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With that out of the way, good morning, everyone. Thanks for joining us here on day 1 of the Morgan Stanley Financials Conference. I'm Mike Cyprys, equity analyst, covering brokers, asset managers and exchanges for Morgan Stanley Research. And for our next session, we have Raymond James, and I'm excited to welcome their CEO, Paul Shoukry.
Raymond James Financial is a leading diversified financial services company, providing wealth management, capital markets, asset management, banking and other services to individuals and institutions, with total client assets of over $1.5 trillion.
Paul, thank you for joining us today, making the trip up here to New York.
My pleasure, Mike. Glad to be here.
Yes. And it feels like it was just yesterday, we were down in St. Pete for your Investor Day where you outlined 2030, 2030 vision, something like that, that is, $20 billion net revenue by 2030, which implies about an 8% annual growth rate relative to what you put up in fiscal '24. A little bit slower than the 13% or so net revenue growth you guys have put up over the last 5 years. So just curious what's sort of driving the deceleration in terms of your expectation there? Maybe you could unpack the building blocks around that 8% CAGR that you guys expect and what might be some possible sources of upside?
Great. Yes. So our goal that we laid out, the long-term goal that we laid out at the Analyst Investor Day, was to exceed $20 billion in revenues by 2030. And that's a goal that we have communicated internally and externally as well. The growth rate that you're describing includes pretty conservative factors for equity market depreciation. And so to the extent that we see the same equity market appreciation that we've seen in the last 5 to 7 years, certainly, that number could be even higher than the $20 billion revenue target.
So we're really excited. We put together plans across all of our businesses. And we're excited with our business position and our growth prospects. We're in a unique position in each one of our businesses where we have the critical mass to be competitive in each business, make the investments necessary in technology, in products, in support, to be competitive in each one of the businesses. But also at the same time, we have continued headroom to grow in each one of our businesses.
So there's a lot of larger firms with critical mass, but they don't necessarily have the headroom to grow doing what they're doing. So they're experimenting with different business lines that are not core or sometimes even dilutive to their core businesses. And there's other firms that are much smaller that have plenty of headroom to grow, but they don't have the critical mass to make the investments necessary to remain competitive. I mean we're making a technology investment, for example, of close to $1 billion. Most of that's going in the wealth business. If you're a smaller wealth firm and you can't keep up with those types of investments to remain competitive, it's going to really challenge your ability to remain independent. So for us, across all of our businesses, to have that critical mass and the continued headroom to grow makes us really excited about the growth prospects.
Maybe shifting to your value proposition, which was also a major topic of Investor Day, and in particular, in your session, where you mentioned that your value proposition is to have the capabilities to be competitive with the largest firms, but to have the culture and sort of family-friendly feel of smaller firms. So I guess how built out are the capabilities today at Raymond James compared to where you would like that to be? And as you look out over the next 5 years, what capabilities do you want to add or fill in or even enhance?
Yes. We call it the best of both worlds, and that value proposition helps us deliver on our vision to be the absolute best partner for financial professionals and their clients. And so when we look at how our capabilities stack up across all of our businesses, it's very competitive today. We recruit about 75% to 80% of our advisers from larger wirehouses. And so they come in with the expectation of in-house trust capabilities, we have an in-house trust company; lending capabilities to higher net worth clients, alternative investments, cutting-edge technology. So we offer all of those things.
But with that being said, it's dynamic. And the standards and requirements increase each year. Client preferences change each year. Adviser preferences continue to evolve with new technologies. And so we're going to have to continue to invest heavily in technology, as one example, and expanding our alts platform and expanding the lending capabilities. So we are going to continue to invest in expanding, broadening and deepening all the capabilities necessary to remain competitive and a leading provider and the absolute best partner for financial professionals and their clients.
Why don't we shift and talk about the market backdrop, market environment today for your business. It's been a little bit volatile in terms of the backdrop. So maybe just first on your Private Client Group, PCG, business. What are you seeing there just in terms of end customer behavior as compared to maybe prior volatile periods such as 2022 or even COVID? And how are financial advisers navigating through? And how might they capitalize on some opportunities in this market backdrop?
Yes. It's interesting. Increased volatility really reinforces and highlights the value of having a financial adviser. When you're in a 15-year bull market and everything kind of is going up in one direction, people question the need to have a financial adviser because, if they're investing on their own, they're generally doing pretty well. What we saw with periods like with COVID, and certainly more recently with the tariff uncertainty, is that the uncertainty increases the risk and the risk increases the desire to have professional financial adviser to help them navigate the choppy and turbulent times.
And so what we see when we look at our end clients is their advisers have helped them navigate this time, not selling out at the bottoms and actually continuing to rebalance and increase their allocations to equities as equities have gone down. And so the end client remains engaged in the markets. They're staying disciplined with their long-term financial plans that their advisers help them establish and help them, more importantly, stay consistent in different market environments.
And on your Capital Markets business, tariffs have had a little bit of a dampening impact on the M&A marketplace. Your business is a little bit more skewed to sponsors, I believe. So maybe talk about how you see the pace of deal activity from the sponsor community versus strategics and the differences that you see between those? And what do you think it's going to take to see a more meaningful pickup in deal activity?
Yes. I mean after 2 years of relatively muted investment banking activity across the industry, as rates started rising 6 months ago, we thought that this was going to be a fantastic year just based on our pipelines. And there's a lot of pent-up demand from both buyers and sellers to transact. And that sort of hit a brick wall across the industry with the tariff uncertainty really across all sectors. It's not only the sectors that were directly impacted by potential tariff changes. It's just the uncertainty in the markets, the ability to whether or not a deal can be financed at attractive rates given the windows opening and closing for financing, et cetera.
And so our pipelines continue to grow. We're continuing to add new engagements, but the realization of that pipeline is certainly being prolonged with this uncertainty. And so your question around what will it take across the industry for us to see more realizations in investment banking, I think it's just more clarity around tariffs. So while the markets seem to really like these 90-day delays and postponements, what it doesn't do is give buyers and sellers a lot of clarity in terms of what's actually going to happen. And therefore, what is the appropriate price to pay for a company when you don't know exactly what their margins are going to be 90 days from now when the tariffs are actually negotiated and determined. And so that's the type of certainty, I think, we're going to need to see before the industry starts seeing more investment banking activity.
But once we get that certainty, based on the pipelines that we have and based on the now 2.5 years of pent-up demand because the financial sponsors, to your point, a lot of their holdings are well beyond their original hold periods, and there's buyers that have a lot of dry powder and capital to deploy that are well beyond what the original time lines for deploying that capital, so there's so much pent-up demand from both buyers and sellers. Once we get that clarity, I think it could really be a huge tailwind for investment banking.
But what does that clarity look like? Like when you think about the tariff uncertainty, how many sort of tariff agreements do we need to see to have the sort of clarity that you're speaking to?
I think the two biggest, frankly, is China and the EU. And so for a CEO or a sponsor to not know whether the tariffs in China, 90 days from now or, I guess, 70 days from now, however many days it is, is going to be 20% or 145%, that's a pretty big range to manage to, right? And if you think about a pro forma in a model, trying to model out the margin ranges based on that tariff spectrum, it's just very difficult to transact in that environment.
But I would say when you look at the tariff environment, certainly, there's a lot of countries involved, but the two biggest beyond Canada and Mexico would be China and the EU and figuring out, okay, what is the deal there that they strike. Once those guardrails are set, then you can start transacting with a much more narrow range of financial expectations and valuations.
Great. Why don't we shift gears to your Private Client Group, PCG, business. You mentioned at Investor Day an opportunity to expand market share in the Northeast and in the West Coast. So I guess what sort of footprint do you have there today? And talk about the steps that you're taking to lean into these markets, the hurdles you may need to overcome? And ultimately, what sort of footprint do you envision having?
In the Northeast and California out West, I would say our market share there in the wealth business is less than half of our national average. And those markets, as you know well, are high-wealth markets, high-wealth concentration markets. So our opportunities there are significant. But I also don't want to overstate our market share in our core markets. We have a significant opportunity to grow in Florida. I think of Sarasota, which is an hour away from our headquarters, we have a great presence there. But there's another firm just 2 floors away in the same building that has 3x the number of financial advisers. So we have a substantial growth opportunity, again, going back to my opening comments, doing what we're doing. We have plenty of headroom to continue to grow across the entire country, also in Canada and the U.K.
In terms of the barriers to grow out West and in the Northeast, both of those are extremely competitive environments, there's a lot of firms looking for great advisers in those markets. But our other markets are competitive, too. So having good leadership in place, investing in our brand to increase our brand awareness in those markets and really just success drives success, so you bring on high-quality advisers with prominent reputation in those markets, and that drives more success going forward.
So do you envision this being dozens of advisers that you may be looking to sort of recruit in these markets? Or is it more like hundreds? Any sort of sense on framing?
Yes. Long term, it certainly could be hundreds. I mean these are huge markets. So yes, the headroom in those markets are substantial. And we're talking hundreds of billions of client assets in those markets that are achievable if we just realize our national average market share in those markets. So it's not going to happen overnight, but we're focused on making the investments there. We have leadership in place now out West that's already started making a difference. And so we're excited about the prospects in those markets.
Speaking of recruiting, why don't we stick with that for a moment. Maybe talk a little bit more broadly how Raymond James is recruiting and winning advisers in a really highly competitive marketplace today. What are the top 3 selling points that you see in terms of why advisers join the platform? And when they don't join, but they make it to a final round, they decide to go somewhere else or just not join, what are the top reasons why they don't join?
Well, by far, the top reason they do join, I've been spending 80% of my time traveling the country, meeting with our advisers, some who recently joined, some who have been with us for decades, and the #1 reason I hear that they are excited about being affiliated with Raymond James is our culture. The number of times I've heard almost verbatim, often with tears in their eyes, that the best professional decision they've ever made was affiliating with Raymond James. And the biggest regret that they have is they didn't do it 2 to 3 years earlier. And when I ask why is that, it's just the people, the culture, "My other firm said that they were client focused, just like you say you're client focused, but I didn't realize until I affiliated with Raymond James what that really means and how different the decisions are at Raymond James versus my prior firm." And they say, "Hey, as you take over as CEO, please preserve this special culture."
So when the Board asked me at our long-range planning meeting how are we going to measure success 10 years from now, what financial metrics are we going to track, what initiatives are we going to track, so all those things are important, but the absolute most important thing that we can track, harder to measure, in some ways, is when we go across the country and visit with our financial professionals, are they saying with passion, authenticity and emotion, "The best decision I ever made was joining Raymond James and the biggest regret I have is I didn't do it 3 years earlier." Because if they're still saying that 10 years from now, we've been successful in preserving the absolute most important thing at Raymond James, which is the culture, the way people treat each other.
And then the capabilities, of course. Culture is critical, but culture without capabilities is not sufficient. So you have to have the capabilities. Going back to the best of both world discussion we had earlier, the advisers that come to Raymond James are blown away when we do the technology demos at home office. They expected good technology, but a lot of them are blown away by leading technology that we have relative to the firms that they're coming from and oftentimes the bigger firms that they're coming from. Because the bigger firms that they're coming from, they have huge technology budgets, but so much of it is going into banking and payments and other technology, whereas most of our technology, the vast majority of it, is going into the wealth business. And so having those capabilities, coupled with that culture is why advisers join Raymond James and stay at Raymond James. That's why we have leading retention in the industry as well.
Your question around why do we lose advisers, I look at a schedule with the leadership team every single month on every adviser that leaves, the vast, vast majority of the time, it's for a check, some of them are going through life changes, whether it's a divorce or other issues that require them to pursue a liquidation event. And so they are leaving for a bigger check. When we're trying to recruit an adviser and we lose, it's very rarely because they like the culture at the other firm or they like the capabilities at the other firm better, it's almost always because the other firm was willing to write a bigger check. And I always say, in the absence of a value proposition, the biggest check is the only way those type of firms can compete. And we win more than our fair share of those situations, but we don't win all of them.
Great. At Investor Day, you also announced spending, and you mentioned it as well, nearly $1 billion on technology this year. I believe much of it is around adviser-facing technology, including trying to make them more efficient. I understand you have rolled out a number of tools, including a meeting summarization tool that's saving advisers about 2 to 6 hours per week, I think your team had quoted just the other day. So I guess what portion of advisers are seeing those savings today? And how do you see the rollout of these sort of tools?
I would say, for some of these tools, we're still in the top or bottom of the first inning in terms of adviser utilization. So yes, the more mature tools certainly have higher utilization, but the meeting summary tool that we just rolled out, for example, we're still scratching the surface on awareness and utilization of that tool, as an example. So we're going to continue to invest in technologies.
One of our biggest challenge with all of the technology features we roll out is making sure that advisers are aware of everything that we offer. We go to our conferences and we oftentimes get suggestions or request and our technology team says, "Gosh, that's been out for 2 years. Let's show you how to use it." And so that is a challenge when you're rolling out so many features. Just like when you get a new phone, you're probably only using 10% of their features. And half the things that you wish your phone had when you talk to one of your more tech-savvy friends, they show you how to use it. And so we do spend a lot of time trying to communicate and educate our advisers on all of the features that already exist, but we're also investing heavily on new technologies. We'll talk about AI, I'm sure, as an example of ways to help them gain efficiencies in their practices.
And that's a great segue to sort of an AI-oriented question. So I guess just talk a little bit about your vision there around enhancing adviser productivity with these AI tools. What's the sort of magnitude of how much more productive advisers could be ultimately? How many more clients can they serve?
Yes. I think that question reminds me of, if you ask someone, imagine what the Internet can do back in 1996, right? And we would all have wild expectations for that, and we would be way off and way short of what the Internet was capable of. And so I think we have a lot of conviction that AI will be a game changer for not only our industry, but for all industries. But we also have a lot of conviction that it's too early to tell. It would almost be naive to guess how big of a change it's going to make and how it's going to make those changes in our industry. So the industry, we've been focused on technologies that support AI and AI now for some time, but we're really doubling down on that focus. We just announced a new Chief AI Officer and a dedicated group looking for opportunities to deploy AI across the organization.
And it's relatively unique for us to have an internal lookout function. We usually rely on outside consulting firms for something like this. But as we spoke to outside consulting firms, so many of them are focused on AI to disintermediate the financial professionals to get directly to the clients. And that's not our strategy. Our strategy is to use technology and to use AI to empower, to better enable our financial professionals to better service their clients. And so we needed to have our own in-house capability given how unique our strategy is around technology and AI, which is not to go around the adviser, but to make the adviser even more effective than they are now. So it's an exciting endeavor. And some of it's internally developed AI, but some of it also is partnering with third-party companies that are leveraging AI and their tools as well. And so we're excited about the prospects, but it's still very early innings.
And related to that, you are spending a lot on technology. We mentioned before the $1 billion. I guess how do you see that $1 billion or so growing over the next 5 years compared to the 11% annual growth that we have seen over the last 5 years? Is there anything you want to sort of accelerate to drive that maybe a little bit faster, to lean into a bit more? And just how do you think about as well your capacity and bandwidth for even layering on any sort of faster or incremental growth there?
I would guess that technology will continue to be our fastest-growing investment at the firm, just given how critical it is for our business. And in terms of the trajectory going forward, a lot of it will depend on revenue growth. So over a long period of time, we want to continue to grow revenues faster than we grow investments and expenses. That way, we can continue to drive operating leverage and grow profitability as well. And so if you look over the next 5 or 10 years, while I believe technology will continue to be the fastest-growing investment and expense in the firm, the actual growth rate will largely depend on the revenue growth as well.
Okay. And some suggests that the differentiator over time is not going to be the AI models themselves, but the proprietary data to gain business insights. Maybe how are you approaching this? What sort of insights might you be able to glean?
That's a critical, critical point. AI is only as good as the data that you have. And so we are spending so much time organizing and cleaning up the data. We've launched, for example, generative AI for our internal search capabilities on our what we call RJnet. And after we rolled it out, the issues that we had with the quality of the search responses was bad data that needed to be cleaned up in the underlying internal pages. So we asked all the internal teams to clean up the stale data. That way, the generative AI is producing good output.
So what comes out of AI is only as good as what goes in from a data perspective. And so we are spending a lot of resources and effort on making sure that the internal data is clean and organized well. And we're also helping educate advisers on the data that they input, in their CRM tools and other tools, how the quality of that data is so critical in terms of how the AI tools will help them going forward. So that is a big focus and has to be a big focus for any users of AI is the data that goes into it.
And how do you think about the insights that you might be able to derive from this as you think about client-oriented data, adviser data? Ultimately, what's your sort of vision there? Is there other tools or other capabilities that could be then developed then over time as you think about that?
Yes. I think of AI as sort of a pyramid of priorities. And the bottom part of that pyramid is helping gain efficiencies for both the adviser and the firm and back-office processes, middle-office processes and front-office processes that can be more efficient through deploying AI. And then as you work your way up in the pyramid, infrastructure and security is so critical. So using AI in cybersecurity to process more false positives, for example, that come up in our cybersecurity areas in a much faster time, seconds instead of days, and detect threats in a much more effective and efficient way as an example.
And then the top end of the pyramid, to your question, is helping advisers, provide them with data-driven insights utilizing AI, utilizing the underlying data, so they can provide more tailored yet scalable advice to their clients. And that's really the most powerful aspect of AI in our business is, can you provide, in a more scalable way to more clients, even more tailored and bespoke advice to those clients with the utilization of AI. And that's the ultimate goal, and that's the top of the pyramid that we're pursuing.
Great. Why don't we shift to the balance sheet now. You're growing your loans to your private clients, it's a main focus of yours, particularly in the mortgage and securities-based lending, SBL, side. So I guess what sort of macro environment do we need to see a more meaningful acceleration in mortgage and SBL loan growth? And as interest rates remain where they are today, how might loan growth look over the next couple of years?
Yes. Just over the last, I would say, 2 to 3 quarters, the securities-based lending growth has really recovered. In the 2-year period when rates were rising 500 basis points, and those are products that are based on short-term rates, there was sticker shock and borrowers weren't used to the rates that they were seeing. And so they were paying down a lot of the unnecessary -- the discretionary lending that they had, they were paying down, I would tell you. And so with the rates coming in a little bit and clients getting used to the new level of rates that we're at, the borrowings have started to increase again. And we've seen, for example, securities-based lending growth grow 15% year-over-year. And the jumbo mortgages are much more resilient in this type of rate environment than mortgages across the industry. I think we've seen 7% year-over-year growth in jumbo mortgages. So that's recovered a bit as well.
Mortgage growth is going to be driven by not only interest rates, but more importantly, transaction home sales, and that has slowed down. There's still a lack of inventory. It's improved from the troughs, but there's still a relatively low level of inventories across most markets for the jumbo mortgage borrowers, the higher net worth clients that we serve. And I think this environment, actually, as long as we have stable rates, securities-based lending growth can continue to recover as it has over the last 2 or 3 quarters. So we're pretty optimistic about securities-based lending growth because clients have become accustomed to the new level of interest rates.
So continuing to recover, so you think sustaining that sort of mid-teens growth in SBL maybe in the next couple of quarters is reasonable there?
Yes, I think it's as good a guess as any because long term, I can't speak to the next quarter or 2, but long term, we still have a fundamental belief that the awareness and penetration of securities-based loans is relatively low across the industry. And so when you look at that as a borrowing source relative to a home equity loan, for example, there's a lot of advantages and flexibility and portability, et cetera, that securities-based lending has that home equity lines don't, for example. So we're still very bullish about the long-term prospects for SBLs.
Great. And we've seen cash sweep balances stabilize, which is great to finally see. But you guys still won't declare the cash sorting saga to be over just yet. So I guess what environment is going to be helpful as you think about supporting cash sweep growth? And how do you envision sweeps trending here if rates remain where they are today?
Yes. I remember being at this conference, I think, 5 years ago, and we were one of the only firms that said that, with rising rates, cash sweep balances might actually decline. Whereas a lot of the other firms were saying, no, we think the world is different this time, and they'll be more resilient. So we are more conservative with our cash sweep projections and the disclosure and guidance around that.
I would say that for us to declare victory, we really need to start seeing cash balances increase because we still have quarterly fee billings every quarter. Last quarter is $1.5 billion. And so unless cash sweep balances are increasing by about $1.5 billion to $2 billion a quarter, you're always going to see the net impact from the quarterly fee billings, which is the highest source of revenues for the firm. So it's a great problem to have. But that's what's causing us some pause in declaring victory there, is that we need to actually see an increase in client cash sweep balances throughout the quarter to offset the quarterly fee billings before we say, okay, those balances are truly stable.
And what environment do you think might support that sort of inflection to growth there?
I just think it's the natural growth of the business as we bring on new advisers, as we bring on new clients, as we bring on new cash balances. So I think certainly, this environment, we have seen reinvestment into higher-yielding alternatives sort of plateau, I would say. So we're not seeing that trend persist or certainly, it's decelerated relative to where it was a year or 2 ago. So I think this type of environment, with time, we could see that dynamic happen.
Any flavor of how long? Is it like a 6-month time horizon, 12 months?
I couldn't guess. Your guess would be as good, if not better, than mine.
But achievable even in this sort of environment with rates where they are.
I think so.
Okay. Well, that's encouraging at least. Just a matter of time then. Okay. Any questions from the audience? In the back?
Just wondering, from your perspective, why you were not the acquirer of choice for Commonwealth and, as we move forward through the disruption that's going on there, your ability to pick off some advisers.
Yes. We don't speak about specific transactions, one way or the other, unless we announce them as our own. What I would say is acquisition oftentimes lead to disruption and opportunity. And when we look at the opportunity in the environment right now, more broadly, our pipelines are picking up substantially each week from a recruiting perspective. We're seeing a lot of tailwinds, and we're really excited about the advisers that are looking at Raymond James because they want a good cultural fit. They want a higher-touch service model. Some of these other firms are servicing tens of thousands of advisers with a fraction of the average production.
So it's a very different model. We focus on quality over quantity in terms of the advisers that we have, whereas so many other firms, particularly on the independent side of the business, are focused on quantity over quality. So a very different strategy. We don't have aspirations to be the biggest firm in the world. We have aspirations to be the best firm in the world.
And what's becoming increasingly, particularly on the independent side, with both strategics and private equity-backed firms, a competitive advantage for Raymond James is advisers with this market uncertainty are starting to look at balance sheet for the first time, maybe in 10 to 15 years since the financial crisis. So they want to be affiliated with a firm. They want to entrust their client assets with a firm that has a strong balance sheet. And that's becoming more of a differentiator for us given how far we are into this bull market, given the heightened uncertainty.
And so they are stunned when they look at some of these independent firms that have negative tangible equity, for example, and they're saying, "Wow, how can I entrust my client assets?" A lot of them are saying, "How can I entrust my client assets to be custody-ed with a firm with negative tangible equity," or, "We have $2 billion of senior notes over $12 billion of equity," and they're looking at balance sheet saying, "There's firms with a fraction of your equity that have multiples of your senior debt." And so those are the kind of things that maybe 5 years ago, people weren't asking about in a 0 rate environment or with the bull market and the type of tailwinds we had on a macro basis. But increasingly, that's becoming a competitive advantage.
So we can offer a strong balance sheet, a quality over quantity strategy with a higher touch service model. That resonates across all affiliation options, but that's extremely unique on the independent side of the business, that really doesn't exist on the independent side of the business, and then doing it with the best of both worlds value proposition where we have this unique culture that people that treat advisers and clients great and the capabilities of the biggest firms in the industry. So we're really excited about our positioning. The pipelines are growing. The interest in Raymond James is growing, not just on the independent side of the business, but across all of our affiliation options.
Great. Well, why don't we leave it there? We're just about out of time. Paul, thank you very much for joining us today. Please join me in thanking Paul Shoukry.
Thanks so much.
