All right, we can go ahead and get started. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. Note that taking photographs and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. With that out of the way, good morning, everyone. Thanks for joining us here on day one of the Morgan Stanley Financials Conference. I'm Michael Cyprys, equity analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. For our next session, we have Raymond James, and I'm excited to welcome their CEO, Paul Shoukry. Raymond James Financial is a leading diversified financial services company providing wealth management, capital markets, asset management, banking, and other services to individuals and institutions with total client assets of over $1.5 trillion. Paul, thank you for joining us today.
Yeah.
Making the trip up here to New York.
My pleasure, Mike. Glad to be here.
Yeah, and it feels like it was just yesterday we were down in St. Pete for your investor day, where you outlined 2030, 2030 vision, something like that. That is $20 billion net revenue by 2030, which implies about an 8% annual growth rate relative to what you put up in fiscal 2024. A little bit slower than the 13% or so net revenue growth you guys have put up over the last five years. Just curious, you know, what's sort of driving the deceleration in terms of your expectation there? Maybe you could unpack the building blocks around that 8% CAGR that you guys expect and what might be some possible sources of upside.
Great. Yeah, so our goal is that we laid out, the long-term goal that we laid out at the analyst investor day was to exceed $20 billion in revenues by 2030. And that's a goal that we have communicated internally and externally as well. The growth rate that you're describing includes pretty conservative factors for equity market depreciation. To the extent that we see the same equity market appreciation that we've seen in the last five to seven years, certainly that number could be even higher than the $20 billion revenue target. We are really excited. We put together plans across all of our businesses, and, you know, we're excited with our business position and our growth prospects.
We're in a unique position in each one of our businesses where we have the critical mass to be competitive in each business, make the investments necessary in technology and products and support to be competitive in each one of the businesses. At the same time, we have continued headroom to grow in each one of our businesses. There are a lot of larger firms with critical mass, but they do not necessarily have the headroom to grow doing what they are doing. They are experimenting with different business lines that are not core or sometimes even dilutive to their core businesses. There are other firms that are much smaller that have plenty of headroom to grow, but they do not have the critical mass to make the investments necessary to remain competitive. I mean, we're making a technology investment, for example, of close to $1 billion.
Most of that's going in the wealth business. If you're a smaller wealth firm and you can't keep up with those types of investments to remain competitive, it's gonna really challenge your ability to remain independent. For us, across all of our businesses, to have that critical mass and the continued headroom to grow makes us really excited about the growth prospects.
Maybe shifting to your value proposition, which was also a major topic of investor day and in particular in your session where you mentioned that your value proposition is to have the capabilities to be competitive with the largest firms, but to have the culture and sort of family-friendly feel of smaller firms. I guess how built out are the capabilities today at Raymond James compared to where you would like that to be? As you look at over the next five years, what capabilities do you want to add or fill in or even enhance?
Yeah, we call it the best of both worlds, and that helps us. That value proposition helps us deliver on our vision to be the absolute best partner for financial professionals and their clients. When we look at how our capabilities stack up across all of our businesses, it's very competitive today from, you know, we recruit about 75-80% of our advisors from larger wirehouses. They come in with the expectation of, you know, in-house trust capabilities. We have an in-house trust company, lending capabilities to higher net worth clients, alternative investments, cutting-edge technology. We offer all of those things. With that being said, it's dynamic. The standards and requirements increase each year. Client preferences change each year. Advisor preferences continue to evolve with new technologies.
We're gonna have to continue to invest heavily in technology as one example, expanding our alts platform, and expanding the lending capabilities. We are gonna continue to invest in expanding, broadening, and deepening all the capabilities necessary to remain competitive and a leading pro-provider and the absolute best partner for financial professionals and their clients.
Why don't we shift and talk about the market backdrop, market environment today for your business? Been a little bit volatile in terms of a backdrop. Maybe just first on your Private Client Group, PCG business, what are you seeing there just in terms of end customer behavior as compared to maybe prior volatile periods such as 2022 or even COVID? How are financial advisors navigating through, and how might they capitalize on some opportunities in this market backdrop?
Yeah, it's interesting. Increased volatility really reinforces and highlights the value of having a financial advisor. When you're in a 15-year bull market and everything kind of is going up in one direction, people question the need to have a financial advisor because, you know, if they're investing on their own, they're generally doing pretty well. When we saw with periods like with COVID, and certainly more recently, with the tariff uncertainty, the uncertainty increases the risk, and the risk increases the desire to have a professional financial advisor to help them navigate the choppy and turbulent times. What we see when we look at our end clients is their advisors have helped them navigate this time, not selling out at the bottoms and actually continuing to rebalance and increase their allocations to equities as equities have gone down.
and so the end client remains engaged in the markets. They're staying disciplined with their long-term financial plans that their advisors helped them establish and, more importantly, helped them stay consistent to, in different market environments.
On your capital markets business, tariffs have had a little bit of a dampening impact on the M&A marketplace. Your business is a little bit more skewed to sponsors, I believe. Maybe talk about how you see the pace of deal activity from the sponsor community versus strategics and the differences that you see between those. What do you think it's gonna take to see a more meaningful pickup in deal activity?
Yeah, I mean, after two years of relatively, relatively muted investment banking activity across the industry as rates started rising, six months ago, we thought that this was gonna be a fantastic year just based on our pipelines. And there's a lot of pent-up demand from both buyers and sellers to transact. That sort of hit a brick wall across the industry with the tariff uncertainty, across all, really across all sectors. It's not only the sectors that were directly impacted by potential tariff changes. It's just the uncertainty in the markets, the ability to whether, whether or not a deal can be financed at attractive rates given the windows opening and closing, closing for financing, etc. Our pipelines continue to grow. We're continuing to add new engagements, but the realization of that, of that pipeline is certainly being prolonged with this uncertainty.
Your question around what will it take for across the industry for us to see more realizations in investment banking, I think it's just more clarity around tariffs. While the markets seem to really like these 90-day delays and postponements, what it doesn't do is give buyers and sellers a lot of clarity in terms of what's actually going to happen, and therefore what is the appropriate price to pay for a company when you don't know exactly what their margins are gonna be 90 days from now when the tariffs are actually negotiated and determined. That's the type of certainty I think we're gonna need to see before the industry starts seeing more investment banking activity.
Once we get that certainty, based on the pipelines that we have and based on the now two and a half years of pent-up demand 'cause of financial sponsors, to your point, a lot of their holdings are well beyond their original hold periods. There are buyers that have a lot of dry powder and capital to deploy that are well beyond their original timelines for deploying that capital. There is so much pent-up demand from both buyers and sellers. Once we get that clarity, I think it could really be a huge tailwind for investment banking.
What does that clarity look like? Like when you think about the tariff uncertainty, how many sort of tariff agreements do we need to see to have this sort of clarity that you're speaking to?
I think the two biggest, frankly, are China and the EU. You know, for a CEO or a sponsor to not know whether the tariffs in China 90 days from now, or I guess 70 days from now, however many days it is, are gonna be 20% or 145%, that is a pretty big range to manage to, right? If you think about a proforma in a model, trying to model out the margin ranges based on those, that tariff spectrum, it is just very difficult to transact in that environment. I would say when you look at the tariff environment, certainly there are a lot of countries involved, but the two biggest, beyond Canada and Mexico, would be China and the EU and figuring out, okay, what is the deal there that they strike?
You know, that once those guardrails are set, then you can start transacting with a much more narrow range of financial expectations and valuations.
Great. Why don't we shift gears to your Private Client Group, PCG business? You've mentioned, at investor day, an opportunity to expand market share in the Northeast and in the West Coast. I guess what sort of footprint do you have there today? Talk about the steps that you're taking to lean into these markets, the hurdles you may need to overcome, and ultimately what sort of footprint do you envision having?
In the Northeast and California out west, I would say our market share there in the wealth business is less than half of our national average. Those markets, as you know well, are high wealth markets, high wealth concentration markets. Our opportunities there are significant. I also do not want to overstate our market share in our core markets. We have a significant opportunity to grow in Florida. I think of Sarasota, which is an hour away from our headquarters. We have a great presence there, but there is another firm just two floors away in the same building that has three times the number of financial advisors. We have a substantial growth opportunity.
Again, going back to my opening comments, doing what we're doing, we have plenty of headroom to continue to grow across the entire country, also in Canada and the U.K. In terms of the barriers to grow out west and in the Northeast, both of those are extremely competitive environments. There are a lot of firms looking for great advisors in those markets. Our other markets are competitive too. Having good leadership in place, reinvesting in our brand to increase our brand awareness in those markets, and really just, success drives success. You bring on high-quality advisors with prominent reputation in those markets, and that drives more success going forward.
Is you envision this being dozens of advisors that you may be looking to sort of recruit in these markets, or is it more like hundreds in any sort of sense and framing?
Yeah, long-term, it certainly could be hundreds. I mean, these are huge markets. Yeah, the headroom in those markets is substantial. We're talking hundreds of billions of client assets in those markets that are achievable if we just realize our national average market share in those markets. It's not going to happen overnight. We're focused on making the investments there. We have leadership in place now out west that's already started making a difference. We're excited about the prospects in those markets.
Speaking of recruiting, why don't we stick with that for a moment? Maybe talk a little bit more broadly how Raymond James is recruiting and winning advisors in a really highly competitive marketplace today. What are the top three selling points that you see in terms of why advisors join the platform? When they don't join, but they make it to a final round and they decide to go somewhere else or just not join, what are the top reasons why they don't join?
By far the top reason they do join, I've been spending 80% of my time traveling the country, meeting with our advisors, some who've recently joined, some who've been with us for decades. The number one reason I hear that they are excited about being affiliated with Raymond James is our culture. The number of times I've heard almost verbatim, often with tears in their eyes, that the best professional decision they've ever made was affiliating with Raymond James. The biggest regret that they have is they didn't do it two to three years earlier. When I ask why is that, it's just the people, the culture.
I didn't realize, you know, my other firm said that they were client-focused, just like you say you're client-focused, but I didn't realize until I affiliated with Raymond James what that really means and how different the decisions are at Raymond James versus my prior firm. They say, "Hey, as you take over as CEO, please preserve this special culture." When the board asked me, you know, at our long-range planning meeting, how are we gonna measure success 10 years from now? What financial metrics are we gonna track? What initiatives are we gonna track?
All those things are important, but the absolute most important thing that we can track, harder to measure in some ways, is when we go across the country and visit with our financial professionals, are they saying with passion, authenticity, and emotion, "The best decision I ever made was joining Raymond James, and the biggest regret I have is I didn't do it three years earlier"? Because if they're still saying that 10 years from now, we've been successful in preserving the absolute most important thing at Raymond James, which is the culture, the way people treat each other. And then the capabilities, of course, culture's critical, but without culture, without capabilities is not sufficient. You have to have the capabilities going back to the best of both worlds discussion we had earlier.
The advisors that come to Raymond James are blown away when we do the technology demos at home office. They, you know, expected good technology, but a lot of them are blown away by leading technology that we have, relative to the firms that they're coming from and oftentimes the bigger firms that they're coming from. Because the bigger firms that they're coming from, they have huge technology budgets, but so much of it's going into banking and payments and other technology, whereas most of our technology, the vast majority of it's going into the wealth business. And so having those capabilities coupled with that culture is why advisors join Raymond James and stay at Raymond James. That's why we have leading retention in the industry as well. Your question around why do we lose advisors?
I look at a schedule with the leadership team every single month on every advisor that leaves. The vast, vast majority of the time, it's, you know, for a check. Some of them are going through life changes, whether it's a divorce or other issues that require them to, you know, pursue a liquidation event. They are leaving for a bigger check. When we're trying to recruit an advisor and we lose, it's very rarely because they like the culture at the other firm or they like the capabilities at the other firm better. It's almost always because the other firm was willing to write a bigger check. I always say in the absence of a value proposition, the biggest check is the only way those type of firms can compete.
and, you know, we win more than our fair share of those situations, but we don't win all of them.
Great. At investor day, you also announced spending, and you mentioned it as well, nearly $1 billion on technology this year. I believe much of it is around advisor-facing technology, including trying to make them more efficient. Understand you have rolled out a number of tools, including a meeting summarization tool that's saving advisors about 2-6 hours per week. I think your team had quoted, just the other day. I guess what portion of advisors are seeing those savings today, and how do you see the rollout of these sort of tools?
I would say for some of these tools, we're still in the top or bottom of the first inning in terms of advisor utilization. You know, the more mature tools certainly have higher utilization, but the meeting summary tool that we just rolled out, for example, we're still scratching the surface on awareness and utilization of that tool as an example. We're gonna continue to invest in technologies. One of our biggest challenges with all of the technology features we roll out is making sure that advisors are aware of everything that we offer. You know, we go to our conferences and we oftentimes get suggestions or requests, and our technology team says, "Gosh, that's been out for two years. Let's show you how to use it." That is a challenge when you're rolling out so many features.
Just like when you get a new phone, you're probably only using 10% of their features. Half the things that you wish your phone had, when you talk to one of your more tech-savvy friends, they show you how to use it. We do spend a lot of time trying to communicate and educate our advisors on all of the features that already exist, but we're also investing heavily on new technologies. We'll talk about AI, I'm sure, as an example of ways to help them gain efficiencies in their practices.
That's a great segue to sort of, an AI-oriented question. I guess just talk a little bit about your vision there around enhancing advisor productivity with these AI tools. What's the sort of magnitude of how much more productive advisors can be ultimately? How many more clients can they serve?
Yeah, I think, you know, that question reminds me of, you know, if you ask someone, "Imagine what the internet can do back in 1996," right? We would all have wild expectations for that, and we would be way off and way short of what the internet was capable of. I think we have a lot of conviction that AI will be a game changer for not only our industry, but for all industries. We also have a lot of conviction that it's too early to tell. It would almost be naive to guess how big of a change it's gonna make and how it's gonna make those changes in our industry. The industry and, you know, we've been focused on technologies that support AI and AI now for some time, but we're really doubling down on that focus.
We just announced a new Chief AI Officer and a dedicated group looking for opportunities to deploy AI across the organization. It is relatively unique for us to have an internal lookout function. We usually rely on outside consulting firms for something like this. As we spoke to outside consulting firms, so many of them are focused on AI to disintermediate the financial professionals to get directly to the clients. That is not our strategy. Our strategy is to use technology and to use AI to empower, to better enable our financial professionals to better service their clients. We needed to have our own in-house capability, given how unique our strategy is around technology and AI, which is not to go around the advisor, but to make the advisor even more effective than they are now. It is an exciting endeavor.
We've already, and some of it's internally developed AI, but some of it also is partnering with third-party companies that are leveraging AI in their tools, as well. We are excited about the prospects, but it's still very early innings.
Related to that, you are spending a lot on technology. We've mentioned before the billion dollars. I guess how do you see that billion dollars or so growing over the next five years compared to the 11% annual growth that we have seen over the last five years? Is there anything you wanna sort of accelerate to drive that maybe a little bit faster, to lean into a bit more? How do you think about as well your capacity and bandwidth for even layering on any sort of faster or incremental growth there?
Yeah, I would guess that technology will continue to be our fastest growing investment at the firm, just given how critical it is for our business. In terms of the trajectory going forward, a lot of it will depend on revenue growth. Over a long period of time, we want to continue to grow revenues faster than we grow investments and expenses. That way we can, you know, continue to drive operating leverage and grow profitability as well. A lot of the, you know, if you look over the next five or 10 years, while I believe technology will continue to be the fastest growing investment and expense in the firm, the actual growth rate will largely depend on the revenue growth as well.
Okay. Some suggest that the differentiator over time is not gonna be the AI models themselves, but the proprietary data, to gain business insights. Maybe how are you approaching this? What sort of insights might you be able to glean?
That's a critical, critical point. You know, AI is only as good as the data that you have, and so we are spending so much time organizing and cleaning up the data. We, we've launched, for example, generative AI for our internal search capabilities on our, what we call, RJNet. The issues that we've, after we rolled it out, the issues that we had with the quality of the search responses was bad data that needed to be cleaned up in the underlying internal pages. We have asked all the internal teams to clean up the stale data. That way the generative AI is producing good output. What comes out of AI is only as good as what goes in from a data perspective. We are spending a lot of resources and effort on making sure that the internal data is clean and organized well.
We're also helping educate advisors on the data that they input in their CRM tools and other tools, how the quality of that data is so critical in terms of how the AI tools will help them going forward. That is a big focus, and has to be a big focus for any users of AI, the data that goes into it.
How do you think about the insights that you might be able to derive from this as you think about client-oriented data, advisor data? Ultimately, what's your sort of vision there? Is there other tools or other capabilities that could be done, develop then over time as you think about that?
Yeah, I think of AI as sort of a pyramid of priorities, and the bottom part of that pyramid is helping gain efficiencies for both the advisor and the firm and back office processes, middle office processes, and front office processes that can be more efficient through deploying AI. As you work your way up in the pyramid, infrastructure and security is so critical. Using AI in cybersecurity to process more false positives, for example, that come up in our cybersecurity areas in a much faster time, seconds instead of days, and detect threats in a much more effective and efficient way, as an example. The top end of the pyramid to your question is helping advisors, create, provide them with data-driven insights that utilizing AI, utilizing the underlying data so they can provide more tailored yet scalable advice to their clients.
That's really the most powerful aspect of AI in our business. Can you provide, in a more scalable way to more clients, even more tailored and bespoke advice to those clients with the utilization of AI? That's the ultimate goal, and that's the top of the pyramid that we're pursuing.
Great. Why don't we shift to the balance sheet now? You're growing your loans to your private clients, which is a main focus of yours, particularly in the mortgage and securities-based lending, SBL, side. I guess what sort of macro environment do we need to see for a more meaningful acceleration in mortgage and SBL loan growth? If interest rates remain where they are today, how might loan growth look over the next couple of years?
Yeah, just over the last, I would say, two to three quarters, the securities-based lending growth has really recovered, you know, in the two-year period when rates were rising, you know, 500 basis points. And those are products that are based on short-term rates. You know, there was sticker shock and, you know, borrowers were not used to the rates that they were seeing, and so they were paying down a lot of the unnecessary or the discretionary lending that they had, they were paying down, I would tell you. With rates coming in a little bit and clients getting used to the new level of rates that we are at, the borrowings have started to increase again. We have seen, for example, securities-based lending growth grow 15% year- over- year.
While jumbo mortgages are much more resilient in this type of rate environment than mortgages across the industry, I think we've seen 7% year- over- year growth in jumbo mortgages. That has recovered a bit as well. Mortgage growth is gonna be, you know, driven by not only interest rates, but more importantly, transaction home sales, and that has slowed down. There's still a lack of inventory. It's improved from the troughs, but there's still a relatively low level of inventories across most markets for the jumbo mortgage borrowers, the higher net worth clients that we serve. I think this environment actually, as long as we have stable rates, securities-based lending growth can continue to recover as it has over the last two or three quarters.
We're pretty optimistic about securities-based lending growth 'cause clients have become accustomed to the new level of interest rates.
Continuing to recover. Do you think sustaining that sort of mid-teens growth in SBL in the next couple of quarters is reasonable there?
Yeah, I think it's as good a guess as any. Yeah, because we're still, long term, I can't speak to the next quarter or two, but long term we still have a fundamental belief that the awareness and penetration of securities-based loans is relatively low across the industry. And so when you look at that as a borrowing source relative to a home equity loan, for example, there's a lot of advantages, and flexibility and portability, etc , that securities-based lending has that more home equity lines don't, for example. Yeah, we're still very bullish about the long-term prospects for SBLs.
Great. We've seen cash sweep balances stabilize, which is great to finally see, but you guys still won't declare the cash sorting saga to be over just yet. I guess what environment is going to be helpful as you think about supporting cash sweep growth? How do you envision sweeps trending here if rates remain where they are today?
Yeah. I remember being at this conference, I think five years ago, and we were one of the only firms that said that with rising rates, cash sweep balances might actually decline, whereas a lot of the other firms were saying, "No, we think the, the world's different this time and they'll be more resilient." You know, we are more conservative with our cash sweep projections and the disclosure and guidance around that. I would say that for us to declare victory, we really need to start seeing cash balances increase, 'cause we still have quarterly fee billings every quarter. You know, last quarter's $1.5 billion.
Unless cash sweep balances are increasing by about $1.5 billion-$2 billion a quarter, you're always gonna see the net impact from the quarterly fee billings, which is a great, it's the highest source of revenues for the firm. It's a great problem to have, but that's what's causing us some pause and, call declaring victory there is that we need to actually see an increase in client cash sweep balances throughout the quarter to offset the quarterly fee billings before we say, "Okay, that those balances are truly stable.
What environment do you think might support that sort of inflection to growth there?
I just think it's the natural growth of the business as we bring on new advisors, who bring on new clients, who bring on new cash balances. I think it's, you know, certainly, this environment, we have seen reinvestment into higher yielding alternatives sort of plateau, I would say. We're not seeing that trend persist or certainly it's decelerated relative to where it was a year or two ago. I think this type of environment, with time, we could see that dynamic happen.
You said how long? Is it like a six-month time horizon?
I don't know.
12 months?
I couldn't guess. Your guess would be as good, if not better than mine.
Achievable even in this sort of environment with rates where they are?
I think so.
Okay. That is encouraging at least.
Yeah.
Just a matter of time then. Okay. Any questions from the audience? Yep, in the back.
Just wondering from, in your, from your perspective, why you were not the acquirer of choice for Commonwealth and as we move forward through the disruption that's going on there, your ability to pick off some advisors?
Yeah, we do not speak about, you know, specific transactions one way or the other unless we announce them as our own. What I would say is, acquisition oftentimes leads to disruption and opportunity. And when we look at the opportunity in the environment right now more broadly, our pipelines are picking up substantially each week from a recruiting perspective. We are seeing a lot of tailwinds, and we are really excited about the advisors that are looking at Raymond James 'cause they want a good cultural fit. They want a higher touch service model. You know, some of these other firms are servicing tens of thousands of advisors with a fraction of the average production. So it is a very different model.
We focus on quality over quantity in terms of the advisors that we have, whereas so many other firms, particularly on the independent side of the business, are focused on quantity over quality. It is a very different strategy. We do not have aspirations to be the biggest firm in the world. We have aspirations to be the best firm in the world. What is becoming increasingly, particularly on the independent side, with both strategics and private equity-backed firms, a competitive advantage for Raymond James is advisors in this market, with this market uncertainty, are starting to look at balance sheet for the first time maybe in 10 to 15 years since the financial crisis. They want to be affiliated with a firm. They want to entrust their client assets with a firm that has a strong balance sheet.
That is becoming more of a differentiator for us given how far we are into this bull market, given the heightened uncertainty. They are stunned when they look at some of these independent firms that have negative tangible equity, for example.
You know, and they're saying, "Wow, how can I entrust my client assets?" A lot of them are saying, "How can I entrust my client assets to be custodied with a firm with negative tangible equity?" or, you know, we have $2 billion of senior notes over $12 billion of equity, and they're looking at balance sheet saying, "There's a firm, there's firms with a fraction of your equity that have multiples of your senior debt." Those are the kind of things that maybe five years ago, people were not asking about in a zero rate environment or, you know, with the bull market and the type of tailwinds we had on a macro basis. Increasingly, that is becoming a competitive advantage.
We can offer a strong balance sheet, a quality over quantity strategy with a higher touch service model per, you know, that resonates across all affiliation options, but that's extremely unique on the independent side of the business. That really doesn't exist on the independent side of the business. And then doing it with the best of both worlds value proposition where we have this unique culture, people that treat advisors and clients great, and the capabilities of the biggest firms in the industry. We're really excited about our positioning. The pipelines are growing. The interest in Raymond James is growing, not just on the independent side of the business, but across all of our affiliation options.
Great. Why don't we leave it there? We're just about out of time. Paul, thank you very much for joining us today. Please join me in thanking Paul Shoukry.
Thanks so much.