Good afternoon, everybody. Thank you all for coming. I'm Kristie Wass, Senior Vice President of Investor Relations. Welcome to Raymond James Financial's 2023 Analyst and Investor Day, taking place in St. Petersburg, Florida, at our corporate headquarters. We're really excited to have so many people here in person, but also, we appreciate those of you joining virtually as well. We hope you'll you know, enjoy the next couple of hours as we really focus on our long-term strategy and also the areas of focus for the firm. Looking at Slide 3, first, I do want to call your attention to our forward-looking statements. Safe harbor statements shown on the screen. Certain statements made during this presentation may constitute forward-looking statements.
Forward-looking statements include, but do not limit are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated timing and benefits of our acquisitions, anticipated results of litigation and regulatory developments or general economic conditions. In addition, words such as believes, expects, plans, will, could, and would, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Please note that there can be no assurance that actual results will not differ materially from those expressed in these statements. We urge you to consider the risks described in our most recent Form 10-Q and subsequent Form 10-K, 10-Q, available on our investor relations website. We'll also use certain non-GAAP financial measures to provide information pertinent to our management's view of ongoing business performance.
A reconciliation of these non-GAAP measures to the most comparable GAAP measures may be found in the appendix of this presentation. Turning to the agenda. In a minute, Paul Reilly, Chair and CEO, will kick things off and provide a strategic overview. Following Paul, Scott Curtis will review our largest business, Private Client Group, and Paul Shoukry will provide a financial review. We'll then just take a quick, short break, and then we will conclude with a Q&A panel with all three of our presenters. The presentation today has been made available on our investor relations website, and biographies of our speakers, along with non-GAAP reconciliations, can be found in the appendix. I'd like to introduce our first speaker, Chairman and CEO, Paul Reilly. Paul joined Raymond James in 2009 and became CEO in May of 2010.
He has served on the Raymond James Board of Directors since 2006 and became board chair in 2017. Please welcome Paul Reilly.
Thanks,K ristie. Good afternoon, really appreciate you guys coming down. We debated whether to have something virtual. We know how busy travel is, but we felt with, especially as we've had so much change in the market starting the beginning of the year and more in March, and now we're waiting for a debt ceiling, we figured it's probably good to get face-to-face and give you the opportunity to ask questions. Panel will be a little different. I'm gonna do a shorter presentation in my time because I know you're more worried about Paul's guidance numbers than talking to me. You know who we are. We're gonna do all question and answers at the end. Often the questions are interrelated, and we figure with all three of us up, we'll be able to answer them more fully.
Every presentation, inside or outside, we always start with this slide on our core values and who we are. It really pays off in times like these, that you'll hear a reference that we put clients first. It's not words here. We'll show you some slides, how we've put that in action and how it's really helped us in March and April, at the times, during the banking, liquidity concerns. Hopefully, we're known to be pretty straightforward. I know you think we're conservative, and we lowball. We just try to make sure we tell you when we do something, we really think we can do it. We started talking about a liquidity on a call a year ago, March, if people remembered, about cash and what we thought was gonna happen when a lot of people thought we were crazy.
We can talk about that later, the signs we saw back there. We always think long term. I know sometimes we get criticized that we weren't buying stock at $120, or we had too much capital, or we weren't buying long-term fixed income treasuries, you know. A lot of those comments, even as late as January of last year. We just take a very long-term view. Doesn't pay off through all the periods of a cycle, but it certainly pays off in periods like this, and hopefully, we act independently, what we think is best, really, for the business and our investors, and we're investors also as management. You know the firm, about $11 billion in revenue. Some of these stats are hard for me.
We never had, when I joined, even a thought of being in the Fortune 500, much less in the Fortune 400. We just honestly, slowly grew our business and just focused on organic growth, and certainly helped by a few acquisitions, but, you know, really became of size. We've had 141 consecutive quarters of profitability. The only 1 quarter we lost money, Black Monday. We lost $100,000 that quarter. 2009 was our worst year. We had a 7.9% return on equity. When most banks weren't making money, we made money every quarter. It's taking that long-term view that, you know, the late parts of up cycles, we look like we're just being way too conservative, and cycles like 2009, hopefully, this cycle will pass us, but it may not.
You never know if you're at the beginning of it or if it's gonna be a short blip, debt ceiling gets fixed, and life goes back on. We don't know. We're certainly in a great position to be able to do things now or after the cycle, when other firms will limp through it. It's been us for a long time. Little over a decade ago, we put out this mantra. We wanted to position ourselves to be the premier alternative to Wall Street. We were put in as another regional, you know, kind of firm.
That's how we were thought of, and we wanted to say we wanted to grow to be large enough, not as large, as the big Wall Street firms, custodial firms, in terms of services we could offer, but still feel like a family firm, where we had low turnover, people feel like they belonged, and a culture where people want to stay. I really think we've basically have achieved that kind of positioning. This isn't a slam on Wall Street. It was a descriptive word. We're talking about now being the best of both worlds, having those firms that have great technology, product, service, and capital, yet still feel like a small firm. If you walk up and down the halls, even people that know us and get.
You know, and talk to people, they're just surprised at how friendly, how nice, and that actually extends into our back office. People really do care about their advisors and their business and the clients when they call. They get to know them, and it's just that's what, you know, helps us with our regretted turnover being less than 1%. During COVID, our turnover of people doubled, and we talked to our peers, and they said, "Well, ours doubled, too, but we started where you are now." I mean, yeah, it went up, but people tend to be very, very loyal here, and we are to them, too. It's been a big factor in growing our business and keeping this steady economy. We also have a diversified model.
I guess, it's kind of diversified when 2/3 of our revenue is coming from the Private Client Group, and maybe 80%, directly or indirectly, is generated by it. But it is a model where the Private Client Group feeds the bank, its deposits. That bank finances with SBLs and mortgages, our Private Client Group, with C&I loans and our equity capital markets businesses, and on and on and on, our asset management business. You know, 1/2 of that business is really internal funds we run for advisors that want to use them. The other 1/2 is our Raymond James Investment Management for the external. These businesses really are here started to support the Private Client Groups, but they've been really great businesses on their own. We've had to grow them over time.
Morgan Keegan, where our fixed income leader, Horace, was from, really added to making that a world-class business. We've grown the investment banking and M&A businesses. We'll talk in a minute. Really, again, Private Client Group tends to be the center. That variance in business has really helped us keep earnings steady through all cycles, as some businesses are up, some businesses are down, but they consistently, outside of maybe this year, where most of the institutional businesses are challenged, has really helped to, you know, keep earnings very, very steady. Our focus has always been to be conservative over the long term. We always are. Doesn't mean we're not willing to take bets. TriState was a billion-dollar acquisition that people questioned at the time, and it's really been a good payoff.
They're way ahead of where we thought they would be. They fit right in. We will take bets, but we take what we think is good, measured bets. We talk about the long-term focus, we always have been, where SVB had 14% of their deposits insured. We had at Raymond James Bank, 95% of our deposits FDIC insured. Part of that's the nature of our business being more retail, but it's a lot more than that. We had sweeps programs that gave insurance up to $3 million. If you were in our sweep, you were insured up to $3 million. That cost us money, but we thought it was the right thing to do for clients. You can see the industry is around 60%.
I believe the retail, most of the regional banks, so they're doing very, very good. They're doing what they're supposed to do. It's just we're in a period where people are afraid of banks, but I believe they're well-operated, and we've had a couple of outliers that aren't in business anymore. Everybody worries about, well, no bank. JP Morgan couldn't, you know, withstand a run on deposits. You know, it's a great institution. The flight to too-big-to-fail hasn't made them happen, but all banks depend on deposits really being relatively stable. We've gone through this period of being afraid, but we've always, because we treated right, clients right, have had this high degree of FDIC insurance. Even with TriState, 88%, we've increased their FDIC insurance since they've joined us through our sweep programs. They had a high level, too, before coming in.
It's just the nature of what we do, and it always pays off long term when you focus at the clients. Again, seven or eight years ago, it was a cost. No one was worried about FDIC insurance at that point. No one talked about it, but it's just the nature of the way we do business. We all know about our capital, that one of you wrote that "We don't mind Raymond James being an island. We'd like to see you from shore," talking about how much excess capital we have. We've worked that down. We're committed. It's up a little bit, as Paul will go through in our Tier 1 leverage ratio, but part of that is just cash that's come off the balance sheet.
as sweeps and other things have, you know, the shift in the industry cash sorting has really caused. Our commitment is to operate near that 10% Tier 1 line, which is still well capitalized, but it's where we think we should be. Our cash sweeps, like everyone else, we had a lot of cash and more cash than we knew what to do with, for a long period of time. Now, when Fed dropped the rate to 0, it became profitable cash, but we never assumed it was gonna be around forever. We had a long-standing rule back when cash was in this, kind of pre-COVID, in the 60-ish kind of level, that we wouldn't invest more than half of it in the bank. Why?
We didn't want a cash event or a movement of cash out to affect our lending. We moved that up a little bit as it came down, but a lot of banks, a number of institutions, put 90% of their cash in their bank. What happens when you have a movement of cash out, when you're when you're lending 92% of your balance sheet out, you've got, you know, you've got to raise cash at any cost. You have liquidity confidence. Again, we used it to we wanted the bank to grow, we wanted to be profitable. We didn't want to grow it too fast, and we didn't want it to be an undue stress on the system. Even when we dropped down to the $50 billion level, we still had excess deposits.
We certainly had additional lines, with Federal Home Loan Bank Board and other things we weren't tapping at all. As we rolled out our ESP and other programs, you can see, as of May 19th, we're back up to $55.8 million, probably at the expense of deposits today. That's it's more than enough, but we'll continue to try to make sure until this liquidity question's over. We always figured you can always raise the cash. If it's excess, you can always run it off, drop the rate a little bit or other things, but we'd rather have it than not have it. Again, you'll see us continually take a conservative view on funding, just like we have on capital and liquidity within the parent itself. Taking just kind of a longer-term view, our story's the same.
We want to be a growth firm. We never try to be the fastest growth firm. We've achieved now for a long time, kind of a low double-digit growth rate on top and the bottom line. Again, if you don't grow. If you grow profitably, you can invest in people, technology, businesses, and products. If you do that, you should be able to improve your service and your offerings to clients. That should generate growth. If you don't grow, you got the opposite, especially in an inflationary environment and a technology environment, where people want more and more. If you don't grow to provide that, you start shrinking because you have to cut costs, you have to cut investments. We don't try to be the fastest.
We just want to be a good, strong grower, both top and bottom line, every year, just like we've been now for really a few decades. Where are we gonna drive that? We still have our number one focus on organic growth. Our biggest growth has been in all of our businesses, just person by person, in our Private Client Group. It's been the great recruiting, balanced by retention and M&A. We've done some. We'll talk about some of the acquisitions, but again, most of that growth has still been person by person. We've spent a lot in technology, going from a technology spend, from about $100 million to about, you know, $100 million, all the way into $750 million. We believe we've gotten great returns on that. We'll talk about that a little later.
We still focus on looking for M&A acquisitions. I know for a couple of years, people said, "You had capital, but you're not doing anything." You can't time when that hits. The internal M&A activity for us, the activity still is high. It's just, can you get the firm with the right culture? Can you integrate it? Is there a price? Again, we are not gonna do things, it's shareholders' money, unless we think there's strong returns for it, but we're still active in that area also. Private Client Group is really about if the advisors love it here, we think we can recruit more advisors. Our regretted attrition lasts less than 1%, well longer than I've been here, is a measure that people just don't leave. We wanna make sure we deliver the resources. Scott will talk about this.
We've had strong recruiting and retention, the recruiting pipeline has really picked up. I think it's very strong right now. Our technology, forget the awards. Every group we come through here, when we recruit from all the firms, is always blown away by the technology. They say it's just better than what we have, and that's all the firms. It's really developed for the advisors. We focused on advisor technology, and to make sure they had the best platform, we made the bet that we had time for the end client, and I'll talk a minute about that. The technology I think we just rolled out, and it's coming, is really gonna be world-class also.
One of the differentiations that we have, which is subtle, and the people who've been around here a long time, I know, understand it, is we are totally advisor-focused, and the culture is like a small firm. Over here, we say we're like a boutique, that people know we care about them, that we're here, that we honor really their independence. We have no incentives in our systems for them to buy products. We don't have any. I mean, not just in their comp. We don't have it in their trips and award trips. Their managers don't have quotas. I mean, we really tell advisors they should be doing what's right for their clients. We don't compete like some of the big firms do. We don't have direct channels that compete up against them or brands pro-professionals.
Our trust department and our bank can't call on a client. They can only call with the advisor. Everything we do is focused that we are not competing with the advisor. We're here to help them grow their business. In fact, in our employee advisors, we put in their letter when they join us, "You own your clients, and if you want to leave, we'll help you move." None of us have contracts. I don't have one. None of us are prisoners. We're all here because we want to be here, and it changes the mood within the firm, and they really do feel they have the freedom to do what's right for their clients. I remember early on, I got asked by our then head of, gosh, what did we call it then, Eagle?
Because it's been Carillon, now it's RJ Investment Management. He said, "How do we increase our, you know, our penetration of clients?" I said, "Just convince them the product's better. If you can't, they shouldn't use it." I mean, it's that simple. There's no push inside or outside for them to use it, and it makes them feel good, and it forces us to be competitive. I had the same conversation with the bank: "How do we get them to use our mortgages?" I said, "Be competitive in rate and have the best service. If they don't, they should use a Bank of America mortgage." That's how we treat, you know, our proprietary products, is to make sure our advisors use them, and it forces us to be competitive, not that they have to use them. So we have a better offering for our clients also.
This non-competition, that we don't have our departments competing, our bank can't even send a mortgage solicitation or credit card solicitation in the statements. Most institutions do. The advisor has to ask. We make sure we're not forcing products and services, and it's really drives our retention. In our capital markets, we continue to expand our M&A platform. I'll show you kind of the slides of what we've done in the past. That may not seem so good this last quarter or right now, but we believe we've really built a very, very competitive platform of expanded new markets. A small acquisition in Europe that's really exploded for us over these last few years in M&A, and we, of course, attracting people. You all know this slide. You know, the markets has not been good in the M&A business.
As you can see, even this year. Now, let me be clear, the dumbest thing you can always do in financial markets is take the first actual and try to annualize it. It's just to give you an example, if you annualize this lap, this year-to-date through 2023, that our M&A investment banking revenue would be like it was just before 2021 and 2022. It's a measure of capacity. You can see on the other slide, we're up to 113 MDs. Not only we've grown world-class MDs, their average production was over $9 million, which is, you know, competitive with any large M&A, you know, well-run shop. So they're very good. It's just hard to beat in this market.
Our pipeline continues to build, but I can't tell you if deals are going to happen, both with financing the market, the volatility, but the market seems to recognize there's a shift in pricing. We believe our professionals are very strong, but it turns when it turns. It always takes longer than you think. I think most luckily, most people in fixed income and capital markets are optimists, or they probably would quit the business, which is good for us because they're very, very good, but it's a tough cycle for them. In our asset management business, we continue to grow. Bob Kendall's been a great addition. We've looked very seriously and been active about trying to expand the product, and use technology for growth. I won't spend a lot of time on that.
The bank, you know, the SBLs have been the big drivers from both banks. TriState have been a big add. SBL balances are not growing as rates went up, because when rates are up over 500 basis points, there's a sticker shock, but the loans aren't going away. They just aren't being utilized as much. My guess is when rates settle and you can offset your cash rates versus those, they will grow. We're being much more cautious in the corporate loan business, especially now. Again, same tactic we used in 2008 and 2009. We're able to lend in 2010 and had our best loans at our best spreads that really lasted us for years. Our focus right now is to stay liquid. We sold about $400 million of lower-rated credits.
We actually thought they were good credits, again, preparing for liquidity in the balance sheet. We believe spreads will widen, and we'll have the chance to jump back in, but you need the dry powder to do that. We're managing the credit risk in the cycle. We think the balance sheet looks I mean, the credit profile is very strong, but it shouldn't shock you that Raymond James is going to wait in this kind of market cycle to be conservative. Just like we did in 2009 and 2010, we still had capital and liquidity, we were able to really jump-start right after the cycle and our growth because we were able to. Technology, we talk about all we do. Our new client app, I would call competitive with the big bank apps that we all may use.
The generation of the changes that are coming at the end of this year and the beginning of next year, I think is going to put it as a very unique for a client of a firm like Raymond James. Not just in term of what you can do on the app, but looking at your goal planning and monitoring, playing with it, using chat to set up meetings, with a digital assistant, and I'll go on and on and on. I can't stand watching CNN. It used to be political, now it's everyone's an AI expert, like it was invented last week, you know, since ChatGPT, so I just have to turn it off sometimes. We've been using AI for a number of years, and I'm not going to tell you we're an AI leader.
double our revenue based off of it. We first started using it in compliance and supervision, get rid of, honestly, millions of kind of false positives and hits, and the system learns, you know, what is something you really need to look at and what's not. Now to fast-forward on the client-facing side, an advisor can wake up in the morning, have set their screen, and AI will go and look for what we call opportunities. Tell me if these things are happening in the portfolio, flag them for me, and tell me what some alternatives might be. The simplest might be a bonds maturing, right? How do you want to replace it? It can be much more complex on drift or investment parameters, and it's growing.
When Bella joined us a decade ago, this was 1 of her goals, was to have it out that long ago. The problem was, between regulatory change and acquisitions, it got moved back on the technology priority. It's out now and running, and it's a game changer for advisors. Part of the reason we've been able to generate cash in our cash programs, because where there was things coming due, we gave them alternatives, and 1 of them they could look at is our own program. The cash suite programs are on there. A lot of advisors chose to use it. That part of AI will be growing on the desktop. Not new, we're not using ChatGPT for anything, but we're playing with it.
Last year, a year ago, February, we had a board presentation in this room where the board was able to have a financial planning session in the metaverse. To show them why that it wasn't gonna work for a while, I don't think people are gonna walk around with things this big and talk to something that almost looked human. Then we had someone appear on a stage in a hologram, and I will tell you, it looked like they were in the room, and it was on firm line bandwidth. We play with these technologies, working with Google and others, and some will be for prime time. Some are a ways off, and I don't think AI is gonna replace the advisor, you know, in the short term.
It's a lot of work, but it is gonna be a great productivity tool. We say our goal has always been to make the future of advice, was really the kind of the bionic advisors, to embed all these technologies to help them make smarter decisions, to give them alternatives, to see trends more quickly. We're doubling down on the advisor. We're not doubling down on AI to replace the advisor. Talk about acquisitions, I think we've been steady in the last year. We had three pretty big ones for us, TriState, Sumridge, and Charles Stanley. I'll tell you, our timing on TriState, and Sumridge, in particular, have been, you know, really, really good. Sumridge thrives on volatility. They certainly have had their share of volatility. They've been having record period of time with us. Great cultural fit.
They're conservative. It's computer-assisted trading. It doesn't do it automatically. It does all the information. A trader still has to push the button. It's been a great business. They're a great fit, and from what we modeled, we're gonna have a great return off of it. Present value works when you have a better start than you know, if you have a slow start. we're using that technology, looking at expanding it, to use computerized assisted trading across our whole Fixed Income platform. That was one of the reasons we bought it. They've been a great addition. We're still in the early days of that, but we think it has a great opportunity. TriState has had great growth, and again, great. They fit in very, very well, the organization culturally.
Charles Stanley, we're going through still, the FCA process of integrating. It's going well. Again, a lot of the back office part of our business, TriState, I mean, sorry, Charles Stanley, was better at than we were at Raymond James. They were just much bigger. They've been in business a couple hundred years longer than us in the U.K. also. We're only there 25 years, that's going very, very well either. Retention's been extremely high in the U.K. With that, you know, the other parts for investors is our investment in the people, community, governance, and sustainability. It's all in our CSR report. We're proud of what we do, especially in the communities where we've invested. We've totally met our commitments to the Black community. We're gonna expand it. We've met our 3-year commitment this year.
We've paid out our investments, and it's given us the opportunity to find out what's working and what's not, and we're gonna double down on what's working. As long as Raymond James Cares Month, which is just, you know, this month last year, we have great participation worldwide in all of our offices. With that, back to the start, and I know the part you really want to hear is Paul's guidance, and then numbers. Kristie?
Thanks, Paul. You're gonna have to wait a little longer because next up is Scott Curtis.
Oh, Scott Curtis. That's right.
All right.
It's just a teaser for you, Scott, you know.
Scott is president of our Private Client Group, a role he's held since 2018. He joined the firm in 2003, and prior to his current role, he served as president of Raymond James Financial Services, which is our independent advisor business. Please welcome Scott Curtis.
Thanks, Kristie. This sounds like it's working. All right, it's on. Good. Paul set me up well, except for baiting you with Paul Shoukry. Instead, you have to sit through me for a half an hour. Sorry about that. It's all right. As Paul said, in our Private Client Group business. This is global. My responsibility is domestic here in the U.S., that's the lion's share of the numbers that you're seeing up here. We reached $1.2 trillion in total client assets under administration. You can see we have a little over 8,700 advisors globally. Roughly 8,000, a little under 8,000 of those are here in the U.S. I'll go through those numbers in a little bit.
As Paul mentioned, in terms of regrettable attrition, this is really the best indicator of how are we doing for our advisors, consistently delivering on less than 1% regrettable attrition. Now, for regrettable attrition, you have to leave the firm and go to another firm. If you leave the employee model and move to the independent model, or you go to our RIA custody model, that's not regrettable attrition, because in those instances, 100% of the client's assets stay at the firm. That's not one that we call regrettable. As you can see, I'll go into a little more detail on this one, too.
A little over $21 billion in net new assets in the fiscal second quarter, and I'll show that we've had a pretty good record now of delivering net new assets most recently. That's a, that's a reflection of our recruiting success that Paul talked about and that I will talk about, but it's also a reflection of the organic growth that we're experiencing. And I would say largely due to the quality of the advisors we have at the firm, how we're leveraging technology to surface up opportunities for them, and how we're helping them really take advantage of all the resources and capabilities that we have at the firm. In terms of assets under administration, you can see how we've grown over the last five or so years at about a 10% compound annual growth rate.
Little bit of assistance there from equity markets. We haven't had that much assistance more recently. Interest rates have gone up, bond prices have gone down, so it's been a little harder to grow assets under administration, except organically and through recruiting. You can see in fee-based accounts, that historically has grown faster than overall assets at about double or 50% faster than overall. More recently, those have started to grow, as it now represents about 60% or so of the total assets under administration. Those are now tending to grow at about the same clip. I was having a conversation recently with somebody about where do we think that might peak out? Is it around 70%? Is it 75%?
I think probably somewhere in the window, unless we have a regulatory change that forces all the relationships to go to advisory, but that won't necessarily be in all the clients' best interests. My hope is we don't end up going there. I think this will be helpful, and I think this is probably the first time we've broken this out for you. This shows where we've had that asset growth, where has it occurred in terms of affiliation options? You can see, going back five years, where we were at $650 billion, a little over that, $653 billion in total assets, and how each of these channels has grown in terms of assets during that period of time.
The employee model, Raymond James & Associates and Alex. Brown, about 10% compound annual growth rate over that 5 years. In the independent contractor channel, slightly lower at 9% compounded annual growth, and I'll explain a little bit in terms of why. You can see in our custody business, a 27% compound annual growth rate, which is perhaps not a surprise. That business is now closing in on $125 billion in assets, or a little more than 10% of the total assets that we have under administration. Last year, one year ago, this coming weekend, Steward Partners transitioned from being part of the independent contractor model to our custody model, because that was what was going to make the most business sense for them.
We priced it, so frankly, from our perspective, we were neutral on that transition. Those assets now are in that custody space. That was around $18 billion last year when they transitioned. Thankfully, they've continued to grow, and we haven't seen any of those assets leave Raymond James. Consistent with some of the other independent advisors who, perhaps they had an RIA, an independent RIA already, were registered with us, and they elected to drop their FINRA registration and just move to the fully independent RIA space. Again, custodying their assets at Raymond James, we haven't seen those assets leave. They may have established another custody relationship with another provider, but we priced it so that we were essentially neutral to that move that they made. Our expectation going forward, all of these businesses will continue to grow.
Because the RIA custody business has a lower base than the others, likelihood is that will continue to grow at a faster clip than the others. But we're frankly pleased with the overall mix that we have, and expectation going forward is businesses will continue to grow and that business will probably grow at a little bit faster clip. Switching gears a little bit to how is our growth compared to other businesses who we compete with? You can see the pure median, whether it's the 1-year, 3-year, 5-year, 10-year, we've outperformed all of them in terms of client assets under administration growth over those periods of time. I'll dive in now on net new assets in the most recent year.
You can see quarter by quarter, we've done very well here, between at the, at the low point, third quarter, fiscal year 2022, at 5.4% net new assets, but really staying in around that 8% range. That's not a predictive or prediction, that that's what we will maintain going forward, but that reflects a pretty strong rate of organic growth. Again, that reflects our recruiting success that we've had, and it also reflects the organic growth on the part of the advisors who are affiliated with us. Now, when you look at the number of financial advisors and how that's grown at roughly 3% per year over that 5-year window, that reflects.
that we've been able to attract high-quality advisors, bringing large books of business to Raymond James, that we're supporting advisors who are having success growing. We're much less focused on the quantity of advisors and much more focused on the quality of advisors. I can tell you last year, we had the first, roughly $20 million team that joined Raymond James, and we are about to have another very large team, similar size, join us. We're in conversation with teams that range from $5 million-$15 million in terms of trailing twelve.
While the number of advisors may not be the same sort of compound annual growth rate we've seen in terms of assets, we're completely comfortable with that, provided the quality of the advisors who are joining us are bringing over large books of business. What we're finding, too, is the teams are larger than maybe what we saw 10 years ago in terms of number. Larger numbers of people, as well as larger asset bases and higher net worth clients, which is, I'll get to why we've changed a little bit in terms of our focus there as well, and I know it was one of the questions. No surprise here.
Net revenues follows growth in assets, and then when you look at pre-tax, pre-tax reflects as well what we've seen in terms of interest spreads that I know you're all familiar with over the last year. The 5-year CAGR of around 12% on both of those. More recently, the curve has been a little steeper in terms of pre-tax net income. As you can see, year-over-year, how that has changed for Private Client Group, and that's, again, that's not one that I would project going forward. That would be pretty aggressive. Looking further forward, a few years ago, as a senior leadership group of our Private Client Group, we got together to really put a stake in the ground and say: What do we wanna do over the next 10 years?
Where do we want to be? Collectively, to get down to a single sentence that describes what is our vision for the future, while it took us nearly 60 years, or it took us 60 years to get to $1 trillion in assets, we said, "Let's put a stake in the ground and say, over the next 10 years, we want to exceed $2 trillion in assets." How are we going to do that? Well, attracting, enabling and digitally empowering advisors and their clients so that through our multiple affiliation options, which we will continue to maintain, to leverage the entire firm's resources, and as Paul talked about, our service-first culture, to help clients live their best lives. That's a mouthful.
There's a lot in there, we put that stake in the ground, and I've been using that, and others from the Private Client Group leadership team have been using that, to communicate across the organization about helping people understand where are we headed and where are we really putting our stake in the ground. As Paul indicated, that does not say that we're going to develop a direct-to-consumer business. A lot more technology that's client-facing. Clients are expecting more in the way of self-service capability than we've seen historically, we wanna make sure that we're equipping them for that and equipping advisors for that, so that they can interact with their clients as the clients prefer and as they choose to. When we think about organic growth, I really boil it down to two strategic imperatives.
One is digitally empowering advisors and their clients, and the other is leveraging the entire firm's resources. What is, what does that mean in practical terms, for advisors and for their clients? More and more clients want to be paperless. More clients want to be able to see all of their accounts on their phone or on their mobile device. They want to be able to affect simple transactions, moving money between one account and another. Most of our clients, the vast majority of our clients, with very, very few exceptions, they're not seeking to trade online on their own, and that's not something typically that their advisors are interested in seeing.
Short of being able to affect transactions that are trades on your mobile device or on your laptop, most clients are interested in being able to do simple things like, "Hey, if I can deposit a check at my bank," as Paul mentioned, "I want to be able to easily deposit a check into my Raymond James account." On our prior mobile site, client-facing site, it was not as easy to find, whereas now, the picture that Paul showed you just a little bit ago, it's front and center, and that's based on feedback from clients, based on feedback from advisors. Help me more easily get to the vault, where I can store important, sensitive documents and know that they're digitally secure and accessible for people in my family if they need to see them. We've put that in place front and center for them.
For the advisors, we want the advisors to operate as efficiently as possible. We've seen a big uptick, and certainly, COVID helped us, but we've seen a big uptick in the utilization of DocuSign, not sending pieces of paper back and forth, not relying on wet signature. Our expectation is that that adoption will continue to grow. It's up above 65, maybe 70% now, and our hope is that it'll continue to move even higher as we get people away from paper and we get people away from handwriting checks. The last couple of years, we've processed over 1 million hard copy checks, and from my perspective, in 2023, 2022, that's almost unthinkable.
Now, to a large bank, that's probably a tiny little number, but to us, that's a lot of paper that's flowing through the branches and getting mailed in here when the clients could very easily deposit those on their own and not utilize resources in a, in a branch to do that. Leveraging the entire firm's resources, what does that mean? We are a full-service firm. We have an investment bank, we have public finance, we have asset management, as Paul talked about. We have trust capabilities. For clients who are today, perhaps, they have concentrated stock positions with low-cost basis, but they're not utilizing a donor-advised fund for charitable contributions.
As Paul talked about, the opportunities technology that we developed, that's another one of those phone calls or contacts to a client that an advisor can make to talk about that opportunity. That's leveraging data that's resident in our systems today. That's just 1 example, and there are many others that we have, where we wanna make sure that the advisors, number 1, are aware, and 2, if they are aware, thinking about where might this resource be applicable or this service be applicable to my client or to my clients where it makes sense. We make those available in a very Raymond James way. It's more of a pull. We educate and then let them decide. We're not tying compensation, we're not tying rewards or recognition to what % of the firm's resources they're utilizing with certain clients.
It's just not a direction that we're going to go. When we think about how we're positioned, as I said, we are a full-service firm. We have a number of strengths that you can see here on the screen or in your presentation. We also still feel like, boy, there are a lot of opportunities that go beyond recruiting. When we think about our market share, particularly out west in California or in the Northeast markets, where there's a lot of wealth that's concentrated, we look at our market share at roughly 2.5% across the wealth management space in the U.S. In those markets, in particular, our market share is less than that. We still feel like we have a lot of opportunity to expand and grow in those markets in particular.
We are focusing recruiting resources, focusing our marketing efforts in those particular markets so that we can hopefully continue to grow our brand and expand our share in those markets. The other that I'll talk about here in terms of advisor preferences, advisors who are employee advisors, the majority of advisors who transition, if they get frustrated where they are, they wanna stay employee advisors. We wanna make sure we still have that option, and that option is very attractive to the advisors. If an advisor wants to become independent, we have that option. If an advisor wants to move to the full RIA model and custody assets with us or roll up under a corporate RIA model and drop their FINRA registration, we have that option as well.
It might seem complex supporting all these different models, but given our shared centralized support services model that we have, it's worked well for us, but it does cause a little bit more work on the part of our technology partners. We feel like we're really well-positioned, continue to be well-positioned, leveraging the firm's strengths and focusing on those opportunities that we have. In summary, when I think about where are we really focused nearer term, maybe over the next 5 years in terms of strategic growth priorities or strategic growth initiatives, organic growth, I talked about already with digitally enabling and leveraging the firm's resources.
Private wealth, which I didn't really talk about, we did a study a number of years ago. In that higher net worth private wealth space, our market share is lower than our overall market share. Perhaps not a surprise. We said that's a real opportunity for us to put together an education program, a designation program for our advisors, where they can actually hold themselves out as a private wealth advisor. Earlier this week, we had roughly 40 advisors here for in-person training. They have to complete online training first. This was our third cohort. Each class or each cohort, we're targeting 40-50 advisors to put through the program. They opt in. For those who have already gone through the program, they've helped us improve it. Now, they are more expert than they were before.
Many of them were already servicing higher net worth clients, ultra-high net worth clients. They feel much better equipped, and they understand much better the firm's capabilities and resources that can help them with those clients. Our expectation is that we will end up with we'll be at about 150 as these go through, but in the coming years, we wanna get up north of 400, maybe 500 advisors who've completed this program and are able to hold themselves out as a private wealth advisor. Clearly, we're going to continue to focus on recruiting. That's where a large part of our growth will continue to come from.
The RIA space, as I talked about, our expectation is that going forward, more advisors will probably move to that space, and we wanna make sure that we're in a position to be able to custody those assets and provide them with a great and competitive custody experience. We're not gonna become Schwab, we're not gonna become Fidelity, we're not gonna become Pershing. For the advisors who are interested in affiliating with a company that has a widely respected brand and has an integrated suite of solutions and technology tools for them, we're a great option for them to talk to. Those tend to be the wirehouse, the employee advisors, the regional firm advisors, as well as some independent advisors who are looking for that solution rather than having to piecemeal it together on their own.
All that, we wanna make sure that all that is delivered, leveraging the culture of the organization, and the values that Paul talked about. This is really just a word cloud of, what I think about our proof points of that culture that we talk about. I've used this slide, and I know others have used this slide, reinforcing with our associates what we're all about here at Raymond James. With that, I'm going to pause. I will hand it back to Kristie, and she can introduce Paul Shoukry. Great. Thank you.
Thanks, Scott. All right, we're moving right through. Our next presenter is Paul Shoukry. Paul's our CFO. He joined the firm in 2010 and became CFO in January of 2020. Prior to that, he served as treasurer and also head of investor relations. Please welcome Paul.
Thanks, Kristie. All right. Hopefully, you guys can hear me. Well, first off, I just want to thank everyone again for taking the time out of your busy schedules to fly down or over to Florida, depending on where you're coming from, to spend some time with us. We know all of you are very busy. We know travel is not very easy, so we really appreciate your time. We don't take it for granted. We also thank those of you listening on the live webcast now. Okay. A lot of my updates are pretty consistent year in and year out, despite what goes on in the markets, and certainly that's true with our financial priorities.
First and foremost, in terms of how we think about deploying the capital and the investment in the firm, it's, as Paul said, really focused first and foremost on growth. We think that generates the best long-term returns for our shareholders. We focus primarily on organic growth first. That's how we prefer to grow the company, you know, hiring an individual at a time that we know would be a good cultural fit and a productive person at the firm. We complement that, as Paul said, with acquisitions. We've done six acquisitions in the last two years.
Acquisitions have to be, first, a good cultural fit, just like a new recruit to the firm, a good strategic fit. Only then will we actually look at numbers and valuation. We do have a track record of generating operating leverage. I know sometimes because we are a growth firm, we do invest heavily in recruiting people over to the firm and providing excellent service for our advisors and other producers. Sometimes when compared to firms that aren't growing as steadily as we are, it looks like we have higher levels of investment.
I think part of that reason is because we are a growth firm, and there's not a lot of firms in our industry that are generating the type of growth that we're achieving across all of our businesses, as Paul described earlier. The other reason, I think, sometimes it looks like we're not generating as much operating leverage as some other firms, is because we don't take as much risk as a lot of the other firms take. For example, Paul referenced not taking duration to boost short-term profitability and short-term margins, which we were criticized for, up until last March. Of course, that certainly worked out well for us.
We're really focused on trying to preserve as much flexibility and optionality in to be both opportunistic and defensive in various market cycles. That really leads to our strong balance sheet, having plenty of capital, plenty of cash, funding to again, be opportunistic and defensive in any type of market environment that we can reasonably expect and to give us as much flexibility and optionality as possible. We always prioritize the long-term optionality and flexibility, even if that hurts short-term results or doesn't optimize short-term results. Again, we think that produces the best long-term returns for our shareholders. Okay. Good deal. Consistent capital priorities, we talked about the organic growth. For us, organic growth actually starts with retention.
You know, a lot of people talk about the recruiting results, and the recruiting results across our affiliation options have been truly best in class. What we're most proud of is the retention across our affiliation options. As Paul said, less than 1% regrettable attrition. The most expensive thing we can do is lose advisors and try to replace those advisors that we lose. We really do focus on making sure that the advisors on our platform are pleased with the product, service, and services that they're receiving from Raymond James. Acquisitions, you know, Paul mentioned, too, that we are doing very well on in the last year, TriState Capital and SumRidge.
I think the secret to our success, long-term success in acquisitions is, you know, it sounds like common sense, so many firms get this wrong, is not destroying the franchises that join us. You know, again, it sounds like common sense, that starts with having firms join us that we believe are good cultural fits and strategic fits. We don't feel forced to destroy the franchise that comes over. We keep the people, we integrate them into our leadership. Horace is here. He joined us from Morgan Keegan, you know, in 2012. He now runs fixed income after John Carson retired a few months ago. That's really the key to our success and truly differentiated if you look at our industry in particular. Common stock dividend.
We target 20% to 30% of earnings, probably on the low end of the range now, just given the growth in earnings and, you know, wanting to be prudent with that capital outlay. Again, consistently growing dividends over time. Share repurchases. This is our intentionally last on the list, again, because we are a growth-oriented firm and a growth-focused firm. We prioritize, as far as our capital priorities go, repurchases are last on the list. Although we do have a history, as I'll show you in a minute, of doing opportunistic repurchases, when we feel like the price is attractive. This year, we announced that we are targeting $1 billion of repurchases to offset the issuance associated with TriState Capital.
That acquisition, we did 80% with equity, because the team really believed in the long-term upside of the combined organization. We wanted to essentially offset that issuance as well as 2 years of share-based compensation dilution, which we do try to do every year. While we were under an agreement to purchase TriState, we were not able to buy back stock, given they were a public company. You see this history of buybacks and dividends. Again, very consistent dividend growth. Buybacks, more opportunistic at attractive prices. So far this quarter, we've bought back just north of $170 million of stock.
We're staying true to our target of buying back $1 billion this fiscal year, which would, you know, put us at somewhere around $300 million-$350 million for the quarter. We've purchased back that stock this quarter at a price less than $90 on average. Again, we can accelerate or decelerate that based on market conditions and other things, but just showing that we're staying consistent with the target that we laid out. Long-term track record of very attractive revenue growth, 12% during this period, 4% year-over-year, over last year's record. You know, almost surprising that we generated record revenues for the first half of the fiscal year, given what's going on in the markets, and given the relatively soft capital markets results.
We're pleased to be able to generate record revenues for the first half of the year in a tough market. As Paul said, really a testament to our diversified business model. You know, we were able to generate record revenues and earnings in a near zero rate environment. Now we're doing it with much higher rates, but softer capital markets activities. That, again, gives us that consistency in growth in earnings. Significant portion of our expenses are variable in nature. Again, another important aspect of our long-term, consistent profitability is that a lot of our expenses are tied to variable compensation. You see here, 60% almost of our expenses are payouts to financial advisors and incentive compensation. This is a key attribute. A lot of questions this year, in particular, around capital markets.
They generated losses for the first half of the fiscal year. Obviously, we do not like generating losses in any segment or any business period, but truly unusual. You saw the bar chart with the revenues declining so rapidly across the industry for M&A, but certainly for us as well. I think one of the things we didn't do a good enough job explaining is some of the fixed expenses embedded in capital markets. Given the success we've had over the last couple of years, and we have about $70 million-$75 million this year on an annualized basis of deferred comp amortization that were paid out to bankers in the prior couple of years that are hitting this year. That's a fixed compensation expense.
When you go from over $1 billion of revenues to something much lower, you know, that fixed expense is a huge drag to your profitability. Some other firms don't defer compensation the same way we do, so they don't reflect it the same way or they account for it differently. We put it all in the segment, you see it embedded in those numbers. Jim Bunn has also been continuing to grow the investment banking franchise. I think Paul's slide showed 113 MDs at the end of the fiscal year. We're up to 125 MDs now. We really expanded our healthcare group. We have about $40 million-$50 million of kind of growth expense in the number for capital markets. Annual number, in terms of recruiting expense and those kind of things.
You know, just those two expenses right there, $125 million, which is a significant portion of their base and a primary driver of the loss. With that being said, don't wanna make excuses. We are focused on getting capital markets back to profitability, you know, and hopefully, the activity levels are strong. Hopefully, the market comes back, financing comes back, and we see the productivity. 'Cause not only do we have more MDs, but the revenue per MD and the quality of the MD is much higher than it was, you know, three or four years ago. Then the operating leverage. I said we had 12% revenue growth during this period.
You see, we had 17% earnings growth, you know, 14%, if you look at it on an adjusted basis. You know, I laugh because I think we're one of the only firms that would show you a lower adjusted number than the actual number, again, staying true to our transparency and consistency. Both of those are higher than the revenue growth of 12% over this period. Again, year-over-year, we had 4% revenue growth. We had, you know, almost 22% or 18%, depending on how you look at it, earnings growth. Got a lot of help from higher short-term rates. Again, we generated record earnings with near zero rates. We're able to perform relatively well or have been able to perform relatively well in different market environments.
You see the operating leverage here, too, with the growth in the pre-tax margins so far this year being at north of 20%, at, you know, 21.8%, on an adjusted basis and 21.4% on a GAAP basis. Then a return on equity. This is a key metric to us. This is what we believe are really returning back to our shareholders. You can see here with a return on equity north of 19%, on our strong capital base is really a great result in this challenging and choppy market environment. We're really pleased with the return on equity that we have consistently been able to deliver to our shareholders while having that long-term view, while having that strong balance sheet and not taking undue risk.
Speaking of the strong balance sheet, corporate cash at $1.8 billion, well over our target of $1.2 billion. You saw Paul mention the Tier 1 leverage ratio, 11.5%, over 2 times the regulatory requirement to be well capitalized at 5%. Our target is much higher than that. Our target is 10%, and that means we have today about $1 billion of excess capital. I know there's a lot of noise in our industry because some of these capital figures at our peers are impacted by held-to-maturity, underwater securities, et cetera. We don't use held-to-maturity categorizations, so we don't have any held-to-maturity securities, and we'll talk about the limited duration we have on our balance sheet.
Again, all those conservative things, long-term decisions we make, are not just talk. They're embedded all the way down to our accounting classifications that others have used to transfer so many of these securities to held-to-maturity to hide the losses. Then the rating agencies. Being A-level rated by all three rating agencies. Fitch came out, I think, a week after Silicon Valley and reaffirmed our rating, which was amazing. Really a testament to our strong balance sheet and our conservative business model that they were willing to do that. Moody's recently came out, I think a week ago, with an updated report. There wasn't an official reaffirmation, but it certainly was a complementary to our sort of risk management practices that positioned us well for that March period. The capital base is fairly straightforward.
You know, we have about 70% of the funding is bank deposits, of which 88% are FDIC insured. Again, at Raymond James Bank, it's more like 95%. If you look at our shareholders' equity, we acquired some preferred stock from TriState Capital, but other than that, we have never issued preferred stock. We have a lot of capacity there for when that market returns. A very straightforward capital base with shareholders' equity and our senior notes, only 3% of the overall funding. On the balance sheet, we took the opportunity before rates started rising to extend $750 million, another 30 years at 3.75%. Our duration is on the senior notes we have is on average 21 years. A very conservative balance sheet.
You see how conservative it is relative to peers with our capital ratios. This is looking at the risk-based ratio and the leverage ratio. Very conservative relative to all of our peers. Again, I think it's even more conservative when you look at Well, I know it's more conservative for many of these peers, when you look at the unrealized losses that aren't reflected in the many of these ratios. Deposit funding. You know, I don't want to get, this is really reference material throughout the year for new investors that really want to learn how our funding works. I'm not going to get into too much detail in the next couple of slides. Other than to say, with the TriState Capital acquisition, it really helped us diversify our funding sources.
I remember a lot of folks asking when we announced that acquisition, "Why don't we get rid of their deposit gathering mechanism?" We said, "Well, one day we'll want cash, and one day we'll want a diversified funding source." You know, frankly, I didn't think it'd be this soon, but certainly nice to have now. You see our Raymond James Bank deposit program. The reason Raymond James Bank has 95% FDIC insurance is because we're one of the firms that still allow the clients to avail themselves to a higher level of FDIC insurance by waterfalling to several different banks, as Paul explained, instead of bringing it all onto our balance sheet. That gave clients up to $3 million of FDIC insurance.
A lot of folks said, "Well, why don't we bring all that cash to our own balance sheet like the other firms are doing and invest in seven-year securities?" We just refused to do that because we wanted, again, the optionality and flexibility, to be opportunistic, in any market environment. This is just the sources of uses of funding. Again, I'm not going to get into too much detail here. We have a big buffer with the third-party banks in the middle of $9 billion. It's actually about $13.5 billion now. That's a funding buffer, but it also gives us the ability to maximize clients', FDIC insurance, as I just explained.
For the first time, we're providing the breakout to the purchase money market funds, because with this cash sorting dynamic, it wasn't necessarily clear to the external world how much of the cash was really staying on our platform. The key here. There's other alternatives. There's fixed income securities, there's short-term bond funds, there's broker CDs. This is just a purchase money market funds. You could see the vast majority of the cash stayed on our platform. A lot of it went into purchase money market funds as those sweep balances declined, which is what advisors should have been helping and should still be helping their clients do, is reinvest those cash balances to the extent that they're investable cash balances in the sweep account, reinvest them into products that give you higher yields.
We launched an Enhanced Savings Program in March that gives clients up to $50 million of FDIC insurance through a reciprocal program. Happens behind the scenes with a technology provider, that has grown very successfully since we've launched it, especially with clients' heightened awareness and focus and desire to have FDIC insurance since that March period. You see, we said on the earnings call that we felt like we were closer to the later innings than the early innings in the cash sorting dynamic. One of the reasons for that is because when you look at the average cash per account, the average sweep cash per account, it's about $14,000. Historically, you know, that seems pretty, like a reasonable level, especially because our average assets per account is higher than it was historically.
You know, right now it's around $300,000. You know, $14,000 of cash, you know, seems like a reasonable level to be at on average. Now, averages can be deceiving. We're not declaring an end to the sorting dynamic. We're still being very defensive. I'll describe here shortly, and we'll talk about in Q&A, I'm sure. We showed the statistics through May, and you can see that at least for one month, and, you know, Paul always reminds us, we're not going to make decisions based on a one-month trend, for one month, it certainly seems to have abated somewhat. The loan portfolio, more questions around this, as there should be in a more uncertain macroeconomic environment.
You know, we feel really good about our loan portfolio. You know, but understanding that in a deteriorating economic environment, we need to keep an even closer eye on the loan portfolio. Well-diversified, the largest category of loans are securities-based loans, at 33% of total loans. That's been increased significantly by the acquisition of TriState Capital. Just as a reminder, securities-based loans are more than fully secured with liquid marketable securities, have 0% risk weightings, and have performed very well over our history. We feel very good about those loans. Again, on the corporate side, paying even more attention to those portfolios, given, you know, sort of the economic uncertainty and the rapidly rising rates on those loans.
Questions around real estate and office in particular, given the COVID impact on vacancies and particularly in central business districts. You see our office exposure is relatively contained. It's about $1.3 billion, which is 15% of our CRE and REIT loans, 3% of our total loan portfolio. Of that portfolio, 30% of the office loans are expected to mature in 2023 and 2024, but a lot of those loans have extension options on those as well. We feel good about our exposure here. Again, you know, the real estate lending in particular, just like corporate lending, is a property-by-property or individual loan-by-loan assessment and risk that you're taking. We're keeping a very close eye on this, particularly in central business districts.
We're about a third of our exposure. Probably $400 million-$500 million of our exposure is in central business districts, even that is diversified across many of the major metropolitan areas. I think our largest exposure is actually in Toronto, which is performing pretty well right now, knock on wood. In the other central business districts, we feel really good about the sponsors we have there, pretty strong sponsors. Stepping back, when you look at the loan growth, securities-based loans, which we believe generate, you know, the best risk adjusted returns, given the 0% risk weighting and the collateral, the nature of the collateral, over the last five years, growing at 40% a year. Again, boosted by the TriState Capital acquisition. Those have been softer over the last couple of quarters with higher rates.
They're floating-rate loans. We've seen higher pay downs. We think that we're pretty optimistic about, you know, the next year for these loan balances as well. because people, I think, are going to get used to, where rates are, you know, what they can earn on cash, and, you know, start borrowing again for various cash, you know, for various needs that they have and various cash utilizations that they need. Mortgage portfolio has grown 19%. Vast majority of these are to our Private Client Group clients. you know, very strong credit profiles, 65% type loan-to-values, great credit history. Again, we wanted to contain it.
We actually slowed down this growth a little bit in the last couple of years because we were concerned about the duration risk associated with these loans. We wanted to, you know, contain the duration on the balance sheet. Certainly there's more opportunities than we pursued over the last couple of years, even, you know, within our own ecosystem. Corporate loans have grown 13%, and that includes the acquisition of TriState. Again, our slowest loan category, because we've always been cautious on credit, and frankly, in the last few years the spreads have really tightened to a point where it was hard to generate a good risk-adjusted return. We were deliberately slower in growing corporate loans.
We did sell, in the quarter so far, about $415 million of corporate loans, at near, you know, 98.5, near, very close to par value. We did that because we've had a and these were ones that, on a credit spectrum, were ones that were lower rated, or higher rated, lower quality. We did that because we really believe that the loan market has not factored in the higher spreads that we are expecting due to the higher cost of funding, the higher capital requirements, potentially, in the banking space. We do believe that if we want to get back into these loans, we'll be able to, you know, in the next two, three quarters, you know, with better pricing.
We did that on an opportunistic basis. Again, we're being very cautious and deliberate in growing new corporate loans in this environment, not only because of the uncertain credit environment, but because the spreads, we don't believe yet reflect the realities of the higher costs of funding in the industry. There's sometimes a lag between loan pricing and where loan spreads go relative to sort of the realities of deposit costs and other things. Key credit trends. Again, feel very good about it. We had 10 years of record low losses across the entire industry. We're not naive to the fact that in a more challenging market environment, credit will, you know, all else being equal, deteriorate across the industry. Again, we feel very good about our credit and our underwriting and monitoring standards.
Duration profile, 66% of our assets with no duration on it. You see we really contained the duration on the balance sheet, which has certainly served us well and has been in higher area of focus over the last couple of months. Kind of a history of our financial targets. As you all know, we, as Paul said, we really want to be able to deliver on whatever we say, and particularly in challenging and uncertain market environments like we're in now, we tend to be even more conservative with the targets that we put out.
For the financial targets that we're putting out today, the adjusted compensation ratio of less than 65%, the adjusted pretax margin of 20% or above, adjusted return on common equity of 17% or above, and the adjusted return on tangible common equity of 20% or above. Again, I kind of submit these humbly to you because we are in an extremely uncertain market environment. Capital markets revenues are very subdued right now. Cash balances, they've settled out in the last 3 weeks to some extent, but still very uncertain with what happens with those. The forward curve is all over the place. If you believe the forward curve, which I'm not sure why you would, based on what's happened over the last 2 years.
You know, we're very humble in terms of posting these results and trying to err on the side of conservatism. Hopefully, we can deliver better for our shareholders if the markets are conducive. Hopefully, it doesn't end up worse if the markets aren't conducive, you know? This is our best guess at what we'll be able to deliver to shareholders. These are some other capital and liquidity targets. Again, appreciate your time. We'll take, I think, a break and come back for Q&A with both Paul Reilly and Scott Curtis. Thanks for your time, and also thanks for your support, you know, your ongoing support. The sell side analysts, we really do value.
We're in the business, so we really do value all the time you spend covering us and explaining our story to The Street. We appreciate it. We do not take it for granted. We know how critical that is to the capital markets and to the liquidity of our stock and to the buy side investors, the long-term investors that buy into our long-term view. We appreciate your support as well. Thank you very much for coming.
Thank you, Paul. We are going to take just a quick break. We'll reconvene at 3:30 P.M. Eastern Time. At that point, we'll have Q&A with all three of our presenters. Thank you.
We're gonna go ahead and get started with our Q&A session. We'll ask our three presenters to join us on stage.
Which chair is whose?
Before we get to the actual questions, I do wanna just say for the webcast participants, if you guys here in the room could just wait for the microphone, and also state your name and firm, before stating your question, would appreciate it. With that, the floor is yours.
Devin.
Okay, great. Devin Ryan, JMP Securities. First of all, thanks for doing this. Always enjoy the day. Two parts, maybe for Scott, just on the private client business. It's on recruiting and the opportunity. I was reading a J.D. Power survey, I think it was from last year, but it talked about 15% of wirehouse advisors thinking about leaving their firm over the next 1-2 years. Just the thought of, like, churn could be increasing, at least on the margin. Just wanna talk about what you guys are seeing in the recruiting landscape, 'cause last year you guys did well, but the environment, maybe churn wasn't quite as high. What are you seeing there?
I wanna connect that to what you talked about and disclosed on the RIA side. I think it was $124 billion of RIA assets. And I just wanna understand, like, how much of that $124 million just moved within the Raymond James network, where you're kind of capturing people that would otherwise maybe have left, versus you're actually competing for those assets? 'Cause that's a big part of kind of the industry movement. And what I'm, I guess, really, just trying to understand is, you, yous also said that-
Raymond James is not going to be Schwab or Fidelity. Like, what is the value proposition competitively? Are you competing? Some of those wirehouse assets are going to the RIA channel. You know, there's a lot in there, but just love to talk about that a little bit.
It's a great question, Devin. I think if you look at industry statistics over the last couple of years, including this year, we're at least seeing across the industry a slowdown in the number of advisors who are transitioning. As I was saying to a couple of folks at the break, similar to what we saw last year, whereas we didn't see as large a number of advisors transition to Raymond James, we saw larger teams transition to Raymond James. When we think about recruiting success, we tend to measure that by assets and trailing 12. While the number of advisors perhaps wasn't as big as what we'd seen in prior years, the quality, the size of the teams was larger.
From our perspective, another successful year of recruiting, and I would tell you this year is no different. We've seen some industry statistics where number of advisors transitioning is probably down around 20% versus what it's been. We're in conversation with and already have commitments from some very large, very significant teams. On your question about the RIA, the custody space, what I meant when I said we're not going to be Schwab, we're not going to be Fidelity, is we're not going to create a custody supermarket, and try to compete with those organizations that are behemoths. They're way out in front of us, and their business model is really not what our model is.
We have an integrated suite of technology solutions that was really built for the advisors who are employee advisors, the independent contractor advisors who are affiliated with us. We don't have a great way to break that up and do a la carte pricing. If you use this application, we'll charge you this, and if you use this other application, we'll charge you that. What we've structured it is we charged asset-based pricing. You have access to all of the resources, all of the tools that are available to you on our platform for a fee that is specific to your assets. As your assets grow, you'll pay more. That seems to work very well for advisors who are interested in it.
As you think about Dynasty's platform, as an example, we're not like Dynasty because the assets are at Raymond James. Dynasty has multiple custody relationships, and oh, by the way, they don't have one with Raymond James. They're significantly more expensive than we are, but providing similar types of technology solutions for the advisors who want to be able to have the flexibility to custody assets at the various custody providers.
When we look at the advisors who have transitioned versus the advisors we're recruiting, as well as some of the firms who we support, the large RIA aggregators who are on our platform, who also continue recruiting, historically, it was 50/50, but now we're seeing a larger imbalance toward advisors who are joining us externally, as well as advisors who are joining a large RIA firm and custodying their assets at Raymond James, like a Steward Partners and like a couple of other names that we have on the platform. Our expectation is that we'll continue to see that platform grow. For the advisors who choose to move in that direction, who are affiliated with us, thankfully, we have that net so that all the assets stay at Raymond James.
We've had a couple of advisors who were exploring affiliating with an RIA aggregator, who we do not have a custody relationship with. Once they learned that we don't have a custody relationship with them, and we're not interested in having a custody relationship with them, they elected to cut off the conversations with that firm and focus their energy on doing something different because they really don't want to see their assets and their clients get disrupted by leaving Raymond James. Thankfully, they're big fans of Raymond James, and they want to keep that affiliation with us. That has really helped.
We lose a couple who want to go outside, but it's a really small number every single year who decide, I want to go RIA, and I'm going to leave Raymond James altogether. That's a small number.
We also, as technology just becomes more and more integrated, the value proposition is our systems, but for the independent advisors as well as the RIA advisors, we're integrating with the major third-party systems. It's just as people get big enough, they want to do that. They may want to use, you know, one of especially three big systems. They're generally good at something and, you know, a particular area that fits their practice. you know, we're connecting through APIs to those systems.
I just want to touch on this aggregator dynamic that's really increased a lot in the last 3 to 5 years, because we're learning a lot about that dynamic as well. Some of the firms on our platform have essentially evolved into that type of model. The reason I bring it up is because some of them, we just determine aren't good fits with our various affiliation options, and we part ways mutually. That, you know, to the extent that that has happened, or we've moved over to a different affiliation option or will happen, that could impact the advisor count or other things. It's long-term good for us because the profitability, the effort, the fit wasn't there.
We'll highlight those for you as they come up, but that has come up from time to time, and I think there's one other firm that we're looking at that, you know, might be impacted by that as well.
It wouldn't surprise you that.
We're very selective about the relationships, that we bring onto the platform, and we're not right for everybody, and everybody's not right for us, and that's okay. There are other options for those people if we're not the right firm.
The challenge on advisors, when they go to the RIA platform, we count FINRA registrations when they're in the independent or employee. When they go to an RIA platform, they are a client. There are no FINRA reg-- we can't even tell how many advisors are in it, but we know how much assets are, and we know what we're earning off those assets. It gets harder to report to you. We want to be as transparent, but we'd be making up the number 'cause we really can't audit, you know, the number of people that are giving advice in those firms.
Right.
Cause they're not under our supervision.
Hopefully, that's helpful. Ronan.
Thanks. Thanks for the day. It was really informative. I know, Paul, you said that you're not declaring victory on cash with the encouraging trends emerging in May.
One month in a row.
One month, right. One thing I was curious about is, number one, if you go back to the peak of when a lot of the cash concerns emerged, which was in mid-March, you know, around a lot of the bank issues, has there been a longer-term trend since then, a general settling, and so what we're seeing in May is a continuation of that? I know April is always noisy with taxes, so adjusting for that. Then, are there any I know it's probably a minority of clients, but are there some clients that are worried about the debt ceiling, and they might be avoiding some of those, other cash sub-cash substitutes, which could be causing a little bit of noise in May, and is it possible to quantify that?
I would say it's harder to describe any longer-term trends since April. Big picture, we have seen a lot of activity after, you know, major interest rate increases. I think that's a natural catalyst for an advisor to talk to their clients or for a client to ask their advisor about what they can earn on their alternatives. You know, to the extent that there are no further increases or catalysts, then perhaps that, you know, helps with the stabilization, but really too early to tell. As far as the debt ceiling and how that's impacting the kind of investment portfolios, it's hard to see that, frankly, in any of the statistics or numbers either. A lot of the money market funds are, their portfolios are extending beyond those maturities in June as well.
I'm not sure. I haven't heard of clients and advisors bringing that up as a part of their investment process.
Our programs, as we showed in the slide, money never really left. It just got reinvested at higher rates, which, you know, you would expect to happen. Most of the inflows in our own sweep have come from the money markets back in. If you look at treasury maturities, we see when they hit, 'cause we get big days, but they pretty much have been reinvested. You know, they come in on Wednesdays, leave on. We can see them. I don't see anything that says they've matured, and then they've kept them in cash in the system. They seem to get reinvested. We can't track exactly if they're back into treasuries, or to other fixed income investments, but I don't think we've seen that yet. It was interesting, and we didn't have any cash flow off during March either.
We didn't see people taking money off the platform. It's just been really a sorting activity and chasing rate.
I would say the one thing is we have seen continued success in our Enhanced Savings Program. It's up to north of $9 billion now. Even though we've seen some deceleration and settling, if you will, on the sweep side, we're still raising those funds. I mean, we want to be there for our clients that are looking for that FDIC insurance and looking for the competitive rates. We are keeping that capacity open, even though we're not deploying it in higher-yielding, you know, much higher-yielding assets now, 'cause we're being cautious on the asset side. We're still, you know, essentially breaking even on those balances as we sweep them to third-party banks, or we deposit it with the Federal Reserve.
We're gonna err on the side of being heavy on funding and raising the cash until we really see longer-term stabilization than the 1 month in a row that Paul mentioned.
A lot of those assets are net new to the firm, so that's been. We did get inflows through that program.
Great, thanks. Just a question on cash sorting, another one, if I could, just the $14,000 of cash per account. When you look at that by customer co-cohort, which I imagine you guys look at, just curious what sort of dynamics you see when you look at it at that level, how that has evolved and changed. For example, you know, maybe you can kind of fill us in on how much of the cash relates to customers that have more than, say, $50,000 or $100,000, how that sort of breaks down, what you're seeing there.
I think-
I have a follow-up question after that.
Big picture is, I think we see to the extent that clients start sorting, and they start off with $500 or $1 million in cash in the sweep, and they sort it, they become, you know, show up as clients with less cash in their accounts, right? The sorting activity sort of happens, you know, pretty upfront. It's pretty front-loaded, I would say, to the extent that we see that in the, in the metrics. The earlier in the cycle, when rates were lower, we saw the clients with the highest levels of cash balances on the absolute basis be more price-sensitive. As rates got higher, clients with less and less cash balance got more price-sensitive.
There's certainly, the larger balances are most price-sensitive to rate, as you would expect, and then as rates got to, you know, north of 3.5%-4%, then that caught the attention of the rest of the client base, too. Again, we track it by account size, by client size, by advisor cohort, and everything else. I think what you've seen is sort of a cash sorting dynamic across the board over the last, you know, 6-12 months. Which is what we messaged a year ago today or a year ago at our Analyst Day, when a lot of other firms were trying to explain why cash sorting won't happen to their client base for a variety of reasons, and we were being criticized for being more cautionary around that.
We just said, "Hey, when rates rise, you should expect all clients, you know, of all types, to look at their cash balances, as they should, and then to the extent they have investable cash balances, invest in higher-yielding alternatives.
Traditionally, the accounts, people with under $100,000 of cash, you would see very little movement. You could see as sorting got high, you know, rates moved higher and quickly. I think two factors, you know, at even 2% or 3%, it didn't matter. At 5%, it had, you know, some impact to them. Secondly, I think it got to be the talk, I'm sure, at all cocktail parties and stuff, "Here's my cash. What are you getting? What are you getting?" You know. We started seeing movement in that category, which we, gosh, in a decade, even post, you know, pre-2009, didn't really see movement in there. I think both the height and the quickness of the rate, investors and advisors got more sensitive to it.
Right. I think, excuse me, I think Paul Shoukry is giving more credit to the clients and not enough credit to the advisors.
Yes.
The likelihood is, the advisors looked at the cash that was sitting in the client's account and what it was getting credited in terms of interest, and said, "That's a good reason to call my client.
Mm-hmm.
When equity markets are going sideways or going down, you can call your client and say, "I can get you 400 more basis points yield on your cash. We have this wonderful opportunity at Raymond James. Let's move the cash." That, I suspect, was a greater driver of the movement. Once you get down to those balances that are much lower balances in cash, it's harder for an advisor to say, "Yeah, that's a great reason to call my client who has 14,000 in cash," because the incremental yield may not actually result in incrementally a whole lot more money. It might be a feel-good, but I think they become more selective about who they contact.
Great. Just to follow up. Oh, sorry, go ahead.
The longer-term question, honestly, you know, the industry's different since the 2000, 2009 to now. 'Cause, you know, we have banks, we think more like a bank, you know, in terms of service to clients in those segments. Pre-2009, clients got money market rates in their sweep programs. It wasn't till post-2009, when rates went down and people looked at their banks and started treating more like banks and segregating cash and pricing that it went. Then, of course, the glut, you know, from zero interest rates. The question is: Where does it sort out? My guess is it'll sort out somewhere before.
I don't think We can look at the last five years as an industry and say, "Well, here's the track record," but it's been, since 2010, a very different market than it was pre-2009. Advisor-client behavior and competition for cash, as the Fed shrinks balance sheets, you know, has an impact on what people are willing to pay. It's gonna be interesting where this rate settles out. We don't know, but what we do is, we have to be competitive with the market if you want to keep market cash. That's.
Maybe if I could just follow up on that point instead of shifting gears to something else on the RIA side. I guess, what's the potential for that to change how the industry prices for advice, essentially, where wealth managers are monetizing through the cash? If, you know, coming back to your point on, you know, years ago, it was mostly swept to money funds, and today it's not the case. If we're in a higher rate environment for a lot longer, how does that sort of change the broader economic monetization-
It depends, yeah.
for the industry?
I think it just depends on business needs and what happens. You know, if you believe the forward curve in the last year of predictions, right, rates were going down. This season, the last curve, rates were going down. You know, we've tended not to believe that. I mean, while there's still this cash sorting and competition activity, you know, I don't know. I mean, markets do change. I didn't think transactions would be free, you know, in the RIA space either, 'cause it was 1 of 3 revenue sources. Competition does things, and you have to respond. You know, I think the cash sorting dynamic, where it settles, is still uncertain.
If we had a quick recession, the Fed pulled in rates, you may find people leaving the market, flooding the system in cash again, as they do in downturns. That changes the whole pricing dynamic again, 'cause you got all this cash that no one really can monetize, including us, or monetize to a smaller degree.
I think your question, though, reinforces the value of having a diversified business model, and even within the Private Client Group, having different affiliation options. The affiliation option that is most vulnerable to that dynamic is the RIA, affiliation option, because they have given everything else away for that cash spread. We have different affiliation options and different businesses, again, generating record earnings, in a near zero rate environment. You know, we always wanna have that, flexibility and diversification.
We always pretend we don't know, 'cause we really don't. I mean, we have opinions, but if you keep the balance sheet and funding flexible, a movement either way, you can adapt to, so.
Peter.
Thank you. Peter Blaustein, PB Investment Partners. A 2-part question. As a long-term shareholder, you know, we're not only interested in the guides for this quarter, but over the last number of years, 2 distinct shifts or changes in the business that stick out to me are fast organic growth, you know, where net new assets is above advisors by a noticeable amount, and that used to not be as distinct. Second, the move to these larger teams. I want to ask on both.
On the organic growth, Scott, you started describing some of the drivers of that difference. I was wondering if you could expand on that and quantify how much you, an advisor coming here can grow his or her business organically faster using your tools. Do you use that as a recruiting tool? If so, you know, what's the key metric or message that you drive to drive recruiting? Second, I guess, is a question for Paul, is on the larger teams, what is the scope of the opportunity upmarket versus downmarket? You know, is moving upmarket a bigger market? If so, why now? What's changed about your business that allows you to go get $5 million, $10 million, $20 million dollar teams?
Five years ago, that was not part of the discussion. Thank you.
Scott?
Yeah, I would, you know, it's hard to paint a broad brush across all, because I would say it depends on the firm the advisor is coming from. Now, if the advisor is coming from a full-service firm, that has all of those resources, that advisor may not have that same flexibility to surface service, and call on the clients that they're interested in calling on, because of whatever limitations might be in place at the firm, or the firm may have, mandate's probably too strong a word, but the firm may have an interest in a certain product type or in a certain investment type or a certain lending approach.
Our approach is much more, not hands-off, but it's more open in terms of you run your business the way you want to, and you focus on the clients that you'd like to focus on, and we want to make sure we have the resources, tools, capabilities to help you pursue that market, however you decide to pursue it. If there are advisors coming from the full service firm, which tend to be the majority of the advisors who affiliate with us, although we have a number of advisors who come from independent firms, advisors who come from Edward Jones, and all the other names that you would expect.
For some of those advisors, who join us, they don't have the resources where they're leaving and coming here, or even though they may have resources, they don't have the technology, tools, and support that we have available here, as Paul and I talked about, making it easier, making it more efficient for them. I would love to tell you that every advisor who we recruit becomes more productive at Raymond James versus where they were before. That's not the case. I think, on the average, they do tend to become more productive when they affiliate with us. We're going to have to dig into the numbers to bear that out, or prove that out.
We certainly, in the recruiting deals that we do, we pay attention to the productivity of the advisors who join us 1 year, 18 months, 2 years, 3 years, et cetera, because it's important for us to measure how are we doing as an organization when we recruit advisors to us? Are they disappointing, or are they exceeding what our expectations were? Because you can imagine we put pro formas together for every recruiter who comes over, and we would much prefer that they exceed our fairly conservative pro forma in terms of growth, versus what we modeled. That may be not as specific as you were hoping for, but it's probably as great a specificity as I can provide.
I think in seeing that question and transitioning to the second part you asked me, we actually recruit advisors. If you believe the industry data we all subscribe to, 3-ish, you know, in the industry, our transition assistance is about half. This is all firms supplying the information of what they pay. How do you do that? We show them the investments we're making in their practice. We have a huge marketing department that helps them build their individual brands. That's almost unheard of some places, even if you're an employee advisor. We tell them they own their book, it does bring a more entrepreneurial spirit because they believe it's their business. Our technology and systems are really focused, built from the advisor standpoint, not from Raymond James's standpoint.
We actively market that we think you can grow your business here if you want to, quicker than where you are, or else why would they pay more? I mean, it's nice. It's important they think it's a nice place, but that's not enough, right? I think that's really brought a group of people here that are more entrepreneurial, that we give the product support and the marketing support, which that's very unusual in our industry, that you'd have, you know, 200 people in an apartment trying to help people grow their brands, where a lot of places are obsessed, you know, with the firm brand, especially in the employee channel. I think part of the transition is that to the bigger teams, and part of it is, I think, our industry recognition.
The fact that we have, you know, we've grown, we're Fortune 500, we have 3 A ratings, which all the money center banks don't have. It's kind of a proof point that we're a real firm. Alex. Brown coming in and the integration, and honestly, them helping us really understand the high net worth and ultra-high net worth platforms. We had tons of clients. This was a bigger group that came in that focused more on it, and they really helped us with customized lending and things.
you know, we thought we would never do, because they were risky, but as we looked at it, they were less risky, where they were making these big loans that were big for us, but it was on very liquid, marketable, low basis stock, or, you know, it was, it wasn't the SBL, it was just they needed another piece where we thought the collateral was really good and underwrite them. The alts platform and all the things that we build out, that frankly, I think some teams didn't believe that we were a place for it. Now, you know, the proof points, and I mean, five years ago, I mean, we used to I remember when I first was here as a million-dollar advisor, wow! That's all, you know. Then $5 million, wow!
Now it's, we almost have a dozen in the pipeline, some signed, some we think are $5 million-$20 million. I mean, they're competing with the big firms, the big RIA aggregators, the Wall Street. Why are they coming here? It's part culture. They're not coming just because we're nice. They're coming because they think our technology tools are unique, our support, and that they can grow their business here quicker. That's just really clicked, I think, in the last year or two, where we're seeing those teams, and we're actually surprised the number we see.
It just seems to go up and up and up because it surprises us almost, but it just shows that we're either in a very unique cycle with just a bunch of people just happened to hit in a period of time, but it's clearly, I think, an indication of the market. People used to walk in questioning everything. They don't question, they just, they look at the platform and see if it fits or if it's really what they think it is. Once people join, they talk to their friends, and I think that helps, too.
You asked, Peter, one of the things you asked as well was on private wealth, why now? Why not earlier? Why not put it off? I think the answer to that is, there were enough advisors with high net worth clients. We have a program here we call By Invitation Only or BIO. We host somewhere north of 250, if not 300 clients of advisors. The advisor brings the client down, they customize the visit. We used to have a $1 million minimum for the By Invitation Only program. That minimum is multiples of that higher now versus what it was, and it has not slowed down the traffic.
The size of the clients that are coming down with the advisors reflects the quality of the advisors who we have affiliated to the firm. From the advisors, they said, "We have all these tools, we have all these resources. We would really like it if Raymond James helped package those better so that we're in conversation with these clients, we can lay out for them all the capabilities that are available. Come down, take that visit, or let's connect with these folks through Zoom." We have people in the organization now, whether they're estate planning attorneys, we have private wealth-focused specialists, who work with advisors when they have clients with north of $25 million in investable assets, and those people are very busy.
That section of the business has been the highest headcount growth by far inside.
Yeah.
It's been to support the business because of the demand from advisors, so.
Yeah. I think over time, as the brand has become more well known, and as advisors who are the higher net worth-focused advisors have affiliated with us, Paul mentioned Alex. Brown, that certainly has helped. I think all those things coming together, is really what caused us to say, "We need to put a specific program up focused on this," because we do have the capabilities, but people may just not be aware. Kyle?
Thanks, Kyle Boyd, KBW. Maybe two separate questions, but somewhat related to the M&A and M&A topic. First, just given the Charles Stanley deal, just wondering how you view inorganic international expansion opportunities, whether in the UK or in Europe, compared to the quality of opportunities you're seeing in the US. If we look out over the next five years, I guess, is there any expected, you know, shifts? Should investors expect any shifts in the PCG assets towards international versus US? Maybe a broader question on M&A. You brought up the private wealth initiative. I guess, is there anything from a product or capability standpoint there that would be nice to have to kind of further the initiative? If not, maybe give us a flavor as to what types of opportunities you're currently assessing in the US. Thanks.
Yeah, we're not, we're not gonna announce a big project in China to expand, you know, international assets. You know, in the UK, we've been there 25 years, in fact, we are wondering, and it was growing quick percentage-wise. We said: If we can't get the scale up, is it really worth the effort? Charles Stanley is just a reflection of my inability to close for 7 years when we've been, you know, courting the firm. We came close a couple of times, and it was just the perfect fit. The trip we went on, you know, we interviewed 7 firms, we're interested in 2, and Charles Stanley was by far the best, and we just said, "If we can't do this deal, maybe we shouldn't be operating in this market." We're able to close it.
We're more confident than ever it was the right fit. The integration in that one has taken a little longer. We've been really good integrating, but, you know, new group, same regulator, but in size, we're a lot higher, so there's more hoops. You have to have independent directors. I mean, so we had to adjust a little bit to the market as we got bigger there, and the rules changed a little bit, so there were extra steps, but we think it's a great opportunity. We've been more aggressive in M&A in Europe. More open to it and have looked in Asia, but again, you're not committing a lot of capital. You're really, you know, buying people, and have an office lease, and that's the most of your business.
That business tends to be more global. We've been more focused on North America. It's just, we can put up, you know, name on our fingers the firms we'd even be interested in, and they have to be for sale, you know. We stay close to them. The challenge here, I think, is just the market's gotten smaller and smaller. We stay close to the firms that we like. If they come for sale, we think we'd be a logical home. In the Private Client Group that. Now, in M&A, in asset management and some, and asset classes, there are a lot of opportunities, and we talk to people. Sometimes we lose on price, sometimes it's not the right fit. Those activities are broader than the Private Client Group here.
In the U.K., we were brought a number of opportunities when we announced Charles Stanley. Our view is you gotta get what you already have and make sure that's working before you add something else to it. It's the same in the U.S. We had opportunities where people came to us, but we're in the middle of other integrations, and our view has always been, you know, integrate it first, then you can add somebody. We just keep that discipline.
Devin.
Thanks. Devin Ryan, again, with JMP. I guess, this one's for Paul. With fiscal second quarter earnings, you gave the guidance that net interest income, plus, I think, the third-party sweep fees would be down 10%, or in the ballpark of 10% sequentially. Felt like the market didn't love to hear that comment at the time. I think you've explained it today a little bit more as well. You know, there's a lot that goes into that, but that there is definitely an intentional aspect of that, both to be conservative with liquidity, but also to have liquidity for when spreads improve. I guess, the question in there is, you know, have you done enough there?
If you really think spreads are gonna get a lot more attractive, is there more you can maybe offload at reasonable pricing to create more capacity? Are you actually seeing signs yet that spreads may be increasing? If you can quantify anything around kinda this opportunity, because I know you guys have obviously been through the prior cycle, and it was a benefit coming out of kinda the financial crisis. Just kinda quantification where maybe spreads were and where you think they hypothetically could go. Thanks.
I think, if you look over the last 10 years from peak to trough, there's probably 100 basis points, maybe even more than that, of spread compression in the type of corporate loans that we participate in. Again, why we decelerated that growth really in the last 3 to 4 years, you know, before COVID, was because the spreads got so tight in such a cash-rich environment. We have seen some easing of spreads, or some widening of spreads, if you will, in the market. Now, there's not a lot of new origination, as you know, so, in the secondary market, still, there's still a lot of institutional, almost indiscriminate buyers, I think, keeping spreads artificially low. We haven't seen spreads widen, or much origination, frankly.
In the non-prime, they've widened, but the high credit ones haven't widened.
Yeah, I'm talking about the space we play in, to the extent that, you know, it really caused us to be front-footed. We're being deliberate and patient and think that there's, you know, more upside there.
Yeah, in terms of being, could we do more? Yeah, we could do a lot more, but, you know, we try to be balanced, too. You know, we could sell off a lot more loans. The market's still good. You can sell them at marks even today with reserves, where you're not losing money. You know, you already have the reserves on the book. But we're trying to be balanced. Just like in COVID, we sold off loans, and most people didn't, and we figured good chance they would be good, and a lot of them were money good. The risk-rated things like airlines and stuff didn't do so well, but they've bounced back pretty well. You know, we took the same balance on them.
We took the ones that we had lower credit-rated and figured, well, okay, if we're gonna get liquidity, let's get it in that bucket. We could have gone deeper, but I think we've taken the right balance. Unless we see a deterioration in liquidity, you know, which looks like it's balancing out, but if we see a further deterioration, then, you know, we might do that. I think we've taken a good middle road. We didn't do nothing, but we didn't go crazy, right?
Brendan.
Thanks, Brendan Hawkin, UBS. Just to follow up on Devin's question, I know you don't want to declare victory. I hit that on my first go-around. Do the trends that you're seeing in sweep cash make you think that the NII outlook that you gave us on the last call might end up being a little conservative, or is it just too early to tell? Would love to ask a separate question on TriState.
I guess, I mean, we are not as focused on what the NII outlook is or what the NII is for the next quarter or two. You know, that's. I don't think a year, if we're sitting here a year from now, we're gonna really care about the NII this quarter. We're really focused on positioning over the next year or two and over the next five years to have, you know, a lot of flexibility, lots of cash. You know, if SBL balances continue to grow or resume growth, which we're optimistic about, we think borrowers will get used to the new borrowing rates. There's always reluctance to take on new loans or higher payoffs when rates are on the move, especially when they're on the move at this unprecedented pace.
You know, borrowers, I think, will look at what they can earn on, you know, cash and cash equivalents and say, "Okay, on a relative basis, you know, I need that cash to renovate, you know, my home again." People need cash for various reasons, and they don't necessarily want to sell out of their stocks to get that cash. We wanna make sure we have plenty of dry powder. I mean, I think that's the focus over the next quarter or two, and, hopefully, we see the stabilization. It's to build as much dry powder in terms of capital, funding, and just having that flexibility to be opportunistic. Cause we can, and we've shown it at Raymond James Bank, we can accelerate, you know, growth, when it's attractive pretty quickly.
That generates, again, the best bottom line, impact and best risk-adjusted returns for our shareholders over time.
One of the things that, as we look at also raising cash, we say, "Well, do we have enough?" If you look at the market right now, we can continue to raise, and there's a lot of demand, sweep it out, and, you know, it's either break even or marginally positive to NII. It may affect margins, but it's not gonna affect NII, right? Our view is, if it's gonna be neutral to slightly positive for NII, why don't we do it? We have the flexibility. If you get too much, you either lower the rate and some runs off, or you get a good spread, you know. I think the key is to just to make sure you have it, and then treat the clients right. You know, it's in the teaser, right?
We said we're gonna kinda emulate money market funds in this program, will be our goal, but we'll do what makes sense in the marketplace.
Is that flexibility just the reflection of the higher third-party banks and sweep 2 RJBDP?
Right now, we have thirteen and a half billion dollars swept to third-party banks. We like that cushion. That cushion, that third-party bank capacity allows us to offer, you know, a decent amount, $3 million of FDIC insurance in the sweep program. We'll continue to avail ourselves to that. Yeah, we are now at the point where the Enhanced Savings Program balances Raymond James Bank is raising, through the Private Client Group network, is allowing them to actually sweep more cash back to the third-party banks, you know, because they don't need those sweep balances. It gives us just more dry powder and more flexibility.
Today there's huge demand, I mean, for bank sweeps, so it's not. We can't raise, It's almost not conceivable right now that we could raise so much. There's no place to put it. I mean, the demand's pretty robust, so.
Got it. With TriState, this is a new operation for you all. We went through, like, sort of a real live stress test here in the past year, with all the volatility in the marketplace. Do you know whether or not the third, the arm's length, engagement, the operational, you know, a lot of SBL risk is mostly operational risk? How did their systems progress through that period? You know, were they able to get in front of the FAs when they approached the higher levels of the LTVs that would trigger? You know, the FAs have the time to avoid the margin calls, which most advisors desperately want to avoid. How did that all play out from your perspective?
It was fantastic, the results. You know, knock on wood, the results during the stress period, their process, their procedure is very similar to ours. Very different structure, as you point out, with the third party, you know, great performance through that stress period.
It was actually during the due diligence, where they came, we spent a lot of time on that. "What is your procedure? Why do you do it this way?" You know, "We do it this way. What's your history? What's your." We got a good stress test shot, and they did a really good job with it, so.
Peter.
I want to ask a question about risks that you guys see. What risks keep you up at night? Now, I'm not talking about interest rates or market levels or, you know, you lose a deal, but more structural risks. What keeps you up at night? As you go through the list, if you could touch on how you protect brand with an increasingly wide array of activities and advisors. How do you make sure the advisors are not risking brand damage? Because if one advisor goes off to the reservation, it can affect all 8,000 and all of us quite a bit. Thank you.
Well, first, you have a lot of advisors out there, and to assume everyone's gonna be perfect in a large population, you can't, right? That's what all the compliance and supervision systems are in. That's why we've installed 2 systems that cost us $30 million each to automate it. That's why we've put automate, you know, using artificial intelligence, not to overuse the new word, you know, on top of those systems and machine learnings, is to try to minimize that. I don't care if you're perfect in that, you know, people that are gonna purposely do a wrong thing can happen. I mean, they can do it, right? It's in any business. You'll catch them eventually. The number one defense is hiring, you know, the right people. That's why we like organic growth, one by one.
Second, the systems are really a check. Third, is be very clear about our values and what we do. You know, I think that's just a risk in any of the businesses, whether I was CEO of KPMG International, we had a lot of partners, and 99.9 are gonna do the right thing. There's always someone that's not in any statistical group of people. We've spent a lot of time on it. We've spent a lot of time being very clear on the values, you know, and what we're about corporately.
It's to make sure that, in, you know, when the banking issues hit, we ran a video the next morning and talking about our FDIC insurance and our low marks to market, and how we don't I mean, just to keep getting those messages out. That we're here, because we, what I think some of those banks learned, doesn't matter if it's reality, if it's on Twitter, and enough people are reading it becomes reality, and to make sure people understood how we are different. I actually think the conservatism on capital, liquidity, and funding is one of the things where it helps you ride out things. I mean, and, people know you're safe. They know what you stand for.
There's gonna be one-off pieces of news, I think, no matter who you are in the business. You know, that news tends to move on unless you have something that's really, you know, out there. It's just working at it every day and reminding people what we stand for and what, you know, what we don't accept. When we find people that have gone over the edge is, people can make mistakes, that's okay, but if they're trying to do it, there's no negotiation. You've got to go. You don't belong here. Keeping that message out every day and acting the same way if you're even an executive. I mean, we're very clear. The higher standard's for us, and we have to make an example for everybody else.
We have, I'll just add to that, Paul. We have a tremendous technology, cybersecurity infrastructure, as many of you are already aware. One of the things I know that every one of us and advisors worry about is that their clients get defrauded out of money, and that may or may not have a certain level of reputational risk for the firm. If it becomes a pattern that occurs frequently at Raymond James, I think that would be a problem. The education programs that we have in place, the reminders to clients that we have in place, just keeping this top of mind for everybody because the fraudsters are becoming more and more sophisticated, and we wanna do everything we can to minimize that.
That's another one where when you hear about a client who gets defrauded, you think, "Well, what more could we have done to potentially have prevented that?" Because there, some of these events are heartbreaking about how much money. Now, if we can get the money back, we're gonna do everything we can to get it back. In some of these cases, the money's gone. We don't find out it was a fraud until 4 days later when the client notifies us, by then, it's really hard for us to get it back.
It's client-directed often, so you have to educate them.
Right.
It used to be you'd just call them on the phone, right? Hear their voice. Now you know, if you watch 60 Minutes or you read, I mean, the artificial intelligence on voice is, you know, can make it sound just like somebody. Now you got to educate people to use code words with your clients. I mean, it's getting more and more sophisticated, and we got to have higher and higher levels of defenses in the whole industry. None of us are immune.
I mean, I walked up from my office just giving this, talking about this to the board and how we're stepping up, my assistant comes in, "Amex fraud department just called, and they want you to call." I said, "Okay, I'll call them back." "Here's the number." "No, you call in the back of the card," and it was a fraud attempt. You know, so happens to everybody, and you just, it's, you know, especially for the elderly or less technologically, you know, knowledgeable clients, you've got to just remind them, you can't do that. Don't take, you know. If you don't know the person, don't. Once Amex called me from the fraud department, this is before, about 5 or 6 years ago. I said, "Well, how do I know you're Amex Fraud?" They go, "Well, you know, we have your account information.
We repeat it for you." I said, "No, what's your mother's maiden name?" They had no sense of humor. They didn't laugh. I said, "You know, I'll call you back." I mean, you just have to. The same on emails. We've all learned what not to click on or used to be, you could check voicemail. The interesting thing on the Amex call, my assistant showed me the caller ID. It said American Express. It didn't say, you know, spam call or a random number. I mean, the sophistication just keeps going up and up and up, and we just have to make people aware of it.
I think we're all out of time, is why Kristie keeps getting closer and closer to us. I hate to leave on such a down note, but thanks for coming out. We're really excited about our future prospects, and I think the volatility that we've seen over the last couple of months has really reinforced the value of our long-term focus. A lot of other Executive Committee members in attendance now and will be at dinner tonight. Tash Elwyn, Horace Carter, Jeff Dowdle, Steve Rainey. We look forward, and others will be in attendance tonight, so we really look forward to breaking bread with all of you tonight. Thanks for coming.
Thank you.
Thank you, everyone. One last plug real quick is, do look out for an email survey.