over time, and they're at the, I would say, beyond a tipping point, where they want to go back to what they remember if they've been at their firm a long time, from a culture, responsiveness of a manager, responsiveness of their firm, respect for their business, how they run their business. Their clients are theirs. They're not the firms. That's what we represent. So for many of those who we're in conversation with and who have spoken to their friends, who have already left and joined Raymond James, it puts us in a really, really good position.
So I would say it's that at what point? When do you reach that tipping point where you say, "I've had enough." And I had a meeting this morning with a very large team at a competitor, and they're at the point where they're really seriously thinking about making a move, and they've been with their firm for many years, really high-quality team, and they're interested in going deeper and exploring what we have to offer because their focus is really more high net worth clients, and they're feeling like the firm where they are today is lacking what they need to service their clients. So hopefully, that's helpful.
Okay, we'll do one more question, and then-
Yeah.
Move on.
I'll be around at lunch if people have questions.
Yeah, this will hopefully be quick.
Yeah.
Hi, Scott.
Hey, Brennan.
Good to see you. Paul referenced some super OSJ issues that are upcoming.
Yeah.
You know, can you maybe help size that, or how should we be thinking about the coming quarters and the impact from those issues, and also kind of underlying what's going on there?
Yeah. Well, as Paul mentioned, there are some relationships with super OSJs, where economically, as well as I would just say, business philosophy-wise, philosophically, it made better sense for them to move to the RCS channel or in a couple of cases, exit altogether. But I feel really good about the number of advisors who we will retain. So without knowing how many of those advisors will elect to directly affiliate with Raymond James when the super OSJ moves to the new model, it's hard for me to really size what is that gonna look like in the coming quarters. And so I would say stay tuned.
And the timing is a little bit hard to predict as well, especially on some of these relationships where they're large enough with a number of advisors. Moving to another organization gets a little more complex and takes a little bit more time. So I'd love to give you a specific answer, but it's hard for me to really put my finger on exactly what that's gonna look like in the coming quarters.
Okay. That's all the time we have. Thank you, Scott.
All right.
Appreciate it.
Thanks, Kristie.
All right. Next up, please help me welcome Horace Carter. Horace serves as our President of our Fixed Income business, and he joined Raymond James in 2012 as the head of Fixed Income trading, along with our acquisition of Morgan Keegan. Horace?
Thank you, Kristie. Good morning, y'all. I'll try to go through this pretty quickly to make sure we've got some time at the end for questions. Here's our vision statement. I showed this to a colleague of mine and he said, "Yeah, okay, but it's kinda bland, right? I mean, it could be the mission statement for a doctor's office or something." I thought about it, and I was like, "Well, yeah, it is kind of bland." Thought about it some more, and I was like, "Well, we are talking about buying and selling bonds here, you know? It's not like we're SpaceX or something." So bland it is. All right. Well, let's get back to this. What do we mean by this, to start off with?
The universe of fixed income clients, issuers or investors, range from, multi-billion dollar issuers to the smallest municipalities, fast money hedge funds to individuals, and they all require or have preferences for the level of service that they get. Our goal is to cater to those preferences, as effectively and efficiently as possible. So how do we do that? It starts with distribution. Distribution is the, it's the engine, that drives our business. Our ability to source and place bonds between a lot of different counterparties is certainly among the best, and effectively, the business revolves around that capability.
If you want to service a diverse, large diverse customer base, you need to have expertise in a lot of different product areas. Our business lines include all of the major fixed income asset classes. It also results in a lot of diversified revenue streams because different bonds are driven by different market forces, and it gives the franchise a good bit of durability in different macroeconomic environments. It also inherently reduces our risk for obvious reasons. Our discipline around risk is very good. We're pretty conservative when it comes to deploying the balance sheet, and that focus on distribution requires us to recycle risk very quickly.
So, we do have strict aging limits that ensure that if we own something, we're able to place it within a reasonable timeframe. And, having a flexible service offering is essential if you want to address all these different needs. So, we have clients that don't want anything from us except the price, fast. And we have clients that require a lot of handholding, a very high service level, and everything in between. And so, we seek to, and are effective at, addressing the clients' preferences on their terms. Okay, this gives you a sense of how we think about the business from a big picture standpoint. These are the three segments that roll up into Fixed Income.
Fixed Income Capital Markets, think, traditional middle markets, bond dealer, sales and trading, dealing with institutional clients alongside the fixed income, service platform for our, Private Client Group, which is, obviously substantial. SumRidge Partners, our most recent addition, think of them as a technology-enhanced market maker, in credit. And then Public Finance, obviously, investment banking for state and local governments and municipal authorities.
So just to give you an idea of the scale of the business, the only comment that I will make on it is, because of those diversified revenue streams, and the, the highly variable cost structure, in years like 2023, with the strong headwinds that we were facing, which I, I don't wanna see again, we're still able to come out marginally profitable. So we'll go through each segment here briefly. You get an idea of Fixed Income Capital Markets. You get an idea of the size, the size of the business, good-sized operation. The key drivers, slope of the yield curve, in a positively sloped yield curve, that's a positive environment for most of our clients. A couple of reasons for that.
Depository institutions borrow short and lend long, so the carry trade works in that environment. And investors tend to buy further out the curve in a steep yield curve and where the margins are greater. Obviously, liquidity in the financial system is important. If our clients have more money, they're more likely to invest. I would point to 2021 as a good example of that. And what we mean by the prevailing market sentiment is that in this... Most of our clients in this segment are not what you would think of as flow trading. They're investors, and they're more likely to act if they have confidence in the value proposition in the market or they're comfortable with the level of rates.
So in 2023, for example, many of our clients were inactive just due to uncertainty. In terms of the client concentration, I would highlight the depository institution base at 42%. In 2021, that was 67%. And so you can see—and you can see the difference in the revenue there. We seek to not be as reliant on that client base as we have been, which is one of the reasons that we pursued SumRidge Partners in their ability to address non-depository clients. And as far as the product sector goes, a few years ago, the combination of mortgage-backed securities and municipal securities would have comprised well over 50% of that graph.
So, we have diversified into, obviously, some different products here. And this graph, I think, illustrates why we think of this business not as a business, but more as a collection of businesses. SumRidge Partners joined us in 2022. That was very good timing. If you look at the key drivers, you can understand why I would say that. So, at a time when our traditional business was slowing substantially, the SumRidge business picked up substantially, and it created a nice offset for us. About 3,100 trades a day. That's with 12 traders, so you get an idea of how they're leveraging technology.
In terms of the percentage of positive trading days, that graph there, included that because this was one of the key selling points and why SumRidge is such a good partner. Obviously, that level of engagement with the market, with that level of performance and consistency is obviously impressive. Public finance top 10 underwriter right now. We're number year to date, we're number 6 $10.2 billion senior negotiated. The key drivers are pretty obvious. Talk a little bit about recruiting. We've recruited 30 bankers in the last two years, and I get asked the question a lot, why?
You know, what is it, other than the people that are actually out, you know, the efforts of the people that are actually doing the recruiting, what makes Raymond James such an attractive destination? And there are a few things, I think. One is the core values that Paul covered earlier, that resonates with a lot of people. The other is the access to senior management, particularly people at big firms seem to like that. But the main one, I think, is our ability to execute at a high level on any deal. We tend to place bonds with more clients than our competitors in the space, and I believe that capacity, that ability just gives us a competitive advantage that is attractive.
Okay, so to wrap it up, we'll look towards the future here. These are a few of the things that we think are gonna help us continue to grow. SumRidge integration, we've talked a lot, a lot about them. As we continue to incorporate that business into our traditional business, the focus is on getting it right as opposed to getting it done quickly. But as we continue to progress down that road, we should see a good deal more penetration into our non-depository client base, which I believe is a very large untapped opportunity. In terms of expanding the service offering, I've, in case I haven't driven the point home, you know, we're trying to deliver services on a customized basis.
As the industry evolves, those needs are gonna change, and so we're constantly evaluating what our clients' needs are, what they're going to be, and what our capacity to address them might be. Public finance recruiting. We've been doing it. We're going to continue to do it. There have been some high-profile exits in the industry lately. As the ground shifts, that's created some opportunity for us. I think that may continue. You know, we have expanded into new geographies. We're in Pennsylvania now, Arizona, Minnesota. New specialty practices, debt restructure, K through twelve practices, been enhanced strongly. We want to continue to build that out because this business is important to us beyond its own domain. It's important to our fixed income clients.
It's important to our Private Client Group. And so we're committed to it, and we'll continue to see it grow. In terms of technology, there are a lot of technology initiatives out there. I'll highlight two of them. Once again, the SumRidge platform, the technology suite at SumRidge is very sophisticated. And we see application for it across the entire platform. Once again, like the broader integration, we're going to prioritize execution as opposed to speed, but in certain areas, it could be transformational. And then finally, eFolio. eFolio is our web-based, client-facing portfolio management system.
It has, for many years, been the best tool of its kind in the industry, and we're going to continue to invest in that application to maintain that competitive advantage. With that, I got through it pretty quickly, so we do have some time for questions.
We'll start with Michael.
Hi. Hi, thanks, Horace. Michael Cho, J.P. Morgan. I'm just kind of curious, you know, what you're—you know, you've talked through the depositories being a large segment, even bigger a few years ago, maybe 2023 was a little bit more depressed than usual, despite the addition of SumRidge. But just curious, what you're seeing and what you're hearing from them today, in terms of types of volume and transaction activity, and, and as you see, you know, potential normalization in the yield, yield curve ahead, how, you know, how you think they're repositioning for that, how you think that might impact volumes, and how you see kind of that path forward?
Yes, that's a good question. We're obviously paying close attention to that. The first thing I would say is that liquidity seems to be stabilizing. As depository institutions, banks and credit unions, have repriced their loans, loan demand has gone down, so there's less concern about that. But I would say that they fall roughly into three buckets. The first are the ones that have decided to sort of, this is mostly the publicly traded banks, decided to take some action on restructuring the balance sheet, and we get back in business. It's our observation that those that have taken action are outperforming those that have not. The other segment is those that are still. They're still caught in that level of uncertainty where they're reluctant to move.
And the third are those who are in the middle of evaluating what those next steps may be. I'm pretty optimistic in the intermediate term about the volumes in that space. We are seeing a pickup in some of the asset classes that are more favored by those clients, mortgage-backed securities, the whole loan trading. Those businesses are picking up a little bit, but it's not yet a trend, where it's kind of... It's lumpy. We have, you know, some clients acting, some not.
But as the, I think that through the end of the year, we will continue to see it improve as more and more of our clients gain confidence about the state of their balance sheet and what the market is going to offer.
One more question from Mike.
Great. Thank you. Michael Cyprys, Morgan Stanley. Maybe just coming back to the mix of the business, you've had tremendous success diversifying the business, depositories down to 42% from meaningfully higher, just a number of years ago. I guess, as you look out over the next five years, how do you see that mix evolving? Where—which client sets do you want to continue to expand? Maybe any sort of views on, on corporates, more broadly, just how you see the mix evolving from here.
So we do want to focus more on non-depositories. Our next effort is going to be insurance companies. We think that we've got a good offering there. One of the keys to developing a bigger service offering for different types of clients is gonna be cooperation with our colleagues on the equity side and in investment banking, which has already begun and is started to bear fruit. So I would like to see a much more evenly balanced client concentration between insurance companies, asset managers, and depositories. Those will be the focus. But as I say, we want them all.
We want, you know, all the clients, and we think that we can address whatever their needs are, but that will be the focus in terms of growth going forward for the near term.
Okay. Thank you, Horace.
All right. We good? Thanks.
All right, so that does bring us to our break. We will break for just a, about a 15-minute time. So for those of you on the webcast, we will return at about 10:45 or so, maybe a few minutes after. Thank you.
[crosstalk] Michael? Let me say hi, Steve Raney.
How you doing? Mike-
Good to see you. How you doing, Mike? Good to see you. Thanks for being here with us.
Of course.
All right. Thank you, everyone. We're going to go ahead and get started, so we can hopefully stay on time here. All right. Well, thank you. Our next presenter, the next session will end with two more presenters. And the next one is Steve Raney. Steve is Chair and CEO of Raymond James Bank, and also serves as Chair of Raymond James Trust. He joined the firm in 2006 as CEO. Please welcome Steve Raney.
Thanks, Kristie. Appreciate it. Good morning, everybody, and thanks again for your interest and continued support for Raymond James. Appreciate a few minutes this morning. Just a quick snapshot of the banking segment now. Of the roughly $80 billion of client assets on the Raymond James Financial balance sheet, a little over $60 billion of those assets are sitting inside of the two banks, Raymond James Bank and TriState Capital Bank. So we're approaching the two-year anniversary of TriState, of becoming part of the Raymond James family. So roughly, at the end of March, $42 billion of those assets were at RJ Bank, and roughly $19 billion were at TriState Capital Bank.
So we continue to benefit tremendously from this, very stable and low-cost funding, through our Private Client Group. Roughly 1.5 million households, all of who have accounts, and virtually every account has some, at least some small element of cash that's sitting there awaiting investment. And, for, a couple of decades now, we've been moving some of those deposits over to RJ Bank to fund ourselves, and now TriState actually receives some of those low-cost funding as well. So continue to have very strong capital, embedded in, embedded in the banks. I know Paul Shoukry will update you on some of our capital targets later, but, we continue to make sure that we've got really, very strong capital ratios, inside of, our banking institution.
So a big part of our strategic focus is continued penetration inside of the client base, inside of Raymond James. Our financial advisors, that's become a much more integrated part of Raymond James Bank's approach, both approaching our retail investors as well as many institutional clients. So a lot of our business is really predicated on supporting those businesses. And then even the TriState combination, there are certain things that we're starting to do, leveraging their very strong deposit gathering and treasury management offering that Raymond James did not have. That was really a very attractive part of the TriState combination, now going back a couple of years, that we're just now starting to leverage and seeing how we could put that in place for the clients inside of the Raymond James franchise.
A very diverse loan portfolio, over $44 billion in loans at the two banks. I know that we've talked about this before. It continues to be a strategic focus of how we can grow our securities-based lines of credit, both at Raymond James Bank as well as the effort at TriState Capital. You know, we've got a long track record at both banks, really, of having very conservative credit standards, very low level of problem loans and charge-offs historically. That's really paramount in terms of how we steward the capital at RJ Bank. We'll talk about our net interest margin, what we've seen historically in trends, what we're looking at right now, and maybe give you a little bit of a look of what we think is going to happen going forward.
I mentioned, you know, strong credit quality, very low level of non-performing assets as we sit here today. You know, a big part of the financial performance of the overall Raymond James organization is embedded in the two banks. Now, rapid revenue growth over the years. You see this most recent history, a reduction, and that's a reflection of the reduced net interest margin and the current interest rate environment that we're in as well, and that's driving a lower level of pre-tax income over the last short period of time. I would remind everybody, part of the way how we reflect the financials in the bank segment is for the deposits that we're moving from our sweep and our client sweeps, we actually pay back to the Private Client Group.
So it's one pocket to the other, but the bank financials are reflective of an internal transfer charge, so that the private client group is in effect made whole relative to what the third-party banks are paying for, for those deposits. And then, you know, a long history of growth, and then many of you, Devin and I were talking how long he's been following us, been with us a long, long time. Raymond James Bank, in particular, I think, has shown quite a bit of flexibility. We've had periods of time when we've grown loans much more rapidly, and then there have been periods when we've actually reduced loans, based on economic factors, you know, the COVID period, clearly, when we're in a relatively challenging environment just right now in terms of, just sheer loan demand.
We're okay playing the long game. We're not gonna push and look for riskier assets just to grow loans. So it's been a little bit of a muted loan growth story the last year or so. Talking about looking at our net interest margin, I was referring to that earlier in terms of the rate environment we're in. This last quarter, it was 2.66% for the two banks on a combined basis. We're actually starting to see a little bit of lift in the NIM. That's reflective of some of our lower-yielding assets in the form of some of our securities, as well as some of our legacy residential mortgage loans to our clients as they're making repayments, and we're getting some reductions in those balances. Those assets are going into higher-yielding assets.
So that's having some small positive impact on our NIM going forward. Yeah, just a quick snapshot and an update on our deposit funding. You see here, you know, kind of a chart of how the two banks are funded. Right now, we have about $42 billion plus of RJ Sweep program cash, and here's a snapshot of where we have those deposits deployed. RJ Bank has to date about $20 billion of that $42 billion. TriState Capital Bank has roughly $17 billion. I'm sorry, about $3 billion of the sweep cash. And then, the third-party banks have a little over $17 billion that they're re- and there's about 33 banks that are in that program right now that are receiving that $17 billion.
That, in effect, is liquidity and funding that we could move over to RJ Bank and TriState Capital Bank to fund our assets. We just really like having that cushion that's there, a contingent funding, if you will, at that third-party bank program. I think that's a very safe way for us to run the institution and having that level of liquidity at the third-party banks. The Client Interest Program roughly has about $1.6 billion or $1.7 billion in it, and in effect, that is, those are deposits that are over the $3 million of the FDIC insurance that we offer through the Raymond James Bank deposit program.
With that $1.7 billion, we're funding some of our margin debits with it, so it's a very low cost of funds to fund those margin loans in the broker-dealer. And then the other bank segment for deposits that's become a bigger part of the equation. I know everybody's aware that March a year ago, we launched a new what we call Enhanced Savings Program at RJ Bank that now has $14.2 billion in it. That's all client cash, roughly 28,000 accounts. 25% of those accounts are brand-new relationships to Raymond James Bank.
So our advisors were able to take this new, this new account offering and actually introduce Raymond James that will, that are new clients of the firm, and now we're doing other things with them and hopefully getting, you know, all, all of their investment business as well. I mentioned the TriState combination. One, one of the things I'm not sure we, we, we knew how quickly we were going to need to deploy it, but their deposit gathering apparatus is really impressive, and they've got roughly $14.5 billion of deposits that are inside of their system, that are not inside of Raymond James, in the, in the form of a national deposit-national account deposit gathering apparatus, as well as treasury management offering that has a lower cost of funds.
That Treasury Management offering, a lot of it is to borrowing clients of their commercial banking business. So, that's a business that we want to continue to leverage inside of the Raymond James franchise as well, as they continue to grow inside of their client base also. Yeah, just a quick update. We talked about the asset diversification, you know, $61 billion in assets, $44 billion in loans across a pretty broad spectrum of categories. Securities-based loans, which is—this is on a combined basis of RJ Bank and TriState, is the biggest asset class. That's been growing the most rapidly. We want to continue to focus on that asset class. I would mention, embedded in that SBL balance, that 33%, inside of TriState, you know, I think everybody's aware that they-...
Do business with a lot of institutions, the custody firms, many of which do not have a bank and have access to their own proprietary banks, so they're doing this on a third-party basis for their clients. We've not lost any of their clients. It's been. They've actually added to the custody firms that they're doing, that they're doing business with. And then they also have a cash value of life insurance premium finance business that they have, where they're offering this to a couple of select mutual, highly rated insurance companies. So their clients that wanna maybe finance their premiums can do that through TriState Capital Bank, which is a great asset class.
It tends to be a little bit higher yielding also than our traditional securities-based lines of credit, where we're secured with marketable security stocks and bonds and mutual funds. The C&I portfolio, 23% of total loans, is a combination of Raymond James Bank, more syndicated financing. TriState is more of a middle market traditional C&I business in their geographies. And their commercial real estate portfolio is similarly situated to middle market real estate investors and developers, while RJ Bank is primarily focused on larger institutional syndicated opportunities.
Although we've done one of the things that we have done, we're doing a little bit more direct business with our ultra-high net worth and high net worth clients inside of Raymond James, where the advisor will refer their client to us, and we can do that loan on a direct basis. We have a big, a relatively, a decent REIT business that's almost exclusively tied to our investment banking practice in real estate investment banking. Residential loans are predominantly loans to clients of Raymond James. These nearly 8,000 advisors in the U.S. refer their mortgage loans to us, and we typically are portfolioing a 5 and 7 1 adjustable rate loan, jumbo mortgage to our wealthy clients. The tax-exempt loans is almost exclusively attached to Horace's public finance business.
So our public finance bankers that are representing various municipalities and nonprofits, higher ed, hospital organizations, they're debating between doing a bond or a bank loan, and we're we can solve that solution for them and wrap that client up. So that's, that's been a great business for us now for 10+ years. Yeah, just the growth rate over the last period or so, you know, I know we've been focused on the SPL business, want to continue to do that. You know, that's been... In this higher rate environment, we've seen, that growth rate's been a little bit slower, but we're actually starting to see some traction now at both Raymond James Bank and TriState Capital Bank.
This quarter, we're starting to see some advances on lines of credit, and we're attributing that a lot to the tax season in April. You know, we see tax payments being SBLs being used for tax payments. But also, Raymond James Bank, we had a little bit of a promotion for a couple of months that that produced quite a bit of new volume in the February, March timeframe, and some of those new loans that are on our books now, clients are starting to borrow. So, that that's a great asset class. We want to continue to focus on that.
And needless to say, one of the big things that the securities-based lines, when we're seeing new balances, is a result of new advisors joining Raymond James, or in the case of TriState Capital Bank, new advisors joining the custody firms that they're doing business with. So as advisors are moving, they're moving their loans as well. So both banks have, like, a full apparatus to help those transitioning advisors move their loans as well. I know there's been a lot of focus on real estate, rightly so. Just as a reminder to everybody, the real estate portion of the two banks' balance sheets is relatively small.
You see here, the total portfolio of real estate is $9.2 billion, and in particular, $1.5 billion of that is in office loans. I know that's the asset class that's probably gotten the most attention. Both banks are actively working on the maturities that are going out through, let's say, at least through 2025 and even further, to really proactively get in front of any maturities and trying to deal with any issues where what's happening in many of these loans, there's needing to be some equity that's being brought to the table. They're having to rightsize the loan based on today's values and cap rates. We're feeling pretty optimistic about it.
We clearly have a few troubled loans that we're gonna just need to work our way through, but we feel very good about the team that we've got, and if a loan is more troubled, we have a special assets apparatus in both banks that can deal effectively with trying to exit that loan and reduce our exposures as quickly as we can. Just a few comments on credit trends. I know we've got, once again, both banks have this long history of really relatively strong credit performance, low level of criticized loans currently, high level of allowance to problem loans as well, our non-performers are a very manageable level.
I would say Raymond James is very proactive in downgrading loans and adding provision and adding allowance for any future losses, so that's something that we've been particularly working on the last year or so, in as relates, you know, and you see these periods, even like back in 2020 during the COVID period, we added a lot of provision during that period. You know, we had loans that were greatly impacted by the pandemic. So I think our team has been very stable and strong in terms of dealing with any credit issues and getting out in front of it.
Just wanted to touch on the fact that we have a limited level of duration on the combined bank's balance sheet, and that duration really is residing in a couple of places. In our securities portfolios of the two banks, the securities portfolio as a percentage of total assets is getting smaller and shrinking. Our residential portfolio, once again, these loans to clients, is relatively short relative to mortgages. We're not doing 30-year mortgage loans on our books. We're typically doing these ARM loans. And then, I mentioned the public finance-related tax-exempt loans has a little bit longer duration, but that's about $1.3 billion. That's usually about a six or seven year fixed rate that's embedded in here.
So I would also mention, we've added actually some duration to the liabilities as well as our deposit mix has changed. We have a higher level of CDs, higher level of term deposits at both banks. So we feel like we've got very effective management of our duration, and we'll continue to watch this super closely. Just wanted to focus on what the priorities are gonna be going forward. Continued strong focus on things we can do inside of our private client group, households, growing our securities-based lending business as well as residential mortgages. And once again, the TriState team has done a great job of growing their SBL business as well. Really continuing to maintain our conservative credit culture and very active problem asset management as well.
We're gonna continue to selectively grow our combined corporate and commercial real estate loan portfolio at both banks. So the growth rates of that asset class is gonna be lower than our more private banking-oriented loans, but we do wanna be in a position to grow those assets when the opportunities present themselves. And I would mention one thing in particular, you may have seen last week, we announced a new private credit effort that we're doing on a joint venture basis with a company called Eldridge, who's gonna be our new partner. And we set this up as a way to really improve our opportunities inside of our investment banking M&A practice across several different industry verticals.
You know, these are gonna be deals that are gonna be typically riskier than what would suit our credit profile, hence the need to have a JV partner that will have the first loss piece of these loans. We're excited about that opportunity. It was a long effort. We evaluated a variety of different firms to partner with, and we're ready to get rolling. That being said, it's gonna be a relatively small part of our business, so it's not gonna be anything that's gonna be a massive shift in terms of our corporate lending additions or growth.
But, I'm excited to be able to partner with Jim Bunn's investment banking team, on being able to offer those credit solutions that I think will add incrementally to our, level of M&A, engagements that Jim's team is gonna be able to obtain, so. With that, why don't I turn it over to questions? Devin, you've got a question? Oh, Steven, you wanna go first since you got the mic?
Sorry. My apologies, Devin. No, thanks, Steve. I did wanna ask on the securities portfolio, you know, just, you noted that you saw some NIM inflection from the repricing of assets. You have a very low yield on the back book. It has a low two handle, you know, 200-300 basis points below prevailing rates.
Mm-hmm.
How quickly is that book turning over? I think the last update you had given at the prior Investor Day was a four-year duration. Is that still what we should be contemplating from a modeling perspective in terms of the pace of turnover? And then secondarily, are you, parking those proceeds as they mature in cash, or are you actually reinvesting in long-duration assets?
Yeah. So Steven, right now, the duration's actually come down a little bit, so it's probably, like, 3.8 years or something like that, so a little bit of reduction. It's probably $150 million a month in reductions, so not an enormous number, but $150 million. And we're not really adding any duration in that portfolio. We're using that, and I think we've really been sitting on some elevated cash balances, the last period, just particularly coming out of the banking crisis last March and April. We thought that it was prudent to have some elevated cash balances.
So you're probably gonna see reduced cash coming down, being deployed into higher-yielding loans, not so much duration assets, but floating rate loans, as well as the reduced cash, plus the reduction in our securities portfolio via runoff. We're not looking to really add more duration to the balance sheet now, so.
Thanks so much.
Finally, Devin.
Thankfully, I have a different question. Devin Ryan, Citizens JMP. So Steve, I want to talk a little about the securities-based loan strategy. Obviously, this has been an area you guys have been focused on for some time. TriState's been huge for that business. But as you think about the penetration in the private client business, where do you think you are around adoption and education and kind of, like, relative to the longer-term potential? I know you're not necessarily pushing this, but-
Yeah.
Really to educate advisors and make sure that where it's a good solution. And then also, you talked about the structured product solution as well for ultra-high net worth.
Yeah.
What is the potential for that? I know that's a little bit more complicated, so how are you thinking about that opportunity as well?
Yeah, Devin, we're inside of RJ Bank, we're at about 65% of our financial advisors have at least one securities-based line of credit, and every year, the penetration has gone up, but that's still a lot of advisors that we could tap into. So we have roughly 14 banking consultants that are out in the geographies, calling on advisor offices within the territory that they've been assigned to. Similarly, TriState has a model like that, where they've got bankers on the ground that are calling on the independent RIAs and the representatives of the other custody firms. So they're calling on those advisors as well. And both TriState and RJ Bank are looped in early when there's a transitioning advisory, even before they actually move.
We try to help make sure we can move those loans as quickly as we possibly can. So I think that penetration rate is going to continue to grow. And also, I would say, relative to that 65%, virtually every advisor that's joining Raymond James, and this is also true at TriState, those advisors that are in motion are bringing loans with them. So the new advisors are almost 100% at adding to our opportunity. You talk about structured lending, Devin, that's something we launched a few years ago. This is the effort where, as opposed to kind of a more straightforward vanilla securities-based line of credit, it requires a deeper underwriting, a more complex underwriting, where we're getting full financial disclosures of an ultra-high net worth client.
We may be lending against some more illiquid positions, B shares, some hedge fund assets, but there's recourse to that person, and we do an underwrite, and we're comfortable with that. In some cases, we may be doing a combination of commercial real estate and some liquid assets. So we have a dedicated team of about 12 people now covering that business, and every year, it's growing. That being said, that group, we get a lot of interesting requests that don't fit the credit profile that, that we're doing. So, but that's going to be an opportunity for us to continue to grow, inside that high net worth and ultra-high net worth space. We're very confident of that.
Thanks.
Brennan, you've got a question?
Yeah. Thanks, Steve. Appreciate it. Curious, a follow-up question, or a similar question to Devin's on the securities-based loan book. Can you speak to where the LTVs are across the book today?
Mm-hmm.
What sort of general trends you've seen as we've seen the growth sort of start to slow here?
Yeah
W ith higher rates taking a bite? And then one of the interesting trends we've seen emerge in SBLs is on fixed rate-
Mm-hmm
L oans. What are you seeing in that regard, and-
Yeah
Where's the pub going there?
Yeah, Brennan, I would say the advance rates that we launched 13 years ago really haven't changed, so our maximum advance rate against diverse equities is roughly 60%, with a call at 65%. Bonds are 80%-85%. You know, government treasuries are higher than that. So I would mention, I'm going to hopefully not jinx myself. We've not had a loss in that portfolio at all. We have a lot of automated triggers and great reporting that allow us to sell out if we have to do that. Typically, we're going to the advisor and ultimately the client. What typically happens is they're bringing assets or they're making the sale themselves. We're not having to sell them out.
Yeah.
So, we've not made any changes to that. And we've been through some periods of volatility, clearly, in this 13-year period or so since we launched our securities-based business. So I feel very good about the credit quality and our ability to manage that. One of the things we watch, in particular, are concentrated positions. That's where you could really wind up with an issue where you've got a bigger part of your loan against a smaller cap name with a rather illiquid position that can move very, very quickly. So we have a lot of monitoring around that portfolio. What was the second part of your question?
Fixed rate.
Oh, fixed rates. So, we really are focused on doing interest rate swaps off the bank's balance sheets, and affording a client a fixed rate via that synthetic tool. We really don't like to add the duration on our balance sheet. We have a handful of those where we're needing to accommodate it. We have an advisor that may be moving over from another place. Our competitor firm had offered a fixed rate. We're needing to basically accommodate that loan for a period of time as part of the transition plan, and that's factored into the economics, Brennan, when we're, you know, figuring out what the front money would be to bring them over and if that's going to be economical or not for us.
So it's a very, very small level of fixed rate loans in the SBL book on, on both banks' balance sheets. Mark, you want to go right here from B of A?
Thanks.
Hi, Mark McLaughlin with Bank of America. Steve, thanks for doing this. My question had to do with the $17 billion of allocations to third-party banks.
Yes.
A lot of ifs here, but, you know, given loan demand returns a bit and also, you know, sorting abates.
Mm-hmm
What kind of levels of transitions would you think about on bringing that onto the balance sheet, and what kind of floors are you comfortable with? Obviously, third-party bank contracts, very liquid-
Right
V ery defensive.
Yeah.
So.
Yeah, Mark, good, good question. We've stated that we do not want that $17 billion to go below $10 billion, so that's still quite a bit of cushion. And the reason we have that much cushion is just, once again, particularly coming out of last year with all the noise around deposits and the cash sorting, we just felt like we needed to prudently plan for future reductions, potentially via cash sorting. I think we've seen some of that cash sorting start to really level off. So I think over time, particularly if we had more loan demand, we would be more comfortable under the current environment of moving some of the $17 billion onto the bank's balance sheet. So it's sitting there waiting for us if we need it so.
I mentioned, Mark, we've had an elevated level of cash on the two banks' balance sheets, so that's been our first, you know, liquidity that we're using to fund new loans with. But we'll get to the point where we'll need more of that client cash. So-
Great. Thanks.
Michael Cyprys of Morgan Stanley. I wanted to come back to private credit. I was hoping you could maybe elaborate on the opportunity there. Maybe you could talk about the economics with the JV and just more broadly, you know, other opportunities to kind of take what you're doing in private credit with the first loss position and think about that more broadly across the balance sheet, maybe to accelerate, drive faster growth more broadly.
Yeah. Yeah, Mike, the—so this arrangement's brand new. We have not done any deals yet. So it's a week old, but yeah, in effect, think about the JV entity making a loan to a company that's typically going to go through a private equity buyout arrangement, right? So, and we would typically be targeting the companies that are in our investment banking practice are probably companies with EBITDA between, let's say, $20 million-$100 million of EBITDA. And you can factor in what you think the valuations would be. You know, the enterprise values are probably going to be, you know, $100 million-$1 billion.
So some of those may be outside of what we could do inside of the JV itself, but one of the things that is attractive about Eldridge is they have their own access to various pots of money that they can, in effect, make the loan bigger on their own, outside of the JV. But within the JV itself, the JV will be making a loan that will be earning a certain yield. Raymond James Bank will be making a loan to the JV. Well, our loan to the JV will be at a lower yield, so in effect, Eldridge will be getting that rate differential. The rate that we're going to be charging the JV, we think is acceptable relative to having us in the last loss piece, having the JV and the equity of Eldridge in the first loss piece.
So that's really how we envision this going. The JV, it—we could have a deal that the entire financing in this unitranche structure could be contained within the JV, but there may be deals that are bigger, that Eldridge may be able to put other dollars to work that would allow us to compete even on the bigger-some of the bigger M&A transactions. So excited about getting it launched off the ground now, so.
Okay, I think that's all the time we have.
Okay.
Thank you, Steve.
Thanks, everybody. I'll be around for lunch.
We want to hear about guidance first. Thank you. Well, the next presenter probably doesn't need much of an introduction, but we will end our time here today with Paul Shoukry. As you all know, he's currently President and CFO of Raymond James Financial. He did join the firm in 2010 and has been CFO since 2004, 2020. Earlier this year, he was named President and CEO successor. Please welcome Paul.
Thank you. Just want to echo the gratitude that we have for making the trip here to Florida. We know it's been a marathon of a week for all of you, crossing the country from Analyst Day to Analyst Day. So really appreciate your time, and don't take your time or interest in Raymond James for granted. I'll start off with a financial update, and then I'll touch on the succession process that Paul teed up earlier. First, in terms of the financial update, it's going to be a lot more of the same. You know, we're pretty consistent, as you all know, but really a focus on consistent capital priorities. I'll go through our capital prioritization framework.
We do have excess capital over our conservative targets, so we are focused on deploying that capital in a way that makes sense for shareholders over the long term. And then we'll kind of go over the financial results, and just our track record of, revenue growth and operating leverage, that we've had since our founding, and then go over some balance sheet highlights. In terms of the capital prioritization framework, we always focus first and foremost on using capital to grow the top line, and doing that with organic growth as the, the most attractive way for our shareholders over the long term. And I'm really excited about the, the positioning of each one of our businesses, where we have critical mass and still plenty of headroom to grow organically, which is unique in financial services.
You know, there are a lot of firms that are bigger than us that have a lot of critical mass, but not that headroom to grow in their businesses. And then there's firms that are smaller than us that have a lot of headroom to grow, but not the critical mass to keep up with all the investments that need to be made to be competitive. So all of our businesses are well positioned for continued organic growth, and we're certainly leaning into that growth, deploying capital, whether it's through recruiting advisors, bankers, other professionals, asset managers, portfolio managers, in all of our businesses, and also growing the balance sheet, as Steve alluded to earlier. Although we're not going to force growth on the balance sheet, the demand has to be there.
You know, we can come up with any growth target we want for balance sheet growth, and we can achieve it. It just may not be the way you would want us to achieve it. And right now, the demand for loan growth is subdued for a lot of different reasons. And so we're going to be patient, just like we always have been, and then we'll accelerate that growth when the market opportunities surfaces, which it will surface. Loan demand will return. It may seem like eternity that loan demand's been subdued, but in the grand scheme of things, it's been a relatively short period of time.
And so for us to be patient and wait for loan demand to be at a healthy level with healthy levels of spreads, will serve our shareholders well over the long term. To the extent that we can't grow capital, deploy the capital, in organic growth, we have a business model that generates a lot of capital, so relatively, that capital-like business, balance sheet-like model, then we look for acquisitions. But again, we're not going to force acquisitions either. You know, they have to meet our criteria being, first and foremost, a good cultural fit. And we don't just say that, we really mean it.
We want to meet with the people and the team and make sure that they're thinking about running their businesses in a way that's similar to us, you know, with the values that Paul talked about earlier, putting clients first, thinking about the long term. And then if they're a good cultural fit, then we look at the strategic fit and make sure that when we, when we add one plus one, we get something greater than two. We want to bring organizations to the platform that make us better collectively, and not just adding, you know, more revenue to the platform. And then it has to make financial sense for shareholders, you know, using relatively, you know, conservative assumptions. We've had a very consistent, dividend policy, paying out 20%-30% of earnings.
You know, we're on the very low end of that range today, but we look at our dividends typically once a year in the November-December board meeting. So at that time, the board will make a decision for the dividend for the following year. And then share repurchases. And this is unique for us, you know, in financial services, and particularly, where this is, you know, very clearly and explicitly the fourth lever on this page. We prefer, again, to grow the top line with the capital, and not just financial engineer to grow the bottom line.
And so, you know, with that being said, if we can't use the excess capital in growing the top line, then we also understand that we have an obligation to use that capital, and we're not afraid to do it through repurchases, especially if it reaches opportunistic pricing levels. Speaking of repurchases, this is kind of our history. In the last two years, year and a half or so, starting since fiscal 2023, we have repurchased $1.15 billion of stock, and kind of fulfilled the commitment we made here a couple of years ago, to offset the issuance associated with the TriState Capital acquisition, as well as two years' worth of share-based compensation.
So we completed that last quarter, and it actually bled into this quarter as well, just because it was under a plan. But we'll continue to offset share-based compensation dilution and be opportunistic beyond that, depending on the capital uses that I talked about on the prior slide. Track record of strong revenue growth. I'll even go back further than this a little bit later, but 10% revenue growth over the last 5 years, 8% growth year-over-year. And what we're really pleased about is if you look at the last 3.5 years, to be able to generate record revenues in very different market environments, where equity markets, capital markets, and interest rates were very different in the last 3.5 years.
Very few other firms have been able to generate record levels of revenue in all of those cycles. And again, that's a testament and reflection of the diversified business model that Paul talked about earlier, where our different businesses generate, you know, strong results in different type of environments, and it's all anchored by our Private Client Group business, which is a very stable business, generating roughly 70% of our revenues on a direct basis, and 80% of our revenues if you add the indirect revenues. And that's where you see the 80% of our revenues being asset-based. So highly predictable relative to non-asset-based transactional-type revenues. And our expense base is flexible as well. This is one of the reasons we've had 145 consecutive quarters of profitability.
You know, if you look at our expense base, almost 60% of it is related to financial advisor payouts and incentive compensation. So very flexible, expense base that correlates with revenue growth, and so gives us a lot of flexibility to continue generating, good profitability in different type of cycles. And you see that here with, the operating leverage revenues growing 5%, 10% over the last five years on an annual basis, growing 12% or 13%, depending on how you look at it, over the last five years on an earnings basis. So generating operating leverage, and if you go back even further, you'll see the same type of trend. We always strive to grow earnings at a faster rate than revenues over time.... Pre-tax margin consistency.
Again, you know, having this type of pre-tax margin consistency, I just can't emphasize it enough, in the volatile cycle we've had since the beginning of COVID, I haven't seen any other firm be able to do that. And again, a testament and reflection of our diversified business model that we talked about earlier. And same with return on equity. You know, we get criticism for having too much capital, and again, we're focused on deploying it, but to be able to generate these types of return on equity with over two times the requirement, the regulatory requirement to be well-capitalized, is something that we're pleased with.
Now we still want to deploy that capital, but we also want to strive to continue generating good returns on equity for our shareholders if we're holding more capital than we need, and we have been able to do that. Really rock-solid balance sheet. A ratings from all of our major rating agencies, similar to some of the largest institutions in our space, where there is a bias to size, and that's really, again, a reflection of our conservatism on the balance sheet and in the business model. We'll kind of go through some of these other metrics in subsequent slides, so I won't dwell on them here.
Again, not a lot of financial institutions can show you a slide like this where, first of all, 96% of the deposits at Raymond James Bank and 88% of our total deposits are FDIC insured. You know, not a lot of people were focused on this two years ago, but certainly everyone was focused on it last March. And that's, again, a key to our values of having that long-term focus and integrity, being focused on things like that when no one else is focused on it. And why did our competitors not have the same level of FDIC insurance in a lot of cases? It's because they were more focused on bringing all the cash onto their balance sheets to leverage up their balance sheets, versus giving their clients the maximum amount of FDIC insurance that they can possibly give them.
Keeping clients first has always been our motto, and always have been the way we approach things, and that has also kept us out of trouble in times like we saw last March. And then again, other than some preferred equities and subordinated notes, which, you know, very small, that we acquired through the TriState acquisition, it's really just shareholders' equity and senior notes. The senior notes with 20 years of maturity remaining on them, on average. So those were put in place at a very good time when rates were very low. And a simple balance sheet, simple equity structure. So frankly, we're probably under-levered now, just given our strong capital base and strong liquidity position. But that leverage capacity and debt capacity gives us the opportunity and capacity to do something like a major acquisition.
Not to say that we're going to do one, but we have the dry powder, both with the liquidity on our balance sheet, the capital, and the debt capacity, to be able to do so. You see our capital ratios, no matter whether you look at it on a leverage basis or risk-based basis, amongst the strongest in the industry. And the one thing we did not do here for some of our peers is adjusted for unrealized losses in their securities portfolio. We never use the held-to-maturity designation for our securities portfolio, so this is really a more pure look. And again, we don't have a lot of duration on our securities portfolio relative to some of the peers.
So again, a very strong capital base at about a 12.3 Tier 1 leverage ratio over our 10% target, which is double the requirement. That gives us close to $2 billion of excess capital over our conservative targets. So something that we are focused on deploying. The cash balances, as I started saying, really three or four quarters ago, we felt like we're closer to the end of the cash sorting dynamic than we were to the beginning of that dynamic. And that's certainly proven to be the case in the last couple of quarters. You know, we're not declaring victory just yet. We were down, as we released last night, to around $56 billion of cash at the end of the month of April.
So far in May, we're roughly around the same place as where we ended April. You know, every day it changes. Like yesterday, we're up a little bit. Today, we're down a little bit. But it's roughly in that same $56 billion type range. Again, I don't know what will happen for the rest of the month, but so far, pretty close. And there's been some questions, I know, after the operating metric went out, around how much of it's been ESP decline versus sweep decline, and I would say it's been proportional to the balances between the categories. And again, we were expecting that, as you all know, due to quarterly fee billings, as well as the tax season that we've had, you know, in the past couple months here.
This slide just shows you the trends that you all are well aware of. As rates increased dramatically over the last couple of years, clients have invested in higher-yielding alternatives, money market funds just being one. There's a whole host of others. But certainly what we would expect and what we would want advisors to do with their clients, you know, is to maximize the earnings. And frankly, savers have been penalized probably for too long, you know, not being able to earn on their cash. So, you know, finally, savers are able to earn a reasonable return, and retirees are able to earn a reasonable return without taking too much risk. You all remember these better than I do sometimes. So these are historical financial targets, and this gets us to our current targets, which are really unchanged from last year.
You know, we try to be conservative when we can. Hopefully, these prove to be conservative again this year. But with an adjusted compensation ratio of less than 65%, pre-tax margin of over 20%, adjusted return on common equity of 17% or more, and an adjusted return on tangible common equity of 20% or more. A lot of assumptions go into this. You know, certainly a lot of things could help or hurt these metrics or these results. So, for example, if all else being equal, capital markets and investment banking revenues take off, you know, that could be a real tailwind. If cash balances continue to decline, that can be a real headwind. I mean, so there's so many variables, so it's really hard in this type of dynamic environment to look 12 months out.
But right now, we think that it's reasonable to sort of reaffirm the current targets and metrics. And some of the other targets, we talked about the Tier 1 leverage ratio. Corporate cash, we have about $800 million of cash over what we believe is a very conservative target of the parent of $1.2 billion. And then again, almost half of the debt capacity that we're running at today, just because, you know, we haven't had the need in the last few years to take on debt, but certainly an ability and a willingness to do so if we find the right opportunity.
A lot of people have asked me about the succession process and, you know, what will change going forward, and I always start with what will not change, 'cause I am not taking over a turnaround situation, just the opposite. You know, as I said earlier, we're coming off of 3.5 years of record revenues and earnings with various good growth across all of our businesses. And so, what will absolutely not change is our values. And you saw the organizational announcements that were made yesterday. All of them were internal. And that's a reflection of two things. One, the focus Paul has had since really starting as CEO on building a strong bench across the firm, and we have strong management teams across all the businesses and functions, so we're able to promote from within.
and two, our commitment to doubling down on these values in our culture, and doing so with people who really buy into those values and buy into our culture, and understand, and have seen firsthand over a long period of time, how that, that commitment to these values have enabled us to succeed in very different market environments over a long period of time. So that will remain unchanged. Steve was asking me about these shoes earlier. This is, big shoes to fill, you know, with after Tom James and Paul Reilly. These are Paul's shoes. I tried them on this morning. They're about a size and a half too big.
But in all seriousness, Paul started as CEO the same month that I started at the firm as an assistant to the chair, and what Paul-- what the firm has accomplished under the, under Paul's leadership has been truly remarkable. So when Paul started, our client assets were $249 billion. We just exceeded $1.4 trillion. That represents 14% annual growth, among the best in the industry. Net revenues were just under $3 billion. If you annualize this year's, which I don't recommend any of you do in your models, but just for illustrative purposes, it gets us to $12.3 billion, and that's 11% annualized growth. And then the market cap.
You know, we were a $3 billion market cap firm, you know, when Paul took over, and, you know, at this point in time, we're at $26.6 billion, representing 17% annualized growth. So, you know, again, when people ask me, "What am I gonna change?" My response is, "I don't want to mess anything up." I wanna reinforce all the success that we've had, lead with our culture, lead with our values. I'm not gonna commit to grow our market cap 17% a year for the next 14 years. It'll be great if we do, but I'm not providing that guidance here at this meeting.
In the leadership team, you know, we talked about Scott taking over as COO, as Jeff Dowdle, who's here today, has been planning for quite a couple of years at least, to retire. So wishing Jeff and his wife and family, growing family, well in retirement. He'll still be around over the next year to help with the transition. He started off as an assistant to the chairman, too. So, we go back a ways. So Scott Curtis will take over the asset management business, both Raymond James Investment Management and the Asset Management Services Division, as well as a lot of the COO functions.
And that will enable Tash Elwyn, who you'll see at lunch, to become head of the private client group, president of the Private Client Group business, which is our, by far, our biggest business. Tash actually started with the firm as a trainee doing cold calls, and worked his way up to the president of our, Raymond James and Associates, PCG Channel, you know, for the last 10 years or so, and really embodies the culture and the values I was talking about, earlier. And he's passionate about the Private Client Group business. And speaking of passion about a business, Jim Bunn, being president of the Capital Markets segment, he was one of our most productive investment bankers, took over banking, then took over GEIB.
I'm really excited to partner with him as the president of the Capital Markets business, which would include fixed income. You heard from Horace earlier, as well as our affordable housing business. We made several other announcements yesterday, last night, so couldn't put all the pictures together on this slide here. But, one of those announcements was Butch Oorlog will take over, as CFO. Butch Oorlog was a CFO of a major private company in Tampa before joining us around 20 years ago, to be CFO of our affordable housing business. And then he's pretty much led all of the functions and financial reporting before becoming our chief accounting officer, as really, I started as CFO. So he's been my right-hand man and really the brains behind the operations.
So, he understands all the nooks and crannies, and has been involved in everything that we've produced, and I trust him unconditionally. So a lot of exciting changes, but again, all really, as Paul said, a half step up for a lot of people that have been around the firm and really buy into the values for a long time. One thing that I have been focused on, and Paul alluded to this, one new initiative. We have Bella Allaire, who's ran our operations and technology area. We're promoting her up to Chief Administrative Officer. She'll still oversee technology and ops, Vin Campagnoli will be promoted to her existing role. But one of the initiatives, Bella will lead through a cross-functional initiative is to really further enhance the operational service and the processes that primarily in the Private Client Group business.
And so advisors give us a lot of high scores for client satisfaction and service, support, and we've been consistent in that regard. But they also have given us feedback on where we could help them through AI technology, process reengineering, take out steps and processes, further automate processes, so they and their teams spend less time on the administrative aspects of their jobs and more time with clients, you know, developing relationships with clients. And from an investor perspective, that should create more scalability over time as well. So require an upfront investment. We haven't dimensioned that yet. We're still, you know, haven't even entered the first inning of this opportunity other than the feedback that I have been getting from advisors across our affiliation options.
But that upfront investment will be great for—it'll be a win-win-win for advisors, their clients, and the firm, as we're able to get more scalability. So more to come on that, probably in the coming year or so, but that is something that would be a new initiative that we will be focused on. And with that, I just wanna thank you again for your time today, and we'll open it up to questions. Start with Brennan.
Hey, Paul. Morning. Thanks for running through all that, and congrats again on the new role. Very exciting. So you made reference to your capital priorities. So you haven't changed those yet, so far, but when you think about M&A in the current market environment, you know, where do you think what parts of the market do you think are most compelling? What do you think is the best opportunity in which to add to Raymond James' various businesses? You know, where do you think there's the best and richest set?
So, and we hired a new head of corporate development, a little less than a year ago, Suraj Tripathi, who's known us well for a long time, so serving us from one of the banks. And, and we're seeing opportunities across all of the businesses. In terms of where we would prioritize, I mean, the Private Client Group business is our biggest business. Unfortunately, that's where there's the fewest opportunities that really are aligned with our strategy, and the culture that I talked about. And so the deals that you've seen transact, where the average advisor and average client is much lower than our even our minimums to bring onto our platform, the reason we didn't do those deals was just 'cause it wasn't a cultural or strategic alignment.
There's really only a handful of firms in the private client group space. Many of them are private, not for sale, that would represent good cultural and strategic alignments. And so we stay close to them. I think the question earlier that was given to Paul about opportunities, given the changes that are going on in the industry, whether it be technology needs or regulatory expectations, is that it's becoming harder and harder for these smaller firms to keep up with all of those requirements. And so we think that over time, as that continues to evolve, these firms who may not be for sale today, will look at their strategies and realize that they need a partner that also aligns with their culture and strategy, to, to join forces and to give them the capabilities that they need to remain competitive.
And so we think that's a really exciting opportunity, but we're seeing a lot of opportunities in capital markets, investment banking, asset management, that can further diversify and strengthen our offering there. Probably not in the bank. We have two charters. We think that's enough. So we're not. Steve's not itching for a third just yet. We think that there's, again, plenty of headroom and opportunities in all of our business, but the Private Client Group business is, you know, by far our biggest business and our top priority. I thought Jim Bunn was raising his hand. I was just itching his scalp.
Hey, hey, Devin Ryan at Citizens JMP, echo that, congratulations, Paul, on the new role and to all the other leaders here on their new roles as well. Question just on kind of the long-term expense trajectory of the firm. I know that expense-
C omes in cycles and kind of long-term planning around how you guys think about what you're going to invest in and that expense trajectory. So it'd be great to just talk about maybe the core expense. There's gonna be business-related expense, but there's also that investment expense. And so how are you thinking about the rate of growth investment? And talk a little bit about some of the inflationary pressures that are affecting the business, and then maybe some of the disinflationary dynamics, like artificial intelligence, which Paul mentioned, or anything else that would kind of play into that, and how we should think about the put take as you guys are leaning in on investment.
Yeah. You know, I'll start off with the disinflationary ones. 'Cause even the disinflationary drivers, like artificial intelligence and technology, to realize those, you need to have an upfront investment, you know, to process, reengineer, to implement those technologies on new processes. And so that requires an upfront investment, and that's what I was talking about earlier, in terms of being able to leverage and realize those disinflationary pressures. And I think there are significant opportunities there for us to embark on, but that'll take time, and that'll take upfront investment. In terms of inflationary pressures, we're seeing it across our business, and all companies are, you know. You know, real estate prices, for example, and construction costs aren't increasing to the rate that they were, during COVID, but they're not decreasing either.
And the current cost of construction is much higher than it was pre-COVID. And so might not be increasing at the same rate, but certainly not decreasing. Software vendors, you know, now that their debt cost, and a lot of them are private equity backed one way or the other, have gone up, and they're now less focused on top line growth at any cost and generating EBITDA. They're coming back and renewing contracts at much higher rates 'cause they're focused on EBITDA growth, not just top line growth anymore. So we're seeing inflationary pressures across the board. The employment market has been much more stable, so that's a very positive thing for us, in the services business. You know, during COVID, people were going to the next hot thing, getting a 30% or 40% raise.
A lot of those hot things are no longer with us, and so there is a flight to quality and stability, which we offer at Raymond James. But again, wages are still higher than they were pre-COVID. So inflationary pressures we're seeing across the business, but again, that's why having scale is more important than ever, not only in our business, but most businesses. And so, I think that creates opportunities for us long term to bring on smaller firms that would be really great fits with Raymond James, that can benefit from the scale.
Hey, Paul. Steve Chubak, Wolfe Research. Look, it's certainly encouraging to see the reaffirmation of the pre-tax margin targets. If I look at this trajectory here... Oh, that was a great slide.
Okay, you wanted that one.
You could see in 2020, and then as, like, you benefited from the rate tailwind, that that certainly helped support some of that resiliency. Just given the expectation that the pressures on NII are gonna be more acute, you're gonna see more remixing and arguably faster growth in fee income generating businesses like cap markets, what's enabling you to, to sustain at least those stable margins from here? And maybe if you can just unpack what some of the underlying assumptions were, that'd be great.
Yeah. So a lot of people ask questions like, "Well, what happens if rates drop 200 basis points?" That would, you know, all else being equal, that should hurt your NII, to your point. But the reason I don't dwell on that is because I think that same dynamic could help Horace's business, can help the GEIB business, the investment banking business, and can actually help the bank, counterintuitively, because while the NIM may be pressured in a lower rate environment, loan growth should be a tailwind in that type of environment. You know, and so there's so many different factors and variables in our model, you can't just isolate one.
You see that in this history here, where, you know, rates were at 0% or near 0% in fiscal 2021 and most of 2022, and we're able to generate good margins. It's because capital markets had record revenues and earnings, bank loan growth, SBLs were growing at 40%-50% a year during COVID. So there's so many different factors. I wouldn't just say rates going down is absolutely or necessarily a bad thing for our business, given our diversified business model, and you see that again in 2021 and 2022. So that's sort of why I don't dwell on where rates are at any particular point in time.
Thanks, Kyle Voigt, KBW. Maybe just a question on the Tier 1 leverage target. Obviously, the kind of medium-term target of 10% is unchanged. You're at 12.3% today. It sounds like you have enough capital and flexibility to evaluate the deals that you want to evaluate. So just wondering if investors could think about some sort of cap on Tier 1 leverage at some level, whereby you'd feel comfortable returning that capital to shareholders while waiting for the inorganic or the acceleration in the balance sheet growth to actually come through.
Yeah, I feel like we're pretty close to a cap now, in the 12s, you know. Not to say we couldn't get to 13, it's certainly possible, but, you know, we are Paul and I and the management team, the board, we're very focused on, you know, deploying capital where we are and not letting it continue to grow. Again, if it's better long term to let it continue to grow and there's not other opportunities that we think make sense, then we will. But we are committed to getting it down to 10% target.
H i, thanks. Michael Cho, J.P. Morgan. I just want to touch on just your, your comments earlier, Paul, on, on, on technology and, and kind of the investments there. You know, tech spend has, as you mentioned, and as Paul as well, kind of grown through the years, rightfully so. And I think there are some comments around maybe taking some of the internal stuff that's been developed, I think it was iKnow, that rolling out to, to the clients as well. But I'm just kind of—can you just kind of flesh out and unpack, you know, where the areas, specifically around on tech and tech investments that, that you're, that you're headed from here on out?
Yeah. Well, I mean, the technology investment for any company, there's way more demand than supply, and not just in terms of dollars, but in terms of teams and resources to execute well. And so we're certainly seeing that across all of our businesses where, you know, there's a lot more demand for different types of projects and different things that clients want or advisors want versus what we can implement well in any one year. Jamie Dimon's saying the same thing, and they have a $15 billion technology budget. Now, again, they have a much broader mandate, especially with payments and whatnot. But the focus areas for us commensurate with the businesses that we're in.
Private Client Group business, you know, a lot of the investment we've made in advisor, mobile advisor, desktop advisor integration over the last 10, 12 years has been really well received by both our current and prospective advisors. We're among the best among our competitors. But client preferences are changing, and we have zero plans to try to circumvent our advisors and go direct to clients. But even clients that are interacting with and through their advisor expect different interfaces and interactions with technology. So we're looking closely at that, and then looking at technology as a way to increase scale and efficiency and across our businesses is something we're also looking closely at.
Great. Thank you. Michael Cyprys, Morgan Stanley. You mentioned with the balance sheet, you have capacity to do potentially a major acquisition. Maybe you could just elaborate on how you're thinking about that, where that could make sense in terms of something maybe transformative. What sort of conversations are you having? And then on the capital market space and investment bank and asset management, you had mentioned those are areas for potential M&A. Where could that be additive to the platform today? You've done a number already. And then how much time do you give it for capital to come down towards your 10%? Is that just a number of quarters or years if M&A is not announced?
Yeah. You know, certainly we don't try to time things on quarters, you know, and we've actually only been over 10% in the last couple of years. Really, as rates started increasing and client cash balances started decreasing, that kind of increased our Tier 1 leverage ratios. More cash was, you know, reinvested into higher-yielding alternatives, which don't show up on our balance sheet. And so in terms of where we're having conversations, again, it's across all of our businesses. And I think there are more conversations in those businesses that are happening because as people are looking forward, they're seeing all the investment needs and requirements in their businesses. So they're looking for good partners as well that share similar culture and values that they have.
So, can't get much more specific than that at this point, and we don't know if any of them will be realized at this point, you know, because you don't know until you see the announcement, essentially. So that's where we're focused. Is there a third part to your question?
Just on the Investment Bank-
Oh, investment banking specific.
Asset management, where you're particularly focused, how that can be additive at this point.
Yeah, asset management is a tough one, and probably where we see the most opportunities in terms of flow, but the most challenging in that a lot of those opportunities are not seeing good organic growth prospects. The movement to index funds and ETF funds and just the passive theme has continued. And so, you know, we're not really interested in acquiring something that doesn't have good organic growth prospects on a kind of on its own merits. And so we are looking at different types of asset classes as well, within asset management that do have better growth prospects, but then it becomes a sustainability and evaluation issue.
And so what I mean by sustainability is not sustainability in the ESG sense, but in the, you know, can the trends that we're seeing in certain sectors, like private credit, persist, or is it getting, you know, too competitive? And, you know, certainly a lot of different firms are entering the space in one way, shape, or form. And so do you want to pay premium multiple on something where that would have a very different growth profile in two or three years? So those are the kind of things that, we're looking at within investment banking. We have a really strong platform now, but there's still certain sectors, verticals, geographies that we can continue to expand in, in a way that's relatively capital light, more focused on the M&A side of the business.
Paul, looking at the slide here, I see your balance sheet size is just over $80 billion, and I know at the onset of COVID, your balance sheet was about $40 billion. $100 billion is a pretty significant threshold for regulated bank entities. I was hoping you could just give some perspective on how you're preparing for that eventuality over time. Is that something that's going to require significant incremental investment or just changes in how you manage the overall firm?
Yeah, it's a good observation. We are already preparing, even though we think it'll be a few years till we cross $100 billion. We are already preparing for it. We already have teams focused on it. You know, we don't want to get to that point until we're fully prepared to get through it. And so, it will require investment that, again, I'm not sure it would be outsized relative to our growth. I've just kind of continued investment in the platform. And, you know, the silver lining on these type of investments is we've seen this even as we've grown over $10 billion, got to $50 billion, now preparing for $100 billion, is that those investments make us better at managing risk at the firm, you know, over time.
There's some things that are required that we wouldn't do necessarily the same exact way, but, or with as much documentation per se. But in terms of what the regulators are asking us to look at, from a $100 billion perspective, there are things that give us more information, more data, more tolerances, more targets, more risk appetite statements that are explicitly defined and, aligned all the way up to the board of directors, down to the front line, that make us better at managing risk at the firm. So, while it does require investment, there is a silver lining to it, and you saw that in the last couple of cycles here, you know, where we were very well positioned, from a duration perspective.
For example, in the March crisis, we're getting a lot of pressure to take on more and more duration. And as we run stress tests, we said, "Gosh, if rates increase a lot and cash balances decrease a lot, that could cause some major problems." And we saw that, unfortunately, with a few firms that weren't prepared for that. So, we take those obligations seriously, but we also see the benefit in those obligations. With that, I think it's time for lunch. Thanks again for making the trip over, and have a great Memorial Day weekend.
Thank you, Paul. Okay. As Paul said, this does conclude our Investor Day meeting today. So thank you again for everyone joining us, both in person and also virtually. Be on the lookout. We do appreciate your feedback, and we'll be sending you a survey, so you can provide that feedback on what you thought of the day here and what all we covered. So thank you again for joining. We appreciate your interest in Raymond James.