Raymond James, Raymond James wealth platform has really seen outsized growth. And as someone who covers a lot of names in this space, the word omnichannel is a nice buzzword. It's thrown around quite a lot. I would say that Raymond James is really the only true omnichannel offering, so it's quite differentiated in the marketplace. But Paul, there's no shortage of topics to talk about, from organic growth, cash sorting, regulation, capital allocation. So there's quite a bit to unpack in this session. But maybe just to start things off, just given the challenging macro environment, why don't you just speak to what you're seeing in terms of client behavior and activity, across both your retail business and maybe even touch on the institutional business very briefly?
Great, and maybe before doing that, just wanna thank you, Steve, for hosting us on a beautiful fall day here in New York. And thanks to all of you for being here and hearing more about the Raymond James story. As far as the macro environment, certainly uncertain and challenging times with sort of a record increase in short-term rates over the last year or so, you know, but our advisors continue to do a remarkable job helping their clients stay aligned with their long-term financial objectives. If you look at our assets, and most of these assets are in fee-based accounts, their asset allocation remains again remarkably consistent to equities and fixed income over the long term.
And that's really the value that advisors provide their clients: is keeping their clients aligned, not helping their clients make emotional decisions around, you know, buying when it's high and selling when it's low, and just staying consistent and true to their long-term financial objectives. That's really core to our mission at Raymond James. The changes that we are seeing in allocation are really (and I'm sure Steven will have lots of questions around this) is really in the cash bucket. And when you're in a zero-rate environment, cash allocation goes to a good portion, if not the majority of the cash allocation, goes to sweep cash, because you can't earn anything on the alternatives.
When I was here a year ago today, I was one of the few firms, I think, saying that the sweep balances will sort, which is an industry terminology for saying will be reinvested into higher-yielding alternatives as rates increase. A lot of other firms were not only saying that that wouldn't happen, but were actually making balance sheet bets that that wouldn't happen, which didn't turn out to be good for some of those firms, you know, during the March banking crisis, so we expected that to happen. That's good for savers. Frankly, savers were penalized for far too long over the last 10 years in a near-zero-rate environment, and so we're starting to see savers starting to benefit again, and earn something on their savings and their cash balances, which is a good thing for clients.
Advisors are certainly helping them do that in a way that's, again, aligned with their financial objectives. On the institutional side, it's been much more challenging. That business , the Capital Markets really over the last year, after two record years, has really frozen up over the last year. Higher rates really cause a reset in expectations on pricing for buyers. Sellers usually lag buyers on the way down. So that's what we're seeing now in terms of the pricing resetting. And certainly in our fixed income business, which we're a leading provider of, selling securities to depositories when you know depositories have excess cash balances and wanna take duration to earn an incremental yield in the portfolio.
That dynamic, obviously, is not conducive for that business now as banks are, you know, short, you know, cash is becoming more precious, for the banking system, and the duration bet is really running off, you know, across the banking system, over the investments that were made over the last few years. So the capital markets business, the private wealth business, much more consistent, stable. Financial advisors doing a great job keeping their clients aligned. Capital markets business, much more challenging.
So Paul, let's talk about the business that's performing a bit better since it is a wealth conference on the private client side. You really delivered consistently leading organic growth, since you began reporting the metrics. You know, this year, I believe it's running in, like, the high single-digit type range. How sustainable is that level of flows, organic growth across the platform? And what would you say are, like, the two or three, like, key differentiators relative to the competitors that maybe just aren't growing as quickly?
I mean, that is the biggest growth driver for our business. The Private Client Group business for us is 70% of our revenues, and really 80% if you look at the attribution to the other businesses. So, the net recruiting results is a primary growth driver for us. And it really starts with retention of our existing advisors. I think people, a lot of people overlook on the street how important, the retention is to growing the platform, having a stable base of advisors. And our regrettable attrition has been consistently at or below 1%. The industry, some players in the industry are averaging 5%, you know, and it's very hard to grow on a net basis when your attrition is running at those type of levels.
And then on that base of good recruiting, retention results, we've had consistent recruiting results over a long period of time. That's driving that leading net new asset growth across the industry. And you touched on it, Steve, earlier. Part of that is that we have the largest addressable market in the industry. We're in the traditional employee channel, the independent contractor channel. Now the independent RIA channel's been a business we've been growing in and investing in. It represents more than 10% of our assets now. We also have a Financial Institutions Division which serves banks and credit unions across the country. And so with that, a lot of other firms talk about hiring a person to grow that channel or, you know, starting an initiative to grow in those various channels.
We have critical mass in all of those channels, and we've had critical mass in those channels for a long time. So, we have the largest addressable market, and our value proposition, what we refer to as being kind of the best of both worlds, has only been strengthened over time. And what we mean by that is, on one hand, having the size, the scale, the technology, the products, the solutions that the advisors and their clients have become accustomed to at the larger firms, which is where we recruit 80% of our advisors. But coupling that with an advisor and client-focused culture, which the larger firms have lost over time. Most of them are owned by the big, you know, universal banks, and that's a very unique value proposition.
There are larger firms that have those kind of services and products, but they don't have the culture. And then there's smaller firms with a culture that just aren't competitive on the technology and the product. So having that unique value proposition, across all of those affiliation options has proven to really, drive the success, in both retention and recruiting across the Private Client Group business.
And so, Paul, when we look at the industry trend, there's been this migration away from the employee model towards independence. You know, you service all the different affiliation models or options. Maybe you could just speak to the differences in terms of economics. And how do you try to manage cannibalization risk, given some of the stronger growth within the independent channel specifically?
Yeah. And I would say the trend has been less about channel and more about moving away from those big bank-owned firms, to firms that offer them independence. I mean, even in our employee channel, we say advisors own their book of business. And if they decide to leave on good standing, we help them move their clients to the new firm. So, independence is not channel specific. I think it's more firm specific, and we offer independence across all of our channels. But the growth trajectory that we're seeing, the pipelines that we're seeing, and the interest levels that we're seeing, is broad-based, you know, across all of our affiliation options.
As Paul Reilly said on the last earnings call a few weeks ago, the number of $10 million and $20 million teams that we're seeing coming in at once is really unprecedented for us. It just shows that we're resonating with the largest teams in the industry that focus on the highest net worth clients in the industry. Having respecting that independence across our affiliation options, treating our advisors like clients, acknowledging explicitly that they own their book of business, and all of those things reinforce that value proposition I was talking about earlier, which has been driving our consistent you know best-in-class net new asset growth.
And Paul, you touched on this earlier, but one of the big drivers of profitability has certainly been the interest rate tailwind for you and many of your retail broker peers. You did launch an Enhanced Savings Program or ESP deposit product. It has a high minimum threshold, but it's a great way to keep a lot of that cash within that ecosystem. At the same time, you're relatively under-penetrated versus some of your competitors. MS, Stifel, it's, I believe, close to 50% or more of their deposits, closer to about a quarter of yours. Where do you see that mix converging given we are continuing to see at least some sorting behavior across the retail complex?
Yeah. We launched our Enhanced Savings Program in March, not because of the banking crisis. I mean, the timing was fortunate in that regard. But we've been working on this product for a year and a half. We launched it in March. I think when we launched it, we thought maybe we'd raise $1 billion or $2 billion in balances. And it's grown quickly to $13.5 billion. I think it's at $14 billion today. And that's just since, you know, launching it in March. And so we're the only firm that I know of that offers up to $50 million of FDIC insurance at an attractive rate. All the other firms can do that, but it's more expensive. It's more complex.
And so they offer you only the FDIC insurance that they can internally offer through their own bank charters instead of broadening it out through the technology platform that we use, the partner that we use. And so it's been hugely successful. The advisors have been really excited about it. And that's because they've been able to bring in balances from other firms, other banks that they've been pursuing for years in some cases, and being able to do that through an attractive and unique product that no other firm really offers. So that's been great.
It's, as I said on the last earnings call, it's been naturally the growth has been naturally decelerating as we would have expected, as advisors have, you know, worked with their clients to bring on the balance that were, a bit, you know, that were addressable, you know, in terms of moving them over from other firms. The vast majority of these balances are coming in from other firms. And so as that opportunity has been tapped into, the growth is naturally decelerating. And so, it's hard to compare mixes across other firms. A lot of other firms used all of their sweep cash to fund their own bank. You know, we still have $16 billion-$17 billion of sweep cash at third-party banks. And the reason for that is really twofold. One is because we offer a higher level of FDIC insurance even on the sweep cash.
We offer up to $3 million of FDIC insurance. A lot of other firms reduce that FDIC coverage, not because that's better for clients, but because they wanted to monetize all the cash on their own balance sheet, and so and then we offer institutional money market funds and a lot of other products that clients have availed themselves to with the help of their advisors. So it's hard to compare apples to apples across firms, but we have seen really excellent uptake of the Enhanced Savings Program balances, and that has, you know, naturally decelerated over time as we would have expected.
So, maybe just focusing on the RJ ecosystem then in terms of that cash discussion. I recognize, Paul, you like to say we should respect the unknown. None of us have a crystal ball here, but it does look like the sweep deposit outflows have started to moderate. Can you provide some views just in terms of how you think this sorting or cash realignment saga ultimately unfolds and any sense as to what end we're in, as it relates to that?
Again, the last two quarters really have been saying that I feel like we're much closer to the end of the sorting dynamic than to the beginning. But we're not gonna declare that it's over until we see several months of stabilization in those balances for us and across the industry and for rates, short-term rates to stabilize as well, you know, because to the extent that short-term rates continue to increase, that drives conversations, that drives the, you know, the higher alternative yields you can get on alternative products, etc. So, if rates stabilize where they are and balances stabilize where they are, then, then we'll be comfortable, you know, declaring that the sorting dynamic is over. But there's still a lot of competition for cash across the industry. You're seeing it on billboards, on social media advertisements, on signs as you walk the up and down Park Avenue.
So there's still a lot of competition for cash. But I, I also believe that a lot of the cash that was investable in client accounts, in bank accounts that reside outside of the ecosystem have been deployed and invested and optimized. Not all of them, but a large portion of those, I think have. And so that's why I'm, I'm comfortable saying I think we're closer to the end of that dynamic than the beginning. But to your point, Steven, none of us have a crystal ball and can declare exactly, you know, when that dynamic will end.
Paul, the one thing that's actually served your firm quite well. I'm glad that you haven't listened to folks like myself who have tried to encourage you to take on additional duration or extend duration in recent quarters. Staying liquid, staying geared to the short end has certainly served you guys quite well. Maybe to speak to your appetite, maybe extend some duration once you have clarity around stabilization in those sweep balances, or like, what's your philosophy around how you wanna manage the overall duration of the strategy?
Just to be clear, we always listen to you. Yeah. We may not do what you're asking us to do, but we always listen.
I appreciate that.
We hear you out. No, our philosophy, you know, really since our founding at Raymond James, is to not make bets for the firm's own benefit or detriment, and really the balance sheet we use to support and accommodate client business and client activity, and if you align the risk you take as a firm to client activity, it's very hard to get in enough trouble on the balance sheet where you go out of business in 24 hours. You know, so if you look back at the financial crisis, you know, taking on wholesale funding to buy CDOs for your own prop book, that had no client benefit to it. Same in this last crisis, you know, taking on seven years of duration to get 1% or 1.2% in the agency MBS portfolio had zero client benefit to it.
You know, and so it seems like in our industry what seems to put firms out of business more often than not are bets that have zero client benefit or zero client impact. Tom James and Paul Reilly have continued it. Certainly our philosophy continues to be not to use the balance sheet to make market bets one way or the other, but to use the balance sheet to facilitate client activity and accommodate client activity that makes sense for clients and for the firm. I don't try to time the market.
I'm not saying, "Okay, now is a great time to take duration, so let me make a balance sheet bet now that has no client impact." You know, and it's somewhat liberating that I don't have to try, try to time the market because the firm would be worse off more often than it would be better off if they're relying on me to time the market on the balance sheet. That's why I'm in my role and not in all of your roles is because my timing is not great. So it's liberating that I don't have to worry about timing the markets and just focusing on how do we use the balance sheet to support clients and their financial objectives, and that tends to keep us out of trouble.
Paul, maybe just the last one for me as it relates to this particular topic, but just as we think about deposit betas and repricing, one of the questions that we're fielding increasingly of late, admittedly, is in a higher-for-longer environment or when the Fed eventually starts easing, how do you expect betas to behave? And I'm particularly interested, on the way down, what do you expect in terms of betas broadly?
Yeah. I mean, I think a lot of people's assumptions are if rates decline, the, the deposit betas would be kind of one for one, and I'm not sure if that's accurate or not. It just, I think it really depends on why rates would be declining, how the, the magnitude of the decline and how competitive the market is, for deposits in that type of situation. I mean, the last few rate reductions we've had have been extremely severe, coincided with a, essentially a panic where cash became flush in the system almost overnight. And so there wasn't a lot of competition for that cash as rates were declining. So the deposit betas were one for one almost. That may or may not be the case next time rates decline.
And so I think it's there are just too many factors at play to know exactly, you know, what the deposit beta will look like or what the competitive environment will look like for deposits next time rates decline.
Great. And, and maybe just shifting gears, Paul, would be great to hear, any insights you might be able to share on the DOL's fiduciary proposal. I recognize you've only had a week to digest it. My team and I have had the pleasure of reading all 300-plus pages already, but was hoping to get some preliminary thoughts on the proposal, how workable is it in its current form, what's the impact to your business, and any surprises, positive or negatives?
I have been waiting for your analysis on the rule as well because you always do a good job with that. So, I'll be looking for that. I know you've been busy preparing for this conference, but it is really new. It is too early to really comment on it. But what I would say is that the fact that the major law firms haven't come out, you know, with the benefit of several days in the weekend, have not come out with an analysis yet, tells me that the rule must be extremely complicated or more complicated than it may appear on the surface. Because these law firms have been waiting for this proposal to come out. They're usually, you know, two or three nights away from coming out with a legal summary for the industry and for the participants.
And so I've been awaiting those and haven't seen any yet, haven't seen your report yet. That tells me that it may be more complicated than it appears on the surface. That's just conjecture. I don't know, but what I will tell you is that we have an internal team that is focused on it, a cross-functional team that is focused on it, a lot of the same team members that were part of the 2016 version of the rule, as well as a Reg BI rule. And so there's some overlap across all of those, you know, different rules. But big picture, when you just step back at all of these regulations and rules, it helps that Raymond James, a core to our values and who we are as an organization, is we always put clients first.
And so at the end of the day, while there's always unintended consequences with these rules that create more cost and complexity, maybe sometimes unnecessarily in the system, they are aimed at trying to ensure that the firms across the industry are putting clients first, and so that has always been an advantage to us, you know, so these type of rules are always more detrimental to the firms that don't put clients first, and that over time, while it's painful for the industry, painful for us in a lot of cases because you have more disclosures and more mailings and more things that you have to do to, you know, to comport and comply with the rules, you know, having putting clients first puts us in a relatively good position for these type of rules.
Great. Paul, admittedly, I was planning to ask you about comp and non-comp separately. I'd actually rather just frame it in the context of, you know, your philosophy around expenses. You guys have actually been early in identifying opportunities to invest in digital, invest in technology. The feedback, just having spoken to other advisors on your tech stack, is actually quite positive and constructive. But as you think about organic growth and sustaining that high single-digit type organic growth rate, what is the level of expense growth that's required in order to sustain that growth? And, is there an opportunity with AI and digital to maybe drive additional efficiencies within the business as well?
Yes and yes. I mean, we are a growth-oriented firm, and getting, you know, consistently achieving leading net new asset growth in a highly competitive industry does take investment and technology is a big part of it, but so is occupancy expense, right? I mean, when we open up new branches, that costs more, especially in a highly inflationary environment. I mean, I'm on the real estate committee. The cost to, you know, renovate these spaces or build out these spaces is extremely expensive right now. I'm sure some of you have experienced in your own, even personally when you're doing a repair or renovation in your home, so there's a lot of growth-oriented expenses. I mean, some of them are directly correlated. Investment sub-advisory fees, expenses are directly correlated with fee-based asset growth. FDIC insurance expense is directly correlated with deposit growth at the bank.
And so we're gonna continue to invest in growth. But as you noted, we have been very disciplined around managing the investments that aren't growth-focused, that aren't focused on providing the very best support we can to our advisors and our clients, and also investing in automation and tools and solutions that help us be more scalable as a firm, to drive efficiencies over time. And so you look at our margins this year, this is a year where, unfortunately, capital markets lost money, you know, just given the challenging macro backdrop. And we were still able to generate north of 20% pre-tax margins and return on equity and on a GAAP basis of 17 or 18% for the year, and an adjusted return on tangible common equity of, I think, 21% or 22%, something in that range.
That's on capital levels that are over 2x the regulatory requirement. We have been focused on growth, but we've also been focused on driving and delivering attractive, very attractive returns to our shareholders without taking undue risk. It's a balance that we take very seriously. When you step back and you think about it, this is our third consecutive fiscal year ends September 30th. This is our third consecutive fiscal year where we generated record revenues and record earnings. We're particularly proud of that because we haven't seen any other firm be able to do that because the three years were very different in terms of the markets. Three years ago, we had a lot of equity and capital market support and near-zero short-term interest rates.
Two years ago was kind of a tale of two halves, where the first half we had equity markets support, but low rates, and then rates started rising and the equity markets declined pretty substantially, and then this year, we had pretty high rates and the capital markets froze up on us, and in all three of those years, being able to generate record revenues and record earnings in three very different market environments is really a testament to our Private Client Group focus, which is why all of you are here at this Wealth Management Conference, as well as our diverse and complementary businesses that support the Private Client Group business, and they do well in different market environments, and so we're really proud about that.
Maybe I'll open it up to the group actually and see if anyone has any questions, and we'll make sure to repeat the questions for those on the webcast as well.
I was wondering, Paul, one part of your business is maybe a little different to adjacent peers is the bank. And within the bank, you guys actually have a loan book. And so you just give us a couple of seconds on credit and what, if anything, you're seeing.
Yeah. So the questions on the bank, the unique aspect of the bank, and the fact that we also have a loan book and some commentary around the credit. So you're right. Our bank is unique. We have one branch and two ATMs. And for a long time, we said we had no plans to double either. And then we did the acquisition of TriState Capital. And Paul and I were joking that that may have been the only bank in the country that didn't make us liars because they had zero branches and zero ATMs. And so really, our bank, Raymond James Bank, is really there to support our Private Client Group business first and foremost, and then also to support our Capital Markets clients as well.
Most of the deposits, the vast majority of the deposits, are sourced from the Private Client Group business, through the sweep program that we talked about earlier, as well as the Enhanced Savings Program. Our largest loan category, in the bank segment collectively, is the securities-based loans. That's about 24% of our total assets, which was, you know, we almost doubled those balances with the TriState Capital acquisition, which is the main reason we pursued that acquisition. They have a very strong third-party platform, and we feel very, very good about that portfolio. I mean, it's, it's over-collateralized with liquid securities that reprice daily, and so, it's, it's a from a credit perspective, it's we feel good about, very good about that portfolio.
The corporate loan book is, you know, we again have a very strong track record there, very tight box that we target in terms of who we lend to and what we pursue. The credit performance, knock on wood, has, you know, remained solid. We have seen some deterioration, as you would expect, in certain credits, over the past, you know, six to 12 months, just given higher rates and the uncertain market environment. We look at each individual credit and we still feel, you know, good about our overall portfolio. We feel good about the allowances that we have on that portfolio as well.
Paul, maybe just to follow up to the discussion around the loan book. I mean, the growth has stalled for you as well as for some of your peers. What's your expectation in a higher-for-longer environment, in terms of SBL growth, where I imagine you're more comfortable with the credit risk, and on the commercial side, where maybe you're inclined to retrench given some of the risks in the broader macro?
Yeah. As Paul Reilly said on the earnings call, we are open for business, and on both sides of the portfolio. And actually, the securities-based loan portfolio has continued to actually generate new originations and kind of gross flows, if you will, during the last year. But the payoffs and paydowns, I guess I should say, have been truly remarkable. I mean, the extremely high percentage of paydowns, which is what we would expect. But I mean, we're talking about very high percentage of paydowns as rates have increased. So anyone who didn't need to borrow, or to draw on those lines paid off the lines as rates increased from, you know, borrowing rates of 3%-3.5% to now 6.5%-7% or something in that range.
And so, I'm optimistic that as those payoffs stabilize, given the, the gross growth we're seeing, not the net growth, but the gross growth, that we, will see start seeing some pretty attractive growth in that portfolio. Five years from now, and again, for what it's worth, because it is guidance and it is crystal ball statement, but I, I would be surprised if we don't look back over the last five years and see kind of mid-teen type growth in the securities-based lending portfolio. We said that when we did the TriState Capital acquisition about a year and a half ago. The corporate portfolio, we're open for business, but there's just, an incredible lack of, demand out there. There's very few new originations. A lot of it is driven, by M&A activity, which is, very, I mean, not almost nonexistent in the space. So, the spreads have widened.
There's attractive yields out there to be had if there is new origination activity, but there really is just a lack of new origination activity. So we're just not going to chase loans outside of our target box just to grow the portfolio. Our goal is to remain patient, wait for the loans that meet our targets to come, you know, come back into the system, and then we'll have plenty of capital and cash to take advantage of that.
Since you talked about how much excess capital you have here, Paul, I imagine it's burning a hole in your pocket at the moment. Now that, you know, your valuation or multiple has contracted, we noted that it's a more tepid environment just in terms of loan and balance sheet growth more broadly. How are you thinking about the buyback? Any way you can help us frame the amount of capital that you might look to deploy in the form of buyback? And is it mechanistic or is it more opportunistic?
Yeah. So we have a Tier 1 leverage ratio target of 10%. We announced that to the public three years ago. I think we're at 14% at the time. And over the next two years, we did six acquisitions and brought that ratio down to 10%. And you know, with earnings growth and some other cash balances declining that were on the balance sheet, we're back up to 11.9%, which is $1.5 billion over our 10% target. And that 10% target's twice the regulatory requirement to be well-capitalized.
So while we're above our target, I do feel fortunate that at this point in the cycle that we're at 11.9%, talking about having too much capital and not having the opposite problem where we're talking about, you know, maybe not having enough capital to be well-capitalized. So I feel fortunate about our position. But with that being said, we worked very hard to develop a reputation for being more proactive around managing to that 10% level. And we don't want to lose that reputation that we've worked hard to get over the last three years. So we have hired a new head of corporate development. He's focused on developing relationships and showing us as much flow as we can possibly see to look for companies. But we're still going to have very strong filters in place.
Just because we have excess capital doesn't mean you have to be more disciplined with what you're looking at to make sure that you're really looking at deals that are good cultural fits and strategic fits and make financial sense long-term for our shareholders, and if we can't deploy the capital and stay true to our 10% target through growth initiatives, both organic growth and through acquisitions, then we'll do buybacks. We prefer to invest in growth and use the capital to invest in long-term growth. We think that generates superior returns for shareholders over the long term, but if that growth is not available and we're growing capital well above that target, which we are today, we will do buybacks.
And we think that that would represent a good long-term return as well, as long as we don't also lose focus on growing the business, which we're not going to do. We're, we're still first and foremost focused on growing the business. Too many firms fall back on the buybacks and lose the growth focus. And that erodes shareholder value over time. And that's something that we're committed to not do.
Great. And, I know we're just over, Paul. Really quickly, if there's one particular area where you're more inclined to buy versus build, what would that be given the excess capital orchestration?
We're at a wealth conference. Our biggest business is wealth. And so I would say wealth.
Well said. All right. Great way to close. Paul, thanks so much for being here. Appreciate you continuing to support the event. Next up, we have Steven Fradkin, President of Wealth Management, Northern Trust.
Thank you.