The speaker, Kristie Waugh, welcomes listeners to Raymond James Financial's Fiscal 2024 Third Quarter Earnings Call and introduces the company's CEO, Paul Reilly, and President and CFO, Paul Shoukry. She notes that the presentation being discussed is available on the company's Investor Relations website and cautions that certain statements made during the call may constitute forward-looking statements. These statements include information about future strategic objectives, financial results, and market conditions. She urges listeners to consider the risks outlined in the company's recent financial reports. The call is then turned over to CEO Paul Reilly, who thanks listeners for joining and mentions the company's recent Summer Development Conference.

The article discusses the positive results of Raymond James in the fiscal third quarter, with record net revenues and strong returns. The company continues to invest in its businesses, people, and technology to drive growth. They also repurchased shares of common stock and saw an increase in client assets under administration. The success is attributed to higher asset management and related fees, as well as solid advisor retention and recruiting in the PCG division.

In the third quarter, the firm saw an increase in private client assets and fee-based accounts, as well as financial assets under management. They recruited high-quality advisors and reported record financial advisors. Their RIA and custody services business also had recruiting success and reported record client assets under administration. Despite a decrease in domestic sweep and enhanced savings program balances, the firm experienced strong growth in domestic net new assets compared to their peer group.

In the fourth quarter, cash balances remained steady after fee billings were paid, while bank loans increased due to higher securities-based loans. Private client group had record net revenues and pre-tax income, driven by strong equity markets and net new assets. The capital market segment also had higher net revenues, but a pre-tax loss due to weak M&A results and deferred compensation expenses. Asset management had a record pre-tax income and net revenues due to market appreciation and net inflows. The bank segment had net revenues of $418 million and a pre-tax income of $115 million, with a slight decline in net interest margin.

In the third quarter, the company saw record net revenues and net income, with a strong return on equity. The PCG and asset management segments showed strong growth due to organic growth and equity markets. The company's summer development and elevate conferences were successful, and the financial advisors and associates were praised for putting clients first. Consolidated net revenues were a record $3.23 billion, with asset management and related administrative fees seeing a 17% increase. Brokerage and investment banking revenues also showed significant growth compared to the previous year.

M&A and advisory revenues were low, but domestic cash sweep and enhanced saving program balances decreased by 3% in the quarter. Net interest income and RJBDP fees from third-party banks also decreased by 2%, mainly due to a shift towards higher yielding sweep offerings. Compensation expenses were $2.09 billion and the total compensation ratio was 64.7%. Non-compensation expenses increased by 6% due to a favorable legal and regulatory net reserve release in the previous quarter. Overall, expenses increased to support business growth.

In summary, for the fiscal year, the company expects non-compensation expenses to be around $1.9 billion, consistent with previous guidance. The pre-tax margin for the quarter was 20%, in line with targets set at the recent Analyst and Investor Day meeting. Total assets decreased by 1% due to loan growth and runoff of the securities portfolio. The company has strong liquidity and capital levels, with corporate cash at $2.1 billion and a Tier 1 leverage ratio of 12.7%. The company repurchased 2 million shares of common stock during the quarter and plans to continue offsetting dilution and being opportunistic with repurchases. Credit metrics for the bank segment, including Raymond James Bank and Tri-State Capital Bank, are also provided.

The bank's loan portfolio is in good shape with low levels of criticized loans and a solid allowance for credit losses. The bank is closely monitoring economic factors that could impact their loans. The CEO is optimistic about the bank's strong results and believes they are well-positioned for growth in all their businesses. The private client group is expected to see positive results next quarter, and the bank has a healthy M&A pipeline in the capital market segment. However, the recovery is expected to be gradual and dependent on market conditions.

The company has seen improvement in their fixed income business, but results are still below historical levels due to flat or declining deposit balances. They are hopeful that rates and cash balances will stabilize and lead to growth. In the asset management segment, they expect strong growth in fee-based accounts to drive long-term growth. In the bank segment, they are focused on fortifying the balance sheet and prudently growing assets. Corporate growth has been slow, but they are well-positioned to lend once activity increases. The company is also focused on corporate development and may increase buybacks. There may be questions about recent changes in cash sweep policies.

The speaker discusses the company's close monitoring of emerging developments and offers to answer any questions. They express confidence in their competitive positioning and thank their advisors and associates. The first question is about potential regulatory changes and the speaker mentions the different sweep programs offered by the company. They note that their programs offer higher interest rates and more FDIC coverage compared to others.

The speaker discusses the success of their programs and the growth of their money market funds and enhanced savings program. They mention being compliant with regulations and being competitive in terms of rates. They also mention the uncertainty of potential changes in rates and their plans to adjust accordingly. The speaker then asks a broader business question about the trajectory of Raymond James and mentions their record assets, revenue, and bank loans. They mention having margin targets and acknowledge the current uncertainties in the market.

Paul Shoukry and Paul Reilly discuss the trajectory for operating leverage in the business and how they plan to maintain high levels of support for advisors while also implementing technology to improve their services. They also mention that they were not aware of some of the industry trends regarding advisory cash rates and are unsure of the percentage of fee-based accounts in cash at the lowest rates.

The speaker explains that the company's advisory sweeps have a low amount of cash and most of it is invested in higher yield instruments. They believe that the amount of cash is a small fraction and they are already paying higher rates than other programs. Therefore, they do not see any reason for a change in their thinking.

Paul Reilly and Paul Shoukry discuss potential catalysts for meaningful change in the industry, such as a squeeze on cash or changes in interest rates. However, they do not see any immediate pressure on cash and are confident in their ability to operate the business. They also mention a recent increase in demand for securities-based loans, which they attribute to a decrease in payoffs and paydowns and clients becoming more comfortable with higher rates. They are hopeful that this trend will continue in the future.

The speaker discusses the potential for growth in securities-based loans and addresses concerns about conflicts of interest related to advisor compensation for cash in advisory accounts. He explains that advisors are compensated based on the total value of the account, not the amount of cash, and there are no incentives for advisors to act in anything other than the best interest of their clients.

Paul assures that the home office does not ask the advisors about their compensation and they are expected to do what is best for their clients. There is supervision in place to prevent any conflicts of interest. The disclosure only covers limited cases, such as the ESP program, where advisors are not compensated for low rate accounts but can earn higher compensation for high rate accounts. This is done to benefit clients, but is included in the disclosure for regulatory clarity. The aggregate amount of cash does not directly impact the advisor's compensation, but can contribute to a higher overall payout rate.

During a conference call, Paul Reilly and Paul Shoukry discussed the focus on cash compensation and how it is only applicable to small investment vehicles like ESP in brokerage. Advisors have other opportunities for compensation related to asset growth and net new assets, but these are not centered on cash. The flat spread revenue for the quarter was better than expected due to loan growth and continued asset growth, which offset funding cost pressures. Dan Fannon asked about the competitive landscape.

Paul Reilly, CEO of a financial company, is asked about the changes in the industry and if they will prompt any reactions. He states that they are still digesting the recent moves and have no plans for changes at the moment, but may make tweaks in the future. He also mentions a record backlog of large teams joining the company and strong recruiting activity. He is optimistic about the future and sees no signs of slowing down.

During a recent earnings call, Paul Reilly, CEO of Raymond James, was asked about the portion of advisory assets on the Ray J platform where Ray J is considered a fiduciary. Reilly and Paul Shoukry, CFO of Raymond James, were unable to give a specific number but stated that within fee-based accounts, there are about $15 billion in cash sweep balances. They also mentioned that there may be a pending headwind from an event at the Investor Day, but it has not yet happened.

The company anticipates a decline in third-party bank sweep yields in the fourth quarter, but it has not yet happened. This is due to initiatives that offer higher rates for new cash and maturities from other sources, resulting in a negative mix shift but still being financially beneficial for the company. The exact percentage of funds in the higher yield program is not specified.

The speaker is asking about the company's plans for increasing the pace of repurchases and whether this will affect their ability to pursue M&A deals. The company responds that they have a lot of capital and are committed to keeping it within their targets, but are also actively looking for M&A opportunities. If a deal were to come up, they may adjust their buyback plans accordingly.

Paul Reilly, the CEO of Raymond James Financial, discusses the company's strong earnings and their plans to be more aggressive in returning capital to shareholders. They aim to maintain a Tier 1 leverage ratio of 10% and do not expect any major acquisitions. They also address concerns about potential adverse mix shift in their cash sweep program, stating that they offer a range of rates from 25 basis points to 3%, with some initiatives offering rates closer to 5%. However, they have not seen much loan growth in the industry.

The company's capital ratios have been affected by muted loan growth in the industry, which impacts net interest income. The company is waiting for an increase in loan growth, particularly on the corporate side. The company expects to have sensitivity to both asset and funding rates in the face of rate cuts, but it will depend on the competitive environment. The company has room to respond to rate drops and remain competitive in the market.

The speaker asks about the potential for changes in the way customers pay for services, specifically regarding the movement in sweeps. The CEO responds by stating that they have generated record results in different interest rate environments and feel confident in their ability to perform well. They also mention that lower interest rates have benefited their M&A and fixed income businesses, as well as loan growth. The CEO also notes that they have been generous in passing on rates to clients and offering other programs, positioning them well in this regard. Another analyst asks about potential changes in the way customers pay for services, specifically regarding cash sweep.

The speaker discusses potential ways in which the financial industry could evolve in terms of how customers pay for services. Some possibilities include asset-based fees, performance fees, consulting fees, and hourly rates. However, the speaker believes that the value of the relationship between clients and advisors will remain important and that the industry will find ways to adapt to changes.

The speaker believes that the cash sorting cycle is coming to an end and that growth in cash balances will come from the stabilization of runoff and the growth of client assets. They also mention the company's strong growth in client assets and the potential impact of the evolving competitive backdrop on cash sweep balances. The speaker emphasizes the need to wait for several quarters of history before declaring the end of the trend.

The speaker is discussing the $15 billion sweep number and why transactional or operational cash is treated differently under the fiduciary standard of Reg BI. The speaker argues that there is a cost to having cash on the platform and that the 25 basis points yield is reasonable, even though it may be lower than other fiduciary relationships. They also mention that other fiduciary accounts may not have 100% of their cash invested.

The speaker discusses the costs and funding involved in transactions, stating that it is not a reasonable standard to expect them to fund transactions solely through selling securities. The other speaker asks about the impact of third-party bank sweep rate changes on cash revenue, and the speaker explains that they have levers to control the rate and that they recently announced a reduction in the rate for the high-yield portion of the program. They also mention that they will not declare completion of the initiative until they have several quarters of history.

The operator announces that there are no more questions and turns the call over to Paul Reilly for closing remarks. Reilly thanks everyone for their questions and acknowledges the focus on cash sweeps. He expresses appreciation for the questions and concludes the call. The operator then officially ends the conference call.

This summary was generated with AI and may contain some inaccuracies.