It's my pleasure to welcome Raymond James' current president and incoming CEO, Paul Shoukry, and CFO, Butch Oorlog. Paul has been with the firm for over 14 years in a variety of functions, including CFO and investor relations, and is in line to become the fourth CEO in the company's history. Butch has been with the firm for over 20 years, most recently serving as Chief Accounting Officer. For a little bit of background, Raymond James is a leading diversified financial services company providing wealth advisory, capital markets, asset management, banking, and other services to individuals, corporations, and municipalities. As of the end of last quarter, the firm acts as a custodian and manager for over $1.5 trillion of total assets.
I just wanted to take a moment to congratulate both of you on your new roles with the firm, as well as thank you for taking the time to be with us here today.
It's our pleasure, and thanks for hosting us in beautiful and sunny Miami. It was getting a little too chilly for us up in Tampa, so we're excited to be down here.
So getting into it, this is a question for Paul. Over the last year, you've been visiting with a lot of different offices around the country. You've been talking with advisors, bankers, associates, clients, which was really great to see. Is there anything from your meetings that you've picked up on, whether that be areas of improvement at the firm or things Raymond James has been doing well that really resonates with clients and advisors?
Yeah, I've been spending about 70% of my time over the last 10 months since the announcement, traveling the country, as you said. And I always ask two questions. The first is, you know, what do you love about Raymond James? What do you want to make sure that I preserve in my new role? And overwhelmingly, the response is the culture of the firm. The people that work at Raymond James are people that they enjoy working alongside, and the high level of support and service that the firm offers. We have 96% satisfaction rates right now among advisors, so very high morale, and they just love the culture, especially relative to the firms that they've come from.
In fact, the most powerful thing and most consistent thing I've heard from advisors and bankers and associates across the country, oftentimes with emotion, with tears in their eyes and their team's eyes, saying, "The best decision I've ever made in my career was joining Raymond James five years ago, and the biggest regret I have is I didn't do it three to five years earlier." And that's a really powerful statement with authenticity that is a reflection of all of the decisions we make as a management team, as all the associates that support those advisors and bankers and other associates. And that's really how, as I shared with the board, how we're going to measure our success 10 years from now is we walk around to various offices and branches across the country, our advisors and associates still saying that.
Because if they are saying that 10 years from now, that means we've kept the firm, the culture, and the values of the firm, and the firm is still a special place. But I also ask, what can we do to be better partners for you and your business and for your clients? And the good news is, you know, don't really get much in terms of common themes or structural issues. It's really unique to the individual advisor or banker's practice in terms of what they're asking for. You know, if they're heavy in the trust business, there might be a couple of enhancements in the trust business that they may want and other things. But increasingly getting questions around technology and AI in particular. And I think there's a lot of conviction, growing level of conviction.
Certainly, the leadership team shares a conviction that AI will be a game changer, not only for our industry, but for all industries. But we also acknowledge that it's still too early to know exactly how AI will impact our industry. It's just we're in early innings. And while we've used it in the back and middle office in areas like cybersecurity to automate processes and alert responses and operations to create more efficiencies, we're still in the early innings in terms of how that actually will get deployed for advisors, bankers, and their clients. And so we are in the process of standing up a function, which we'll announce more formally later this month around what I call a kind of a lookout function.
It's a team dedicated, experts that in AI dedicated to looking out on the horizon and evaluating the dynamics, the changes in AI technology and models, looking at third-party vendors and how they're able to, how that we may be able to partner with to leverage the AI, how competitors are using AI. It's relatively unique for us because, frankly, usually lookout functions can be provided by third-party consultants or advisors. AI, we believe, is so important to the business in the future that we want to have a dedicated internal function evaluating it for Raymond James.
That's a great response. I appreciate the thoroughness. Thinking about the transition, Paul Reilly has spoken before that his most important contributions to the firm while being CEO was preserving the culture, which obviously I believe you traveling around and being open to hear all the differing points from, you know, anyone from associate to director level is like a great display of that. But he had also mentioned investing in technology was kind of the second prong of like where he thought he really made improvements with the firm. I know you had just mentioned AI. Is there any other areas that you think as CEO you could make a large impact kind of going forward?
Yeah, I mean, like priorities are pretty similar. If you kind of hear what Paul Reilly talked about, preserving the culture first and foremost and investing in technology, and so those are priorities that are really evergreen priorities as we grow larger. So those are the areas that we're most focused on. But, you know, we're really in a unique position across all of our businesses where we have critical mass to make the investments necessary to be competitive in each one of our businesses. We're top 10 in most of our businesses. But at the same time, we have plenty of headroom to continue growing, doing what we're doing, and continuing to gain market share. So there are plenty of firms that have critical mass that are larger than us, but a lot of those firms don't have headroom to continue growing, doing what they're doing.
And so they're experimenting in new areas that may or may not reinforce their core competencies or core businesses. And then on the other side of the spectrum, there are smaller firms that have plenty of headroom to continue growing, but they may not have the critical mass and the capacity and the capital to make the investments necessary, which increasingly are growing in size and sophistication to be competitive in our industry. And so having that unique position of the critical mass and plenty of headroom to grow gives us a lot of opportunity to continue investing and growing in all of our businesses, which we're really excited about.
Great. How has your target market changed over the last couple of years, if it's changed at all? And also too, what do you think those advisors are focused on when choosing a home? Has their focus shifted over time, or do you think they're still focused on the same things when looking for a place to hang their shingle?
Yeah, I think if you look at the priorities, answering the second part of your question first, it's really first and foremost a cultural fit, finding a firm that a lot of them grew up with that treats advisors like clients. Increasingly, it's hard to find firms like Raymond James that tells advisors, "You own your book of business, and if you leave on good standing, we'll help you move to your new firm." So all of our advisors are free agents, and we have to earn their trust in their business each and every day, and that is something that is increasingly difficult to find in our industry, and so that advisor and client-focused culture is the primary reason that they're looking at Raymond James.
But they also expect the tools, the technology, the products, the services that they become accustomed to at the larger firms, which is where we recruit about 80% of our advisors historically. And so we have to have a platform that is very competitive, going back to my comments earlier around critical mass to make the investments necessary to be competitive. So those two things combined, we call it the best of both worlds, is really what has attracted advisors, led to best-in-class retention, our regrettable attritions, typically less than 1%, which is a fraction of many other firms in the industry. And then you see the recruiting results across all of our affiliation options, which again, a lot of firms talk about exploring, entering into different affiliation options. We offer employee, independent contractor, RIA, bank channel, and custody business.
We've offered it for a long time, and we have scale in all of them. Advisor choice is not a new concept for us, is something we have a track record in, which gives us, you know, we believe the largest addressable market in the industry. In terms of how has the target market changed, I would say we're just continuing over time to, as we invest in the capabilities, as we invest in the brand, to attract larger and larger teams to the platform. Those larger teams usually have larger client bases, clients that are higher net worth as well. We continue to make investments in the alternative investments platform, high net worth insurance solutions, bespoke lending capabilities, all things that higher net worth clients and advisors that focus on those clients demand for their businesses.
Awesome. Thinking a little bit shorter term, across the advisor-directed brokerage space, we've seen net new assets, while still remaining strong, decelerate a little bit from a very strong prior two years to more mid-single digit range. Thinking about, you know, the backlog and how strong that is and maybe some of the short-term market movers, is there any color you'd like to call out there on what we're seeing or?
Yeah, Mark, I think the biggest change in our industry over the last three to five years is just private equity entering the industry in a very aggressive way. And that has certainly made the space much more competitive. And even strategics who have sort of put a stake in the ground with M&A targets have gotten more competitive to make sure they hit those targets, especially in light of maybe fewer transitions across the industry over the last year or so. But while we don't offer necessarily the biggest check, that value proposition that I talked about earlier, where we tell advisors, "Hey, if you come here, you'll enjoy your life a lot more, and we'll enable you to grow your business much more over time." And the economics of growing a business over time can dwarf an upfront check.
And so we're still punching way above our weight, especially when you consider the size of the front money deals that private equity and some other of the strategics are paying in terms of our net new assets being leading in the industry. And that starts first and foremost with really strong retention. So we're not having to buy replacement revenues, if you will. So on that foundation of strong retention and that value proposition across our affiliation options, and the recruiting pipelines are still very strong across all of our affiliation options, that allows us to grow the business. And so we'll see how the private equity dynamic plays out. I think it's still uncertain long term. They've been sort of selling to each other in continuation funds and those sorts of things, but we'll see kind of what the long-term outcome is of that.
But in the meantime, we're focused on the next five to 10 years, not the next five to 10 months. And so we're excited about our positioning.
Yeah, no, I completely agree, and it's something where, you know, perhaps it leads to a positive catalyst at some point in the future. Between your three affiliation channels, is there anything to call out in terms of trends you're seeing from your end? Obviously, between independent employee and RIA, you have a very wide offering. Anything to call out in, you know, what channels advisors are the most interested in, any changes in prior years?
Not really. I mean, last year, the employee channel was our strongest growing channel. And so, you know, we're not seeing any particular trends. I think sometimes when people hear that the movement towards independence, people think that's channel specific. And our experience with it at Raymond James is it's not really channel specific. It's a movement to firms that treat advisors like clients and respect the relationship advisors have with their clients, not our clients. And so the affiliation options, frankly, our observation's been that advisors really, depending on how they want to spend their time, is kind of how they pick the affiliation option they want. So some advisors like having the office taken care of and all the utilities and the benefit plans and everything taken care of. And that's really, and so they can focus on their clients for the vast majority of their time.
And that really is where the traditional option makes most sense for them. And on the other hand, some advisors like the business ownership aspect of dealing with the real estate and the benefits and all those things that business owners deal with. And that's where the independent channels make more sense. And frankly, over time, we've seen on a percentage basis, very little crossover between the affiliation options because of those different priorities and preferences that advisors have.
Great context. Focusing on RCS specifically, how do you view its value proposition versus some of the larger established players? Obviously, you guys got into it relatively recently compared to your traditional offerings. How should we think about the economics of it and advisor choice?
Yeah, well, the RCS business, which is the custody and RIA business, is actually something we've had for a long time. We just hired a new leader a couple of years ago and really invested in that platform. And I would say the way we differentiate ourselves in that model is no different than the way we differentiate ourselves in the bank model, the traditional model, and the independent model, which is versus the big firms. We're going to provide a culture, a higher level of service, high-touch service, treat you like clients day in and day out. And so that's really what has driven our success in that model. Smaller, but growing at a higher percentage rate just because it's growing off a smaller base. But, you know, the other alternatives in this space are, you know, huge platforms.
We don't ever intend on trying to get to their size or being all things to all people like they can be being as big as they are in their businesses. If they want a higher level of personal service to help them grow their businesses over a long period of time, then our model can make a lot of sense.
Great. Switching over to your Capital Markets segment. This quarter, you posted some very positive Capital Markets results as well as, you know, what we've been hearing from a lot of banks across the sector. And there's optimistic commentary overall that 2025 will be a strong year, obviously after the tepid last two years. This is also an area that you've mentioned before. You've continued to make investments in despite obviously the laggard recent past. How should we think about sizing up the business? Are there any metrics that you'd like to give? Anything we should think about when we're trying to forecast out?
Yeah, of course, when people think of Raymond James, you know, they think of our private client group business, which makes sense. It's 70% of our revenues. But one of the things I do want to spend more time talking about going forward is our capital markets business because outside the investor community, and we think it is underappreciated relative to the size, maybe somewhat overshadowed. But in the last couple of quarters, the revenues for the capital markets business was just shy of $500 million each quarter. In its record year during 2020, 2021, it was just shy of $2 billion for the year. So we have a sizable capital markets business. Jim Bunn, who has recently been promoted to President of both the equity side and the fixed income side of the business, has done a tremendous job really upgrading our talent, particularly in M&A and investment banking.
He will continue to do so to continue investing in the business. 55%-60% of our M&A business is really focused on serving financial sponsors. These are private equity firms either on the buy side or sell side. That's a space that we're really optimistic about over the next couple of years, primarily because the last couple of years have been so challenging for that space. There's been a lot of portfolio companies that have been seasoned and frankly, a lot that have gone through their target exit period. There's a lot of motivation for private equity firms to sell those portfolio companies, especially with valuations where they are now, so they can distribute capital back to their LPs and their LPs can, you know, contribute to new, contribute to new funds.
On the flip side, you have a lot of private equity firms who've raised a lot of capital and they have dry powder to invest in new companies. So we're optimistic that now with sort of more stable interest rate, more certainty around where rates are going, maybe a more conducive regulatory environments to get deals approved that will have a tailwind. We certainly saw that last quarter. Last quarter was our second best M&A quarter ever and our third best investment banking revenue ever. So and we're getting larger and larger fees. Last quarter included a record fee of $43 million. We're seeing more fees, $10 million, $20 million plus. We are continuing to go up market, serving private equity firms with very large portfolio companies. We're excited about the future in the investment banking business and the capital markets business more broadly.
Yeah, a lot of credit to Jim and the team. It's been great to see some of the deals that you guys have worked on recently. It's very impressive and the results he's been able to put up. Are there any particular other areas within Capital Markets that you're focused on improving? And would you look to go in-house kind of greenfield to build those out, or would those be potential acquisition targets?
I mean, while our M&A franchise is stronger than ever, there's still a lot of opportunity both in the U.S. and internationally to expand our capabilities in M&A. Fixed income franchise, we're kind of a leading provider in the depository space. That's something that we really acquired with Morgan Keegan in 2012. And so we're still very strong there. We acquired SumRidge a couple of years ago. SumRidge is a technology-enabled corporate bond trading operation. And so that technology we think can be helpful to our entire fixed income business over time as we deploy that technology. So, and our public finance presence, there was a big player that kind of exited the public finance space last year, which gave us a really good opportunity to hire several top-notch public finance bankers across the country.
And so we're excited about the opportunities both on the equities and the fixed income side of the business.
All great news. Within banking, on the back of strong capital markets activity, how has demand for loans and new originations been trending? And is there anything to call out in terms of differentiation between interest and products? You know, C&I loans come to mind as well as like SBLs from the lower rate backdrop.
I would say across the industry, loan demand and new originations have still been pretty tepid, I would say. Certainly in the higher quality credits that we target, companies and individuals for that matter still have lots of cash on the balance sheet, and, you know, so, and frankly, we're still in the early innings of M&A, and so the uses of that potential financing haven't been realized yet either, so there's a lot more, I would say, supply for new loans from banks, especially in the categories that we're talking about than demand right now, and so spreads are at kind of near record tight levels if you look at it in the categories that we focus on, and then, of course, private credit's a whole another category that is not really the type of loans that we pursue.
Although we did create a joint venture with another party that takes a first loss position in the private credit just so we can offer that to our investment banking clients in a way that makes sense for us from a risk return perspective, so with that being said, securities-based loans, which has really been our focus if you look at the last 10 years where most of the growth has been, the highest percentage of growth has been loans to our Private Client Group clients, securities-based loans and mortgages, and when rates shot up from near zero to 5.5%, those are floating rate loans, and so we saw demand drop considerably and a lot of paydowns and payoffs of those securities-based loans. The last couple of quarters, as you know, Mark, that demand has come back.
I think as rates have come in a little bit, people have got accustomed to the new level of rates and they're borrowing again in the Private Client Group business, so we're optimistic long term on the trajectory of securities-based loans. We think it's a very attractive product and we think that that could be a nice tailwind for balance sheet growth going forward, and we're also optimistic that as M&A comes back to more normal levels after two really soft years across the industry, there'll be sort of a rebound in corporate originations as well, but, you know, we're going to be patient and wait for those opportunities to come to us. We're not going to force growth when growth is not naturally there for us to achieve with good risk-adjusted returns.
Understood. Lastly, on banking with demand picking up, how should we think about your deposits, liquidity, and reinvestment profile? It seems like, you know, you never want to be too early in calling this, but it seems like there's a real kind of paradigm shift going on where, you know, we've been playing on the defense a lot with sorting and lower demand for loan growth and so forth. But, you know, it looks like going forward, there really is kind of a bottoming in deposits and loan demands picking up. How should we think about the potential for a yield pickup as the securities portfolio rolls off? Is there any other areas that we should think of for growth?
Yeah, I mean, the securities portfolio, as it rolls off and we reinvest it into loans, there definitely is a pickup in yield from those sort of tenured securities, the vintage within a lower rate environment. And so we have a lot of cash capacity with third-party banks. I think it's $17 billion or $18 billion as of today that we could bring back onto the balance sheet, a good portion of those balances to fund loan growth when demand resumes. So we always strive to have a flexible balance sheet with plenty of funding. And one thing that we have avoided doing, which served us very well in that kind of March 2023 period, is taking being overexposed to duration risk on the balance sheet. And so we don't try to time interest rates to the extent we take balance sheet risk. We want to do it for clients.
Frankly, you know, extending duration in a securities portfolio really doesn't have a lot of client benefit. We saw the risk of doing that to too much of a degree with a few banks in the March 2023 period.
You've had a history of impressive top-line growth and we're confident in its persistence going forward. How should we think about your ability to drive operating leverage on that? Are there particular segments that you believe have outsized potential? And also too, thinking about just expenses, what are the building blocks of the growth there, you know, when we're thinking opportunistic versus maintenance spend?
Yeah, great question. You know, we think about we've got a long track record of growing revenues at higher rates than we've grown expenses. And really, when you look at that, you don't have to look any further than the last four consecutive years, fiscal years, where we've had record years in each of those four fiscal year periods. So, and in the most recent fiscal year, we had over 20% margin, pre-tax margin in that year. So really strong performance in growth in our pre-tax margin. We also, in the first quarter of 2025, we produced that which just ended, we produced over 21% pre-tax margin in that quarter. So continue on that trajectory. And we feel good about that path to growth.
As we think about that across our segments, where opportunities for future growth are, you know, we have different market conditions that affect our segments in a different manner. So when we think about those four consecutive years of record increase in pre-tax margin, those were four very different economic environments that produced that we were able to produce those results from near zero rates environments in those earlier years to the increasing rate environment in the more recent years. So really demonstrates the diversity across our businesses. And we do see opportunities to continue to develop that operating leverage. But what can benefit one segment, you know, might be a headwind to another segment.
Thinking about resource allocation, as of the end of the quarter, you continue to operate from a very strong capital position. Do you have any updates on what potential acquisition targets could look like? I know you have mentioned before you're kind of more front-footed on, you know, actively going out and seeking those, obviously always market dependent. Anything to call out there or any updated thoughts?
Yeah, we've really beefed up our corporate development function. Hired a new professional a couple of years ago and he's built up his team. And we are in the flow of activity now in a way that we may have not been a few years prior, at least not to the same degree. And so we said on the last earnings call that we sort of decelerated the pace of buyback activity because we're evaluating some potential acquisition opportunities. And we also said that that means we can get one or two over the finish line, but we may not get any over the finish line. You know, we have, we're very, very disciplined on acquisitions. First, it has to be, first and foremost, it has to be a good cultural fit.
And then if it's a good cultural fit, we look at the strategic fit where we want one plus one to give us a chance to be something greater than two. So we don't want to just add scale. We want to add capability and opportunity to make the platform stronger together. And then if it is a good cultural fit and good strategic fit, then we look at the, you know, financials and the valuation and only want to pursue deals that may give our shareholders a good chance of getting a good risk-adjusted return over the long term.
Frankly, even when we have been able to check the boxes on cultural fit and strategic fit, particularly with private equity in the equation now to a larger extent than they have been in prior years, it's very difficult in some cases to get reasonable valuations, at least reasonable using kind of our assumptions and our kind of long-term modeling and process. So while we decelerated buybacks and we are evaluating various opportunities and we feel good about the flow that we're getting, we also want to sort of make sure that the enthusiasm is sort of contained because we've had opportunities even last year that we're really excited about that we just couldn't keep up with private equity on valuation.
Thinking about the size of your balance sheet, I think you're just above $60 billion at present. It's something that obviously was affected greatly by, you know, both loan demand as well as sorting in recent years with interest rates. Thinking in a lower rate environment, some of that cash could really shore up and obviously the balance sheet would grow. Thinking about the $100 billion mark, which is obviously an important one for banks, I'm sure you've thought about it on your side operationally and putting things in place. Is that an area that you guys are looking at right now, spending a lot of time in? How should we think about, you know, that milestone at Raymond James?
Yeah, and when you include the non-bank portion of the balance sheet, it's closer to $82 billion. So we have a cross-functional team focused on getting to that $100 billion milestone, which we expect will be a few years out because you have to cross that milestone for a year before the rules become effective. And the Federal Reserve does a good job kind of keeping us on a nice glide path. It's not like it's a step function that once you cross 100 billion, everything changes. They put you on an appropriate glide path to get there over a reasonable amount of time. So we're taking it very seriously and we're making the investments necessary. We brought in a new chief risk officer recently from a larger firm that has seen the movie before and he's helping us build the infrastructure for that as well.
No, great to hear. With that, I believe we are out of time. Thank you all for being here, and I appreciate you guys coming all the way to Miami from Tampa.
No, thank you. And thanks to Bank of America. You guys have been great partners for us across the board in the organization, not only in equity research, but in treasury and other areas. So really appreciate your support and appreciate supporting your conference.
Look forward to seeing you again soon.
Thanks.
Thank you.